Insurers Don’t Have to Cover ‘Blackout in a Can’

CHICAGO (CN) - Insurers for the producers of Four Loko do not have to cover its client's defense costs in lawsuits over the controversial alcoholic energy drink's alleged dangers, a federal judge ruled.

Several states banned Four Loko, a Phusion Projects malt liquor boosted with caffeine, guarana and taurine, in 2010 as it gained a reputation for being "blackout in a can." A reformulated product introduced last year does not contain the three aforementioned ingredients.

Phusion also had to repackage the drink to settle Federal Trade Commission charges of misleading advertising. Though the old 23.5-ounce cans purported to be the equivalent to one or two cans of beer, the FTC said that the cans were 11 to 12 percent alcohol by volume, making the product equivalent to four or five 12-ounce cans of beer.

Several consumers and their families have sued Phusion over injuries, and even deaths, that allegedly occurred because of Four Loko consumption.

One case concerns a man who "accidentally shot and killed himself after consuming a number of cans of Four Loko and remaining awake for more than thirty hours." In another case, a man alleges that he "developed a heart condition as a consequence of drinking Four Loko and that since that time he has required the care of a cardiologist."

"The state-court plaintiffs allege that the combination of alcohol and stimulants allows drinkers to consume more alcohol without passing out, causes drinkers to behave more erratically when intoxicated, and leads to other negative health effects," according to a summary by the Northern District of Illinois. Several also claim that Four Loko marketed the products to minors.

Companies that insured Phusion responded to the lawsuits by distancing themselves from liability. Last week, a federal judge in Chicago let two such insurers, Netherlands Insurance Co. and Indiana Insurance Co., off the hook for four state lawsuits.

"Both insurance policies provide coverage for bodily injury and property damage caused by Phusion's products," but include a liquor liability exclusion, U.S. District Judge Matthew Kennelly wrote.

The policies explicitly do not cover personal injury suits resulting from "causing or contributing to the intoxication of any person," he added.

Kennelly rejected Phusion's claim that it "effectively receives no insurance coverage on its products if the he liquor liability exclusion applies," all of its products are alcoholic beverages.

"For example, if a can of Four Loko exploded on a store shelf and injured customers, the liquor liability exclusion would not apply," he wrote. "Similarly if Phusion sold tainted products and injured its customers in a manner unrelated to intoxication, the exclusion would not apply."

The judge also called the language of the liquor liability exclusion "unambiguous."

"It clearly provides that plaintiffs have no duty to defend any case arising from Phusion causing a person to become intoxicated," Kennelly wrote.

Since a fifth case alleges serious health effects not directly arising from intoxication, however, the court said Phusions insurers have a duty to defend in that suit.

David Osborne, a Lindsay, Rappaport & Postel lawyer for the insurance companies, declined to comment. "I'm only an attorney on the case, not a spokesperson for the client," Osborne told Courthouse News Service.

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