KSPED, LLC v. Virginia Surety Company, Inc.
567 F. App'x 377
6th Cir.2014Background
- Estate of Cynthia Bivens sued Speedway and concessionaire OS, then DJ’s, for wrongful death after a fatal crash following alcohol service at Kentucky Speedway.
- Underlying claims alleged Speedway and its concessionaires were jointly responsible for serving alcohol to an intoxicated or impaired John D. Marsh in breach of duty.
- Speedway’s CGL policy with Virginia Surety contains a liquor liability exclusion applicable when the insured is in the business of manufacturing, distributing, selling, serving or furnishing alcohol.
- Concession Agreement with OS gave OS exclusive rights to sell alcohol; Speedway retained control over whether alcohol was sold, event-level decisions, pricing, and promotional programs, and received commission from liquor sales.
- DJ’s, as subconcessionaire, operated under the Concession Agreement; OS and Speedway were not joint venturers but shared involvement in alcohol sales, with Speedway named as additional insured on liquor liability policies.
- Parties settled the underlying claims; Speedway sought defense and indemnity from Virginia Surety, which denied coverage under the exclusion and later argued bad faith under Ky. Rev. Stat. § 304.12-230.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the liquor liability exclusion applies to Speedway’s policy. | Speedway argues exclusion excludes coverage only if insured is in alcohol business. | Virginia Surety contends Speedway is in the business of selling alcohol due to control and profit motive. | Yes; exclusion applies because Speedway was in the business of selling alcohol. |
| Whether Speedway was in the liquor business under Kentucky law for indemnity purposes. | Speedway was not directly selling alcohol; it contracted with concessionaires. | Speedway actively controlled and profited from ongoing alcohol sales and promotions. | Yes; Speedway was in the business of selling alcohol for purposes of coverage. |
| Duty to defend under the CGL policy. | If underlying allegations potentially fall within policy terms, insurer must defend. | Based on exclusion and facts, insurer may decline defense. | Virginia Surety owed no defense under the CGL policy. |
| Duty to indemnify under the policy. | If coverage existed, insurer must indemnify the insured for settled claims. | Exclusion barred indemnity for liquor-related damages. | Virginia Surety did not indemnify Speedway due to exclusion. |
| Bad faith under Ky. Rev. Stat. § 304.12-230. | Denial of coverage was in bad faith given reasonable basis. | There was a reasonable basis to deny coverage. | No bad faith; denial was reasonable; judgment affirmed on bad faith. |
Key Cases Cited
- Aetna Cas. & Sur. Co. v. Com., 179 S.W.3d 830 (Ky. 2005) (duty to defend if potential coverage exists; separate from indemnity)
- Lenning v. Commercial Union Ins. Co., 260 F.3d 574 (6th Cir. 2001) (duty to defend must consider complaint and known facts at outset)
- Auto-Owners Ins. Co. v. Veterans of Foreign Wars Post 5906, 276 S.W.3d 298 (Ky.Ct.App. 2009) (definition of ‘in the business of’ in liquor liability exclusion; profitability/regular activity test)
- Fraternal Order of Eagles v. Gen. Accident Ins. Co. of Am., 792 P.2d 183 (Wash. 1990) (limits of liquor liability exclusion; regular ongoing liquor sales)
- Am. Legion Post No. 49 v. Jefferson Ins. Co., 485 A.2d 293 (N.H. 1984) (definition of ‘in the business of’ governing liquor exclusions)