HNRK Coverage Corner

On February 21, 2018, the Second Circuit issued a decision in Philadelphia Indemnity Ins. Co. v. Central Terminal Restoration Corp., Case No. 17‐1636‐cv, holding that a car accident caused by a driver to whom the insured had served alcohol when he was visibly intoxicated, in violation of New York’s dram shop law, was a covered occurrence under a commercial general liability policy. A typical CGL Policy, such as the policy at issue in Philadelphia Indemnity Ins. Co., provides coverage for “bodily injury” resulting from an “occurrence” (defined as “an accident”), unless the injury is “expected or intended from the standpoint of the insured.”

In this case, the accident resulted from an intentional act by the insured — selling alcohol to an intoxicated person. The Second Circuit held that it was nevertheless a covered occurrence because the insured did not intend to cause the subsequent injury, even if it was a foreseeable consequence. The Court explained:

We agree with the district court that a violation of the Dram Shop statutes that results in a car accident qualifies as “an occurrence” under New York law. Certainly, CTRC did not intend or expect the accident that followed the fundraising event. That CTRC intended to sell alcohol to Gilray also does not render the subsequent injuries “intended” by CTRC for purposes of excluding coverage, even if those injuries were arguably foreseeable to CTRC. See Allegany Co-op Ins. Co. v. Kohorst, 678 N.Y.S.2d 424, 425 (4th Dep't 1998) (holding that “[t]here is coverage if the damages alleged in the complaint arise out of a chain of unintended though foreseeable events that occurred after the intentional act” (internal quotation marks omitted)).

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A number of other New York courts, in a line of cases reaching back to then-Judge Cardozo's opinion in Messersmith v. American Fidelity Co., 232 N.Y. 161 (1921), have also found that CGL policies cover injuries where an accident at issue is the unintended result of an intentional act. See, e.g. Salimbene v. Merchants Mut. Ins. Co., 629 N.Y.S.2d 913, 915 (4th Dep't 1995) (“Accidental results can flow from intentional acts. The damage in question may be unintended even though the original act or acts leading to the damage were intentional.”); Allegany, 678 N.Y.S.2d at 424-25 (holding that an insurance company was required to defend and indemnify its insured because injuries resulting from an intentionally set fire still constituted an “accident” where the insured did not intend the subsequent injuries).