A group of parents brought six underlying lawsuits against Kobrand Corporation (Kobrand), alleging that it unlawfully marketed alcohol to minors. They claimed that Kobrand was negligent in its marketing practices, which they claimed encouraged drinking. They sought injunctive relief and the disgorgement of ill-gotten profits and recovery of their "actual damages," including funds used without their consent to purchase alcoholic beverages marketed by Kobrand to persons under the legal drinking age. Kobrand counterclaimed against its insurance carriers and sought a declaration that they were obligated under their policies to defend Kobrand in the underlying actions and to indemnify Kobrand if it was found liable.

The insurance companies involved collectively moved for summary judgment and sought a declaration that they had no duty to defend or indemnify Kobrand on the grounds that their policies did not cover the claims in the underlying actions. They argued that the claims did not involve bodily injury and did not seek to impose liability by reason of the selling, serving or furnishing of alcohol. They also argued that the claims were based solely on a deliberate advertising scheme targeted at minors and that advertising is not the same as selling a product. Kobrand opposed these positions by stating that the underlying actions alleged, among other things, that the parents and their underage children had suffered injury as a result of underage drinking caused by its negligent marketing activities. Kobrand also argued that the underlying actions included allegations that underage drinking causes injuries and illness and that the marketing practices increased underage drinking and the resulting injuries, which were necessarily part of the actual damages for which the plaintiffs sued as parents and guardians.

The trial court granted the motions of the insurers and denied Kobrand's cross motions. It ruled that Kobrand made judicial admissions in prior motions that the underlying actions did not seek damages for bodily injury or property damage but instead sought only pecuniary (monetary) damages or damages for economic loss. Kobrand moved to reargue, claiming that the court had not properly considered the claims under the Liquor Liability Coverage Part. The court granted reargument but affirmed its previous determination. It further held that the Liquor Liability Coverage Part did not provide coverage because the underlying actions implicated Kobrand's advertising and marketing techniques and those techniques caused the damages sustained by the plaintiff parents. It determined that advertising techniques do not constitute selling, serving or furnishing of any alcoholic beverage.

On appeal, Kobrand argued that the insurers had a duty to defend under the Liquor Liability Coverage Part of their policies because the underlying complaints charged it with causing harm as a result of its manufacturing, marketing, selling and distributing of its alcoholic products. The insurers claimed that what was really being challenged was the marketing and advertising of alcoholic beverages, not the selling. The appellate court held that the underlying actions sought damages based on the alleged unlawful marketing of alcohol to minors and that advertising and marketing techniques did not constitute selling, serving or furnishing of alcoholic beverages. It determined that the liquor liability provisions in the various policies applied only to damages for liability arising by reason of selling, serving or furnishing alcoholic beverages. As a result, the insurers had no duty to indemnify or defend their insured in the underlying lawsuits and the trial court decision was affirmed.

Great Northern Ins. Co. v. Kobrand Corp. N.Y.A.D. 1 Dept., 2007

---N.Y.S.2d---, 40 A.D.3d 462, 2007 WL 1500530 (N.Y.A.D. 1 Dept.), 2007 N.Y. Slip Op. 04403