Cheaters, Inc. v. United Nat'l Ins. Co.

• Decision Date: 10 April 2012
• Docket Number: Nos. 2009–312–Appeal,2009–313–Appeal.,s. 2009–312–Appeal
• Citation: 41 A.3d 637
• Parties: CHEATERS, INC. et al. v. UNITED NATIONAL INSURANCE CO. et al.
• Court: Rhode Island Supreme Court

41 A.3d 637

CHEATERS, INC. et al.

v.UNITED NATIONAL INSURANCE CO. et al.

Nos. 2009–312–Appeal

2009–313–Appeal.

Supreme Court of Rhode Island.

April 10, 2012.

Paul R. Crowell, Esq., Providence, for Plaintiff.

Faith A. LaSalle, Esq., Providence, for Defendant.

Present: SUTTELL, C.J., GOLDBERG, FLAHERTY, ROBINSON, and INDEGLIA JJ.

OPINION

Justice ROBINSON, for the Court.

The plaintiff corporations, Cheaters, Inc. (Cheaters) and Cheaters Holding Corp. (the Holding Corp.), appeal ¹ from the Superior Court's grant of summary judgment in favor of the defendant, United National Insurance Co. (United National).²

On appeal, the plaintiff corporations contend as follows: (1) that the hearing justice erred in holding that the “On–Premises Endorsement” in the insurance policy at issue applied to the “indemnification contract between Cheaters and the Holding Corp.;” ³ (2) that the hearing justice erred because her application of the On–Premises Endorsement renders the Additional Insured Endorsement an illusory contract; (3) that limiting liquor liability coverage to “on-premises losses only” violates public policy; and (4) that the policy's liquor liability exclusion does not preclude insurance coverage with respect to Cheaters' possible liability arising pursuant to “contracts of indemnification.”

Accordingly, the plaintiff corporations urge this Court to vacate the entry of summary judgment and remand the case to the Superior Court for further proceedings.

For the reasons set forth in this opinion, we affirm the Superior Court's grant of summary judgment in favor of defendant United National.

IFacts and Travel

AThe Underlying Actions

In two separate civil actions commenced in the Superior Court for Providence County, the Administratrix of the Estate of Sean Waters (the plaintiff in the first underlying civil action) as well as Amber Seaton, Gennes Seaton, and Linda Stevens (the plaintiffs in the second underlying civil action) alleged that, on or about August 11 or August 12 of 2001, one William Powers attended a bachelor party at 245 Allens Avenue in Providence (the principal place of business of both Cheaters and the Holding Corp.). The plaintiffs in those civil actions alleged that, during his time on the premises of the Allens Avenue property, Mr. Powers was served alcoholic beverages at a point in time when he was “visibly intoxicated.” They further alleged that Mr. Powers then left the Allens Avenue site in a commercial van or limousine, which took him to South Boston, Massachusetts. The plaintiffs further alleged that Mr. Powers thereafter operated a motor vehicle in a reckless or negligent fashion and collided with other vehicles in South Boston, resulting in the death of Sean Waters and injuries to the other named plaintiffs.

In both of the above-referenced civil actions, it is specifically alleged that both Cheaters and the Holding Corp. negligently and/or recklessly served alcoholic beverages to Mr. Powers.

BThe Pertinent Provisions of the Insurance Policy

1. The Additional Insured Endorsement

It is undisputed that, before the occurrence of the serious automobile accident in South Boston in August of 2001, United National had issued an insurance policy, by the terms of which Cheaters was the named insured and the Holding Corp. was named (by means of an “Additional Insured Endorsement”) as an additional insured. It is noteworthy that the Additional Insured Endorsement pursuant to which the Holding Corp. became an additional insured reads in pertinent part as follows: “The naming of an additional insured will not increase our limit of liability.”

2. The Insured Contract Exclusion

The United National policy issued to Cheaters contains an exclusion for contractual liability. However, the policy goes on to state that the exclusion with respect to contractual liability “does not apply to liability for damages * * * [a]ssumed in a contract or agreement that is an ‘ insured contract,’ * * *.” (Emphasis added.) The United National policy defines an “insured contract” as meaning: “That part of any other contract or agreement pertaining to your business * * * under which you assume the tort liability of another party to pay for ‘bodily injury’ or ‘property damage’ to a third person or organization.” The policy then defines “[t]ort liability” as meaning “a liability that would be imposed by law in the absence of any contract or agreement.”

At all relevant times, the Holding Corp. had a contractual agreement to furnish equipment and certain trade fixtures or improvements to Cheaters at the 245 Allens Avenue premises in Providence. As part of that contract, Cheaters assured the Holding Corp. that it would indemnify it and defend it against any and all claims related in any way to Cheaters' activities and business performed at the premises in Providence. As we have noted, it is undisputed that the indemnification agreement between Cheaters and the Holding Corp. is part of an “insured contract” that falls within the definition of that term in the United National policy.

3. The On–Premises Endorsement

The United National policy at issue contains an On–Premises Endorsement, which explicitly limits coverage to “on-premises losses only,” and it defines the premises as “245 Allens Avenue, Providence, Rhode Island.”

4. The Liquor Liability Exclusion

Additionally, the policy's liquor liability exclusion states that the insurance does not provide for the following:

“ ‘Bodily injury’ or ‘property damage’ for which any insured may be held liable by reason of:

“(1) Causing or contributing to the intoxication of any person;

“(2) The furnishing of alcoholic beverages to a person under the legal drinking age or under the influence of alcohol; or

“(3) Any statute, ordinance or regulation relating to the sale, gift, distribution or use of alcoholic beverages.”

CThe Instant Action

Cheaters and the Holding Corp. have demanded that, pursuant to the insurance policy issued by United National to Cheaters, United National must defend and indemnify the Holding Corp. with respect to the two underlying civil actions that were filed in the wake of the collision in South Boston in August of 2001.

On the basis of both the On–Premises Endorsement and the liquor liability exclusion, United National has disclaimed any responsibility for the defense and/or indemnification of the Holding Corp.

In view of the insurer's refusal to defend and/or indemnify, on December 31, 2004, the plaintiff corporations filed a complaint in the Superior Court seeking a declaratory judgment as to the rights of the parties under the terms of the United National policy. In their complaint, plaintiffs sought a specific declaration by the court that the Holding Corp. is entitled to its costs of defense and complete indemnification pursuant to what it contended is the plain language of the United National policy. The plaintiffs argued in the alternative that, if the court should find the United National policy to be ambiguous, the policy should be construed against the insurer and in a manner favorable to plaintiffs as a matter of law. In addition, plaintiffs requested that the court declare that “the purported limitation of bodily injury liability coverage to the [p]remises (245 Allens Avenue, Providence, R.I.) is void under the circumstances” and as being against public policy.

In due course, plaintiffs and United National filed cross-motions for summary judgment.

In its motion for summary judgment, United National contended (1) that the On–Premises Endorsement was clear and unambiguous and limited coverage only to bodily injury or property damage that occurs on the premises; (2) that the Holding Corp., as an additional insured, can take no greater coverage than the named insured; and (3) that the liquor liability exclusion was valid. ⁴

In their cross-motion and opposition to defendant's motion, plaintiffs averred (1) that the On–Premises Endorsement is void as being against public policy “because it would unduly restrict the scope of coverage that Cheaters [ ] and the Holding Corp. reasonably expected to receive ( i.e., coverage for Cheaters' liabilities to the Holding Corp., notwithstanding exclusion of coverage for Cheaters' direct liability to a third party plaintiff);” (2) that, if the On–Premises Endorsement were held to apply to the Holding Corp.'s liability, it would render the Additional Insured Endorsement illusory “because that endorsement would provide no greater protection than the Holding Corp. would have by virtue of an equitable right of indemnification against Cheaters (who [ sic ] would be insured);” and (3) that the liquor liability exclusion is inapplicable to the Holding Corp.

The Superior Court held a hearing on both motions on June 10, 2008. After considering the arguments of the parties, the hearing justice ruled that Cheaters was not entitled to either a “defense” or “coverage” under the United National policy. The hearing justice proceeded to state that, with respect to the Holding Corp., the “additional insured” language was clear and unambiguous. She explained that, “[i]f the additional insured is entitled to contribution or indemnification as a result of a contract between it and the named insured, United National's obligation to the additional insured is limited to that which the contract provided for in the way of indemnification.” The hearing justice further noted that certain language in the Additional Insured Endorsement states that “the naming of an additional insured will not increase the limits of United National's liability.”

Addressing the On–Premises Endorsement, the hearing justice ruled that, in view of that endorsement, coverage under the policy is limited to bodily injury occurring at the premises located at 245 Allens Avenue. The hearing justice concluded that, in order to find liability for bodily injury occurring elsewhere, she would “have to stray from the plain language of the policy.” The hearing justice further...