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Vol. 7, Iss. 1
January 31, 2018


A Cold One For Insured: “Fungi Exclusion” Precludes Coverage For Spilled Beer



Perfect timing. The Super Bowl is right around the corner and last month a court in Iowa addressed coverage for a claim involving beer. Speaking of which, I sure hope Budweiser has a Clydesdale commercial this year. I never get tired of seeing those magnificent animals.

At issue in Nelson v. Field of Dreams Mutual Ins. Co., No. 17-2365 (Iowa Dist. Ct. (Scott Cty.) January 12, 2018) was coverage for bodily injury sustained by a bar patron. Skip Nelson had been out with his friends at Is This Heaven? in Davenport, Iowa. As Nelson was headed to the men’s room he slipped on a spot on the floor where beer had spilled. He suffered a torn ACL. Making matters worse, Nelson’s attempt to break his fall resulted in a serious wrist injury. There was no dispute that Nelson had not been drinking. He was acting as a designated driver. He also testified that he considered himself a “darts stud.” Drinking interfered with his ability to play the game.

Nelson filed suit against Is This Heaven? for injury sustained on account of the bar’s failure to provide a safe premises for a business invitee. Heaven provided notice of Nelson’s suit to Field of Dreams Mutual, its general liability insurer. The insurer disclaimed coverage, citing the Fungi Exclusion in its policy issued to the bar. The insurer conceded that the Liquor Liability Exclusion did not apply as the “bodily injury” was not on account of Heaven causing or contributing to the intoxication of a person and nor did any of the other aspects of the Liquor Liability Exclusion apply.

Nelson and Heaven entered into a stipulated judgment for $125,000. As part of the arrangement, Heaven assigned its rights under its Field of Dreams policy to Nelson. Nelson agreed not to pursue collection of the judgment from Heaven.

Nelson filed an action against Field of Dreams Mutual, alleging that the insurer breached its obligation to provide coverage to Heaven for a defense and liability arising out of the lawsuit. Nelson sought payment from Field of Dreams of the $125,000 judgment and damages for its bad faith breach of the duty to defend.

Both sides filed motions for summary judgment. The court in Nelson v. Field of Dreams Mutual held that the insurer had no duty to defend Heaven on the basis that Nelson’s bodily injury was “caused directly or indirectly, in whole or in part, by any actual, alleged or threatened: … [e]xposure to; [e]xistence of; or [p]resence of, any ‘fungi’ or bacteria on or within a building or structure, including its contents, whether occurring suddenly or gradually.” The policy defined “fungi” as “any type or form of fungus, and includes, but is not limited to, any form or type of mold, mushroom or mildew and any mycotoxins, spores, scents or byproducts produced or released by fungi.”

As the court saw it, its decision was an easy one, dictated by two factors: its obligation to apply the policy language as stated and that beer is comprised of yeast, which is, the court noted, per Wikipedia: “eukaryotic, single-celled microorganisms classified as members of the fungus kingdom.”

Nelson conceded that the court’s obligation was to apply the policy language. But, he argued, that did not grant the court a license to ignore common sense. Nelsen also maintained that, in any event, the policy language did not support application of the Fungi exclusion, which contains an exception for “any ‘fungi’ or bacteria that are, are on, or are contained in, a good or product intended for human ingestion.”

However, the court was not convinced that the “human ingestion” exception applied, stating: “Of course, beer is a good or product intended for human ingestion. And if Mr. Nelson were injured, on account of drinking tainted beer, the Fungi exclusion would not apply. However, Mr. Nelson was injured when he came into contact with spilled beer. Beer on the floor is not intended for human ingestion." Id. at 6


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