The critical question in this case was whether or not the familiar personal liability coverage exclusion for the operation of an all terrain vehicle applies "when the insured provides liquor to the victim, who then drives the insured's ATV." The trial court and the appeal court concluded that the insurer was obligated to defend a homeowners policy insured on the fifth count of a complaint which alleged that described acts of the insured fell within the policy provision that the insurer will "pay such sums that arise out of bodily injury....caused by an occurrence."

The insurance company appealed from the judgment against it. The facts were clear, as alleged, that the insured had supplied alcoholic beverages to his minor nephew, who then drove the insured's ATV in such a negligent manner that he suffered injuries off premises. The appeal court noted that the fifth count of the nephew's complaint did not allege negligent entrustment or supervision or any act associated with the insured's ownership or use of the ATV. "The count alleges a basis for liability in addition to....use of the ATV." The New Jersey Supreme Court, with dissenting opinion by two justices, affirmed the judgment of the appeal court against the insurer and in favor of the insured and his nephew.

Editor's Note: The dissenting justices argued that the nephew was injured when he caused his uncle's all terrain vehicle to overturn while in an intoxicated state "That is how he was injured. The injury arose out of his operation and use of (the) vehicle and therefore the exclusion applies." The dissenters stressed that the kind of exclusion at issue not only applied to motor vehicles but also to aircraft and certain watercraft.

New Jersey law required liability insurance for such devices and the insured did not avail himself of specialized insurance for their use. The justices said that consumers could not reasonably expect their basic homeowners insurance to cover such risks, their rates reflecting the limitation of coverage brought about by the exclusion. They said that they would reverse decision of the appeal court in favor of the insurer.

(THE SALEM GROUP ET AL., Plaintiffs, Appellants v. OLIVER ET AL., Defendants, Respondents. New Jersey Supreme Court. No. A-90. May 27, 1992. CCH 1992 Fire and Casualty Cases, Paragraph 3774.)