Alcohol manufacturer sued for injuries allegedly involving additives in beverages not afforded coverage under liquor liability exclusion to insurance policy
A recent 7th Circuit opinion has highlighted an issue relevant to any manufacturer adding caffeine or other stimulants or its beverages. The case of Netherlands Ins. Co. v. Phusion Projects, Inc., involved the appeal of a lower court decision holding that the insurance companies that granted general commercial insurance coverage to Phusion Projects, the makers of Four Loko, did not owe a duty to defend or indemnify Phusion in personal injury lawsuits.
You’ll recall that Four Loko’s maker has been sued in several cases for personal injuries allegedly caused by those drinking Four Loko either based on claims that they injured others or hurt themselves. The drink’s makers tendered the defense of the lawsuits to their insurance carrier claiming that their policy afforded coverage so the insurance company would cover the costs of defending the lawsuits. But the insurance carriers looked to the Liquor Liability exclusions in the policy – an exclusion common in most commercial insurance policies that read:
This insurance does not apply to: ...
c. Liquor Liability
"Bodily injury" or "property damage" for which any insured may be held liable by reason of:
(1) Causing or contributing to the intoxication of any person;
(2) The furnishing of alcoholic beverages to a person under the legal drinking age or under the influence of alcohol; or
(3) Any statute, ordinance or regulation relating to the sale, gift, distribution, or use of alcoholic beverages.
This exclusion applies only if you are in the business of manufacturing, distributing, selling, serving, or furnishing alcoholic beverages.
The makers of Four Loko argued that the stimulants added to the drinks were allegedly partially the cause of the injuries, so the liquor exclusion should not apply since those injuries were arguably caused, in part, by the stimulants, not by the alcohol.
Finding little merit to the argument, the Court stated that:
The presence of energy stimulants in an alcoholic drink has no legal effect on the applicability of a liquor liability exclusion. The supply of alcohol, regardless of what it is mixed with, is the relevant factor to determine whether an insured caused or contributed to the intoxication of any person. While Phusion's choice of premixing energy stimulants and alcohol to make its Four Loko product might not have been a very good one, it does not amount to tortious conduct that is divorced from the serving of alcohol. …
Likewise, to allow these claims to stretch into allegations that are within Liberty's coverage would circumvent the intent of the Liquor Liability Exclusion in its policies. In each of the four underlying complaints, none of the claims against Phusion are distinct from Phusion's act of furnishing alcohol. Therefore, Liberty does not have the duty to defend Phusion in the [lawsuits].
The Court’s finding may make everyone who puts additives in an alcoholic beverage want to revisit whether those additives might expose them to lawsuits and whether or not to pay extra for coverage that doesn’t exclude alcohol. As the Court noted in conclusion, the time to make that decision is now, not after the fact:
"If Phusion wanted insurance coverage for incidents that occurred after someone imbibed its alcoholic concoctions, the time to make that decision was when it purchased insurance. Phusion could have requested additional liquor liability coverage and paid additional premiums for it. They did not."