Seventh Circuit Court: Alcoholic Energy Drinks Excluded From Coverage

By Steven Plitt | April 28, 2014

Makers of energy drinks have started to include alcoholic content in order to receive a greater market share of the youth in college student market. Unlike regular alcoholic beverages, the new alcoholic plus energy stimulants mixed drinks have been causing significant injuries which have become the subject of coverage litigation.

As an example, in Colony Ins. Co. v. Events Plus, Inc., 585 F.Supp.2d 1148 (D. Ariz. 2008), the Court found that the insurance company did not owe a duty to defend against a negligence action in which an insured hosted a “Flugtag” event where Red Bull and Vodka cocktails were served. A patron who attended the event was served numerous Red Bull/Vodka cocktails which caused severe intoxication. The patron left the event by car and later caused a significant motor vehicle accident. The insurance policy included a liquor liability exclusion. The Court reviewed the allegations in the underlying complaint to determine if there was a single allegation of tortious conduct that was divorced from the serving of alcohol. Concluding that there was no separate tortious conduct, and finding that the secondary negligence claims (negligent hiring and supervision) were not distinct from the furnishing of alcohol, but were, instead, inextricably intertwined, the Court held that the liquor liability exclusion was applicable.

More recently, in Netherlands Ins. Co. v. Phusion Projects, Inc., 737 F.3d 1174 (7th Cir. 2013), the insured Phusion was a manufacturer and distributor of an alcoholic beverage called “Four Loko.” The beverage included, in addition to alcohol, energy stimulants such as caffeine, guarana, taurine and wormwood. The declaratory judgment action involved coverage for five underlying injury lawsuits. In the first lawsuit, a consumer of Four Loko became intoxicated but could not fall asleep. After being awake for 30 hours, the consumer accidently shot himself in the head. In the second lawsuit, the plaintiff was injured as a passenger in a car driven by a friend who consumed Four Loko and was driving recklessly after drinking it. The complaint alleged that the consumption of Four Loko caused the driver to drive aggressively, carelessly and at speeds over 100 mph. The third lawsuit also involved a passenger in a car driven by a consumer of the beverage. The fourth lawsuit involved a consumer who had a paranoid episode after drinking Four Loko. While the parents of the consumer were attempting to supervise him, he ran out onto a busy highway where he was struck and killed by oncoming traffic. In the fifth lawsuit, the consumer awoke with heart troubles after drinking Four Loko the night before. This consumer alleged that Four Loko was a dangerous product that led to his heart condition.

The insurance company, Netherlands, denied coverage based upon a liquor liability exclusion. The insured, Phusion, argued that the liquor liability exclusion did not apply because Phusion was guilty of committing additional independent wrongdoing by adding energy stimulants to its drinks. Despite the fact that alcohol and stimulants were premixed in every can of Four Loko, Phusion argued that the underlying complaints were really “stimulant liability cases,” and not liquor liability cases. The thrust of Phusion’s argument is that its choice to add stimulants to its Four Loko product constituted additional independent wrongdoing that represented a separate allegation outside of the liquor liability exclusion and therefore was within coverage under the insurance policies. The insurance company argued, however, that the liquor liability exclusion should apply to the Four Loko product the same way it applies to all alcoholic beverages and the fact that additional stimulants were added was irrelevant.

The Seventh Circuit Court of Appeals began its analysis by noting that the Four Loko beverage premixed malt liquor with an alcohol content equivalent to five or six 12 oz. cans of beer with caffeine equivalent to two cups of coffee, guarana, taurine, wormwood (the active ingredient in absinthe), carbonation, sugar and natural artificial flavors. The Court held because the nature of the Four Loko product, the stimulants and alcohol could not be separated.

The Court found: “The presence of energy stimulants in an alcoholic drink has no legal effect on the applicability of a liquor liability exclusion. The supply of alcohol, regardless of what it is mixed with, is the relevant factor to determine whether an insured caused or contributed to the intoxication of any person [as required by the exclusion]. While Phusion’s choice of premixing energy stimulants and alcohol to make its Four Loko product might not have been a very good one, it does not amount to tortious conduct that is divorced from the serving of alcohol.” The Court held that the liquor liability exclusion was applicable.

In concluding its analysis, the Court noted that if Phusion “wanted insurance coverage for incidents that occurred after someone imbibed its alcoholic concoctions, the time to make that decision was when they purchased insurance.” Phusion could have requested additional liquor liability coverage and paid additional premiums for it according to the Court.

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About Steven Plitt

Steven Plitt is the current successor author to Couch on Insurance, 3d. He maintains a national coverage practice with The Cavanagh Law Firm. He has been listed continuously as one of Arizona's 50 lawyers by Southwest Super Lawyers. He can be reached To read additional articles by Steven Plitt, go to More from Steven Plitt

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