Cline v. Cbic
1 CA-CV 15-0437
| Ariz. Ct. App. | Oct 20, 2016Background
- Southbank Grill obtained a CBIC commercial general liability (CGL) policy (2008 and 2010 applications) that explicitly excluded liquor liability; CBIC provided an application questionnaire including detailed alcohol-service questions.
- The policy packet contained a liquor-liability exclusion at the start of the exclusions section (page 68); CBIC provided, but did not require signing of, an acknowledgment form declining liquor coverage.
- In 2011 an allegedly overserved patron caused an accident that injured Michael Cline; the Clines sued Southbank for ~ $1.5M. Southbank tendered defense to CBIC; CBIC denied coverage under the liquor exclusion.
- Southbank agreed to a stipulated judgment for over $3.5M and assigned claims against the insurer/agent to the Clines; the Clines and Southbank sued CBIC (and the agent/agency) for consumer fraud, reasonable expectations, negligent misrepresentation, and insurance-producer negligence.
- At summary judgment CBIC argued no direct communications to Southbank or misrepresentations, that the application merely solicited factual information, and that Southbank (via its principal) admitted she did not read the policy but would have understood the exclusion if she had.
- The trial court granted summary judgment for CBIC on consumer-fraud and reasonable-expectations claims; the court of appeals affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Consumer fraud: Did CBIC make a misrepresentation or concealment inducing purchase? | CBIC’s use of a "commercial general liability" label, solicitation of alcohol-service info, burying the exclusion, and not requiring the declination form misled Southbank into believing liquor risks were covered. | No direct communication to insured; questionnaire merely solicited facts; exclusion was in the policy packet and would have been understood if read; no actionable misrepresentation. | Judgment for CBIC — no genuine dispute that CBIC made a misrepresentation; claim fails. |
| Reasonable expectations: Does doctrine rescue insured who didn’t read or understand exclusion? | Insured reasonably expected liquor risks covered because insurer solicited alcohol info and created impression of coverage. | Doctrine requires more — here exclusion was clear, insured admitted she would have understood it if read, and CBIC had no communications creating coverage impression. | Judgment for CBIC — reasonable-expectations doctrine inapplicable. |
| Concealment/unfair practice: Was the exclusion concealed or mispresented by placement or lack of signed declination? | Exclusion was "buried" in a long packet; not requiring signed declination constituted concealment/unfair practice. | Principal admitted she did not look at the policy; exclusion was prominent at the start of exclusions section; agency/broker conduct not imputed to CBIC. | Judgment for CBIC — no concealment by CBIC; placement was sufficient and insured’s failure to read is dispositive. |
| Imputation of agent knowledge to CBIC | N/A (argued by CBIC as defense) | Southbank argued agent/agency failures should be imputed to CBIC. | Court did not reach detailed imputation analysis because it found no CBIC misrepresentation; summary judgment affirmed. |
Key Cases Cited
- Murray v. Farmers Ins. Co. of Ariz., 239 Ariz. 58, 366 P.3d 117 (summary-judgment standard cited) (appellate standard of review for summary judgment)
- Orme Sch. v. Reeves, 166 Ariz. 301, 802 P.2d 1000 (summary-judgment appropriateness) (proof threshold for reasonable juror disagreement)
- Kuehn v. Stanley, 208 Ariz. 124, 91 P.3d 346 (consumer-fraud reliance standard) (consumer may rely even unreasonably on misrepresentations)
- Madsen v. W. Amer. Mortg. Co., 143 Ariz. 614, 694 P.2d 1228 (misleading-impression test) (uses least-sophisticated-reader standard)
- State Farm Fire & Cas. Ins. Co. v. Grabowski, 214 Ariz. 188, 150 P.3d 275 (reasonable-expectations doctrine) (doctrine’s limited application explained)
- Gordinier v. Aetna Cas. & Sur. Co., 154 Ariz. 266, 742 P.2d 277 (reasonable-expectations factors) (four-part framework for declining boilerplate terms)