Ask Mike # Subject: Graduation Party, Valet Parking, and Liquor

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1 Ask Mike # Subject: Graduation Party, Valet Parking, and Liquor Q. One of our insureds has twin daughters who are graduating from college this month. He and his wife are going to host a graduation party at a private banquet facility. In discussing the details with them, several issues regarding coverage came up that I d like your thoughts on. First, the banquet facility wants to be provided with a Certificate of Insurance from us, verifying that our insureds have liability insurance. In addition, the banquet facility wants to be named as an additional insured on the Certificate. Second, a college friend of the daughters (a suitemate) will serve as valet, to park the cars of the guests. Third, they are concerned about their liquor liability exposure. Lastly, I am pretty sure that any premises liability, such as a slip-and-fall, will be covered under their Homeowners Policy. With all these potentially serious exposures, I want to be sure I address each one. You know how it is: the guests will only see a nice graduation party, while insurance people will see nightmarish claims situations! Thanks. A. You are so right about us insurance nerds. Exposure analysis needs to be kept on a short leash, or it can lead to sleepless nights, medication, and avoidance of everything that would otherwise be fun! For the sake of our discussion, assume Jack and Jill are the parents, PBF is the Private Banquet Facility, and Danica is the valet. Also, assume Jack and Jill have an ISO-based Personal Auto Policy and Homeowners Policy. (Proprietary forms may be different.) Here are some scenarios that illustrate the exposures you are concerned about, and how coverage works. Situation #1: Auto accident involving liquor. Danica gets into the Lexus of Monique a guest at the party and accidentally hits Fred, who was walking in the parking lot. The police determine that Danica was DUI, after having made too many trips to the champagne fountain between her duties as valet. Fred would probably sue Danica (as driver), Monique (as owner of the Lexus), Jack and Jill (as hosts who provided the champagne fountain, and the valet), and PBF (as owner of the premises). Issue #1: Coverage under the Personal Auto Policy. Under the ISO PAP, here are the insureds for Part A Liability: PP Part A Liability B. "Insured" as used in this Part means: 1. You or any "family member" for the ownership, maintenance or use of any auto or "trailer". 1

2 2. Any person using "your covered auto". 3. For "your covered auto", any person or organization but only with respect to legal responsibility for acts or omissions of a person for whom coverage is afforded under this Part. 4. For any auto or "trailer", other than "your covered auto", any other person or organization but only with respect to legal responsibility for acts or omissions of you or any "family member" for whom coverage is afforded under this Part. This Provision (B.4.) applies only if the person or organization does not own or hire the auto or "trailer". Jack & Jill s PAP. Jack and Jill are insureds in their own PAP under B.1. Note that the scope of coverage for the ownership, maintenance or use of any auto or trailer is sufficiently broad enough to cover their vicarious liability arising from an auto they do not own, maintain, or use such as Danica driving Monique s Lexus so long as there is some legal connection (nexus) between Jack and Jill and the Lexus. Most experts believe that B.1. can be read to provide Jack and Jill coverage for for the ownership, maintenance or use of any auto or trailer by anyone (Danica). In this case, since Jack and Jill arranged for Danica to drive the cars of their guests, that would probably be sufficient to find them (vicariously) liable for Fred s injuries. In addition, they could be held liable for failure to supervise Danica s consumption of champagne. On that point, keep in mind that the PAP does not have a liquor liability exclusion. However, Danica is not an insured in Jack and Jill s PAP, since she does not fall into one of the four categories (B.1 B.4.) of an insured. Danica s PAP. Danica is an insured under B.1. in her own PAP. In addition, Jack and Jill are insureds in her PAP, under B.3. Monique, however, is not an insured under Danica s PAP, as B.4. does not apply to the owner (Monique) of the non-owned auto Danica is driving. Monique s PAP. Monique is an insured in her own PAP, under B.1. Danica is an insured under B.2. Jack and Jill are insureds under B.3. Importantly, Monique s PAP is primary, since the PAP of Jack and Jill, and Danica, are excess for non-owned autos. Issue #2: Coverage under Jack & Jill s HomeownersPolicy. The ISO HO policy does not have a liquor liability exclusion in Section II. However, the auto exclusion must be examined, since there is a connection between an auto and the liquor provided by Jack and Jill. The language in the 1991 edition differs significantly from the 2000 and 2011 editions, where the use of an auto is involved in a host liquor claim. Below are pertinent excerpts from each. [Emphasis added below.] 2

3 HO 1991 edition Section II Exclusions 1. f. Arising out of: (1) The ownership, maintenance, use, loading or unloading of motor vehicles or all other motorized land conveyances, including trailers, owned or operated by or rented or loaned to an "insured"; Comments: Since the auto being driven by Danica is not owned or operated by or rented or loaned to an "insured" [Jack or Jill], Jack and Jill s Homeowners Section II responds in a suit against them. Danica is not an insured. HO 2000 and HO 2011 editions Section II Exclusions A. Motor Vehicle Liability 1. Coverages E and F do not apply to any "motor vehicle liability" Definitions 1. "Aircraft Liability", "Hovercraft Liability", "Motor Vehicle Liability" and "Watercraft Liability", subject to the provisions in b. below, mean the following: a. Liability for "bodily injury" or "property damage" arising out of the: (1) Ownership of such vehicle or craft by an "insured"; (2) Maintenance, occupancy, operation, use, loading or unloading of such vehicle or craft by any person; Comments: In these two more recent editions of the Homeowners Policy, the auto exclusion is broadened to exclude the operation of any auto by any person, (vs. by an insured ). In the case of Jack and Jill s Homeowners Policy, the exclusion seems to apply to their liability for an auto accident caused by Danica while driving Monique s Lexus. However, there is another dimension to this issue. Jack and Jill might still find coverage under their Homeowners Policy, if a court determined that the serving, or failure to monitor the consumption, of alcohol was a separate tort from the negligent driving of Danica. In that situation, the auto exclusion in their Homeowners Policy would be moot, since there is no separate alcohol exclusion in the ISO policy. The issue of additional torts contributing to an auto accident, other than just the tort of negligent operation of an auto, is not an infrequent subject of litigation. For example, tort arguments raised to overcome auto exclusions for ownership, maintenance or use in various policies (Homeowners, CGL, etc.) include negligent supervision, negligent entrustment, 3

4 negligent hiring, lack of training, poor decisions, related to an auto. In this case, while it could be argued that the consumption of alcohol by Danica was due to negligent supervision by Jack and Jill, this negligence was related to alcohol, not Danica s driving. However, each case is fact-specific, and a particular court may or may not agree that the serving of alcohol was a separate tort from the operation of an auto. And under no circumstances should agents ever give legal advice! One Louisiana case that is often cited in the literature involved an injured passenger s suit against the father of the auto s driver, who had served his son alcohol prior to the accident. The father s Homeowners insurer denied the claim, citing the auto exclusion. However, the court ruled that there was merit in the plaintiff s argument, that the father s serving of the alcohol to his son was, in and of itself, a tort, and unrelated to the subsequent negligent operation of the auto by the son. Therefore, this tort was not within the scope of the auto exclusion in the father s Homeowners Policy. [Sarp v USF&G, 572 So.2d, 158.] Louisiana liquor liability statute. In Louisiana, the statute that addresses liquor liability is 9: , which was passed as Act 18 in The Louisiana statute, and others like it, are often referred to as anti-dram shop laws, since they place major responsibility for negligence arising out of alcohol on the consumer, and not the server (as is the case in dram shop laws). The statute reads as follows: Limitation of liability for loss connected with sale, serving, or furnishing of alcoholic beverages A. The legislature finds and declares that the consumption of intoxicating beverages, rather than the sale or serving or furnishing of such beverages, is the proximate cause of any injury, including death and property damage, inflicted by an intoxicated person upon himself or upon another person. B. Notwithstanding any other law to the contrary, no person holding a permit under either Chapter 1 or Chapter 2 of Title 26 of the Louisiana Revised Statutes of 1950, nor any agent, servant, or employee of such a person, who sells or serves intoxicating beverages of either high or low alcoholic content to a person over the age for the lawful purchase thereof, shall be liable to such person or to any other person or to the estate, successors, or survivors of either for any injury suffered off the premises, including wrongful death and property damage, because of the intoxication of the person to whom the intoxicating beverages were sold or served. C. (1) Notwithstanding any other law to the contrary, no social host who serves or furnishes any intoxicating beverage of either high or low alcoholic content to a person over the age for the lawful purchase thereof shall be liable to such person or to any other person or to the estate, successors, or survivors of either for any injury suffered off the premises, including wrongful death and property damage, because of the intoxication of the person to whom the intoxicating beverages were served or furnished. (2) No social host who owns, leases, or otherwise lawfully occupies premises on which, in his absence and without his consent, intoxicating beverages of either high or low alcoholic content are consumed by a person over the age for the lawful purchase thereof shall be liable to such person or to any other person or to the estate, successors, or survivors of either for any injury suffered off the 4

5 premises, including wrongful death and property damage, because of the intoxication of the person who consumed the intoxicating beverages. D. The insurer of the intoxicated person shall be primarily liable with respect to injuries suffered by third persons. E. The limitation of liability provided by this Section shall not apply to any person who causes or contributes to the consumption of alcoholic beverages by force or by falsely representing that a beverage contains no alcohol. It is important to note that the broad immunity granted to social hosts such as Jack and Jill [ C.(1)(2)], applies only to the serving of alcohol to persons of legal drinking age. No statutory immunity for serving those under age. Situation #2: Certificate of Insurance, Additional Insured Status, etc. While issuing a Certificate of Insurance for a Homeowners Policy is not an everyday occurrence, it should be a routine processing matter to provide a certificate to PBF, showing that Jack and Jill do have liability insurance as provided under their Homeowners Policy. However, simply naming PBF as an Additional Insured on the certificate should not be done automatically, just because PBF requested it. A fundamental guideline in issuing certificates is that indicating such information as a party being an additional insured does not grant such coverage. The certificate cannot convey coverage it can only reflect the coverage in the policy specified in the certificate. However, attaching the Additional Insured Residence Premises endorsement (HO ) to Jack and Jill s policy will not provide PBF with the coverage they seek. As the title suggests, coverage for an additional insured only applies for that additional insured s liability arising out of Jack and Jill s residence premises. Except for an insurer s proprietary additional insured endorsement, the only other way to provide AI coverage to PBF for the graduation party is through a Special Event policy. And given that alcohol and valet parking will be present at the party, a Special Event policy for Jack and Jill would probably be advisable anyway. Situation #3: Liability for Rented Premises. You are correct that Jack and Jill s HO policy provides Section II coverage for their liability arising out of the rented premises at PBF. That premises clearly falls within the definition of an insured location, as follows: 6. "Insured location" means: h. Any part of a premises occasionally rented to an "insured" for other than "business" use. 5

6 Reference information. All the Ask Mike articles are archived at our web site. From our home page ( you ll see a link to Ask Mike Column Index. Here are some additional articles on topics related to this column: # : Holiday Parties and Insurance # : Graduation Parties/Wedding Receptions and Liquor Liability # : Homeowners Additional Insured Locations In addition, our website has an indexed archive of Technical Advisories going back to 1995, as well as a chronological listing. Here is a link to Technical Advisory #206 on Louisiana s liquor liability law: Lastly, the IIABA s Virtual University (VU) has hundreds of technical articles on insurance coverages, as well as agency management, automation, and other important topics. The new Search function offers instant access to articles of interest. You can access the VU from the IIABL website. Below is a link to a very informative article on the Homeowners Policy and the host liquor exposure: Lines/Homeowners/Liability-Coverages/FacultyHostLiquor.aspx 6