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Insurer's alcohol exclusion allows denial of race track's claim in woman's death


A race track that had an agreement with a food and liquor concessionaire was in the business of selling alcohol, an appeals court has ruled, justifying its insurer's denial of coverage in a lawsuit.

As a result, the insurer was justified in citing its liquor liability exclusion in denying defense and indemnification in a case filed by the estate of a passenger who was killed in a car operated by a man who had been served liquor at the track, said the court, in overturning a breach-of-contract claim against the company.

John Marsh was served alcohol by a food and beverage concessionaire employee while attending an event at the Kentucky Speedway, a race car track in Sparta, Kentucky, in August 2004, according to Monday's ruling by the 6th U.S. Circuit Court of Appeals in Cincinnati in KSPED L.L.C. v. Virginia Surety Co. Inc.

Later that day, Cynthia Bivens was killed when Mr. Marsh lost control of his vehicle, causing it to overturn, according to the ruling. Ms. Bivens' estate filed suit against defendants including the Kentucky Speedway, charging Mr. Marsh was already intoxicated when he had been served alcohol by a Speedway concessionaire, which created an “unreasonable and unjustifiable risk” to others.

The case was eventually settled, with Speedway paying $10,000 for its portion and incurring about $74,000 in defense fees.

Speedway then filed suit against Virginia Surety Co. Inc., a unit of Chicago-based The Warranty Group, claiming it had wrongfully refused to defend and indemnify it under its commercial general liability coverage policy in the case.

The insurer had based its denial on a liquor liability exclusion in the CGL policy, which excluded coverage arising out of the sale of alcoholic beverages if the insured “is in the business of manufacturing, distributing selling, serving or furnishing alcoholic beverages.”

The U.S. District Court in Lexington, Kentucky, held that Virginia Surety's failure to defend and indemnify the race track constituted a breach of contract, but refused to rule its action had been made in bad faith. Both sides appealed.

A three-judge panel of the 6th Circuit overturned the breach of contract ruling in a 2-1 decision. The breach of contract dispute is based solely on the applicability of the clause in the policy that excludes coverage for liability arising out of the sale of alcoholic beverages, said the majority opinion.

“Speedway and its concessionaires were engaged in a joint enterprise of selling alcohol, over which Speedway exercised substantial control, and in which they shared in the net profits almost equally and assisted each other in undertaking efforts to maximize the sale of alcohol and the profits that resulted from it,” said the ruling, which said also the sale of alcohol “significantly increased the risk beyond that contemplated in the CGL policy.” The ruling also affirmed dismissal of the bad faith claim.

The minority opinion held that the policy's liquor liability exclusion is not applicable in this case.