The Fourth Circuit Court of Appeals held that an insurer had a contractual duty to defend its insured under a CGL policy in Cowan Systems, Inc. v. Harleysville Mut. Ins. Co., No. 05-2253, 2006 WL 2256518 (4th Cir. Aug. 8, 2006).
Cowan Systems, a transportation company, entered into a contract with Linens 'N Things to provide transportation. George Shaffer, who worked for Cowan, was injured in a mud lot leased by Linens 'N Things after delivering an empty trailer to the lot. He filed a personal injury lawsuit against Linens 'N Things for negligence in failing to remove ice and snow from the lot.
Linens 'N Things filed a third-party complaint against Cowan for Cowan to indemnify Linens 'N Things for its premises liability. Cowan submitted the suit papers to its liability insurer, Harleysville, which claimed it had no duty to defend.
While both parties agreed that the CGL policy provided coverage for tort liability assumed in a contract, Harleysville argued that the coverage does not apply to indemnification of liability to an employee since the employee is not a third party or an organization.
The court, though, said, “Shaffer was not its [Linens 'N Things'] employee and so was a 'third person' with respect to” the contractual indemnification within the transportation agreement between Cowan and Linens 'N Things.
Harleysville also said that the workers compensation exclusion applied. But, the court said that Cowan was seeking indemnification for a contractual obligation and that “no obligation for workers compensation was involved directly or indirectly, and for that reason, the exclusion in inapplicable.”
The insurer further contended that the employers liability exclusion precluded coverage, but the court pointed out that the exclusion contains an exception for insured contracts, which would include the transportation agreement.
Harleysville's final argument was that the auto exclusion applied, stating that Shaffer was injured while trying to get back into his truck, and, but for the use of the truck, he would not have been injured. The court countered the argument, stating, “The record shows that Shaffer's injuries were caused by a slip and fall on the snow and ice that covered the mud lot, which occurred while he was attempting to get back into his truck. The presence of the truck, without more, was not the proximate cause of his injuries.”
Thus, the court held that the CGL policy provided coverage for tort liability Cowan assumed in a contract.