Author: VU Faculty
Your insured hosts a New Years Eve party and one inebriated guest negligently causes a serious auto accident on the way home. Your insured is sued. Will his homeowners or auto policies respond? Well, the answer may depend on the edition dates...it's possible that both, either or neither will respond.
"Tis the season to make merry and people are asking about liability coverage for their host liquor exposure. Though the ISO homeowners policy has no liquor exclusion, there is some concern about the new and 'improved' auto exclusion in the HO 2000.
"The Homeowners form now excludes negligent supervision, negligent entrustment and even occupancy of autos. If a party guest has an auto accident following being over-served by their host, could the host’s homeowners carrier deny coverage for third party injuries?
"I wouldn’t think the host could get liability coverage from the guest’s auto policy. The host’s PAP probably wouldn’t help as the host wouldn’t be 'using' the auto, except in rare cases where the guest might be running an errand for the host."
"I had a question on host liquor liability. I was at a seminar and it was stated that there was not coverage on the new 2000 form of the personal homeowners policy for this but there was coverage on the 1991 form of the personal homeowners policy. Can you please confirm?"
"Is 'host liquor' liability still included in the ISO HO 2000? I have an underwriter that is telling me that if someone comes to my house and I serve them alcohol and they drive drunk and kill someone and that person sues me I have no coverage under my HO because it involves an auto."
"While attending a private party last Saturday night, the host served beer and wine. If someone left inebriated and injured someone, would there be coverage for the homeowner under the HO3 policy? I know there's no exclusion for BI or PD that doesn't involve an auto, but how about the auto exclusion if it does involve one?"
"When the HO-2000 first came out everyone wrote about the potential of the loss of host liquor coverage in so far as it concerns motor vehicle claims per the stronger language in the HO-2000 defining a motor vehicle to include all BI/PD arising from the use of motor vehicle used by ANYONE and also excluding the insured's negligent supervision of a motor vehicle. Have you heard that ISO says that this is not the case and that the HO-2000 should still cover motor vehicle related host liquor claims? And do you feel that there is a problem or not a problem?"
Actually, the homeowner would, under most scenarios, be covered by his 1998 ISO PAP and probably by the guest's PAP, so that's where I'd look to first for coverage. As for homeowners coverage, he probably/maybe would be covered by the 1991 HO form but may or may not be covered by the 2000 HO form. After reviewing the HO 2000 filing, my initial opinion was that there was no coverage. However, based on what ISO has shared, along with a review of some case law, I now believe there is a strong argument for coverage. Below are some diverse faculty opinions.
While the HO 2000 has certainly attempted to broaden the motor vehicle exclusion, there might still be a legal avenue under the severability provision. I researched severability some time ago, mostly that arising out of intentional acts, and was very surprised at how many courts interpreted severability to seemingly overcome a specific exclusion. I found many cases on autos, for example. It might possibly have application here, but the HO 2000 exclusion appears pretty air tight.
I think the host is covered by both the guest's PAP (insured #3 - anyone made liable) and the host's own PAP for the "ownership, maintenance or use of ANY auto or trailer." (Note it does not require that the insured be operating the auto...just that they be legally liable for the auto's ownership, maintenance or use.)
Another VU volunteer called me from the road a while back and had a lawyer in the car with him at the time. The lawyer told me about a case where the homeowner was sued over a claim involving a motor vehicle accident. The court found coverage under the homeowners policy despite a pretty tight motor vehicle exclusion. As I recall the, crux of the case was the "arising out of" wording that you find in the HO form. I think the court said the claim arose out of something that wasn’t excluded such as host liquor liability.
Also, under the PAP of the host there is a good argument that there is coverage if the guest leaves in his own vehicle and injures someone. The PAP will cover the host for the “ownership, maintenance, and use of any auto.” The form does not say, “use by you.” Several authorities say that such a claim would be covered by the PAP. Likewise, the host would be covered under the guest's PAP if he is legally liable for the guest's negligence.
In the HO 2000 form, the exclusion is pretty much absolute with regard to motor vehicles. Even the HO 1991 form excludes losses "arising out of" the ownership, maintenance or use of an auto...this exclusion is not limited to the insured's use of the auto, just that his liability arise out of such use. One could argue that the liability "arose out of" the furnishing of alcohol and not the use of an auto.
The HO 2000 form has removed almost all liability coverage for the operation of an excluded "motor vehicle." The contract has never been intended to provide coverage for an auto owned by the insured unless used to service the premises and not licensed for road use. Allegedly, the HO form was never intended to provide any consequential coverage for a nonowned auto driven by someone else...or at least that's what we're lead to believe. Liquor Liability is not specifically excluded in the contract but operation of the motor vehicle is. It will be questionable if the action brought against the homeowner would be subject to coverage based on that fact.
If it's the 1991 HO form, there is probably coverage. The 1991 motor vehicle exclusion applies to liability "arising out of" the ownership, maintenance or use of any auto. Presumably, the homeowner's liability for a claim of this type would arise out of the serving of alcohol, while the driver's liability would arise out of the actual use of the auto. This HO form might cover the homeowner and the guest's PAP would cover both the guest and homeowner...depending on the PAP limits.
If it's the 2000 HO form, there may not be coverage. The motor vehicle exclusion was rewritten in 2000 and is extremely restrictive. A literal reading would imply that there is no coverage for any claim arising out of the use of an auto, though it will probably take a few court cases to know for sure.
The 1998 ISO PAP, though, covers the named insured's legal liability for the ownership, maintenance or use of ANY auto...it doesn't have to be an auto owned, maintained or used by the insured (unless the driver is a resident family member with their own policy covering the auto...there's an exclusion for that). So, there should be coverage under the homeowner's PAP, as well as the driver's PAP.
The HO language was designed not to provide coverage for any claim, including host liquor liability, involving any motor vehicle except for the types of coverage for certain vehicles specified in the form. In addition to the inclusion of negligent supervision in the list of exclusionary events in the HO 2000 form, ISO also revised the new definition of "motor vehicle liability" to exclude liability arising out of both the ownership of a motor vehicle by an "insured" and the maintenance, occupancy, operation, use, loading or unloading of a motor vehicle by ANY person. Hence, host liquor liability is no longer covered. ISO says that they plan to monitor and evaluate the use of this revised language in the future and will "respond accordingly"...whatever that means.
Here are two examples that illustrate the need to have BOTH the HO and PAP policies in the same carrier along with a personal umbrella policy.
A jury in a very conservative community handed the host of a holiday party a $4,000,000 plus adverse judgment due to an accident related to consumption of alcohol by their guests. This was a private party unrelated to any business function. The defendant did not have adequate personal liability limits — but did have substantial assets.
There was a $3.5 million jury verdict in my county last year against a family serving alcohol to teenagers. A young female guest left with a male guest who was obviously drunk. The boy caused a terrible accident that left the girl with brain damage.
The female guest's parents sued the host for: (a) serving alcohol to minors, (b) failure to supervise the minors, (c) allowing an obviously intoxicated minor to continue consuming alcohol, and (d) allowing the obviously intoxicated child to get in a vehicle with another guest and drive a car. Apparently the jury was enraged and handed down an award to make the family pay a lot of money out of pocket. The plaintiff's attorney is pursuing their personal assets.
The host family had primary auto and homeowners plus a $1,000,000 umbrella. The rest of the award will most likely have to come from a liqudation of their assets, hundreds of thousands of dollars of net worth accumulated over decades.
I believe that there is an intent and value in providing vicarious liability coverage under the HO policy for the use of autos. There are tens, if not hundreds, of thousands of people who don't have an owned auto exposure. Someone should not have to purchase an auto policy, even a Named NonOwner policy, simply to get incidental vicarious liability coverage for the use of autos by others. The CGL provides such auto coverage for insureds with regard to the use of autos by noninsureds. I think the same logic applies here.
I ran this by someone in ISO's home office and got the following:
In response to your question regarding "Host Liquor" liability (HLL) involving an auto accident, there is nothing in our HO 2000 Program revisions indicating that we changed the motor vehicle exclusion to include HLL. We had considered adding an exclusion for HLL as far back as July 1985. However, after several ISO property panel discussions (which I will fax and overnight to you), a determination was made that HLL is a personal exposure that is within the intent of liability protection coverage.
The negligent supervision language was developed by ISO in order to respond to an increasing number of judicial rulings where coverage was found for incidents that directly or indirectly involved motor vehicles in which an insured's act or decision was involved. Many of these cases used the term negligent supervision, which was not previously referenced in ISO policy forms. This brought the focus on what we believe to be the original underwriting intent of the pre-Homeowners general liability policies, which was to exclude coverage for the defense and indemnification of any claim or suit alleging negligent supervision by an insured for an accident involving an excluded vehicle. "Host Liquor" liability was not the focus nor the reason for the modification of our language.
I followed up with another ISO home office person and confirmed what the previous commentary said. He said the legal consensus at the time of the HO2000 filing was that it would be next to impossible to remove all host liquor liability coverage from the HO program if arising from the use of an auto. Their opinion was the courts too easily distinguish between torts involving liquor liability and auto liability and the English language probably isn't capable of developing an ironclad HO exclusion.
This is from a retiree who was one of the ISO architects of the HO2000: "As I recall, an insurer panel member asked the question when the personal property panel reviewed the new liability provisions in 1999. We asked the legal department to look into it and they opined that the typical HLL claim would still be covered."
Personally, I think that auto claims are more appropriately covered under a PAP and not the HO policy, but I see the need for this type of exception. I think the exclusion is very restrictive, certainly more so than the 1991 policy. It's one thing for an auto to be the situs of a liquor liability claim and another for the claim to have never happened without arising from the use of an auto. I suspect you could see differing judicial interpretations. Why not just admit there's coverage and make it excess over any applicable PAP coverage?
I cite a court case in my seminar "Insurance and The Courts - When Worlds Collide. The case is Sarp v. United States Fidelity & Guaranty, 572 So.2d, 158.
The court said, "This duty [not to purchase alcohol for a teenager] encompasses risks beyond that of an automobile accident. We can foresee various means other than the use of an automobile by which negligent conduct due to intoxication could have resulted in injury. The use of the automobile in this case, though an essential fact of this accident, was not an essential element of the theory of liability."
Keep in mind, we're mixing up two different concepts under the term "host liquor." On the one hand, where the serving of alcohol by a social host leads ultimately to an auto accident by one of the guests, one could call that "host liquor auto." I think the HO-2000 language adequately excludes that (or at least appears to).
On the other hand, where a court would hold the serving of alcohol by a social host as a separate tort from the operation of an auto by a guest, in my non-lawyer mind, that is not an "auto" claim from the standpoint of the social host. The drunken guest might just as well have shot someone. Under this theory of tort, the host's legal responsibility is for the serving of the alcohol, irrespective of what means the guest used to inflict harm on another person, be it gun, car, watercraft, or the continuous playing of Barry Manilow's "Mandy" for 20 straight hours, etc.
One court case I reviewed involved a parent who served his underage son liquor. The son later had an at-fault auto accident. The court found that serving the liquor was a separate tort in itself (and separate from the auto accident), and that reasonable forseeability should have caused to parent to expect such an outcome. I've seen lots of similar arguments involving auto accidents, often in a commercial lines context, where the plaintiff alleges negligent hiring (a bad driver) as a separate tort from the negligent operation of the auto. It seems that many courts dismiss this approach on commercial auto claims but accept the logic on personal auto claims.
In my view, a reasonable reading of the revised language in HO-2000 clearly excludes any liability arising from a motor vehicle: (a) owned by an insured, or (b) the maintenance, occupancy, operation, use, etc. by ANY PERSON (vs. by "an insured" in the HO-1991).
In the HO-2000 filing, the "Background" section (page 85) of the revised language states this: "We are revising the subject exclusions in response to an increasing number of judicial decisions that have found coverage for vehicle-related incidents under the Homeowners Program." The filing went on to specifically mention adding an exclusion for negligent supervision, similar to the already-present exclusion for negligent entrustment.
At the same time, while the term "host liquor liability" was not addressed, it seems that most host liquor torts link a homeowner/social host to a third party's actions related to a vehicle accident through some sort of supervisory or entrustment duty. Thus, by making the changes mentioned above, it seems abundantly clear to me that this leaves little room for a plaintiff's successful tort action against a social host involving a vehicle to be covered by that social hosts' HO-2000 homeowners policy.
Tort law 101 requires that the plaintiff show that the defendant (social host) owed them a duty, breached that duty, and their injury was a direct result. As to duty owed, in my non-lawyer mind, there must be some nexus between the social host and the non-owned vehicle. From reading a lot of court cases over the years, most seem to allege some sort of duty to supervise guests, or some sort of negligent entrustment act. If both these actions are excluded from the social host's HO policy, I'm not sure how much "host liquor liability" coverage is left, involving a non-owned vehicle.
Lastly, most knowledgeable people I have discussed the "host liquor liability" issue with agree that the social host has coverage for this exposure under his/her PAP, per "Insured" provision #1: "ownership, maintenance or use of ANY auto or trailer."