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24913 - B.L.G. Enterprises v. First Financial Ins. Co., et al.

Shearouse Adv. Sh. No. 10
S.E. 2d

THE STATE OF SOUTH CAROLINA

In The Supreme Court



B.L.G. Enterprises,

Inc. d/b/a The Alley

Bar, Plaintiff,

v.

First Financial

Insurance Company;

Connie K. Smith and

Larry James, as co-

conservators of Tina D.

James; and Beverly Ann

Wetterman, Defendants,



of whom Connie K. Smith

and Larry James, as co-

conservators of Tina D.

James, are Petitioners,



and First Financial

Insurance Company

is Respondent.







ON WRIT OF CERTIORARI TO THE COURT OF

APPEALS

Appeal From Anderson County

Ellis B. Drew, Jr., Master-in-Equity

Opinion No. 24913

Heard February 2, 1999 - Filed March 8, 1999

AFFIRMED

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B.L.G. ENTERPRISES v. FIRST FINANCIAL INS. CO., ET AL.





Steven M. Krause, of Law Offices of Steven M.

Krause, P.A., of Anderson, for petitioners.



Phillip E. Reeves and Jennifer E. Johnson, of

Gibbes, Gallivan, White & Boyd, P.A., of Greenville,

for respondent.

Robert L. Waldrep, Jr., of Waldrep and Stoddard, of

Anderson, for B.L.G. Enterprises, Inc..





BURNETT, A.J.: We granted a writ of certiorari to review

the decision of the Court of Appeals in B.L.G. Enterprises, Inc. v. First

Financial Ins. Co., 328 S.C. 374, 491 S.E.2d 695 (Ct App. 1997). We affirm.





FACTS



B.L.G. Enterprises, Inc. d/b/a The Alley Bar (BLG), instituted

this declaratory judgment action against Respondent First Financial

Insurance Company (First Financial) to determine whether First Financial

owed it a duty to defend and indemnify BLG in the underlying tort action

brought by Connie K. Smith and Larry James (Conservators) as co-

conservators of Tina D. James. Conservators' underlying complaint alleged

employees of BLG negligently served Beverly Ann Wetterman alcoholic

beverages while she was visibly intoxicated and allowed her to leave the

bar and drive a motor vehicle. It is alleged Ms. Wetterman ran a red

light and collided with the car being driven by Ms. James, causing Ms.

James severe physical and mental injuries.





At the time of the accident, BLG maintained insurance with

First Financial. First Financial argued, however, the insurance policy

specifically excluded coverage for dram shop liability. Conservators argued

1) an endorsement to the original policy provided dram shop liability

coverage or 2) the endorsement created an ambiguity in the policy's

coverage and, therefore, the policy is deemed to provide dram shop liability

coverage. The master-in-equity ruled in favor of BLG and Conservators.

Finding the endorsement did not apply to the dram shop liability exclusion

and, hence, did not conflict with the policy, the Court of Appeals reversed.



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B.L.G. ENTERPRISES v. FIRST FINANCIAL INS. CO., ET AL.





Id. The Court granted Conservators' petition for a writ of certiorari.1





ISSUE



Did the Court of Appeals err by holding First Financial had no

duty to defend and indemnify BLG in the underlying suit?





DISCUSSION



At the time of the underlying accident, BLG had insurance

with First Financial. 'The insurance policy consisted of two coverages:

"Owners', Landlords', and Tenants' Liability Insurance" and "Completed

Operations and Products Liability Insurance."2 Both coverages describe

BLG's premise - operations as "taverns" and products as "tavern." In

relevant part, the "Completed Operations and Products Liability

Insurance" provides:



COVERAGE A - BODILY INJURY LIABILITY

COVERAGE B - PROPERTY DAMAGE LIABILITY

The company will pay on behalf of the insured all sums

which the insured shall become legally obligated to pay

as damages because of

A. bodily injury or

B. property damage

to which this insurance applies, caused by an occurrence,

if the bodily injury or property damage is included within

the completed operations or the products hazard, and the

company shall have the right and duty to defend any suit

against the insured seeking damages on account of such

bodily injury or property damage, . . . .





Exclusions


1BLG did not participate at the Court of Appeals or in the present

petition for a writ of certiorari.



2Completed operations coverage was excluded.

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B.L.G. ENTERPRISES v. FIRST FINANCIAL INS. CO., ET AL.





This insurance does not apply:

(b) to bodily injury or property damage for which

the insured may be held liable

(1) as a person or organization engaged in the

business of manufacturing, distributing,

selling or serving alcoholic beverages, or

(2) if not so engaged, as an owner or lessor of

premises used for such purposes, if such

liability is imposed

(1) by; or because of the violation of, any

statute; ordinance or regulation pertaining to

the sale, gift, distribution or use of any

alcoholic beverage, or

(ii) by reason of the selling, serving or giving

of any alcoholic beverage to a minor or to a

person under the influence of alcohol or which

causes or contributes to the intoxication of

any person:

but part (ii) of this exclusion does not apply

with respect to liability of the insured as an

owner or lessor described in (2) above;3



(underline added).





Originally, the insurance policy defined "products hazard" as

follows:

"Products hazard" includes bodily injury and property

damage arising out of the named insured's products or

reliance upon a representation or warranty made at any

time with respect thereto, but only if the bodily injury or

property damage occurs away from the premises owned


3 The "Owners', Landlords' and Tenants' Liability Insurance" provides

coverage for: "an occurrence and arising out of the ownership,

maintenance or use of the insured premises and all operations necessary

or incidental thereto . . . ." Exclusion h of the "Owners', Landlords' and

Tenants' Liability Insurance" is identical to Exclusion b in the "Completed

Operations and Products Liability" policy.

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B.L.G. ENTERPRISES v. FIRST FINANCIAL INS. CO., ET AL.





by or rented to the named insured and after physical

possession of such products has been relinquished to

others;

(underline added).





An endorsement to the policy provides:

PRODUCTS HAZARD REDEFINED

This endorsement modifies such insurance as is afforded

by the policy relating to the following:

COMPREHENSIVE GENERAL LIABILITY INSURANCE

COMPLETED OPERATIONS AND PRODUCTS LIABILITY INSURANCE

It is agreed that with respect to bodily injury or property

damage arising out of the named insured's products

manufactured, sold, handled or distributed

(1) on, from or in connection with the use of any

premises described in this endorsement, or

(2) in connection with the conduct of any operation

described in this endorsement, when conducted by or on

behalf of the named insured, the definition of "products

hazard" is amended to read as follows:

"products hazard" includes bodily injury and property

damage arising out of (a) the named insured's products

or (b) reliance upon a representation or warranty made

with respect thereto; but only if the bodily injury or

property damage occurs after physical possession of such

products has been relinquished to others;





I.



Conservators maintain the dram shop exclusion should not be

enforced because it effectively bars all liability coverage for injury due to

the sale of alcohol which, as a tavern, is the very coverage BLG sought to

acquire. They further assert, because BLG is a tavern, the language of



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B.L.G. ENTERPRISES v. FIRST FINANCIAL INS. CO., ET AL.





the policy and dram shop exclusion is ambiguous and, therefore, should be

construed in favor of coverage. We disagree.





It is well settled that an insurer's duty to defend is based on

the allegations of the underlying complaint. Federated Mut. Ins. Co. v.

Piedmont Petroleum Corp., 314 S.C. 393, 444 S.E.2d 532 (Ct. App. 1994).

A liability insurer must defend any suit alleging bodily injury or property

damage seeking damages payable under the terms of the policy. Sloan

Constr. Co. v. Central Nat'l Ins. Co. of Omaha, 269 S.C. 183, 236 S.E.2d

818 (1977); Nationwide Mut. Ins. Co. v. Tate, 313 S.C. 444, 438 S.E.2d 266

(Ct. App. 1993). However, an insurer has no duty to defend an insured

where the damage was caused for a reason unambiguously excluded under

the policy. Federated-Mut. Ins. Co. v. Piedmont Petroleum Corp., supra;

Falkosky v. Allstate Ins. Co., 311 S.C. 369, 429 S.E.2d 194 (Ct. App. 1993),

affd as modified, 312 S.C. 210, 439 S.E.2d 836 (1993).





Insurance policies are subject to the general rules of contract

construction. Diamond State Ins. Co. v. Homestead Industries, Inc., 318

S.C. 231, 456 S.E.2d 912 (1995); Sloan Constr. Co. v. Central Nat'l Ins..

Co., supra. This Court must give policy language its plain, ordinary, and

popular meaning. Fritz-Pontiac-Cadillac-Buick v. Goforth, 312 S.C. 315,

440 S.E.2d 367 (1994). When a contract is unambiguous, clear, and

explicit, it must be construed according to the terms the parties have used.

C.A.N. Enterprises, Inc. v. S.C. Health & Human Services Finance

Comm'n, 296 S.C. 373, 373 S.E.2d 584 (1988). The court's duty is "limited

to the interpretation of the contract made by the parties themselves

'regardless of its wisdom or folly, apparent unreasonableness, or failure [of

the parties] to guard their interests carefully.'" 296 S.C. at 378, 373

S.E.2d at 587, citin Gilstrap v. Culpepper , 283 S.C. 83, 86, 320 S.E.2d

445, 447 (1984).





Although exclusions in an insurance policy are construed

against the insurer, Boggs v. Aetna Cas. and Sur. Co., 272 S.C. 460, 252

S.E.2d 565 (1979), insurers have the right to limit their liability and to

impose conditions on their obligations provided they are not in

contravention of public policy or a statutory prohibition. Burns v. State

Farm Mut. Auto. Ins, Co., 297 S.C. 520, 377 S.E.2d 569 (1989); Rhame v.

Nat'l Grange Mut. Ins. Co., 238 S.C. 539, 121 S.E.2d 94 (1961). "Policies

providing products liability coverage may contain exclusions, tailored to

the business of the particular insured, designed to limit the insurer's risk

exposure from hazards peculiar to that business." Couch on Insurance 3d,

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B.L.G. ENTERPRISES v. FIRST FINANCIAL INS. CO., ET AL.





§ 130:14 (1997).







The policy issued to BLG, a tavern, is not illusory. The

Owners', Landlords', and, Tenants' portion of the policy initially provides

liability coverage for an occurrence arising out of use of BLG's premises.

Exclusion h, however, specifically precludes coverage for bodily injury "by

reason of the selling, serving or giving of any alcoholic beverage."

(underline added). Other coverage, however, remains intact. For instance,

the policy provides liability coverage for a patron who slips and falls at the

tavern. The policy even provides coverage to an intoxicated patron who

slips and falls at the 'tavern, so long as the slip and fall was not the result

of the service of alcohol. See Excelsior Ins. Co. v. Pomona Park Bar &

Package Store, 369 So.2d 938 (Fla. 1979).





Similarly, the Completed Operations and Products Hazard

portion of the policy initially provides coverage for products liability,

including the distribution of a "defective" alcoholic beverage. Exclusion b,

however, specifically precludes coverage for bodily injury "by reason of the

selling, serving or giving of any alcoholic beverage." (underline added).

The policy provides products liability coverage for injury as a result of the

service of contaminated food or non-alcoholic beverages.





The dram shop exclusion in BLG's policy with First Financial

is almost identical to other liquor liability exclusions in insurance policies

covering establishments which distribute alcoholic beverages. These

exclusions have been uniformly found unambiguous and upheld in

numerous jurisdictions. See Williams v. U.S. Fidelity and Guar. Co., 854

F.2d 106 (5 th Cir. 1988); Hartford Ins. Co. of Southeast v. Franklin , 424

S.E.2d 803 (Ga. Ct. App. 1992); Morrison on Behalf of Morrison v. Miller,

452 So. 2d 390 (La. Ct. App. 1984); Mitcheson v. Izdepski, 585 N.E.2d 743

(Mass. App. Ct. 1992); Sheffield Ins. Co. v. Lighthouse Properties, Inc., 763

P.2d 669 (Mont. 1988); New Hampshire Ins. Co. v. Hillwinds Inn, Inc., 373

A.2d 354 (N.H. 1977); U.S. Fidelity and Guar. v. Griggs, 491 A.2d 267 (Pa.

Super. Ct. 1985); Abe's Colony Club, Inc. v. C & W Underwriters, Inc., 852

S.W.2d 86 (Tx. Ct. App. 1993); Fraternal Order of Eagles Cle Elum, Aerie

No. 649 v. General Accident Ins. Co. of America, 792 P.2d 179 (Wash. Ct.

App. 1990); Kelly v. Painter, 504 S.E.2d 171 (W. Va. 1998).4 Conservators




4 In Federated Mut. Ins. Co. v. Piedmont Petroleum Corp., supra, the

Court of Appeals considered whether an insurance company which issued

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B.L.G. ENTERPRISES v. FIRST FINANCIAL INS. CO., ET AL.





cite no cases to the contrary and we have found no authority to the

contrary.5







First Financial chose to exclude from coverage bodily injury

and property damage by reason of the distribution of alcoholic beverages

by BLG. The language in the policy clearly and unambiguously reflects

this exclusion. Accordingly, the exclusion should be enforced. C.A.N.

Enterprises, Inc. v. S.C. Health & Human Services Finance Comm'n, supra

(when an insurance policy is unambiguous, clear, and explicit, it must be

construed according to the terms the parties have used).





Alternatively, Conservators maintain the endorsement provides

coverage for bodily injury and property damage arising out of the use of

BLG's product, alcoholic beverages, and therefore conflicts with the dram

shop exclusion in the original insurance policy. According to Conservators,

this conflict must be construed against First Financial. We disagree.



When construing an insurance policy containing an

endorsement, the policy and the endorsement are to be read

together. The policy remains in full force and effect to the

extent its terms are modified by the words of the endorsement.

If a provision of the policy conflicts with a provision of the

endorsement, the latter controls.




liability coverage with a liquor liability exclusion to a gas

station/convenience store was required to defend and indemnify the

business against a plaintiff who was injured after a minor purchased

alcohol from the business. The legitimacy of the exclusion was not at

issue.





5 The policy in this case is distinguishable from an insurance policy

issued to a tavern which contained an "absolute liquor exclusion"

precluding coverage for bodily injury or damage "arising out of or in

connection with the manufacturing, selling, distributing, serving or

furnishing of any alcoholic beverages." An absolute liquor exclusion in a

policy covering a tavern is illusory. Monticello Ins. Co. v. Mike's

Speedway Lounge, Inc., 949 F. Supp. 649 (S.D. Ind. 1996).

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B.L.G. ENTERPRISES v. FIRST FINANCIAL INS. CO., ET AL.





Long v. Adams, 280 S.C. 401, 405-6, 312 S.E.2d 262, 265 (Ct. App. 1984).6





"[Ulnder well-established principles [the endorsement]

supersedes any inconsistent provision contained in the general terms of

the policy and in case of conflict, the endorsement controls." McIntosh v.

Whieldo , 205 S.C. 119, 127, 30 S.E.2d 851, 854 (1944); see Couch on

Insurance 3d, § 21:22 ("[W]hile an endorsement is not to be construed

more broadly than the fair import of its terms considered in connection

with the whole of the policy, . . . when ... endorsement modifies,

qualifies, or restricts the terms of the original policy, the ... endorsement

controls."); 13A J. Appleman Insurance Law and Practice § 7537

(1976)(policy and endorsement should be construed together unless they

are so much in conflict that they cannot be reconciled; in such case, the

endorsement controls).





In this argument, Conservators do not contend the dram shop

exclusion does not apply under the original terms of the policy. Instead,

they assert the endorsement, by using the language "arising out of the

named insured's products," provides liability coverage for personal injury

or property damage arising out of the service of alcoholic beverages and

thereby eliminates the dram shop exclusion in the original policy.





The only difference between the original policy and the

endorsement is that in the former, the definition of products hazard

required the bodily injury or property damage to occur away from the

premises. Under the definition in the endorsement, there is no such

requirement.







There is no conflict between the original policy and the

endorsement. Read in its entirety,7 the endorsement does not provide

liability coverage where the distribution of alcoholic beverages results in

bodily injury or property damage. It does not modify, limit, or in any way

affect the dram shop exclusion in the original policy. It simply redefines

"products hazard." Accordingly, there is no ambiguity between the dram

shop exclusion and the endorsement, and no reason for the endorsement to

supersede the policy. See State Auto. Ins. Ass'n v. Young Men's


6See Couch on Insurance 3d, § 21:21.



7We note the endorsement is entitled "Products Hazard Redefined."

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B.L.G. ENTERPRISES v. FIRST FINANCIAL INS. CO., ET AL.





Republican Club of Allegheny County, Inc., 663 F. Supp. 1077 (W.D. Pa.

1987)(endorsement redefining "products hazard" did not abrogate liquor

liability exclusion in insurance policy); Exchange Ins. Co. v. Mar-Fran

Enterprises, Inc., 818 P.2d 172 (Ariz. Ct. App. 1991)(same); Continental

Western Ins. Co. v. Dam Bar, 478 N.W.2d 373 (N.D. 1991)(same); see also

Smith Jean, Inc. v. Royal Globe Ins. Co., 526 N.Y.S.2d 604 (N.Y. App. Div.

1988)(products hazard clause did not negate liquor liability exclusion in

insurance policy).8





Conservators distinguish State Auto. Ins. Assn v. Young Men's

Republican Club of Ailegheny County, Inc., supra, and Smith Jean, Inc. v.

Royal Globe Ins. Co., supra, on the basis that the policy exclusions in

those cases precluded-liability coverage for the sale of alcoholic beverages

in violation of statute. Conservators distinguish Exchange Ins. Co. v. Mar-

Fran Enterprises, Inc., supra, on the basis that the insured was a

restaurant, rather than a tavern. These distinctions are irrelevant. In all

three cases, the courts specifically ruled the endorsements' new definition

of "products hazard" did not eliminate the dram shop exclusion.



AFFIRMED.



FINNEY, C.J., TOAL, MOORE, and WALLER, JJ., concur.






8 The language of First Financial's endorsement is identical to the

language of the endorsement in Exchange Ins. Co. v. Mar-Fran

Enterprises, Inc., supra, and identical to the definition of "products

hazard" included in the endorsement in State Auto. Ins. Ass'n v. Yo"n

Men's Republican Club of Allegheny County, Inc., supra.



p.10