SAE Insurance Not Required to Contribute to Settlement

Tim Burke, Manley Burke, tburke@manleyburke.com

Carson L. Starkey died on December 2, 2008, after participating in a “brown bag night,” sponsored by the Sigma Alpha Epsilon Chapter at Cal Poly State University. He was a pledge. Starkey and other pledges were given large amounts of alcohol. Starkey finished his in about 20 minutes. Shortly thereafter, he was unresponsive and un­conscious. Initially, some chapter members concluded that he needed to go to a hospital. But because he “spit up and was slightly responsive,” a decision was made not to take him to the hospital and he was put in bed to sober up. He died that night of alcohol poisoning.

Four of the chapter members were among the defend­ants in the lawsuit that followed. SAE determined that those chapter members had violated the Fraternity’s policy on alco­hol and hazing contained in Minerva’s Shield and the Fraterni­ty’s Laws. While the initial lawsuit brought by the Starkey family was settled, what followed was litigation between in­surance companies over who had to contribute to those settle­ment payments for the individual members of the chapter who were defendants in the initial case. That dispute was recently resolved by the United States District Court for the Central District of California. ¹

The Fraternity’s insurance policy includes an alcohol ­use exclusion stating “no insurance coverage afforded by this policy shall apply … for any claim arising out of, or in any way relating to, or in any way resulting from any ‘violation’ of ‘fraternity alcohol policy.'”

Initially, the court had ruled that the Fraternity’s in­surance companies were obligated to defend the four members and required those insurance companies to pay the member’s insurance companies more than $170,000 as an equitable con­tribution towards the defense cost. However, on the issue of whether or not the Fraternity’s insurance company was obli­gated to contribute towards the member’s settlement, the court found otherwise.

While recognizing that there was clearly no coverage from the Fraternity’s insurance for any liability of the individ­ual members arising from the provision of alcohol to or hazing of Starkey, the court had initially found that the chapter mem­bers’ negligent acts following providing the alcohol, their fail­ure to care for Starkey after he was clearly in trouble, could theoretically have triggered coverage independently of their violation of SAE rules. However, in the dispute between the insurance companies, the court ultimately found that “while there may have been negligence in not taking Starkey to the hospital and that contributed to death, all of the events that evening were heavily tainted with alcohol.” The court went on to find that “the decision not to take Starkey to the hospital for treatment was based in part on the chapter members’ desire to avoid blame or reprimand for their own, as well as Starkey’s, alcohol use.” In essence, because, as the court noted in its conclusion, all of the events surrounding Starkey’s death arose out of, related to, and resulted from the chapter members’ vio­lation of the Fraternity’s alcohol policy, the Fraternity’s insur­ance was not obligated to indemnify the members’ insurance.

It is clear that insurance companies and the fraterni­ties that obtain coverage are increasingly providing limits on the coverage similar to those involved in this case. While the coverage may extend to protect the fraternity, it is not likely to extend to protect those members who violate the rules of the fraternity, especially in high profile violations involving alco­hol and/or hazing resulting in serious injury or death.

¹ Liberty Corporate Capital, Ltd. v. California Tau Chapter of Sigma Alpha Epsilon Fraternity, et al., Case No. 2:ll-CV-02626-ODW (FFMx), 2013 U.S. Dist. LEXIS 56697, April 19, 2013.