The U.S. Sixth Circuit Court of Appeals has held that an insurer had no obligation under Kentucky law to defend or indemnify a racetrack owner, concluding that the policy’s liquor liability exclusion applied because the insured was “in the business” of serving alcoholic beverages. KSPED, LLC v. Virginia Sur. Co., Inc., 2014 WL 2459743 (6th Cir. June 2, 2014).
The insured was sued for alleged negligence in serving alcohol to a patron who later caused an auto accident, resulting in the death of a passenger. Its CGL insurer denied coverage based on a policy’s liquor liability exclusion which applied to liability 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 district court held that the exclusion did not apply because the insured leased property to others who operated concession stands which sold alcohol, and granted judgment in favor of the insured. The insurer appealed.
The Sixth Circuit concluded that the exclusion applied. It found that the insured retained control over its concessionaires and made profits from the sale of alcoholic beverages. It also reserved the right to refuse service of alcohol to any patron. Thus, it concluded that the insured and its concessionaires were engaged in a joint enterprise of selling alcohol and that the exclusion was applicable. The Sixth Circuit found it irrelevant whether the alcohol sales were the “primary” business activity of the insured, and reversed.