U.S. Fidelity and Guar. Co. v. Country Club of Johnston County, Inc., COA94-1044

Citation119 N.C.App. 365,458 S.E.2d 734
Decision Date05 July 1995
Docket NumberNo. COA94-1044,COA94-1044
PartiesUNITED STATES FIDELITY AND GUARANTY COMPANY v. The COUNTRY CLUB OF JOHNSTON COUNTY, INCORPORATED.
CourtCourt of Appeal of North Carolina (US)

Wilson & Iseman, L.L.P., G. Gray Wilson and Elizabeth Horton, Winston-Salem, for plaintiff-appellee.

W. Brian Howell, P.A. by W. Brian Howell, Raleigh, and Armstrong & Armstrong, P.A. by L. Lamar Armstrong, Jr., Smithfield, for defendant-appellant.

GREENE, Judge.

The Country Club of Johnston County, Incorporated (defendant) appeals from an order entered 17 May 1994, sustaining United States Fidelity and Guaranty Company's (plaintiff) objection to the affidavit of defendant's expert witness and allowing plaintiff's motion for summary judgment in its action for declaratory judgment concerning whether it has any obligation under an insurance policy to afford defendant coverage in a pending lawsuit.

Defendant is a private club open to members and guests only. It is a nonprofit corporation that owns and operates a golf course, and its facilities include a pro shop, a swimming pool, tennis courts, a dining room and supporting kitchen facilities. On 18 October 1991, Stephen Richard Upton, III (Mr. Upton), a member of defendant, consumed several mixed drinks while attending a Friday night dinner preceding a member-member golf tournament held at defendant's facilities. After the dinner, Mr. Upton left the facilities and was operating his vehicle in Smithfield, North Carolina, when he struck another vehicle, killing the driver and seriously injuring her younger brother. Mr. Upton, whose blood alcohol level at the time of the accident was greater than 0.10%, was subsequently indicted, tried and convicted of involuntary manslaughter for which he received an active prison term.

In July 1993, the family of the driver killed in the accident initiated a lawsuit against Mr. Upton and defendant for wrongful death and personal injuries, Sanders, et al. v. Upton, 93 CVS 4415 (the Sanders lawsuit). On the date of the accident, plaintiff insured defendant under a master insurance policy including commercial general liability coverage which provided in pertinent part:

COVERAGE A. BODILY INJURY AND PROPERTY DAMAGE LIABILITY

1. Insuring Agreement.

a. We will pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury"....

2. Exclusions.

This insurance does not apply to: ...

c. "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.

This exclusion applies only if you are in the business of manufacturing, distributing, selling, serving or furnishing alcoholic beverages.

Plaintiff defended the Sanders lawsuit on behalf of defendant under a reservation of rights pending a determination regarding coverage.

On 9 July 1993, plaintiff filed a complaint for a declaratory judgment "relieving plaintiff of any obligation to defend or afford coverage to defendant under the policy at issue in the pending" Sanders lawsuit. On 14 September 1993, defendant filed an answer admitting it "contends that it is entitled to a defense and coverage" to the Sanders lawsuit. Defendant also asserted estoppel as a defense alleging that although plaintiff was informed of defendant's practices with respect to acquisition and consumption of alcohol on defendant's premises, plaintiff continued coverage "without change, without requested change, and without informing the defendant of any contended applicability of exclusions from coverage based upon the acquisition and consumption of alcohol on the defendant's premises," and defendant "with justification, reason and in good faith, acted in reliance upon the continued coverage ... and did not request, nor receive any request for, changes in coverage, nor receive any notification of the plaintiff's intended exclusion of coverage." Defendant also asserted that plaintiff waived any exception of risk or exclusion involving the consumption of alcohol on 18 October 1991 because "[s]ubsequent to August, 1991, in further consideration of the continuation of the Policy," plaintiff did not cancel or change the coverage of the Policy.

On 15 December 1993, plaintiff made a motion for summary judgment. At the summary judgment hearing, plaintiff asserted that defendant's claims of waiver and estoppel were "gone"; however, plaintiff argued waiver and estoppel would not apply anyway because "no one ever asked, no one ever requested, no one ever represented, no one ever promised anything with regard to coverage for liquor liability, not the insured, not the agent, and not [defendant]." Furthermore, plaintiff, relying on cases from other jurisdictions, argued the language in the Policy was unambiguous and "if liquor or alcohol is being served or furnished on the premises that that as a matter of law places the insured, quote, 'in the business.' "

At the summary judgment hearing, defendant, in opposition to the summary judgment motion, submitted the affidavits of Sammy G. Jackson (Mr. Jackson), Jeffrey Pope (Mr. Pope), and Peter M. Foley (Mr. Foley) and the depositions of Cathy Davis (Ms. Davis) and David Grady (Mr. Grady) along with several documents, including correspondence between Ms. Davis and Mr. Grady. Defendant filed an objection to the use of Mr. Foley's affidavit.

Mr. Jackson, President of defendant's Board of Directors in 1990 and 1991, stated in his affidavit that there has never been a full-time bartender employed at the Club although the dining room and kitchen are used by private organizations as well as for Club functions. There is a small bar and snack area, but neither liquor by the drink nor alcoholic beverages on tap are served. The Club does have valid brown-bagging permits, and the physical facilities include members' liquor cabinets adjoining the bar area. Bottled or canned beer can be obtained by members in the snack bar by charging it to a membership account.

Ms. Davis, a commercial underwriter for plaintiff, stated in her deposition that she was involved in renewing defendant's insurance policy in 1989 and for 1990-91. She stated that in 1989, she "understood that [defendant] had a brown bagging license, and that they had parties six times a year and there was no sales ... and understood [defendant was] building a bar." She reviewed an inspection report of defendant's premises dated 9 September 1989 and performed by Stephen Kaasa, plaintiff's loss representative. The report stated "[a]lcohol is allowed as the club does have a brown bagging license, however, no liquor stocks are kept on the premises.... The building contains ... an area that is currently being renovated into a bar and lounge." Ms. Davis identified a 29 August 1991 recommendation letter she sent to Max Creech Insurance Agency which handled defendant's insurance. The letter provided:

[W]e will be attaching CG 21 50, Amendment Of Liquor Liability Exclusion, onto the renewal. According to an inspection on file, the insured has a brown bagging license, as alcohol is allowed at the club occasionally. We feel it is not the intent of Host Liquor Liability to pick up this exposure. Therefore, if liquor liability is requested, then this needs to be added onto the policy.

On Ms. Davis' file copy of this letter, she handwrote the following:

I spoke to [Mr.] Grady re: liquor. Insured has a brown bagging license. Guests/members brown bagging approximately 6 times/yr. There is a hired bartender who only serves those w/the bottles they bring in. No Sales--[Mr. Grady] is a member of the club. Doesn't appear to be a large exposure. I am going to delete CG2150.

Ms. Davis stated the handwritten notation was her documentation of a telephone conference with Mr. Grady on 25 September 1991. Mr. Grady is an independent insurance agent with Max Creech Insurance Agency. Ms. Davis called Mr. Grady and "basically what [she] found out was that they only had brown bagging approximately six times a year. They had a hired bartender who serves only those who bring the bottles in. That there were no sales." She told Mr. Grady "to delete the CG-2150, which is an enhancement endorsement to the liquor liability exclusion." Before she talked to Mr. Grady, Ms. Davis thought CG-2150 "needed to be on the policy." She "understood later on that [Mr. Grady] didn't tell [her] the entire truth.... [W]e later found out that you can go into the club at any day of the week and get a beer. That was not mentioned to me in my conversation with [Mr. Grady] on September 25, 1991."

Mr. Grady, a member of defendant, stated in his deposition that he is an independent insurance agent with Max Creech Insurance Agency and represents a number of carriers, including plaintiff. He became involved with coverage issues concerning defendant in the fall of 1990. He stated that in his telephone conversation with Ms. Davis concerning liquor liability, she asked him about liquor by the drink, bartenders, and liquor cabinets. He informed her that after the Club had tournaments, alcohol would be served at dinners and other social events after the tournament, "but nothing else was discussed." Although as a member of the Club he was aware that beer could be charged to a member's account at any time, he did not inform Ms. Davis because she did not ask him about beer in their telephone conversation concerning liquor liability. She indicated in their conversation that she was going to delete CG-2150. Mr. Grady "was under the assumption that social host exposure would be covered." Mr. Grady stated he never requested coverage for liquor liability prior to 18 October 1991, and no one from plaintiff ever told him that defendant...

To continue reading

Request your trial
18 cases
  • Auto-Owners Ins. Co. v. Seils
    • United States
    • Court of Appeal of Michigan — District of US
    • March 26, 2015
    ...sold alcohol to the public, which was a primary source of the group's income), and U.S. Fidelity & Guaranty Co. v. Country Club of Johnston Co., Inc., 119 N.C.App. 365, 372, 458 S.E.2d 734 (1995) (holding that the country club was "in the business of ... selling, serving or furnishing alcoh......
  • Wm. C. Vick Const. Co. v. Pennsylvania Nat. Mut., 5:97-CV-692-BR(1).
    • United States
    • U.S. District Court — Eastern District of North Carolina
    • March 24, 1999
    ...`construction and application of the policy provisions to the undisputed facts.'" United States Fidelity & Guar. Co. v. Country Club of Johnston County, Inc., 119 N.C.App. 365, 371, 458 S.E.2d 734, 738 (quoting Walsh v. National Indem. Co., 80 N.C.App. 643, 647, 343 S.E.2d 430, 432 (1986)),......
  • Firemen's Ins. Co. of Wash. D.C. v. Glen-Tree Invs., LLC
    • United States
    • U.S. District Court — Eastern District of North Carolina
    • September 19, 2012
    ...316 N.C. at 466, 343 S.E.2d at 177-78; Hunter. 241 N.C. at 595-96, 86 S.E.2d at 80; U.S. Fid. & Guar. Co. v. Country Club of Johnston Cnty., Inc., 119 N.C. App. 365, 372-73, 458 S.E.2d 734, 739 (1995); Durham, 65 N.C. App. at 744-45, 310 S.E.2d at 374-75. Anexception to this general prohibi......
  • Country Club of Johnston County v. USF & G
    • United States
    • North Carolina Court of Appeals
    • October 5, 1999
    ...factual rendition in the first of now three appeals to this Court by the parties, see U.S. Fidelity & Guaranty Co. v. Country Club of Johnston County, 119 N.C.App. 365, 367-70, 458 S.E.2d 734, 736-38, disc. review denied, 341 N.C. 656, 462 S.E.2d 527 (1995) (USF&G I), and U.S. Fidelity and ......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT