17‐1636‐cv Phila. Indem. Ins. Co. v. Cent. Terminal Restoration Co., et al.

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURTʹS LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION ʺSUMMARY ORDERʺ). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

At a stated term of the United States Court of Appeals for the Second Circuit, held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York, on the 21st day of February, two thousand eighteen.

PRESENT: JOHN M. WALKER, JR., GERARD E. LYNCH, DENNY CHIN, Circuit Judges. ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐x

PHILADELPHIA INDEMNITY INSURANCE CO., Plaintiff‐Counter‐Defendant‐Appellant,

v. 17‐1636‐cv

CENTRAL TERMINAL RESTORATION CORP., WILLIAM SHEEHAN, MARCY A. SHEEHAN, MICHAEL A. SERRANO, Defendants‐Counter‐Claimants‐Appellees,

and

THOMAS GILRAY, JR., Defendant.

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FOR PLAINTIFF‐COUNTER‐ CHRISTOPHER T. BRADLEY, Marshall DEFENDANT‐APPELLANT: Conway & Bradley, P.C., New York, New York.

FOR DEFENDANT‐COUNTER‐ KENNETH W. AFRICANO (Patrick M. CLAIMANT‐APPELLEE CENTRAL Tomovic, on the brief), Harter Secrest & TERMINAL RESTORATION Emery, LLP, Buffalo, New York. CORPORATION:

FOR DEFENDANTS‐COUNTER‐ R. CHARLES MINER, Smith Miner OʹShea CLAIMANTS‐APPELLEES WILLIAM & Smith, LLP, Buffalo, New York. SHEEHAN AND MARCY A. SHEEHAN:

FOR DEFENDANT‐COUNTER‐ JOSEPH A. MATTELIANO, Auguello & CLAIMANT‐APPELLEE MICHAEL Matteliano, LLP, Buffalo, New York. A. SERRANO:

Appeal from the United States District Court for the Western District of

New York (Telesca, J.).

UPON DUE CONSIDERATION, IT IS HEREBY ORDERED,

ADJUDGED, AND DECREED that the judgment of the district court is AFFIRMED

and the case is REMANDED solely with respect to the issue of attorneysʹ fees.

Plaintiff‐counter‐defendant‐appellant Philadelphia Indemnity Insurance

Company (ʺPIICʺ) appeals from a May 8, 2017, judgment, entered pursuant to a

decision and order granting summary judgment in favor of defendants‐counter‐

claimants‐appellees Central Terminal Restoration Corporation (ʺCTRCʺ), William and

Marcy A. Sheehan, and Michael A. Serrano holding that PIIC was obligated to defend

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and indemnify CTRC under two insurance policies. We assume the partiesʹ familiarity

with the underlying facts, procedural history, and issues on appeal.

BACKGROUND

CTRC is a not‐for‐profit corporation located in Buffalo, New York. On

April 1, 2013, CTRC held a Dyngus Day fundraising event, for which it obtained a

temporary license to sell liquor.1 At the fundraising event, CTRC allegedly served

Thomas Gilray alcohol. Later that same evening, Gilray was driving while intoxicated

and struck two pedestrians with his vehicle ‐‐ William Sheehan and Michael Serrano.2

Both were seriously injured in the accident.

On November 14 and 19, 2013, respectively, the Sheehans and Serrano

filed separate personal injury lawsuits against CTRC and others. The claims against

CTRC were based on the Dram Shop statutes, N.Y. General Obligations Law

§ 11‐101 and

. The complaints alleged that,

sometime in the seven hours prior to the accident, Gilray was served alcohol at CTRCʹs

Dyngus Day fundraising event despite being visibly intoxicated.

In 2013, CTRC promptly notified its insurance carrier, PIIC, of the

lawsuits, and PIIC began defending CTRC in both cases. At issue in this appeal is the

1 Dyngus Day is observed on the Monday after Easter, and is celebrated in particular by Polish‐American communities. 2 The Court has been advised that William Sheehan died on January 10, 2018. As Mrs. Sheehan remains a party and Mr. Sheehanʹs interests are aligned with the interests of the remaining appellees, the Court is proceeding with the appeal. See Fed. R. App. P. 43(a)(1).

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extent of PIICʹs obligation to defend and indemnify CTRC for claims arising out of

purported violations of the Dram Shop statutes.

Prior to the event, CTRC had purchased two insurance policies from PIIC,

a primary policy (the ʺPrimary Policyʺ) and an excess policy (the ʺExcess Policy,ʺ and

together the ʺPoliciesʺ). The Primary Policy contains two coverage parts: a commercial

general liability (ʺCGLʺ) part and a liquor liability part.

The CGL part provides coverage for any ʺbodily injury,ʺ resulting from an

ʺoccurrence,ʺ unless the bodily injury is ʺexpected or intended from the standpoint of

the insured.ʺ App. 169‐70. ʺOccurrenceʺ is defined as ʺan accident, including

continuous or repeated exposure to substantially the same general harmful conditions.ʺ

App. 182. The CGL part provides $2 million in coverage for each occurrence, and $4

million in the aggregate.

The CGL part also contains a fundraising endorsement, for which CTRC

paid a separate premium of $975 to cover the Dyngus Day event. The endorsement

states that it ʺmodifiesʺ the CGL part, and specifically provides coverage for bodily

injuries ʺarising out ofʺ covered events. App. 209.

The second part of the Primary Policy is the liquor liability part for which

CTRC paid a $1,000 premium. The liquor liability part provides $1 million in additional

coverage for ʺinjuryʺ claims caused ʺby reason of the selling, serving or furnishing of

any alcoholic beverage.ʺ App. 210.

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The Excess Policy provides a separate layer of coverage in the amount of

$1 million in addition to the coverage under the Primary Policy. As in the Primary

Policy, the Excess Policy covers bodily injuries caused by an ʺoccurrence,ʺ defined the

same as above. App. 256.

On April 7, 2016, PIIC filed this diversity action in the district court

seeking a determination that its obligation to defend and indemnify CTRC in the

lawsuits existed only under the liquor liability part of the Primary Policy. PIIC argued

that it had no obligation to defend or indemnify CTRC under the CGL part of the

Primary Policy or under Excess Policy because those provisions cover ʺbodily injur[ies]ʺ

resulting from an ʺoccurrenceʺ ‐‐ meaning ʺan accidentʺ ‐‐ and not those injuries that are

ʺexpected or intended from the standpoint of the insured.ʺ App. 170, 182.

PIIC specifically argued that the Gilray accident was not a covered

ʺoccurrenceʺ because the claims arose from CTRCʹs intentional, non‐accidental serving of

alcohol. See, e.g., Dugan v. Olson,

(2d Depʹt 2010) (holding that a

cause of action under the New York Dram Shop Act requires a plaintiff to ʺprove that

the defendant sold alcohol to a person who was visibly intoxicated and that the sale of

that alcohol bore some reasonable or practical connection to the resulting damagesʺ).

Serrano, the Sheehans, and CTRC separately moved for summary

judgment on the basis that coverage exists under the plain language of the Policies.

PIIC also moved for summary judgment on the basis that no coverage exists under the

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CGL part of the Primary Policy or under the Excess Policy because the underlying

lawsuits alleged intentional acts on the part of CTRC.

On May 8, 2017, the district court granted all three summary judgment

motions against PIIC and denied PIICʹs motion. Relying on Markevics v. Liberty Mutual

Insurance Co.,

(2d Depʹt 2000), affʹd on other grounds,

(2001), the court held that (1) coverage exists under the CGL part of the Primary Policy

because a violation of the Dram Shop statutes qualifies as an ʺoccurrenceʺ under New

York law; (2) the plain language of the fundraising endorsement in the Primary Policy

establishes coverage under the CGL part because the claims ʺindisputably involve

claims of bodily injury arising out of the Dyngus Dayʺ event, Sp. App. 7; and (3)

coverage exists under the Excess Policy for the same reasons coverage existed under the

CGL part of the Primary Policy.

Judgment was entered May 8, 2017. This appeal followed.

DISCUSSION

We review de novo the district courtʹs summary judgment ruling,

ʺconstruing the evidence in the light most favorable to the non‐moving party and

drawing all reasonable inferences in [its] favor.ʺ Mihalik v. Credit Agricole Cheuvreux N.

Am., Inc.,

(2d Cir. 2013). A movant is entitled to summary judgment if

ʺthere is no genuine dispute as to any material fact and the movant is entitled to

judgment as a matter of law.ʺ Fed. R. Civ. P. 56(a). ʺBecause interpretation of an

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insurance agreement is a question of law, we review the district courtʹs construction of

the [Policies] de novo.ʺ U.S. Fid. & Guar. Co. v. Fendi Adele S.R.L.,

(2d

Cir. 2016) (alteration in original). Here, the parties agree that the Policies are governed

by New York law.

New York courts interpret insurance policies according to principles of

contract law, giving policy language its ʺplain and ordinary meaningʺ and construing

ambiguities in favor of the insured. Selective Ins. Co. of Am. v. Cty. of Rensselaer,

(2016). ʺAn insurerʹs duty to defend claims made against its

policyholder is ordinarily ascertained by comparing the allegations of a complaint with

the wording of the insurance contract.ʺ Intʹl Bus. Machs. Corp. v. Liberty Mut. Ins. Co.,

(2d Cir. 2004).

On appeal, PIIC raises a number of arguments in support of its contention

that the district court erred in determining that the ʺnon‐accidental action of serving

alcoholʺ constitutes a covered occurrence. Appellantʹs Br. 10. We are not persuaded by

any of them.

We agree with the district court that a violation of the Dram Shop statutes

that results in a car accident qualifies as ʺan occurrenceʺ 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 ʺintendedʺ by CTRC for purposes of excluding coverage, even if those injuries

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were arguably foreseeable to CTRC. See Allegany Co‐op Ins. Co. v. Kohorst,

(4th Depʹt 1998) (holding that ʺ[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 actʺ (internal quotation marks omitted)); see also City of Johnstown,

N.Y. v. Bankers Standard Ins. Co.,

(2d Cir. 1989) (ʺ[T]hough

an intentional act may ultimately cause certain damages, those damages may, under

New York law, be considered ʹaccidentalʹ if the ʹtotal situation could be found to

constitute an accident.ʹ . . . In general, what makes injuries or damages expected or

intended rather than accidental are the knowledge and intent of the insured.ʺ (emphasis

omitted)).

PIIC asserts that the district court incorrectly relied on dictum in

Markevics, and that this was an issue of first impression that required the court to

predict how the New York Court of Appeals would rule. We disagree. To the extent

PIIC relies on the dissent in Markevics and cites cases applying the substantive law of

other states, the reliance is misplaced. As discussed by the district court, the facts in

Markevics are similar to those in this case. See Markevics, 717 N.Y.S.2d at 305‐06. There,

the plaintiff argued that an insurance company was obligated to defend and indemnify

its insured in connection with a lawsuit involving the furnishing of alcohol to an

individual who later caused an automobile accident that injured the plaintiff. See

As

in this case, the insurance company argued that the policy did not provide coverage

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because the claims arose from the insuredʹs ʺnon‐accidental action of serving alcohol to

the driver of the car in which the plaintiff was injured.ʺ Id. at 308 (Santucci, J.,

dissenting) (internal quotation marks omitted). The majority expressly rejected that

argument, concluding that it was ʺbeyond question that a claim was made against [the

insured] for damages because of bodily injury caused by an occurrence.ʺ Id. at 306. It

further concluded that the language of the contract ‐‐ which defined ʺʹoccurrence . . . so

as to include ʹan accident . . . which results . . . in . . . bodily injuryʹʺ ‐‐ was

ʺunambiguousʺ and, absent an exclusion, ʺthe policy provides coverage.ʺ Id. at 306‐07.

A number of other New York courts, in a line of cases reaching back to

then‐Judge Cardozoʹs opinion in Messersmith v. American Fidelity Co.,

(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.,

(4th Depʹt 1995) (ʺAccidental 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.ʺ); 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 ʺaccidentʺ where the insured

did not intend the subsequent injuries).

PIIC also asserts that CTRCʹs sale of alcohol to Gilray, not the accident, is

the operative event giving rise to the legal claims at issue because the Dram Shop

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statutes impose strict liability for such a sale. We disagree. A Dram Shop claim not

only requires an unlawful sale ‐‐ meaning that the person selling or otherwise

providing an intoxicated person with alcohol knew he was already intoxicated ‐‐ but

also requires an underlying injury. See Sherman v. Robinson,

(1992).

It makes little sense to characterize the claims at issue as arising solely from the sale of

alcohol, separate and distinct from the accident causing the requisite injury. See N.Y.

Gen. Oblig. Law § 11‐101 (ʺAny person who shall be injured . . . by any intoxicated

person, or by reason of the intoxication of any person, . . . shall have a right of action

against any person who shall, by unlawful selling to or unlawfully assisting in

procuring liquor for such intoxicated person, have caused or contributed to such

intoxication . . . .ʺ).

PIIC additionally argues that the fundraising endorsement in the Primary

Policy does not establish coverage independent of the terms and conditions of the CGL

part, and because the endorsement does not modify the terms, conditions, and

limitations of the CGL, there must still be an ʺoccurrenceʺ to trigger coverage. It further

argues that the district courtʹs conclusion that an ʺoccurrenceʺ was not required runs

afoul of the fortuity doctrine which holds that a loss is not insurable if it is not

fortuitous. See Natʹl Union Fire Ins. Co. of Pittsburgh v. Stroh Cos.,

(2d

Cir. 2001) (ʺ[I]nsurance is not available for losses that the policyholder knows of,

planned, intended, or is aware are substantially certain to occur.ʺ (citation omitted)).

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Even if we accept PIICʹs argument as correct, for the reasons discussed earlier, we

nevertheless conclude that the car accident here was a fortuitous event from the

perspective of CTRC. Therefore, the fortuity doctrine does not preclude coverage under

the endorsement.

Moreover, the plain language of the endorsement provides coverage to

CTRC ʺfor bodily injuryʺ arising out of the Dyngus Day event, and we agree that the

injuries suffered by Mr. Sheehan and Mr. Serrano ʺar[ose]ʺ out of the Dyngus Day

fundraising event. App. 209; see Regal Constr. Corp. v. Natʹl Union Fire Ins. Co. of

Pittsburgh,

(2010) (explaining that when an insurance endorsement uses

the phrase ʺarising out of,ʺ it means ʺoriginating from, incident to, or having connection

withʺ). Even if Gilray directly caused the accident, the claims are connected to the

Dyngus Day event by virtue of the relevant allegations in the complaints: Gilray was

served alcohol at the Dyngus Day event and subsequently struck Mr. Sheehan and Mr.

Serrano with his vehicle while intoxicated, severely injuring them. See Burlington Ins.

Co. v. NYC Transit Auth.,

, 324‐25 (2017) (explaining that ʺarising out ofʺ is

not the functional equivalent of ʺproximately caused byʺ). We therefore agree with the

district court that coverage under the CGL part also exists by virtue of the fundraising

endorsement in the Primary Policy. See Regal Constr.,

(to establish

coverage under the phrase ʺarising out of,ʺ all that is required is ʺsome causal

relationship between the injury and the risk for which coverage is providedʺ).

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Lastly, PIIC argues that because CTRC purchased liquor liability coverage

under the Primary Policy, that provision is more ʺspecificʺ than the general CGL

coverage as applied to the facts of this case, and thus controls. We are not persuaded.

The CGL fundraising endorsement clearly confers insurance coverage for bodily

injuries ‐‐ without limitation ‐‐ arising from the Dyngus Day event. The liquor liability

part also does not expressly limit the amount of coverage provided to CTRC but instead

provides an additional $1 million for claims arising from the sale of alcohol, for which

CTRC paid a $1,000 premium. To the extent there is ambiguity as to whether the liquor

liability part limits the coverage provided under the CGL part, we construe the terms in

the light most favorable to CTRC. See White v. Continental Cas. Co.,

(2007) (ʺ[A]ny ambiguity must be construed in favor of the insured and against the

insurer.ʺ).

For the same reasons that coverage exists under the CGL part of the

Primary Policy on the basis that a car accident resulting from a purported violation of

the Dram Shop statutes is a covered ʺoccurrence,ʺ we also hold that coverage exists

under the Excess Policy.

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We have considered PIICʹs remaining arguments and find them to be

without merit. Accordingly, we AFFIRM the judgment of the district court and

REMAND only with respect to the issue of attorneysʹ fees.3

FOR THE COURT: Catherine OʹHagan Wolfe, Clerk

3 CTRC requested that we grant it the right to recover attorneysʹ fees. It moved for attorneysʹ fees below, and the district court denied the motion without prejudice to renewal within 14 days after this Courtʹs ruling on the merits of the appeal. In light of our disposition of this appeal, we remand for the district court to address the issue of attorneysʹ fees in the first instance.

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