July 12, 2013 – Hosting an underage drinking party just got riskier, as the Wisconsin Supreme Court recently ruled that a homeowner’s insurance policy doesn’t cover the injuries sustained by a guest who was assaulted by another guest at a party.
Michael Gundrum hosted an underage drinking party in a large shed on the premises of the Slinger-based family business, Gundrum Trucking. One guest, Matthew Cecil, assaulted Marshall Schinner, causing serious injury. Schinner sued Gundrum.
Schinner said Gundrum, 21 years old at the time, was negligent because he served alcohol to minors and knew Cecil could get belligerent when drinking.
The Gundrum family had a homeowner’s insurance policy that covered personal liability for “occurrences,” including accidents, but the insurer denied coverage.
The circuit court initially dismissed the insurer from the suit. But an appeals court ruled that the policy covered this type of accident. The supreme court recently reversed.
In Schinner v. Gundrum, 2013 WI 71 (July 12, 2013), a majority ruled that the Gundrum’s policy did not provide coverage for Schinner’s injuries for two reasons.
First, the policy did not cover this type of “occurrence.” Second, the majority said the business shed “was not an insured location triggering coverage.”
Assault Not an “Occurrence”
The homeowner’s insurance policy covered liability for bodily injuries caused by an “occurrence,” defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”
After Schinner sued Gundrum, Gundrum invoked the policy to cover any resulting liability for negligence. The appeals court had ruled that the third-party assault was an “accident,” because the injured person, Schinner, did not expect it to happen.
In interpreting the term “accident,” the appeals court viewed the assault from the standpoint of the injured party. This was not correct, according to the majority.
“Analyzing an accident from the standpoint of the injured party goes against recent insurance decisions in Wisconsin,” wrote Justice David Prosser for the majority.
“[W]e hold that when an insured is seeking coverage, the determination of whether an injury is an accident under a liability insurance policy should be viewed from the standpoint of the insured,” Justice Prosser continued.
From Gundrum’s perspective, the majority concluded, the assault was not an “accident,” because Gundrum promoted heavy underage drinking with games like “beer pong.” He also knew from prior experience that Cecil became combative when drunk.
The 4-3 majority noted that, as a general rule, insurance policies don’t cover personal injuries that are intentionally caused by the insured person.
“This case is more difficult because bodily injury was not intended and there was no certainty that it would occur,” wrote Justice Prosser.
“On the other hand, bodily injury was hardly unforeseeable. All the conditions for a tragic accident were put in place, and they were put in place intentionally.”
“It is no leap of logic to conclude that Gundrum knew that a combination of underage partygoers, alcohol, and games like beer pong would create a powder keg,” wrote Prosser, concluding that Gundrum’s intentional conduct was not accidental.
Granting coverage, the majority said, “would be sending the wrong message about underage drinking parties, implying that whatever tragic consequences might occur, insurance companies will be there to foot the bill.”
Shed Not a Covered Location
Even assuming the assault was a covered occurrence, a 5-2 majority ruled that the policy did not cover accidents at the party shed on the family’s business property.
The policy barred coverage for bodily injuries “arising out of” a location that was not the residence or a premises used in connection with the residence.
The insurance company, West Bend Mutual Insurance, argued that Schinner’s injuries arose of Gundrum’s use of the shed, and the shed was not used in connection with the residence. But the appeals court had ruled that coverage was not barred, noting that the Gundrum family used the shed to store personal property. This was an error.
“If business owners were allowed to store insured personal property on their business premises and obtain insurance coverage for the premises through a homeowner’s policy, there would be much less reason to obtain business insurance,” wrote Justice Prosser, noting the Gundrum’s business insurance contained a liquor liability exclusion, so that policy did not cover accidents involving alcohol. “Such a result would be absurd.”
Justice Patrick Crooks wrote a short concurrence, agreeing that the insurance policy did not cover Gundrum’s liability for Schinner’s injuries because injury occurred on the business property, which was not covered by the homeowner’s policy.
But he joined two dissenting justices, who argued that Cecil’s assault constituted an “occurrence” that was covered by the homeowner’s insurance policy.
Justice Anne Walsh Bradley, joined by Crooks and Chief Justice Shirley Abrahamson, agreed that “occurrences” should be viewed from the standpoint of the insured.
But in a dissenting opinion, Justice Bradley said the assault was still an “occurrence” when analyzed from Gundrum’s perspective, even though he hosted the party.
“Ultimately, the majority’s’ analysis undermines the well-established understanding that an intentional act by an insured is within the definition of an ‘occurrence’ if the injury or damage is unexpected and unintended,” Justice Bradley wrote.
The dissent noted that the policy did not include available exclusions that would have barred coverage, such as “underage drinking” and “intentional acts” exclusions.
The dissent said “occurrences” include third-party assaults under prior precedent, and the proper analysis does not focus on whether the insured could foresee an assault when considering whether a policy covers it. That’s a negligence analysis.
Bradley, joined by Abrahamson, also argued that the location of the “occurrence” did not matter. It would only matter if “arising out of” the condition of the premises, and the injury was not sustained by Gundrum’s negligent maintenance of the uninsured shed.