No Coverage After Policy Cancelled for Non-Payment

No Duty to Defend or Indemnify After Cancellation

When a bar loses its liquor license and fails to pay the premium on its insurance policy there should be little doubt that the insurer will cancel the policy for non-payment of premium and provide no liquor liability insurance protection to an insured who is unlicensed.

In Founders Insurance Company v. Billy’s Bar & Grill LLC, et al., Civil Action No. 3:18-cv-00367-M, United States District Court For The Northern District Of Texas Dallas Division (April 13, 2020) Founders Insurance Company was the former insurer of Defendant Billy’s Bar & Grill, LLC (“BB&G”) and sought declaratory relief after a September 30, 2011, incident in which Matthew Kunkle was allegedly injured when he crashed his motorcycle after drinking at BB&G. Joe Polanco and BB&G were the Defendants, against whom Founders sought default judgment.

Factual Background

Kunkle filed suit in Collin County, Texas, against BB&G, Polanco, and others (the “Collin County suit”). The court in the Collin County suit entered default judgment against BB&G and Polanco on March 24, 2020, and that case is now closed and Kunkle seeks to collect from Founders.

Because the Defendants have been served and not answered, the allegations in the Plaintiff’s suit were deemed true. The Policy was cancelled effective September 5, 2011, due to non-payment of premium.

Defendant Polanco, who was incarcerated, was properly seved and did not file an answer or otherwise respond. Defendant BB&G, a former limited liability company formed under the laws of Texas, was properly served and did not file an answer or otherwise respond.

Analysis

Defendants failed to answer or otherwise respond to Plaintiff’s Complaint, and thus there are no material facts in dispute. Nearly two years have elapsed since service of the Complaint on Defendants. The grounds for default judgment against Defendants are clearly established, as Defendants were properly served with the summons and the Complaint nearly two years ago, and have not answered or otherwise appeared. Regardless, Founders needed to prove to the court that it’s position was viable.

The court noted that the Founders Policy provided that it “shall be interpreted, construed, governed by and enforced in accordance with the laws of the State of Illinois . . . .” Under Illinois law, an insurer has no duty to defend where it is clear from the face of the underlying complaint that the allegations fail to state facts which bring the case within, or potentially within, the policy’s coverage. The duty to indemnify arises only when the insured becomes legally obligated to pay damages in the underlying action that gives rise to a claim under the policy. The duty to defend an action brought against the insured, on the other hand, is determined solely by reference to the allegations of the complaint.

The Founders Policy was cancelled effective September 5, 2011, for non-payment of premium. Kunkle’s suit stated that the date of loss on which Kunkle bases his claims is September 30, 2011. Thus, the claims asserted by Kunkle are not within the coverage period of the Founders Policy.

The Founders Policy also provided under “Exclusions to Coverage,” that “[t]his insurance does not apply to: f. Liquor License Not in Effect: “Injury” arising out of any alcoholic beverage sold, served, or furnished while any required license is suspended or after such license expires, is cancelled or revoked.”

According to the Texas Alcoholic Beverage Commission (“TABC”), neither Polanco nor “Billy’s Bar and Grill,” the name under which Polanco represented to Plaintiff that he conducted business, was issued a liquor license or permit by the TABC. Thus, the “Liquor License Not in Effect” exclusion precludes coverage for claims arising from Kunkle’s injuries.

Based on the date of cancellation and the liquor license provision in the Founders Policy, that Policy could not provide any coverage to Defendants Polanco and BB&G. Plaintiff, therefore, is entitled to a default judgment against Defendants granting a declaration that it is not liable to Defendants on the Founders Policy.

The court concluded:

  1. The Founders Policy was cancelled effective September 5, 2011.
  2. Plaintiff has and had no duty to defend or indemnify BB&G or Polanco on claims brought against them by Kunkle that arose from the motorcycle accident on September 30, 2011, after the Founders Policy was cancelled.
  3. Plaintiff does not now have, has not had, and will not have any obligation to BB&G or Polanco under the Founders Policy, by reason of any claim, fact or circumstance pertaining to the Collin County suit or the claims arising from the alleged injuries incurred by Kunkle as asserted in the Collin County suit.
  4. Costs of court are taxed against Defendants.

ZALMA OPINION

It is unfortunate that the injured plaintiff, Kunkle, will be unable to recover from those responsible for his injuries. Polanco is in jail and probably judgment proof, and neither Polanco nor his LLC had viable insurance from which Kunkle could collect. Regardless, Founders, although it owed nothing, was required to spend two years litigating with its insureds on a case without even a smidgen of potential for coverage to apply.


© 2020 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 52 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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