Fraternal Order of Eagles, Cle Elum, Aerie No. 649 v. General Acc. Ins. Co. of America

• Decision Date: 14 June 1990
• Docket Number: No. 9821-4-III,9821-4-III
• Parties: FRATERNAL ORDER OF EAGLES, CLE ELUM, AERIE NO. 649, Respondent, v. The GENERAL ACCIDENT INSURANCE COMPANY OF AMERICA, Appellant, v. Arthur E. WILCOX, a single man; Gail Diane Arnold, as Personal Representative of the Estate of Shirley J. Chicklinsky; Andrew Chicklinsky, and the marital community composed of Andrew Chicklinsky and Shirley J. Chicklinsky; Carol Reynolds and John Doe Reynolds, wife and husband, and their marital community; Beeson-Guzzie Insurance Agency; Bob Henry and Jane Doe Henry, husband and wife, and their marital community; and Ray Rogalski and Jane Doe Rogalski, husband and wife, Respondents.
• Court: Washington Court of Appeals

Page 243

58 Wn.App. 243

792 P.2d 178

FRATERNAL ORDER OF EAGLES, CLE ELUM, AERIE NO. 649, Respondent, v. The GENERAL ACCIDENT INSURANCE COMPANY OF AMERICA, Appellant, v. Arthur E. WILCOX, a single man; Gail Diane Arnold, as

Personal Representative of the Estate of Shirley J.

Chicklinsky; Andrew Chicklinsky, and the marital community

composed of Andrew Chicklinsky and Shirley J. Chicklinsky;

Carol Reynolds and John Doe Reynolds, wife and husband, and

their marital community; Beeson-Guzzie Insurance Agency;

Bob Henry and Jane Doe Henry, husband and wife, and their

marital community; and Ray Rogalski and Jane Doe Rogalski,

husband and wife, Respondents.

No. 9821-4-III.

Court of Appeals of Washington,

Division 3, Panel Two.

June 14, 1990.

William A. Helsell, Robert Gellatly, Helsell, Fetterman Law Firm, Seattle, for appellant.

Patrick H. Lepley, Tobin & Lepley, Bellevue, Kenneth H. Davidson, Davidson, Czeisler & Kilpatric, Kirkland, for respondent.

THOMPSON, Judge.

General Accident Insurance Company of America (GAC) appeals an order on summary judgment requiring it to defend and indemnify the Cle Elum Eagles Club (the Eagles) in an action arising out of its sale of liquor. GAC claims an exclusionary clause in its general liability policy with the Eagles precludes coverage for this type of claim. We reverse and remand for entry of summary judgment in favor of GAC.

The Eagles is a nonprofit, ¹ fraternal organization with approximately 1,200 members. It holds a class H club liquor license, which is available specifically to nonprofit organizations under certain conditions. See RCW 66.24.450; RCW 66.04.010(5). The Eagles operates its bar 14 hours per day, every day except Easter, Mother's Day, Thanksgiving and Christmas.

On March 16, 1985, Arthur Wilcox was injured when his car collided head-on with a car driven by Shirley Chicklinsky, who allegedly was driving the wrong way on Interstate 90 near Cle Elum. Ms. Chicklinsky was killed in the accident. Mr. Wilcox sued the Eagles and Carol Reynolds, an employee, alleging they served liquor to Ms. Chicklinsky shortly before the accident, when they knew or should have known she was obviously intoxicated or an habitual alcoholic.

GAC refused to defend or indemnify the Eagles based on "exclusion (h)" contained in its policy. The Eagles settled with Mr. Wilcox and assigned to him the club's rights against GAC. The Eagles then initiated this action for declaratory judgment, contesting GAC's refusal to provide coverage. GAC filed a third party complaint against various persons it believed may have claims against the policy, including Mr. Wilcox.

GAC, the Eagles and Mr. Wilcox filed motions for summary judgment. The court granted the Eagles' and Mr. Wilcox's motions, holding "exclusion (h)" does not apply to the Eagles, and the policy thus provides coverage for Mr. Wilcox's claim. The sole issue in this appeal is whether "exclusion (h)" applies to the Eagles, a nonprofit fraternal organization with a restricted liquor license.

Interpretation of insurance policies is a question of law. Transcontinental Ins. Co. v. Washington Pub. Utils. Dists.' Util. Sys., 111 Wash.2d 452, 456, 760 P.2d 337 (1988). We must give the language "a fair, reasonable, and sensible construction, consonant with the apparent object and intent of the parties, a construction such as would be given the contract by the average man purchasing insurance". Morgan v. Prudential Ins. Co. of Am., 86 Wash.2d 432, 434, 545 P.2d 1193 (1976). Considering the policy as a whole, we must enforce clear and unambiguous language, and may not create an ambiguity where none exists. Transcontinental, 111 Wash.2d at 456, 760 P.2d 337. An ambiguity exists only when the language is fairly susceptible of more than one reasonable interpretation. Morgan, 86 Wash.2d at 435, 545 P.2d 1193. If an ambiguity exists, we then must attempt to determine the parties' intent by examining various extrinsic evidence. Transcontinental, 111 Wash.2d at 456-57, 760 P.2d 337. If the language remains ambiguous, we will construe it in favor of the insured. Transcontinental, at 457, 760 P.2d 337.

The exclusion at issue here provides:

This insurance does not apply:

....

(h) to bodily injury or property damage for which the insured or his indemnitee may be held liable

(1) as a person or organization engaged in the business of manufacturing, distributing, selling or serving alcoholic beverages, or

(2) if not so engaged, as an owner or lessor of premises used for such purposes,

if such liability is imposed

(i) by, or because of the violation of, any statute, ordinance or regulation pertaining to the sale, gift, distribution or use of any alcoholic beverage, or

(ii) by reason of the selling, serving or giving of any alcoholic beverage to a minor or to a person under the influence of alcohol or which causes or contributes to the intoxication of any person;

but part (ii) of this exclusion does not apply with respect to liability of the insured or his indemnitee as an owner or lessor described in (2) above.

GAC argues the Eagles is an "organization engaged in the business of ... selling or serving alcoholic beverages ...".

The exclusion is recognized generally as unambiguously applicable in general liability insurance policies covering taverns and bars. See Williams v. United States Fid. & Guar. Co., 854 F.2d 106, 108 (5th Cir.1988). The dispute here, however, is whether the Eagles' status as a nonprofit organization has an effect on the phrase: "engaged in the business of ...".

Mr. Wilcox and the Eagles rely on the fact the Eagles is not a traditional commercial enterprise, in the sense its purpose is not to generate profits for its owners. They point out that only members and their guests are admitted, and the Eagles' liquor license requires that liquor sales be incidental to the "fraternal, benevolent, educational, athletic or social purposes ..." of the organization. RCW 66.04.010(5); see RCW 66.24.450. They also emphasize that, while the Eagles makes profits from its liquor sales, its members do not share in those profits and the money is used to defray the costs of other club activities.

This focus on the general "character" of the organization describes the approach of the Massachusetts and New Hampshire courts in similar circumstances. In Newell-Blais Post 443, Veterans of Foreign Wars of the United States, Inc. v. Shelby Mut. Ins. Co., 396 Mass. 633, 487 N.E.2d 1371 (1986), the insurer denied coverage for a wrongful death claim alleging a veterans' organization was negligent in serving alcohol. The Massachusetts Supreme Court found "exclusion (h)" inapplicable:

"Business" is defined as "a usually commercial or mercantile activity customarily engaged in as a means of livelihood." Webster's New Int'l Dictionary 302 (3d ed. 1961). "Business," as commonly understood, is thus an activity engaged in for the purpose of gain or profit. As a nonprofit organization incorporated for charitable purposes, Newell-Blais is not engaged in the "business" of selling or serving alcoholic beverages within the clear meaning of exclusion (h)(1).

Newell-Blais, 487 N.E.2d at 1373.

In American Legion Post 49 v. Jefferson Ins. Co., 125 N.H. 758, 485 A.2d 293 (1984), the insurer denied coverage for an action alleging negligence in serving alcohol to an intoxicated person. The New Hampshire Supreme Court relied on an earlier decision that had found "exclusion (h)" ambiguous:

"Engaged in the business of" has two common meanings. It may mean any regular activity that occupies one's time and attention, with or without direct profit motive, or it can mean an activity with a direct profit objective. Resolving the ambiguity in favor of the insured, we stated that "in the business of" had the latter, more narrow, meaning. Laconia Rod & Gun Club v. Hartford Acc. & Indemn. Co., [123 N.H. 179, 183, 459 A.2d 249, 251 (1983) ].

Applying that definition to the present case, we hold that the Legion, a non-profit veterans' association, did not have a direct profit motive in operating its bar and, therefore, was not "in the business of" selling alcoholic beverages for the purposes of the liability exclusion clause.

This conclusion is not altered by the fact that the plaintiff derived substantial revenues from the operation of its bar. It is the character of the organization, not the profitability of its liquor sales in a given month or year, which determines whether or not an exclusionary clause, such as the one in question here, applies.

American Legion Post 49, 485 A.2d at 294-95.

GAC argues the Eagles is a "business" despite its nonprofit status. Its master license from the Department of Licensing identifies the Eagles as a "business" and permits it to conduct "business". It is issued "business" licenses by the City of Cle Elum and Kittitas County. It is registered with the State Tax Commission to "transact business", and pays "business and occupation" taxes on its retail liquor sales.

GAC's primary argument, however, is that the Massachusetts and New Hampshire courts incorrectly focused on the character of the insured organization, rather than on the activity for which liability was claimed. GAC emphasizes the fact that the Eagles makes a substantial profit from its liquor sales, and it "freely admit[s] that there is nothing casual or occasional about its service of alcoholic beverages at the club premises". It operates its bar full-time, and pays salaries and withholds taxes for its employees just as any retail liquor establishment would.

This focus on the insured's activities reflects the approach of the South Dakota Supreme Court. The facts of ...