No Duty to Defend
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In Crum & Forster Specialty Insurance Company v. Spike’s Pub & Grub, d/b/a Vincint Von Hart LLC, and Devin Elliott, No. 3:21-CV-1722-NJR, United States District Court, S.D. Illinois (January 4, 2023) Plaintiff Crum & Forster Specialty Insurance Company (“CFSIC”) sought an order declaring that it owes no duty to defend or indemnify Defendant Spike’s Pub & Grub, d/b/a Vincint Von Hart LLC (“Spike’s”), in a case pending in the Circuit Court of St. Clair County, Illinois.
Devin Elliott (“Elliott”) sued Spike’s Public House, LLC, d/b/a Spike’s Pub & Grub (the “Underlying Action”). In the Underlying Action, Elliott alleges that on March 18, 2021, Spike’s sold or gave alcoholic beverages to Corey Lyell, causing Lyell’s intoxication. While intoxicated, and as a result of his intoxication, Lyell attacked Elliott and stabbed him multiple times, inflicting severe injury upon Elliott.
Elliott alleged Spike’s was negligent under Illinois law for failing to keep security personnel on the premises, failing to remove intoxicated persons from its premises, failing to protect Elliott from reasonably foreseeable criminal activities committed by its patrons, and failing to establish procedures to maintain the safety of its invitees. Elliott also claimed Spike’s otherwise was careless and negligent in providing adequate security; alleged a claim against Spike’s under Illinois’s Dram Shop Act; and a claim for battery against Lyell.
Spike’s was insured under a Commercial General Liability policy issued by CFSIC (“the Policy”). The Policy had limits of liability of $1,000,000 Each Occurrence and a $2,000,000 General Aggregate limit. Spike’s sought coverage under the Policy for the claims asserted against it in the Underlying Action. CFSIC, however, advised Spike’s in writing that it owed no obligation to defend or indemnify Spike’s based on the terms of the Policy.
CFSIC filed a Complaint for Declaratory Judgment seeking a declaration that it has no duty to defend or indemnify Spike’s under the Policy. Both Spike’s and Elliott failed to answer the Complaint, and the Clerk of Court entered default pursuant to Federal Rule of Civil Procedure 55(a) as to both Defendants on July 22, 2022. CFSIC then moved for Default Judgment.
Rule 55(a) requires the clerk to enter default when a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend and that failure is shown by affidavit or otherwise.
In Illinois, like every other state, an insurance policy is a contract and the general rules governing the interpretation of other types of contracts also govern the interpretation of insurance policies.
A duty to defend arises if the allegations in the complaint fall within or potentially within the coverage of the policy. This is known as the “eight corners” rule: the court compares the four corners of the underlying complaint with the four corners of the insurance policy to determine whether facts alleged in the underlying complaint fall within or potentially within coverage. If they do, the insurer has a duty to defend.
Coverage Under CFSIC’s Policy
CFSIC first argued that no coverage exists for the allegations against Spike’s in the Underlying Complaint because the bodily injury alleged in the Underlying Complaint was not caused by an “occurrence” as that term is defined under Coverage A of the Policy.
By their default, Elliott and Spike’s have failed to dispute CFSIC’s contention that the Policy offers no coverage because the Underlying Complaint does not allege bodily injury or property damage from an “occurrence” as that term is defined in the Policy-i.e., an accident. Accordingly, the Court finds CFSIC is entitled to default judgment as to Count I of the Complaint for Declaratory Judgment.
Total Liquor Liability Exclusion
CFSIC alternatively argues that, even if the complaint contains sufficient allegations to support coverage, the Policy contains an exclusion that bars coverage. The Total Liquor Liability Exclusion of Coverage A of the Policy provides there is no coverage for “Bodily injury” or “property damage” for which any insured may be held liable by reason of:
Causing or contributing to the intoxication of any person;
The furnishing of alcoholic beverages to a person under the legal drinking age or under the influence of alcohol; or
Any statute, ordinance or regulation relating to the sale, gift, distribution or use of alcoholic beverages.”
CFSIC argues that the allegations in the Underlying Complaint fall squarely within the scope of the Policy’s Total Liquor Liability Exclusion. Thus, even if the Policy afforded coverage for the bodily injury alleged by Elliott under Coverage A, coverage would be precluded by operation of the exclusion.
Because the Total Liquor Liability Exclusion applies to bar any coverage provided by the Policy, CFSIC was entitled to default judgment as to Count II of the Complaint for Declaratory Judgment. CFSIC owed no duty to defend Spike’s in the Underlying Action.
CFSIC also asked the Court to declare that it has no duty to indemnify Spike’s. It is well established that the duty to indemnify is narrower than the duty to defend.
Because the Underlying Action remains pending in St. Clair County determining whether CFSIC has a duty to indemnify would require the USDC to adjudicate facts in the Underlying Action. Therefore, the Court denied that portion of CFSIC’s motion without prejudice.
Although the duty to defend is greater than the duty to indemnify, even when the USDC concluded that CFSIC owed no duty to defend, it refused to rule on the duty to indemnify because the trial of the underlying action might – if a miracle occurs – find a cause for the stabbing that is not excluded, as unlikely as that may be. CFSIC should, therefore, monitor the underlying case to protect its rights and to avoid collusion between the plaintiffs and the insured defendants.
(c) 2023 Barry Zalma & ClaimSchool, Inc.
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Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and firstname.lastname@example.org
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