Thursday, June 28, 2018

$20 Million Judgment Against Restaurant That Gave Alcohol To Minor Was Not Covered By Insurance

The U.S. Court of Appeals for the Fifth Circuit has ruled that a $20 million judgment against a restaurant that committed the criminal act of giving alcohol to a minor was not covered by the restaurant’s insurance policy.

The Case

Ajredin Deari, owner of Pastazios Pizza, Inc., allegedly lured an 18-year-old woman to his restaurant, plied her with alcohol despite her protests, and then drove her to a nearby hotel and sexually assaulted her.

Deari later pleaded no-contest to the crime of aggravated assault.

The woman sued Deari (alleging a variety of intentional torts) and the Pastazios restaurant (alleging negligence, gross negligence, Dram Shop liability, false imprisonment, and premises liability).

She obtained a judgment for more than $20 million against Pastazios and Deari. With respect to Pastazios, the court found the restaurant liable for gross negligence, Dram Shop liability, and “negligent” false imprisonment, and imposed punitive damages.

The woman sought to enforce the judgment against the restaurant’s insurance carrier, Century Surety Company, asserting that Century had breached its duties under the policy to defend and to indemnify Pastazios with respect to her lawsuit.

The U.S. District Court for the Northern District of Texas granted summary judgment in favor of Century, and the woman appealed to the Fifth Circuit.

The Century Policy

The Century policy excluded coverage for bodily injury:

arising out of or resulting from a criminal act committed by any insured.

The Fifth Circuit’s Decision

The circuit court affirmed, holding that because all of the woman’s injuries arose out of or resulted from the restaurant’s criminal act of giving alcohol to a minor, the policy’s criminal act exclusion applied and barred Pastazios’ coverage claims.

In its decision, the circuit court explained that, in Texas, it was a Class A misdemeanor to give alcohol to a minor in the absence of her parents. The Fifth Circuit noted that the woman’s complaint against Pastazios stated that she was a minor and that Pastazios, the restaurant itself, had given her more than one alcoholic beverage.

Thus, the Fifth Circuit found, the woman’s bodily injury arose out of or resulted from a criminal act committed by Pastazios, the insured. In fact, the circuit court said, the woman’s complaint was “unequivocal” that all of her injuries arose out of Pastazios’ provision of alcohol.

Accordingly, the Fifth Circuit concluded, coverage was precluded because all of the woman’s injuries arose out of or resulted from Pastazios’ criminal act of giving alcohol to a minor.

The case is Century Surety Co. v. Seidel, No. 17-10026 (5th Cir. June 25, 2018).

FC&S Legal Comment

Many other courts have applied a criminal act exclusion to bar liability coverage for damages arising out of providing alcohol to a minor. See, e.g., Allstate Ins. Co. v. Greer, 921 N.E.2d 793 (Ill. Ct.App. 2009); Continental Ins. Co. v. Kovach, No. 05-1152 (W.D. Pa. Aug. 14, 2007); Auto Club Ins. Co. v. Petz, No. 242933 (Mich. Ct.App. Dec. 18, 2003); Davis v. Malcolm, No. 212689 (Mich. Ct.App. Feb. 11, 2000); cf. Coregis Ins. Co. v. School Board of Allen Parish, No. 07-30844 (5th Cir. June 6, 2008); Allstate Ins. Co. v. Blount, 491 F.3d 903 (8th Cir. 2007).

Steven A. Meyerowitz, Esq., is the Director of FC&S Legal, the Editor-in-Chief of the Insurance Coverage Law Report, and the Founder and President of Meyerowitz Communications Inc. As FC&S Legal Director, Mr. Meyerowitz, a member of the team that conceptualized FC&S Legal, provides daily analysis and commentary on the most significant insurance coverage law decisions from courts across the country and news regarding legislative and regulatory developments. A graduate of Harvard Law School, Mr. Meyerowitz was an attorney at a prominent Wall Street law firm before founding Meyerowitz Communications Inc., a law firm marketing communications consulting company.


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