The makers of Four Loko, a cross between malt liquor and an energy drink, are on their own in defending against six lawsuits claiming consumption of the beverage led to injuries or deaths, after a state appellate court ruled the company’s insurer is not obligated to indemnify it.
Chicago-based Phusion Projects Inc. and Phusion Projects LLC, makers of Four Loko, sued Selective Insurance Company of South Carolina in Cook County Circuit Court, claiming the insurer was obligated to defend and indemnify the company in the six suits, all of which claim consuming Four Loko caused people to behave erratically and take risks that led to death or injury.
According to court documents, Four Loko is a 24-proof fruit-flavored malt beverage that, at the time it was consumed by the victims in the lawsuits, also contained energy-boosting ingredients caffeine, taurine and guarana. Each 23.5-ounce can of Four Loko packed the equivalent alcohol content of four to six beers and the caffeine equivalent of two cups of coffee. In the lawsuits, the plaintiffs allege the energy-boosting ingredients masked the effect of the alcohol, preventing consumers from realizing how intoxicated they were becoming. The lawsuits also claim Four Loko led to riskier and more erratic behavior than drinking alcohol alone.
The circuit court had granted Selective Insurance’s motion to dismiss, because Phusion’s insurance policy includes a liquor liability exclusion that states the insurance does not apply to cases in which intoxication was the cause of or a contributing factor to bodily injury or property damage. Phusion appealed the decision, arguing these lawsuits fell outside the liquor liability exclusion because the plaintiffs argued it was the combination of energy boosters and alcohol that led to the injuries, not the alcohol alone.
“Phusion asserted that the underlying lawsuits were not based on liquor liability, but were based on ‘stimulant liability,’” the justices noted in their opinion. “According to Phusion, it was the addition of … stimulants that operated to desensitize the consumers of Four Loko to the symptoms of intoxication and caused them to act recklessly.”
Justice Reyes authored the opinion, with justices Gordon and Palmer concurring.
In court documents, Selective had pointed to a federal district court ruling in a similar case in which another of Phusion’s insurers, Netherlands Insurance Co., also refused to indemnify the company against litigation that fell under the liquor liability exclusion. In that case, 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 federal court found the effects of the alcohol and stimulants were intertwined and could not be considered separate from one another, an argument upheld by the state appellate court.
“The addition of caffeine, guarana and taurine to an alcoholic beverage does not have a legal effect on the applicability of the liquor liability exclusion,” the appellate justices wrote.
Though Phusion made a number of arguments citing case law in which insurance companies were required to indemnify clients, the court ruled that none of those cases were applicable to the case at hand. According to the court’s opinion, a plain reading of the allegations in the lawsuits and a plain reading of the insurance policy make it “clear and unambiguous” that the suits fall within the liquor liability exclusion.
Phusion was represented in the action by the firm of Reed Smith, of Chicago, while Selective was defended by the firm of Hinshaw Culbertson, also of Chicago.