Illinois Federal Court Re-Affirms Insurance Coverage Exclusions Matter

ABSTRACT: In Crum & Forster Specialty Ins. Co. v. Spike’s Pub & Grub, No. 3:21-CV-1722-NJR, 2023 U.S. Dist. LEXIS 1360 (S.D. Ill. Jan. 4, 2023), the United States District Court for the Southern District of Illinois found that an insurance company owed no duty to defend a pub for a stabbing that took place on its premises, but denied the insurance company’s request for a declaration that it owed no duty to indemnify the pub.

In the underlying action, Devin Elliott filed a lawsuit against Spike’s Public House in the Circuit Court of St. Clair County, Illinois, alleging that Spike’s sold alcoholic beverages to Corey Lyell, causing Lyell’s intoxication. While intoxicated, Lyell attacked Elliott and stabbed him multiple times. Elliott asserted two claims against Spike’s – negligence for failing to keep security personnel on the premises and for violating Illinois’s Dram Shop Act. 

Spike’s was insured under a CGL policy issued by Crum & Forster Specialty Insurance Company (“CFSIC”) and sought coverage for the claims asserted against it. CFSIC advised it owed no obligation to defend or indemnify Spike’s based on the terms of the policy. CFSIC filed a Complaint for Declaratory Judgment in the United States District Court for the Southern District of Illinois, seeking a declaration that it owed no duty to defend or indemnify Spike’s. Spike’s and Elliot both failed to answer and, consequently, default was entered against them pursuant to Fed. R. Civ. P. 55(a).  CFSIC then filed a motion for default judgment.

In its motion for default judgment, CFSIC first argued there was no coverage because the bodily injury alleged in the underlying Complaint was not caused by an “occurrence” as the term was defined in the policy and, thus, there was no duty to defend. The policy defined “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” The underlying Complaint alleged Spike’s sold alcohol to Lyell, causing his intoxication, and, because of his intoxication, Lyell attacked Elliott. It went on to allege that Lyell intended to and did cause harm.

Because of the procedural default, Elliot and Spike’s failed to dispute CFSIC’s argument that the policy offered no coverage because the underlying Complaint did not allege bodily injury from an “occurrence” – i.e., an accident. Accordingly, the court found that CFSIC was entitled to default judgment as to Count I (negligence).

Interestingly, the decision did not elaborate on or state that it agreed with CFSIC’s position. It merely stated Elliott and Spike’s failed to dispute CFSIC’s argument and “accordingly” found CFISC was entitled to default judgment. Conversely, the Court expressly agreed with CFSIC’s second argument.

CFSIC’s second argument was that even if the Complaint contained sufficient allegations to support coverage, the policy contained a Total Liquor Liability Exclusion that barred coverage. The Court agreed. The exclusion stated insurance did not apply to bodily injury or property damage for which any insured may be held liable by reason of: (1) “[c]ausing or contributing to the intoxication of any person”; or (2) "[a]ny statute, ordinance or regulation relating to the sale, gift, distribution or use of alcoholic beverages.” Because of these express terms, the Court held the exclusion applied, and CFSIC was entitled to default judgment as to Count II (Illinois Dram Shop Act).

CFSIC also asked the Court to declare it owed no duty to indemnify Spike’s, but the Court declined to do so, noting, “[i]t is well established that the duty to indemnify is narrower than the duty to defend.” More specifically, the “general rule” in the Seventh Circuit is that “a suit to determine an insurer’s obligations to indemnify its insured is premature until the insured as been determined to be liable to somebody.” Bankers Tr. Co. v. Old Republic Ins. Co., 959 F.2d 677, 680 (7th Cir. 1992). Because the underlying action was still pending, a ruling on CFSIC’s obligation to indemnify would be premature. Consequently, the Court denied CFSIC request, without prejudice.

There is no doubt that this opinion is favorable to insurers. While more elaboration would have been ideal regarding the existence of a duty to defend, the Court nonetheless held the insurer was entitled to a default judgment as to that issue. Furthermore, the Court held that the exclusion applied, thus barring coverage, thereby re-affirming that exclusions do matter.