Sixth Circuit Holds Liquor Liability Exclusion Inapplicable to Dram Shop Case

In its recent decision in Mid-Continent Ins. Co. v. Coder, 2014 FED App. 0295N (6th Cir. Apr. 21, 2014), the United States Court of Appeals for the Sixth Circuit, applying Ohio law, had occasion to consider the application of a liquor liability exclusion to an underlying wrongful death lawsuit involving allegations of Dram Shop liability.

Mid-Continent insured the Inn in West Andover (the “Inn”), a tavern, under a general liability policy. During the policy period, Kevin Beebe became intoxicated at the Inn and was asked to leave following an argument with another patron. Upon leaving the Inn, Mr. Beebe proceeded to walk home along a rural highway at night during a rainstorm during which time he was struck and killed by a drunk driver, although that driver had not been drinking at the Inn.

The administrator of Mr. Beebe’s estate, Ms. Scardina, brought suit against the Inn and its owners, as well as the negligent driver, in an Ohio state court. As it related to the Inn, the suit contained a single untitled cause of action alleging that the Inn negligently forced Beebe to leave the premises, that it violated the Ohio Dram Shop statute, and that it should have known that Beebe would likely be harmed upon leaving the Inn, but that the Inn expelled him with reckless disregard for his safety. Mid-Continent subsequently brought a coverage action in federal court against the Inn, its owners, and Scardina, seeking a declaration that it had no duty to defend or indemnify on the basis of a policy exclusion applicable to any liability for bodily injury or property damage for which the Inn was liable by reason of:

(1) “causing or contributing to intoxication,” (2) furnishing alcohol to anyone “under the legal drinking age or under the influence of alcohol,” or (3) any statute, ordinance or regulation relating to the sale of alcohol.

On motion for summary judgment, the United States District Court for the Northern District of Ohio ruled in favor of Mid-Continent, finding that the exclusion applied to Dram Shop liability and that none of the theories asserted by plaintiff in the underlying action even potentially escaped the exclusion. In so ruling, the district court reasoned that only a single cause of action was stated against the Inn, and that the cause could not be construed as alleging two competing theories of liability, particularly since Dram Shop and common law negligence are “mutually exclusive” theories of liability. The court further reasoned that because the complaint demonstrated no obvious intent to allege a cause of action for negligence, the complaint must be construed as alleging only a cause of action for Dram Shop liability to which the exclusion applied.

On appeal, Mid-Continent reiterated its argument that the underlying suit, which alleged that the Inn held a liquor license and that it negligently forced Beebe to leave the premises, amounted to nothing more than a Dram Shop liability case for which the exclusion unambiguously applied. In response, Scardina argued that the underlying complaint should be construed as alleging both a common law cause of action for negligence that escaped the exclusion and a Dram Shop liability claim.

The Sixth Circuit agreed with Scardina’s argument, observing that that count alleged in the complaint against the Inn did, in fact, contain each of the elements required to state a cause of action for negligence; namely, duty, breach and damages. As such, the court held that the lower court’s reasoning concerning the mutually exclusive theories of liability was incorrect, explaining that:

It is well settled in Ohio law that litigants are permitted alternative or hypothetical pleading. Ohio’s procedural rules permit “alternative or hypothetical pleading, or even the use of inconsistent claims.” … These claims can be not only inconsistent, they can be pleaded in “one count or defense or in separate counts or defenses.” … Accordingly, the district court’s statement that “the count is clearly labeled ‘fifth claim for relief’” is of no relevance to the construction of the complaint … the proper remedy for a party in receipt of vague or ambiguous pleadings is to move for a definite statement under Ohio Civ. R. 12(E).

In other words, because it was possible for the underlying complaint to have been construed as a cause of action for Dram Shop liability and a cause for common law negligence, the court was required to have considered both potential theories for the purposes of examining the duty to defend. Because the exclusion did not apply to common law negligence, and because there was the potential that the Inn could ultimately be held liable on a negligence theory rather than a Dram Shop theory, the court concluded that Mid-Continent at the very least had a duty to defend.

Topics:  Commercial General Liability Policies, Liquor, Wrongful Death

Published In: Civil Procedure Updates, Insurance Updates, Personal Injury Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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