The U.S. Court of Appeals for the Third Circuit has affirmed a decision by a federal district court that liquor liability exclusions in insurance policies issued to the manager of a country club precluded coverage for claims brought by the widow of a man allegedly killed by a driver who had become intoxicated at the country club.

The Case

Judith M. Serratore alleged in a complaint she filed in a Pennsylvania state court against Woodbury Country Club, Heathland Hospitality Group, LP, and Michael Whittingham that her husband had been fatally injured when the car that he was driving was struck by a car driven by Mr. Whittingham in Gloucester Township, New Jersey.

As alleged by Ms. Serratore, Mr. Whittingham was intoxicated at the time of the accident, having become intoxicated earlier that day at the Woodbury Country Club, which Heathland managed. In particular, Ms. Serratore alleged that the country club and/or Heathland “sold or gave” alcohol to Mr. Whittingham, who “became intoxicated,” and continued to serve him alcohol while he was “visibly intoxicated.”

Ms. Serratore alleged that Heathland was responsible for Mr. Whittingham's intoxication and her husband's resulting death because, among other things, Heathland served and/or permitted alcohol to be served to Mr. Whittingham “to the point where he became visibly intoxicated,” and also served and/or permitted alcohol to be served to him “when he was visibly intoxicated;” “fail[ed] to train, manage, supervise and oversee the sale of alcohol;” and failed to institute policies and procedures governing the “use and consumption of alcohol.”

Heathland sought a defense and indemnification from Transportation Insurance Company (which had issued a commercial general liability insurance policy to Heathland) and Continental Casualty Company (which had issued a commercial umbrella insurance policy to Heathland) (together, “T&C”) for Ms. Serratore's claims, but T&C denied coverage based on the policies' liquor liability exclusions.

Heathland and Ms. Serratore subsequently entered into a settlement agreement under which Heathland consented to a $6 million judgment and assigned its rights against T&C to Ms. Serratore. Heathland and Ms. Serratore also entered into a stipulated judgment that the Pennsylvania state court approved.

Thereafter, T&C filed an action in the U.S. District Court for the Eastern District of Pennsylvania, seeking a declaration that it had no duty to defend and indemnify Heathland because the policies' liquor liability exclusions exempted it from those duties.

The district court granted T&C's motion for summary judgment, and Heathland appealed. It argued that the liquor liability exclusions did not apply because it was not “in the business of . . . selling, serving, or furnishing alcoholic beverages” at the country club and that the liquor liability exclusions only applied to some of Ms. Serratore's negligence-related theories of liability.

The Liquor Liability Exclusions

The liquor liability exclusion in the Transportation insurance policy provided:

This insurance does not apply to . . . “[b]odily injury” . . . 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 liquor liability limitation in the Continental policy provided:

This insurance does not apply to . . . “[b]odily injury” . . . 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.

The Third Circuit's Decision

The Third Circuit affirmed.

In its July 26 decision, the circuit court first rejected Heathland's argument that the liquor liability exclusions did not apply because it was not “in the business of . . . selling, serving, or furnishing alcoholic beverages” at the country club.

The circuit court pointed out that Ms. Serratore alleged that:

• Woodbury Country Club “was a business establishment that sold alcoholic beverages”;
• Heathland managed the country club's “food and beverage sales and services” and trained and supervised the country club's employees as to those sales and services; and
• The country club and/or Heathland “sold or gave alcoholic beverages to Defendant[] Whittingham who consumed the beverages on the premises of” the country club.

The Third Circuit found that Ms. Serratore's complaint “unequivocally” alleged that Heathland was “in the business of . . . selling, serving or furnishing” alcohol at the country club.

It then rejected Heathland's contention that the liquor liability exclusions only applied to some of Ms. Serratore's negligence-related theories of liability. The Third Circuit conceded that it was true that some of Ms. Serratore's claims did not explicitly refer to the provision of alcohol, but found that those claims were not independent from the provision of alcohol.

Rather, the Third Circuit declared, “all” of Heathland's allegedly negligent acts and/or omissions were closely linked to Heathland and/or the country club's allegedly negligent furnishing of alcohol to Mr. Whittingham – conduct that was “plainly covered by the exclusions.”

Therefore, the district court concluded, the liquor liability exclusions applied and barred insurance coverage of all of Ms. Serratore's claims against Heathland.

The case is Transportation Ins. Co. v. Heathland Hospitality Group LLC, No. 17-3683 (3d Cir. July 26, 2019).