Insurance Liability Exclusion Upheld by Chicago’s U.S. Court of Appeals

Phusion Projects Inc. manufactures and distributes the alcoholic beverage Four Loko. The product contains alcohol in addition to caffeine, guarana, taurine and wormwood. Guarana is a plant that has one of the highest concentrations of caffeine in any plant. It’s often used as a supplement to energy drinks, including this one. Taurine is an organic acid or an amino acid that some research shows may be a contributing factor to improved athletic performances. Wormwood is an herb. Some uses of wormwood are said to be for digestive disorders and to increase sexual desires and stimulate the imagination.  Wormwood is also used for healing wounds and countering insect bites. It is also used in some alcoholic beverages, such as vermouth and absinthe. 

Phusion purchased insurance coverage from two members of the Liberty Mutual Group. Both of the insurance policies contained clauses that excluded coverage for bodily injury or property damage when Phusion could be held responsible by reason of causing or contributing to intoxication.

Phusion was sued by five separate plaintiffs. All of them alleged that the consumption of Four Loko caused their injuries in whole or in part.

The first plaintiff, Jason Keiran, accidentally shot and killed himself after consuming several cans of Four Loko.

The second plaintiff, Briana McCarroll, was injured as a passenger in a car driven by a friend who drove recklessly after drinking Four Loko.

The third complaint was filed by Janice Rivera, who was also a passenger in the same car accident that injured McCarroll. 

The fourth lawsuit was brought by John Rupp III, who experienced a paranoid episode after drinking two cans of Four Loko, which caused him to run into a busy street where he was struck and killed by oncoming traffic.

The final lawsuit was the Mustica case, in which a person developed heart trouble the night he drank Four Loko. 

Phusion notified Liberty after the suits were filed, and Liberty filed for a declaratory judgment regarding the scope of its insurance coverage in federal court. Liberty argued that the liquor clause in Phusion’s policies of insurance excluded coverage for the five liability claims because each of the suits involved an injury by reason of intoxication.

Phusion argued in response that the exclusion clause did not apply to these lawsuits. Liberty and Phusion filed for summary judgment.

The U.S. District Court held that Liberty owed a duty to defend Phusion in the Mustica lawsuit, which was the last lawsuit, because the plaintiff there did not allege an injury resulting from intoxication, but rather one from the nature of the stimulants in Four Loko.

However, the district court concluded that the injuries in the four other lawsuits did result from intoxication and thus, coverage was excluded. Phusion appealed.

The court of appeals rejected Phusion’s contention that the district court read the liquor exclusion clause too broadly when it failed to draw a distinction between the phrases “arising out of” and “by reason of.”

The court addressed this issue by referring to the Illinois Supreme Court, which had drawn such distinction between the two phrases, but in the two cases decided in Illinois, neither case confronted both phrases and found no meaningful difference.

The court further stated the proposition of an insurer’s duty to defend. The panel stated that Illinois courts have held that for exclusions not to apply, the underlying complaint must allege facts that are wholly independent from the excluded event.That argument was not persuasive.

Lastly, Phusion brought up the Dramshop Act issue. The court rejected that contention as well. In summary,  the court of appeals found that the liquor exclusion was applicable in the first four cases brought because of the intoxication of the plaintiffs, but not so in the Mustica case.

Netherlands Insurance Company v. Phusion Projects, Inc., No. 12-1355 (7th U.S. Cir. Court of Appeals, Dec. 16, 2013). 

Kreisman Law Offices has been handling injury cases and pharmaceutical defect cases for individuals and families who have been harmed, injured or died as a result of the carelessness or negligence of another for more than 38 years in and around Chicago, Cook County and its surrounding areas, including Prospect Heights, Tinley Park, University Park, Western Springs, Woodridge, Woodstock, Park Ridge, Oak Forest, McHenry, LaGrange Park, Hartley, Elmhurst, Elgin, Chicago Ridge, Villa Park, Chicago (Wicker Park, Wrigleyville, Uptown, Streeterville, Roscoe Village, River North, Old Town, Logan Square), Ill.

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