THE STATE OF SOUTH CAROLINA
In The Supreme Court
Inc. d/b/a The Alley
Connie K. Smith and
Larry James, as co-
conservators of Tina D.
James; and Beverly Ann
of whom Connie K. Smith
and Larry James, as co-
conservators of Tina D.
James, are Petitioners,
and First Financial
ON WRIT OF CERTIORARI TO THE COURT OF
Appeal From Anderson County
Ellis B. Drew, Jr., Master-in-Equity
Opinion No. 24913
Heard February 2, 1999 - Filed March 8, 1999
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,
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.
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.
Id. The Court granted Conservators' petition for a writ of certiorari.1
Did the Court of Appeals err by holding First Financial had no
duty to defend and indemnify BLG in the underlying suit?
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
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, . . . .
petition for a writ of certiorari.
2Completed operations coverage was excluded.
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
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
Originally, the insurance policy defined "products hazard" as
"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
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.
by or rented to the named insured and after physical
possession of such products has been relinquished to
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;
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
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,
§ 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
Court of Appeals considered whether an insurance company which issued
cite no cases to the contrary and we have found no authority to the
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.
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
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).
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
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
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
7We note the endorsement is entitled "Products Hazard Redefined."
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
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.
FINNEY, C.J., TOAL, MOORE, and WALLER, JJ., concur.
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.