Mustard v. Owners Ins. Co.

[Cite as Mustard v. Owners Ins. Co., 2014-Ohio-865.]
IN THE COURT OF APPEALS OF OHIO
FOURTH APPELLATE DISTRICT
ROSS COUNTY
AMANDA MUSTARD, ET AL., : Case No. 13CA3362
:
Plaintiffs-Appellants, :
: DECISION AND
v. : JUDGMENT ENTRY
:
OWNERS INSURANCE COMPANY, :
: RELEASED: 3/5/14
Defendant-Appellee. :
______________________________________________________________________
APPEARANCES:
Michael J. Rourke and Jonathan R. Stoudt, Rourke & Blumenthal, LLP, and Michael K.
Geiser, Cecil & Geiser, LLP, Columbus, Ohio, for appellants.
Shawn M. Blatt and Brandon M. Allen, Freund, Freeze & Arnold, Dayton, Ohio, for
appellee.
______________________________________________________________________
Harsha, J.
{¶1} Amanda Mustard, Phillip Whitley and Brayden Whitley, by his parents, (the
appellants) filed a complaint against Owners Insurance Company (Owners) for
satisfaction of a judgment they obtained against Luther Giffin Post No. 14, American
Legion, Inc. (the Post). The trial court granted summary judgment in favor of Owners
based on a clause in the Post’s insurance policy that excludes coverage when the
insured is “in the business of” selling or serving alcohol. The appellants argue that the
trial court erred because as a nonprofit entity, the Post could not be “in the business of”
selling or serving alcoholic beverages.
{¶2} However, to determine whether the liquor liability exclusion applies, the
focus should be on the activity of the insured, rather than its corporate status. The
phrase “in the business of” unambiguously includes the activity of regularly selling liquor
Ross App. No. 13CA3362 2
to generate significant revenues. Because the Post derived significant profits from the
systematic sale of alcoholic beverages to its members and their guests, it was in the
business of selling or serving alcoholic beverages, regardless of how it used or reported
that revenue. Therefore, the trial court correctly granted summary judgment in Owners’
favor.
I. FACTS
{¶3} This case arises from an automobile accident between the appellants and
Michael Hiles. Mustard, her former husband, Phillip Whitley, and their minor son,
Brayden Whitely, were traveling westbound on U.S. Route 50 in Ross County, Ohio,
when Hiles’s eastbound vehicle crossed the centerline and struck the appellants’
vehicle head on.
{¶4} Prior to the accident Hiles had been drinking alcohol at the Post and was
under the influence of alcohol at the time of the accident. The appellants filed suit
against the Post, Hiles and others for injuries they sustained as a result of the accident.
Subsequently, the appellants and the Post stipulated that the Post was liable under
Ohio’s dram shop statute and common law negligence for serving alcohol to Hiles while
he was noticeably intoxicated. The parties agreed that the court should award the
appellants $500,000 and in exchange, the appellants agreed not to execute their
judgment against the Post. Because the Post had little or no assets from which to
collect a judgment, the appellants agreed to seek satisfaction against the Post’s insurer,
Owners. The court accepted the stipulation and entered a $500,000 judgment in the
appellants’ favor.
Ross App. No. 13CA3362 3
{¶5} Next, the appellants filed a statutory supplemental action against Owners
seeking satisfaction of the stipulated judgment against the Post. Owners filed a motion
for summary judgment asserting that it was entitled to judgment because the insurance
policy issued to the Post excluded liability arising out of the service of alcohol. The
appellants responded arguing that the liquor liability exclusion in the Post’s policy did
not apply because the Post was not “in the business of” serving alcohol as required by
the exclusion. The trial court rejected the appellants’ argument and entered summary
judgment in favor of Owners, finding that although the Post is a nonprofit organization, it
was engaged in ongoing commercial alcohol sales and therefore was in “the business
of” selling alcohol. The appellants appeal that judgment.
II. ASSIGNMENT OF ERROR
{¶6} The appellants raise one assignment of error for our review:
1. THE TRIAL COURT ERRED IN GRANTING THE CIV.R. 56 MOTION
FOR SUMMARY JUDGMENT OF DEFENDANT-APPELLEE OWNERS
INSURANCE COMPANY.
III. LAW AND ANALYSIS
A. Standard of Review
{¶7} We review the trial court’s decision on a motion for summary judgment de
novo. Smith v. McBride, 130 Ohio St.3d 51, 2011-Ohio-4674, 955 N.E.2d 954, ¶ 12.
“Accordingly, we afford no deference to the trial court’s decision and independently
review the record to determine whether summary judgment is appropriate.” Snyder v.
Stevens, 4th Dist. Scioto No. 12CA3465, 2012-Ohio-4120, ¶ 11.
{¶8} Under Civ.R. 56(C), summary judgment is appropriate only if “‘(1) no
genuine issue of any material fact remains, (2) the moving party is entitled to judgment
Ross App. No. 13CA3362 4
as a matter of law, and (3) it appears from the evidence that reasonable minds can
come to but one conclusion, and construing the evidence most strongly in favor of the
nonmoving party, that conclusion is adverse to the party against whom the motion for
summary judgment is made.’” DIRECTV, Inc. v. Levin, 128 Ohio St.3d 68, 2010-Ohio-
6279, 941 N.E.2d 1187, ¶ 15, quoting State ex rel. Duncan v. Mentor City Council, 105
Ohio St.3d 372, 2005-Ohio-2163, 826 N.E.2d 832, ¶ 9.
{¶9} “[A] party seeking summary judgment, on the ground that the nonmoving
party cannot prove its case, bears the initial burden of informing the trial court of the
basis for the motion, and identifying those portions of the record that demonstrate the
absence of a genuine issue of material fact on the essential element(s) of the
nonmoving party’s claims.” Dresher v. Burt, 75 Ohio St.3d 280, 293, 662 N.E.2d 264(1996). To meet this burden, the moving party must be able to specifically point to the
pleadings, depositions, answers to interrogatories, written admissions, affidavits,
transcripts of evidence, and written stipulations of fact, if any, timely filed in the action,
which affirmatively demonstrate that the nonmoving party has no evidence to support
the nonmoving party's claims. Id.; Civ.R. 56(C).
{¶10} “If the moving party fails to satisfy its initial burden, the motion for
summary judgment must be denied. However, if the moving party has satisfied its initial
burden, the nonmoving party then has a reciprocal burden outlined in Civ.R. 56(E) to set
forth specific facts showing that there is a genuine issue for trial * * *.” Dresher at 293.
B. Is the Post “in the business of” Selling Alcoholic Beverages?
{¶11} Here, both parties admit that there are no genuine issues of material fact
that remain and the only dispute is whether Owners was entitled to judgment as a
Ross App. No. 13CA3362 5
matter of law, i.e. whether the insurance policy provides coverage for the appellants’
judgment. The appellants allege that Owners is obligated to indemnify the Post
because the term “in the business of” of selling or serving alcohol in the liquor liability
exclusion is ambiguous and therefore should be construed against Owners to mean “an
underlying profit motive.” And because the Post is a nonprofit entity, the appellants
argue it could not be in the business of selling or serving alcoholic beverages.
{¶12} Conversely, Owners urges us to look at the Post’s activities rather than its
nonprofit status. It argues that the phrase “in the business of” is not ambiguous and
“clearly applies to both for-profit and non-profit entities.” And because the Post “is a
commercial entity that derived regular ongoing income from the sale and distribution of
alcohol,” it contends the exclusion applies to preclude coverage.
{¶13} An insurance policy is a contract with terms that we normally give their
plain and ordinary meaning. Sharonville v. Am. Emps. Ins. Co., 109 Ohio St.3d 186,
2006-Ohio-2180, 846 N.E.2d 833, ¶ 6. “‘In interpreting an insurance policy, the court’s
role is to give effect to the intent of the parties to the agreement. In doing so, [w]e
examine the insurance contract as a whole and presume that the intent of the parties is
reflected in the language used in the policy. We look to the plain and ordinary meaning
of the language used in the policy unless another meaning is clearly apparent from the
contents of the policy. When the language of a written contract is clear, a court may
look no further than the writing itself to find the intent of the parties.’” Comisford v. Erie
Ins. Property Cas. Co., 4th Dist. Gallia No. 10CA3, 2011-Ohio-1373, ¶ 33, quoting
Eastley v. Volkman, 4th Dist. Scioto Nos. 09CA3308, 09CA3309, 2010-Ohio-4771, ¶ 50
(overruled on other grounds). However, if a provision is ambiguous and susceptible to
Ross App. No. 13CA3362 6
more than one interpretation, it “must be construed strictly against the insurer and
liberally in favor of the insured. * * * This is particularly true when considering provisions
that purport to limit or qualify coverage under the policy.” Westfield Ins. Co. v. Hunter,
128 Ohio St.3d 540, 2011-Ohio-1818, 948 N.E.2d 931, ¶ 11. Moreover, “‘an exclusion
in an insurance policy will be interpreted as applying only to that which is clearly
intended to be excluded.’” (Emphasis sic.) Sharonville at ¶ 6, quoting Hybud Equip.
Corp. v. Sphere Drake Ins. Co., Ltd., 64 Ohio St.3d 657, 665, 597 N.E.2d 1096 (1992).
{¶14} Here, the policy issued to the Post consisted of two coverage parts: 1.)
“Commercial Property Coverage” and 2.) “Commercial General Liability Coverage.” The
liquor liability exclusion found in the Commerical General Liability Coverage states:
This insurance does not apply to:
***
“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.
{¶15} Neither we nor the parties found any Ohio case law analyzing whether an
insurance policy excluding coverage to organizations “in the business of” serving
alcohol is ambiguous when applied to a nonprofit organization, such as the Post. Thus
like the parties, we consider case law from other jurisdictions. In support of their
argument that the liquor liability exclusion is ambiguous the appellants cite Am. Legion
Ross App. No. 13CA3362 7
Post No. 49 v. Jefferson Ins. Co. of New York, 125 N.H. 758, 485 A.2d 293 (1984), and
Newell-Blais Post No. 443, Veterans of Foreign Wars of U.S., Inc. v. Shelby Mut. Ins.
Co., 396 Mass. 633, 487 N.E.2d 1371 (1986). In turn, Owners cites a line of cases that
reject Jefferson and Newell-Blais on the basis that the exclusion is unambiguous when
applied to a nonprofit entity and simply refers to any commercial activity. See ¶ 19 et
seq.
{¶16} In Jefferson, the court considered whether a liquor liability exclusion in an
insurance policy applied to a nonprofit organization that derived substantial revenue
from the regular sale of alcoholic beverages. In that case, an American Legion Post
operated a bar that sold alcoholic beverages every day and derived substantial profits
from the sales. These profits made up the bulk of the Legion’s revenue and were used
to meet its operating expenses and fund its civic activities. The court found that the
term “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.” Jefferson at 759-760. Based on
these two definitions, the court found that the term “in the business of” was ambiguous
and resolved the ambiguity in favor of the insured. The court determined that 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 * * * applies.” Id. at 760.
And “although the Legion derived substantial revenue from its liquor sales, it d[id] not
have the same kind of direct profit motive that a commercial venture, such as a tavern
or inn, has, where profits provide the personal income for its owners.” Id. Thus, the
court held that the policy exclusion was inapplicable. Id. at 759.
Ross App. No. 13CA3362 8
{¶17} In Newell-Blais, the court also considered whether a liquor liability
exclusion applied to a nonprofit veterans organization. The court determined that
“business” is commonly understood to mean “an activity engaged in for the purposes of
gain or profit.” Newell-Blais at 635-636. Accordingly, because the VFW was a nonprofit
organization, it was not engaged in the “business” of selling or serving alcoholic
beverages within the clear meaning of the liquor liability exclusion. Id. at 636.
{¶18} We conclude Jefferson and Newell-Blais reflect a basic misunderstanding
of the nature of a nonprofit corporation. The incorporation of an entity as a nonprofit
organization does not have any bearing on whether that organization engages in
business practices that generate revenue or net income. In Ohio a nonprofit corporation
is defined as one “that is formed otherwise than for pecuniary gain or profit of, and
whose net earnings or any part of them are not distributable to, its members, directors,
officers, or other private persons, except that the payment of reasonable compensation
for services rendered * * * is not pecuniary gain or profit or distribution of net earnings.”
R.C. 1702.01(C). The very essence of a nonprofit corporation is that there is no
structure or capacity equivalent to that of the shareholder, who in a for-profit corporation
stands to financially gain from the success of the enterprise. See In re Lincoln Ave &
Crawford’s Home for the Aged, Inc., 164 B.R.600, 601 (Bkrtcy S.D.Ohio 1974). There is
no restriction on a nonprofit corporation from conducting business activities to generate
net revenue to pay its employees or to promote its public purposes. In other words,
nonprofits engage in various profitable business activities to accomplish their permitted
purposes; their corporate status does not act as an ipso facto declaration that the
nonprofit cannot be “in the business of” a specified profit oriented activity.
Ross App. No. 13CA3362 9
{¶19} We find the majority view represented in the cases cited by Owners more
persuasive and agree that to determine whether the liquor liability exclusion applies, the
focus should be on the activities of the insured, rather than on its corporate status. See
Grain Dealers Mut. Ins. Co. v. Lower, 979 F.2d 1411, 1415 (10th Cir.1992) (“[T]he
exclusionary language ‘in the business of …selling [or] serving alcoholic beverages’ . . .
unambiguously includes nonprofit organizations with ongoing liquor sales operations”);
Cormier v. Travelers Ins. Co., 618 So.2d 1185,1187 (La.App.1993) (“The obvious
purpose of the phrase ‘in the business of’ is to describe the nature of the activity
engaged in and has nothing to do with the specific purpose for which the activity is
pursued or the nature of the person or entity engaged in the activity”); Auto Owners
(Mut.) Ins. Co. v. Sugar Creek Memorial Post No. 3976, 123 S.W.3d 183, 189
(Mo.App.2003) (“When determining whether a liquor-related liability is excluded from
coverage, the focus of the analysis should be on the activities of the insured and the
risks inherent in those activities, rather than on the corporate status of the insured”);
United States Fidelity & Guar. Co. v. County Club of Johnston Cty., Inc., 119 N.C.App.
365, 371-372, 458 S.E.2d 734 (1995) (“The ‘obvious purpose of the phrase “in the
business of” is to describe the nature of the activity engaged in,’ with the focus being on
the actual conduct of the insured with respect to the ‘selling, serving or furnishing’ of the
alcoholic beverages”); Sprangers v. Greatway Ins. Co., 182 Wis.2d 521, 539, 514
N.W.2d 1 (1994) (“[T]o determine the meaning of ‘business,’ the relevant inquiry under
the policy is the nature of the insured’s activities, not the nature or mode of its
organizational status”).
Ross App. No. 13CA3362 10
{¶20} Adopting the rationale of the majority view, we conclude that in this
context the phrase “in the business of” is not susceptible to more than one interpretation
and plainly excludes coverage for liability arising out of the activity of regularly selling
alcoholic beverages for profit. McGriff v. United States Fire Ins. Co., 436 N.W.2d 859,
862 (S.D.1989). Contrary to appellants’ assertions and the court’s finding in Jefferson,
just because a word like “business,” has more than one dictionary definition does not
make it ambiguous in a specific context. Lechner v. Borough Co., 5th Dist. Licking No.
98CA132, 1999 WL 770352, *3 (Sept. 2, 1999); Sprangers at 538. Rather, here the
obvious purpose of the phrase “in the business of,” is to describe the nature of the
activity engaged in and has nothing to do with the corporate status of the insured. See
Cormier at 1187. In our context the phrase “in the business of” unambiguously includes
a nonprofit organization when its systematic, ongoing liquor sales generate significant
revenues. See Grain Dealers at 1415.
{¶21} The Post was licensed to sell alcohol under Ohio law and did so on a daily
basis. The Post employed four full-time bartenders, whose wages were subject to
federal and state withholdings. It routinely provided alcohol to its members and their
guests for a charge and derived profits from these sales. Although the income was
used to meet the Post’s operating expenses and to accomplish its civil goals, this does
not mean that the Post sold alcoholic beverages without a profit motive. To the
contrary, the Post admits that the profits realized from the sale of alcoholic beverages
funded its other activities. In fact, in 2009 the Post realized $195,110 in gross profits
from the sale of beer and liquor. All of these facts support a finding that the Post was in
Ross App. No. 13CA3362 11
the business of selling or serving alcoholic beverages, even under the definition argued
for by the appellants, regardless of how the profits were used by the Post.
{¶22} The appellants also argue that the trial court erred by finding that the
“contractual liability” exclusion applies in this case because of stipulated judgment. This
exclusion states:
This insurance does not apply to:
***
b. Contractual Liability
“Bodily injury” or “property damage” for which the insured is obligated to
pay damages by reason of the assumption of liability in a contract or
agreement.
{¶23} However, because we have already found that the liquor liability exclusion
applies to exclude coverage for the appellants’ claims, this argument is moot and we
decline to address it. See App.R. 12(A)(1)(C).
IV. CONCLUSION
{¶24} The Post unambiguously was “in the business of” selling or serving
alcoholic beverages and was excluded from coverage for the appellants’ claims under
the “liquor liability” clause in its insurance policy. Thus, Owners is not obligated to
indemnify the Post for the stipulated judgment entered against it; the trial court correctly
granted summary judgment in Owners’ favor.
JUDGMENT AFFIRMED.
Ross App. No. 13CA3362 12
JUDGMENT ENTRY
It is ordered that the JUDGMENT IS AFFIRMED and that Appellant shall pay the
costs.
The Court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate issue out of this Court directing the Ross
County Court of Common Pleas to carry this judgment into execution.
Any stay previously granted by this Court is hereby terminated as of the date of
this entry.
A certified copy of this entry shall constitute the mandate pursuant to Rule 27 of
the Rules of Appellate Procedure.
Abele, P.J. & Hoover, J.: Concur in Judgment and Opinion.
For the Court
BY: ________________________________
William H. Harsha, Judge
NOTICE TO COUNSEL
Pursuant to Local Rule No. 14, this document constitutes a final judgment
entry and the time period for further appeal commences from the date of filing
with the clerk.