KSPED, LLC v. Virginia Surety Company, Inc.

Filing

OPINION filed : REVERSED in part, AFFIRMED in part, decision not for publication. Karen Nelson Moore (concurring in part and dissenting in part), and Richard Allen Griffin, Circuit Judges and The Honorable Edward R. Korman, U.S. District Judge for the Eastern District of New York, sitting by designation (Authoring). [12-6618, 13-5015]

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NOT RECOMMENDED FOR PUBLICATION
File Name: 14a0400n.06
Nos. 12-6618/13-5015
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT

FILED
)
)
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Plaintiff-Appellee/
)
Cross-Appellant,
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)
)
v.
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)
VIRGINIA SURETY COMPANY,
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INC.,
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Defendant-Appellant/
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Cross-Appellee.
_______________________________________)
KSPED LLC,

Jun 02, 2014
DEBORAH S. HUNT, Clerk

ON APPEAL FROM THE
UNITED STATES DISTRICT
COURT FOR THE EASTERN
DISTRICT OF KENTUCKY

OPINION

Before: MOORE and GRIFFIN, Circuit Judges; KORMAN, District Judge.*
EDWARD R. KORMAN, District Judge. On August 15, 2004, Cynthia Bivens, along
with five other individuals including John Marsh, attended an event at the Kentucky Speedway, a
race car track in Sparta, Kentucky. R. 24-1, Tr. of Keith Henry Dep. at 3-5 (Page ID #145-47); R.
61, District Ct. Op. at 1 (Page ID #1792). While there, Marsh was served alcohol by a food and
beverage concessionaire employee. R. 57-5, K&K Loss Report at 19 (Page ID #1598). Later that
day, Bivens sustained fatal injuries when, while riding in a vehicle driven by Marsh, he lost control
of the vehicle, causing it to overturn. R. 24-1, Tr. of Keith Henry Dep. at 4-5 (Page ID #146-47).

*

The Honorable Edward R. Korman, United States District Judge for the Eastern District of
New York, sitting by designation.

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On August 12, 2005, the Estate of Cynthia Bivens commenced a wrongful death lawsuit
against Kentucky Speedway (“Speedway”), which owned the racetrack, and DJ’s Food Service
Management Group, Inc. (“DJ’s”), the concessionaire that employed the individual who served
Marsh at the racetrack. R. 28-2, Bivens Compl. at 1 (Page ID #511). That action was consolidated
with a previous lawsuit brought by the Estate on May 12, 2005 against OS Speedway, LLC (“OS”),
a concessionaire that had subcontracted to DJ’s the right to sell food and beverages at the Speedway.
Appellee Br. 2 at 13. As relevant to Speedway, the Estate’s complaint alleged:
5. At the time and place stated above the persons selling alcohol and or serving
alcoholic beverages to John D. Marsh were agents and or servants of the Defendants,
and/or the Defendants were operating a joint venture at the time of selling and or
serving alcoholic beverages to John D. Marsh a reasonable person under the same
or similar circumstances should have known that John D. Marsh was already
intoxicated.
6. The Defendants, acting by and through their agents and/or servants and/or
independently of them, had a duty not to serve John D. Marsh alcoholic beverages
under such circumstances, and the conduct aforesaid was in breach of that duty.
7. At the time and place stated above the DEFENDANT KENTUCKY SPEEDWAY
LLC had a duty to so control the conduct of those serving alcoholic beverages so as
to prevent them [from] creating an unreasonable risk of harm to others, including
Cynthia Bivens.
8. At the time and place stated above the DEFENDANT KENTUCKY SPEEDWAY
LLC had undertaken and represented to the public their power and duty to refuse the
sale of alcoholic beverages to anyone which duty they should have recognized as
necessary for the protection of third persons, including Cynthia Bivens, and its
failure to exercise reasonable care in the discharge of that duty increased the risk of
harm to Cynthia Bivens.
9. At the time and place and under the circumstances above the Defendant, DJ'S
FOOD SERVICE MANAGEMENT GROUP, INC., acting as concessionaire, had
a duty to not serve alcoholic beverages to John D. Marsh which duty extended to
KENTUCKY SPEEDWAY LLC.
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10. THE DEFENDANT KENTUCKY SPEEDWAY LLC, retained control of
alcohol sales at its facility in Gallatin County Kentucky and as such any breach of
duty by DJ'S FOOD SERVICE MANAGEMENT GROUP, INC. is imputed to
KENTUCKY SPEEDWAY LLC.
11. At the time and place stated above the DEFENDANT KENTUCKY
SPEEDWAY LLC was the possessor of the facility known as The Kentucky
Speedway which facility was open to the public. As such it had a duty to Cynthia
Bivens, its invitee, to protect her against the unreasonably dangerous activities of its
concessionaire, DJ'S FOOD SERVICE MANAGEMENT GROUP, INC., as stated
above, which it permitted to engage in the activity of selling and or dispensing
alcoholic beverages.
12. Selling and or serving alcoholic beverages to John D. Marsh under the
circumstances stated above created an unreasonable and unjustifiable risk [of] harm
to others including Cynthia Bivens and was in breach of the duties of the Defendants
aforesaid.
R. 28-2, Bivens Compl. ¶¶ 5-12 at 2-3 (Page ID #512-13). The complaint further alleged that as a
direct and proximate cause of the Defendants’ breaches of these duties, Bivens died and the Estate
was damaged by the loss of her power to earn money. Id. ¶¶ 14-16 at 3 (Page ID #513). The parties
in the Bivens litigation ultimately settled. Liability insurers for OS and DJ’s paid the Estate about
$350,000, and Speedway settled its portion for $10,000.

In addition, Speedway incurred

approximately $74,000 in defense fees.
In the present case, Speedway claims that the Virginia Surety Company, Inc. (“Virginia
Surety”) wrongfully refused to defend and indemnify Speedway pursuant to the Commercial General
Liability Coverage policy (the “CGL Policy”) that Virginia Surety had issued to Speedway. The
district court granted Speedway’s motion for summary judgment on its claim that Virginia Surety’s
failure to defend and indemnify constituted a breach of contract. It granted Virginia Surety’s motion

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for summary judgment on Speedway’s claim that the refusal to defend and indemnify was made in
bad faith in violation of the Unfair Claims Settlement Practices Act, Ky. Rev. Stat. § 304.12-230.
Virginia Surety appeals the breach of contract decision, and Speedway cross-appeals the bad faith
decision.
I. BACKGROUND
A. Speedway Insurance Agreement with Virginia Surety
Speedway applied for the insurance policy at issue on July 22, 2003. R. 57-3, K&K Ins.
Appl. at 30-34 (Page ID #1506-10). In turn, Virginia Surety issued the CGL Policy, which provided
that Virginia Surety “will pay those sums that the insured becomes legally obligated to pay as
damages because of ‘bodily injury’ . . . to which this insurance applies. [Virginia Surety] will have
the right and duty to defend the insured against any ‘suit’ seeking those damages.” R.28-3, CGL
Policy at 14 (Page ID #528). The parties do not dispute that the underlying action was a suit seeking
damages because of bodily injury. Nevertheless, they disagree over the applicability of the liquor
liability exclusion in the CGL Policy, which excludes coverage for liability arising out of the sale
of alcoholic beverages if the insured is “in the business of manufacturing, distributing, selling,
serving or furnishing alcoholic beverages.” Id. at 14-15 (Page ID #528-29). Virginia Surety argues
that this exclusion applies to Speedway.

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B. Relationship between Speedway and Concessionaires
1. Concession Agreement
In an agreement dated June 5, 2000 (“Concession Agreement”), Speedway granted OS “the
sole and exclusive right . . . to sell food and alcoholic and non-alcoholic beverages . . . at the
Speedway at any and all events held at the Speedway.” R. 28-8, Concession Agreement § 1.1 at 1
(Page ID #583). OS would provide “the concession, catering and restaurant services for and on
behalf of” Speedway. Id. at 1 (Page ID #583).1 OS was responsible for retaining, training,
monitoring, evaluating, disciplining, and dismissing employees, as appropriate, and it was “solely
responsible . . . for the employees and their actions.” Id. § 2.1 at 2 (Page ID #584). Nevertheless,
Speedway had “the right to approve management personnel to be used by” OS at the racetrack, id.
§ 4.3 at 6 (Page ID #588), and retained the option to bar OS from employing anyone else, if it had
“a reasonable and lawful basis,” and to “provide cross-training” at its own expense, id. § 2.1 at 2
(Page ID #584). Perhaps more significantly, although only the concessionaire had a liquor license,
Speedway had a right to prevent an impaired patron from purchasing more alcohol. R. 28-11, Tr.
of Second Mark Simendinger Dep. at 23 (Page ID #646). Indeed, Speedway’s right to do so was

1

Speedway and OS each acknowledged and agreed in the Concession Agreement that OS was
an “independent contractor” and that Speedway and OS were “not joint venturers, partners, or
otherwise related to each other in any capacity.” R. 28-8, Concession Agreement § 15.1 at 13 (Page
ID #595). Nor was OS to be “deemed an agent” of Speedway. Id. § 15.2 at 14 (Page ID #596).
They “specifically agreed” that OS was “not an employee” of Speedway, and that the employees
performing concession services under the agreement were “solely employees of [OS] and not
employees of [Speedway].” Id. § 15.1 at 13 (Page ID #595). These characterizations, and other
language intended define the relationship between Speedway and the concessionaire, id., may be
relevant to the resolution of any dispute between them. They do not, however, address the issue of
whether Speedway was in the “business of selling alcohol,” as that term is used in the CGL Policy.
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contained in a document that it distributed to its patrons containing the racetrack’s rules. Id. at 2223 (Page ID #645-46). In addition to advising patrons that they had to be at least 21 years old and
present photo identification with proof of age when purchasing alcohol, the document provided that
“[w]e reserve the right to refuse alcoholic beverages to any person for any reason and will contact
police if we believe you are acting in a manner that is contrary to the law or that may endanger
yourself, others, or any property.” Id. at 23 (Page ID #646).
Speedway also retained the right to select the food and beverages, except for alcohol, that
would be served. R. 28-8, Concession Agreement § 2.3 at 3 (Page ID #585). Nevertheless,
“whether alcoholic beverages w[ould] be sold at particular events” was Speedway’s decision, id. §
2.6 at 3 (Page ID #585), and alcohol was sold at all racing events, as well as other events, at the
racetrack, R. 28-11, Tr. of Second Mark Simendinger Dep. at 5, 15 (Page ID #628, 638). While OS
was responsible for establishing food and drink prices, including alcohol, Speedway retained the
right to reasonably withhold approval of those prices. R. 28-8, Concession Agreement § 2.4 at 3
(Page ID #585). Moreover, OS and Speedway were required to cooperatively develop and institute
promotional programs for food and drink items. Id. § 2.5 at 3 (Page ID #585).
Both Speedway and OS were responsible for obtaining necessary permits and licenses. Id.
§ 12.1 at 11-12 (Page ID #593-94). Indeed, the Concession Agreement required OS to obtain,
among other forms of insurance, liquor liability, including dram shop liability insurance. Id. § 13.1
at 12 (Page ID #594). Speedway was required to be named as an “additional insured” on all such
insurance. Id. Moreover, OS agreed to “indemnify, defend and hold [Speedway] harmless from and
against any liability incurred by [Speedway] as a result of the willful act, negligence or omission of
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[OS], its employees, agents, and contractors, and any other persons within its control.” Id. § 10.1
at 9 (Page ID #591).
The Concession Agreement also required OS to provide concession services during the hours
that OS and Speedway jointly established, “with the goal of maximizing concession revenue.” Id.
§ 2.6 at 3 (Page ID #585). Thus, regarding the sale of alcohol, Speedway’s president acknowledged
that Speedway “would, like any other businessman, . . . certainly like to maximize revenue within
that context.” R. 28-11, Tr. of Second Mark Simendinger Dep. at 16 (Page ID #639). Moreover,
patrons were not permitted to bring alcohol from outside into the Speedway. Id. at 23 (Page ID
#646).
Finally, the Concession Agreement provided that OS had to pay Speedway between 30% and
35% of its gross receipts from alcohol. R. 28-8, Concession Agreement § 8.1 at 7-8 (Page ID #58990). Because the 30% to 35% came from the gross receipts, presumably before all other expenses
incurred by the concessionaire were taken into account, the percentage of the net revenue was
significantly higher. Speedway’s president acknowledged that Speedway benefitted from increased
alcohol sales because it “gets a higher commission check.” R. 28-11, Tr. of Second Mark
Simendinger Dep. at 6 (Page ID #629). The total amount paid to Speedway in commissions from
the sale of alcohol in 2004 was $282,837. R. 22, Liquor Sales Stipulation ¶ 2 at 1 (Page ID #136).
2. Subconcessionaire Agreement
As allowed by the Concession Agreement, R. 28-8, Concession Agreement § 1.3 at 1 (Page
ID #583), OS subcontracted the exclusive right to sell food and beverage products, including
alcoholic beverages, to DJ’s in a contract dated June 16, 2000 (“Subconcessionaire Agreement”),
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R. 28-9, Subconcessionaire Agreement at 1-24 (Page ID #598-621). The Subconcessionaire
Agreement repeats or adopts by reference the relevant portions of the Concession Agreement. Id.
II. DISCUSSION
A. Breach of Contract Claim
1. The Duty to Defend
The breach of contract dispute is based solely on the applicability of the clause in the CGL
Policy that excludes coverage for liability arising out of the sale of alcoholic beverages “only if you
[the insured] are in the business of manufacturing, distributing, selling, serving or furnishing
alcoholic beverages.” R. 28-3, CGL Policy at 15 (Page ID #529). The CGL Policy defines “you”
as “the Named Insured shown in Declarations and any other person or organization qualifying as
a Named Insured under this policy.” Id. at 14 (Page ID #528). Speedway is the only “Named
Insured” included in the CGL Policy’s declarations. Id. at 11 (Page ID #525). The CGL Policy does
not define “in the business of.”
Interpretation of an insurance contract is a matter of law. Westfield Ins. Co v. Tech Dry, Inc.,
336 F.3d 503, 507 (6th Cir. 2003). “[A]n insurer has a duty to defend if there is any allegation
which potentially, possibly or might come within the coverage terms of the insurance policy.” Aetna
Cas. & Sur. Co. v. Com., 179 S.W.3d 830, 841 (Ky. 2005). This duty is separate from and broader
than the duty to indemnify. James Graham Brown Found., Inc. v. St. Paul Fire & Marine Ins. Co.,
814 S.W.2d 273, 280 (Ky. 1991); see also Nat. Union Fire Ins. Co. v. United Catalysts, Inc., 182
F. Supp. 2d 608, 610 (W.D. Ky. 2002). “The determination of whether a defense is required must
be made at the outset of the litigation by reference to the complaint and known facts.” Lenning v.
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Commercial Union Ins. Co., 260 F.3d 574, 581 (6th Cir. 2001) (citations and quotation marks
omitted); see also Pizza Magia Int'l, LLC v. Assurance Co. of Am., 447 F. Supp. 2d 766, 779 (W.D.
Ky. 2006). Moreover, “Kentucky has consistently recognized that an ambiguous policy is to be
construed against the drafter, and so as to effectuate the policy of indemnity.” Bituminous Cas.
Corp. v. Kenway Contracting, Inc., 240 S.W.3d 633, 638 (Ky. 2007); Brown Found., 814 S.W.2d
at 279; Auto-Owners Ins. Co. v. Veterans of Foreign Wars Post 5906, 276 S.W.3d 298, 301 (Ky. Ct.
App. 2009).
Virginia Surety argues that because the decision whether to defend must be made at the
outset of the litigation, the allegations in the underlying complaint determine whether there is a duty
to defend. That complaint alleges that the individuals who sold alcohol at the racetrack were acting
as agents of or were operating a joint venture with Speedway, and that Speedway had a duty to
control those individuals, R. 28-2, Bivens Compl. ¶¶ 5-7 at 2 (Page ID #512). If true, these
allegations are sufficient to establish that Speedway was in the business of selling alcohol, and that
Virginia Surety was not obligated under a duty to defend the action against Speedway.
Nevertheless, the allegations in the complaint do not contain the only relevant facts. Under
Kentucky law, the decision whether to defend “must be made at the outset of litigation by reference
to the complaint and known facts.” Lenning, 260 F.3d at 581 (quotation omitted) (applying
Kentucky law) (emphasis added); see also Pizza Magia, 447 F. Supp. 2d at 779. Indeed, permitting
an insurer to ignore facts, known to it at the time it decided whether to defend, that establish the
potential for coverage could render the duty to defend narrower than the duty to indemnify.
3, Jeffrey E. Thomas & Francis J. Mootz, III, New Appleman on Insurance Law Library Edition:
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Commercial General Liability Insurance § 17.01[2][b][i] (2013) (citing Fitzpatrick v. Am. Honda
Motor Co. Inc., 575 N.E.2d 90, 92-93 (N.Y. 1991) (citing cases)). Moreover, ignoring known facts
inappropriately conditions the duty to defend on the “draftsmanship skills or whims of the plaintiff
in the underlying action.” Appleman, § 17.01[2][b][i] (citing Travelers Ins. Cos. v. Penda Corp.,
974 F.2d 823, 827 (7th Cir. 1992)). Virginia Surety’s argument is particularly problematic where,
as here, the insurer denied coverage based on a policy exclusion because “exclusions in insurance
policies should be narrowly construed as to effectuate insurance coverage.” Aetna Cas., 179 S.W.3d
at 839.
Looking to the facts known to Virginia Surety at the time it declined to defend Speedway
does not undermine the validity of Virginia Surety’s judgment that Speedway was “in the business
of” selling alcohol. These facts come principally from the concession agreements, which Virginia
Surety possessed. R. 58-7, Email from Lawrence Bistany to David Rodriguez & Dan Isenbarger
(Sept. 20, 2005) at 1 (Page ID #1754). Specifically, the sale of alcohol “occurred every day the
track operated,” id., and Speedway maintained significant control over its sale. Indeed, Speedway
was involved with instituting promotional programs for concessions, R. 28-8, Concession
Agreement § 2.5 at 3 (Page ID #585), decided whether alcoholic beverages would be sold at
particular events, id. § 2.6 at 3 (Page ID #585), and was entitled to advance notice of the pricing
policies and to withhold its approval provided it was not unreasonable to do so, id. § 2.4 at 3 (Page
ID #585). Moreover, Speedway and the concessionaires jointly established the hours during which
concession services were offered, “with the goal of maximizing concession revenue.” Id. § 2.6 at
3 (Page ID #585). Speedway also “receive[d] between 30 and 35% of the gross receipts from liquor
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sales.” R. 58-7, Email from Lawrence Bistany to David Rodriguez & Dan Isenbarger (Sept. 20,
2005) at 1 (Page ID #1754).
The Concession Agreement and Subconcessionaire Agreement also required that the
insurance policies of the concessionaires include liquor liability insurance, and that Speedway be
named as an additional insured, R. 28-8, Concession Agreement § 13.1 at 12 (Page ID #594).
Speedway’s status as an additional insured provided it with the same protection as the
concessionaires against liability for the sale of alcohol. While the concessionaires possessed the
license to sell liquor, and the sale was effectuated by one of their employees, R. 57-5, K&K Loss
Report at 19 (Page ID #1598), these facts do not undermine the conclusion that Speedway and its
concessionaires were engaged in a joint enterprise of selling alcohol, over which Speedway
exercised substantial control, and in which they shared in the net profits almost equally and assisted
each other in undertaking efforts to maximize the sale of alcohol and the profits that resulted from
it. In sum, the facts known to Virginia Surety at the time it made its decision not to defend
Speedway confirm that Speedway was “in the business of” selling alcohol.
2. Duty to Indemnify
We now turn to the duty to indemnify. This is analytically separate from the issue of the
duty to defend because a separate standard governs each. “[A]n insurer has a duty to defend if there
is any allegation which potentially, possibly or might come within the coverage terms of the
insurance policy.” Aetna Cas. & Sur. Co. v. Com., 179 S.W.3d 830, 841 (Ky. 2005). On the other
hand, an insurer has a duty to indemnify only if liability for which indemnification is sought is
actually covered by the insurance contract. Unlike the issue of the duty to defend, we can consider
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all facts in the record that go to the issue of coverage even if the insurer was not aware of them prior
to making the decision whether to defend.
One Kentucky court that has addressed the term “in the business of” in a liquor liability
exclusion, has focused on the regularity with which the activity at issue—here, alcohol
sales—occupies the insured, and whether the insured operated with a profit motive. See AutoOwners Ins. Co. v. Veterans of Foreign Wars Post 5906, 276 S.W.3d 298 (Ky. Ct. App. 2009)
(citing Am. Legion Post #49 v. Jefferson Ins. Co., 485 A.2d 293, 294 (N.H. 1984) (“‘[e]ngaged in
the business of’” means “any regular activity that occupies one’s time and attention, with or without
direct profit motive” or “an activity with a direct profit objective”)); see also Fraternal Order of
Eagles, v. Gen. Accident Ins. Co. of Am., 792 P.2d 178, 182-83 (Wash. Ct. App. 1990) (“in the
business” limits “the exclusion’s applicability to permanent, ongoing liquor sales operations, rather
than occasional events at which the insured may sell liquor”). This test is clearly met here, if only
because Speedway’s involvement in the sale of alcohol was an activity undertaken with a direct
profit objective, Speedway’s activities related to encouraging the ongoing sale of alcohol, and it
exercised a significant degree of control over the concessionaires.
Moreover, there are two additional facts that became known to Virginia Surety after it
declined to defend Speedway that add to the evidence that Speedway was “in the business of” selling
alcohol. First, in an obvious effort to increase the sale of alcoholic beverages, from which Speedway
derived substantial profit, Speedway prohibited persons entering the racetrack from bringing in any
alcoholic beverages. R. 28-11, Tr. of Second Mark Simendinger Dep. at 5 (Page ID #628). Second,
Speedway distributed a document to its patrons that contained the racetrack’s rules. Id. at 22-23
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(Page ID #645-46). Because the rules were published in alphabetical order, the alcohol policy was
contained on the first page. Id. It advised patrons that they had to be at least 21 years old and
present photo identification with proof of age when purchasing alcohol. Id. More significantly, it
provided that “[w]e reserve the right to refuse alcoholic beverages to any person for any reasons and
will contact police if we believe you are acting in a manner that is contrary to the law or that may
endanger yourself, others, or any property.” Id. at 23 (Page ID #646). Consistent with these written
rules, Speedway had the right to prevent an impaired patron from purchasing more alcohol. Id. As
the president of Speedway testified in the following colloquy during his deposition:
Q. . . . So even though the server was not your employee, you all, as
the Owner, if you believed there was someone so impaired, visibly,
that they shouldn’t be served, you would agree you would have had
the right to say to the server, don’t serve this person?
A. Yes, we would have had that right. And I think we also would
have had the right to have just not even deal directly with the server,
but just deal directly with the patron.
Id.
The exercise of this control over the serving of alcohol is particularly significant because it
relates directly to the circumstances under which Speedway would be liable to third persons who
are injured by the sale of alcoholic beverages to underage persons or persons whom a reasonable
person would know are already intoxicated at the time of serving. Ky. Rev. Stat. § 413.241(2); see
also Grayson Fraternal Order of Eagles, Aerie No. 3738, Inc. v. Claywell, 736 S.W.2d 328, 333
(Ky. 1987). Indeed, the breach of the latter duty provides the principal basis for the underlying
complaint against Speedway. Speedway’s substantial control over the manner in which alcohol was
sold, beyond simply for the purpose of maximizing profits, only confirms our judgment that,
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notwithstanding the fact that the persons serving alcoholic beverages were not Speedway employees
and that Speedway did not have a liquor license, Speedway was in the business of selling alcohol.
The fact that Speedway chose to engage in the business of selling alcohol by entering into an
agreement with a concessionaire who possessed such a license does not relieve it of the
consequences of the conduct in which it engaged. Speedway exercised substantial and meaningful
control over the sale of alcohol.
While we have focused on the nature of the legal relationship between Speedway and the
concessionaires, it is important not to lose sight of the purpose of the liquor liability exclusion. The
CGL Policy, as its language suggests, provides coverage, without payment of additional premiums,
where the sale or serving of alcohol occurs on an infrequent basis because of the significantly lower
risk of such limited activity. The exclusion of liquor liability coverage reflects the commonsense
consideration that the use of premises for an ongoing venture of selling alcoholic beverages
significantly increases the risk to the insurer. See Cnty. of Schenectady v. Travelers Ins. Co.,
368 N.Y.S.2d 894, 897-98 (N.Y. App. Div. 1975). Whether the insured directly furnishes alcohol
to consumers and whether it is licensed to do so do not affect the increased risk of insuring a party
engaged in the regular for-profit sale of alcohol that the liquor liability exclusion removes from
coverage. As the Supreme Court of Wisconsin observed, “to determine the meaning of ‘business,’
the relevant inquiry under the policy is the nature of the insured’s activities, not the nature or mode
of its organizational status. The court must determine whether the insured consistently engages in
an activity which creates a level of risk which the insurer has declared unacceptable.” Sprangers

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v. Greatway Ins. Co., 514 N.W.2d 1, 8 (Wis. 1994). The record here establishes that Speedway
consistently engaged in activity that created a level of risk declared unacceptable in the CGL Policy.
Nor do the facts that selling alcohol was not the primary activity in which Speedway was
engaged, and that such sales might not have accounted for a large fraction of its total revenue, alter
the significantly increased risk created by the ongoing sale of alcohol. An insured may be “in the
business of” of selling alcohol even when only a small portion of its revenue comes from alcohol.
See United States Fid. & Guar. Co. v. Country Club of Johnston Cnty., Inc., 458 S.E.2d 734, 739
(N.C. Ct. App. 1995). Nor is it required that alcohol sales constitute a substantial portion of the
insured’s activities. See id.; Woodall v. Alfa Mut. Ins. Co., 658 So.2d 369, 371 (Ala. 1995);
Fraternal Order, 792 P.2d at 183.
While we decide this case in favor of Virginia Surety, our decision should not be viewed as
an endorsement of the manner in which it drafted its liquor liability exclusion. There are at least two
reported cases that provide examples of liquor liability exclusion clauses that could have easily
avoided the burden and expense of this litigation. First, in Cnty. of Schenectady v. Travelers Ins.
Co., the insurance policy provided that it did not apply to bodily injury or property damage for
which any insured “may be held liable, as a person or organization engaged in the business of
manufacturing, distributing, selling or serving alcoholic beverages or as an owner or lessor of
premises used for such purposes, by reason of the selling, serving or giving of any alcoholic
beverage.” 368 N.Y.S.2d 894, 897-98 (N.Y. App. Div. 1975) (emphasis added). Similarly in
McGriff v. United States Fire Ins. Co., the liquor liability exclusion provided that the insurance
policy did not cover the “an owner or lessor of premises used for” the manufacturing, distributing,
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selling or serving alcoholic beverages. 436 N.W.2d 859, 861 n.1 (S.D. 1989). Virginia Surety’s
failure to draft a broader exclusion, however, does not render the insurance company liable in this
case. Speedway did not simply rent space to a vendor and collect a flat fee for the right to use the
space. Our conclusion that Speedway was in the business of selling alcohol is based on its ongoing
and coordinated activity with the concessionaires in an effort to profit from the continuing and
ongoing sale of alcohol—activity which significantly increased the risk beyond that contemplated
in the CGL Policy.
B. Bad Faith Claim
To prevail on a bad faith claim under Section 304.12-230 of the Unfair Claims Settlement
Practices Act, the insured must prove that: (1) the insurer is obligated to pay the claim under the
terms of the policy; (2) the insurer lacks a reasonable basis in law or fact for denying the claim; and
(3) the insurer either knew there was no reasonable basis for denying the claim or acted with
reckless disregard for whether such a basis existed. United Servs. Auto. Ass'n v. Bult, 183 S.W.3d
181, 186 (Ky. Ct. App. 2003) (quoting Wittmer v. Jones, 864 S.W.2d 885, 890 (Ky. 1993)). Because
we hold that Virginia Surety was not obligated to pay Speedway’s claim under the CGL Policy, we
affirm the district court’s grant of summary judgment to Virginia Surety.
III. CONCLUSION
We hold that Speedway was “in the business of manufacturing, distributing, selling, serving
or furnishing alcoholic beverages,” and that Virginia Surety did not deny Speedway’s claim in bad
faith. We vacate and remand the district court’s grant of summary judgment to Speedway on the

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breach of contract claim, and affirm the district court’s grant of summary judgment to Virginia
Surety on the bad faith claim. REVERSED in part, AFFIRMED in part.

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KAREN NELSON MOORE, concurring in part and dissenting in part. The majority
holds that Speedway was entitled to neither indemnification nor a defense from Virginia Surety
because it was “in the business of” selling alcohol. Because I conclude that Speedway was not “in
the business of” selling alcohol, the CGL Policy’s liquor liability exclusion is not applicable in this
case. Accordingly, Virginia Surety had a duty to defend and to indemnify Speedway in the wrongful
death lawsuit filed by Cynthia Bivens’s estate. I respectfully dissent from the portion of the majority
opinion that relieves Virginia Surety of its duties to defend and indemnify.
Because the CGL Policy does not define what it means to be “in the business of” selling
alcohol, the court’s first task is to determine as a matter of law how to define the term. See AutoOwners Ins. Co. v. Veterans of Foreign Wars Post 5906, 276 S.W.3d 298, 301 (Ky. Ct. App. 2009).
Kentucky courts have embraced two alternative meanings of the term “in the business of”: (1) “any
regular activity that occupies one’s time and attention, with or without direct profit motive” or
(2) “an activity with a direct profit motive.” Id. (citing Am. Legion Post No. 49 v. Jefferson Ins. Co.,
485 A.2d 293 (N.H. 1984)). Courts apply “the general principle that if a contract of insurance is
fairly susceptible to two constructions, one of which is more favorable to the insured than the other,
the construction most favorable to the insured should be adopted.” McGriff v. U.S. Fire Ins. Co.,
436 N.W.2d 859, 862 (S.D. 1989); see also Am. Legion, 485 A.2d at 294–95 (applying the second
alternative definition because it was more favorable to the insured). Under the first alternative
definition, an insured is not “in the business of” selling alcohol, even if the insured has a profit
motive in alcohol sales as Speedway did in this case, so long as the sale of alcohol is not a fairly

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significant aspect of the business. Thus, the first alternative is more favorable to Speedway and
should be utilized in this case.
Speedway did not itself engage in alcohol sales, but instead made the strategic business
decision to contract responsibility for alcohol sales, and the attendant liability, to concessionaires.
R. 27-5 (Concession Agreement) (Page ID #402–16). The fact that Speedway allowed liquor sales
on its property on a regular basis is not dispositive because Speedway did not itself run alcohol sales
operations. Although Speedway had final approval authority over some aspects of alcohol sales,
such as decisions relating to pricing and which events would include alcohol sales, id. at 2–3 (Page
ID #403–04), alcohol sales did not occupy significant time or attention of Speedway executives or
employees. Indeed, Speedway contracted alcohol sales to a vendor specifically so that the amenity
would be available for customers without drawing attention away from other vital aspects of
operating the speedway, such as obtaining sponsorships and regulating ticket sales. R. 28-11
(Simendinger Dep. at 46–47, 61) (Page ID #635, 639).
The majority concludes that “Speedway and its concessionaires were engaged in a joint
enterprise of selling alcohol” because they worked together “to maximize the sale of alcohol and the
profits that resulted from it.” Maj. Op. at 11. If Speedway were engaged in a true joint venture with
its concessionaires, then Speedway would be considered a partner in the business of the
concessionaires, which included alcohol sales. See Huff v. Rosenberg, 496 S.W.2d 352, 355 (Ky.
1973). However, because there was no agreement between Speedway and the concessionaires to
share profits and losses, there was no “community of pecuniary interest.” Roethke v. Sanger,
68 S.W.3d 352, 364 (Ky. 2001) (citation omitted). Thus, there was no joint venture in place under
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which Speedway could be considered as “in the business of” selling alcohol. To the extent that the
majority analyzes whether Speedway was in an agency relationship with its concessionaires, its
efforts are misplaced: an agency relationship is not relevant to determining the contours of
Speedway’s business because the master in an agency relationship is not a partner in the agent’s
business. The sale of alcohol was not a “regular activity” to which Speedway, as opposed to its
concessionaires, devoted significant time and attention, and thus I conclude that Speedway was not
“in the business of” selling alcohol. Therefore, the liquor liability exclusion contained in the CGL
Policy does not apply, and Virginia Surety has an obligation to indemnify Speedway for the
expenses incurred in settling the lawsuit brought by Cynthia Bivens’s estate.
I also conclude that Virginia Surety had a duty to defend Speedway against Bivens’s lawsuit.
As the majority explains, “an insurer has a duty to defend if there is any allegation which potentially,
possibly or might come within the coverage terms of the insurance policy.” Aetna Cas. & Sur. Co.
v. Com., 179 S.W.3d 830, 841 (Ky. 2005). This duty is broader than the duty to indemnify, James
Graham Brown Found., Inc. v. St. Paul Fire & Marine Ins. Co., 814 S.W.2d 273, 280 (Ky. 1991),
and clearly includes all suits in which the insurer must indemnify the insured.
Although I respectfully dissent from the majority with respect to Virginia Surety’s appeal
regarding its duties to defend and indemnify Speedway, I agree that Virginia Surety did not act in
bad faith such that it is subject to liability under the Unfair Claims Settlement Practices Act. Ky.
Rev. Stat. § 304.12-230. As the divided opinions within this panel confirm, Virginia Surety had a
“reasonable basis in law . . . for denying the claim,” United Servs. Auto. Ass’n v. Bult, 183 S.W.3d
181, 186 (Ky. Ct. App. 2003) (citation omitted), and it therefore did not deny coverage in bad faith.
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For the foregoing reasons, I would AFFIRM the judgment of the district court in its entirety.

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