Netherlands Insurance Company v. Phusion Projects, Incorporated
2013 U.S. App. LEXIS 24908
7th Cir.2013Background
- Phusion Projects manufactured Four Loko, an alcoholic malt beverage premixed with energy stimulants (caffeine, guarana, taurine, wormwood).
- Phusion held a commercial general liability policy (Netherlands Ins. Co.) and an umbrella policy (Indiana Ins. Co.), both containing identical Liquor Liability Exclusions precluding coverage for bodily injury or property damage "by reason of: (1) causing or contributing to the intoxication of any person."
- Five plaintiffs sued Phusion in separate state-court suits alleging injuries after consuming Four Loko (including drunk driving passengers, two deaths after bizarre conduct, and a heart condition); one (Mustica) was found to be covered and later settled.
- Liberty Mutual (insurers) sought a federal declaratory judgment that the Liquor Liability Exclusions barred coverage and thus no duty to defend or indemnify; Phusion counterclaimed that exclusions did not apply.
- The district court granted summary judgment for Liberty, holding the exclusion unambiguous and that four underlying suits (Keiran, McCarroll, Rivera, Rupp) fell within the exclusion; Phusion appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Liquor Liability Exclusion is ambiguous or should be narrowly read | Exclusion should be read narrowly; "by reason of" requires direct causation and does not cover claims based on stimulants or other torts | Exclusion is clear and covers injuries "by reason of" causing or contributing to intoxication | Exclusion is unambiguous; no meaningful distinction that narrows its scope |
| Whether Illinois law requires insurer to defend where complaints plead alternative/non-liquor theories | Phusion: complaints plead independent torts (stimulant-related product defect, failure to warn) that potentially bring claims within coverage | Liberty: underlying allegations are not wholly independent from intoxication; artful pleading cannot evade exclusion | Applying Northbrook framework, insurer has no duty to defend because complaints arise from intoxication |
| Whether addition of energy stimulants creates a separate, covered theory of liability | Phusion: premixing stimulants is separate wrongdoing ("stimulant liability") not barred by liquor exclusion | Liberty: stimulants do not change that supply of alcohol caused intoxication; mixture is still furnishing alcohol | Court rejects stimulant distinction; premixed product treated like any alcoholic beverage for exclusion |
| Whether some underlying complaints could be covered while others from same incident are excluded | Phusion: different pleadings in related suits could yield coverage in some cases | Liberty: inconsistent treatment would circumvent exclusion; similar factual bases mean consistent exclusion | Court finds it absurd to treat related suits differently; exclusion applies to all four contested suits |
Key Cases Cited
- Ace American Insurance Co. v. RC2 Corp., 600 F.3d 763 (7th Cir.) (standard of review for policy interpretation and summary judgment)
- Stephan v. Rocky Mountain Chocolate Factory, 129 F.3d 414 (7th Cir.) (applying state-law construction in federal diversity cases)
- Am. States Ins. Co. v. Koloms, 177 Ill.2d 473 (Ill. 1997) (insurance-policy construction principles)
- Founders Ins. Co. v. Munoz, 237 Ill.2d 424 (Ill. 2010) (ambiguity construed for insured; ascertain intent of parties)
- Northbrook Property & Casualty Co. v. Transp. Joint Agreement, 194 Ill.2d 96 (Ill. 2000) (insurer’s duty to defend turns on whether underlying complaints allege facts potentially within coverage; independent torts requirement)
- Colony Ins. Co. v. Events Plus, Inc., 585 F. Supp. 2d 1148 (D. Ariz.) (liquor-exclusion applied where underlying negligence claims were not distinct from furnishing alcohol)
- Beukema v. Yomac, Inc., 284 Ill. App. 3d 790 (Ill. App.) (dram-shop context discussing exclusions)
- Crum & Forster Managers Corp. v. Resolution Trust Corp., 156 Ill.2d 384 (Ill.) (discussion of causation language in exclusions)
- Property-Owners Ins. Co. v. Ted’s Tavern, Inc., 853 N.E.2d 973 (Ind. Ct. App.) (artful pleadings cannot circumvent liquor-exclusion)