Contractual Liability Coverage and Use of an Auto Exclusion in CGL Form

In this case, the Supreme Court of Texas had to determine whether two exclusions in insurance policies—the auto use and subsequent to execution—preclude coverage for a subcontractor's workers who fell and died after being hoisted up on a rope through a pulley system by a pickup truck. The trial court and court of appeals held that neither exclusion applied and granted summary judgment to the policyholder, declaring coverage under both policies. This case is Mid-Continent Casualty Company v. Global Enercom Management, Inc., 2010 WL 3813299 ( Tex. ).

Global Enercom constructs and maintains cellular phone towers and it subcontracted with All States Construction Company to perform repair work on a cell tower located in Arkansas . Mid-Continent is All States's insurer and it issued a commercial general liability policy (CGL form) and a commercial auto policy (CAP) to All States. Global was named as an additional insured on both policies, and each policy provided coverage to additional insureds so long as the liability incurred subsequent to the execution of the contract or agreement.

All States employees began repairing a cell tower and as part of the repair work, the employees set up a rope and pulley system on the tower. One end of the rope was anchored on a spool and was run through a pulley attached to the front bumper of a pickup truck. The employees attached themselves to the headache ball at the end of the rope and signaled the foreman to back the truck away from the tower to raise the ball. When the workers were lifted to a height of eighty feet, the rope broke and all three workers fell to their deaths. The heirs of the deceased workers filed a lawsuit against Global and Global sought coverage as an additional insured under the policies of All States. The insurer defended but ultimately refused to indemnify Global and declaratory judgment actions were filed.

When the case got to the Texas Supreme Court, the court noted that Mid-Continent's arguments centered around two points: the auto use exclusion in the CGL form precluded any coverage for the claim under the terms of that policy; and the subsequent to execution clause in the liability policy and the auto policy prevented coverage under either form because an insured contract is only covered if the injury occurs subsequent to the execution of the insured contract and since Global did not sign the contract until after the accident, the contract was not executed.

The court addressed the auto use exclusion first. Mid-Continent alleged that using the truck with an attached pulley meant the injury arose out of the use of an auto and this was excluded under the CGL form. Global disputed whether the use of the truck was sufficient to trigger the exclusion. The court said that, for an injury to fall within the use of an auto, the following requirements exist: the accident must have arisen out of the inherent nature of the auto; the accident must have arisen within the natural territorial limits of an auto; and the auto must not merely contribute to cause the condition that produces the injury, but must itself produce the injury. Using these guidelines, the court said that the auto exclusion applied to the claim.

Clarifying its decision, the court said that the accident did not merely happen because the rope broke; the rope would not have broken if the truck was not used to hoist the headache ball. The workers were using the truck to perform towing and lifting activities; they could not have been raised on the rope without the use of the auto Therefore, the injuries arose out of the use of the auto and the exclusion applied. This part of the lower courts' ruling was reversed.

As for the subsequent to execution part of the dispute, the insurer argued that the clauses in both policies prohibit coverage for a claim under an insured contract if the incident occurs subsequent to the execution of the contract. The term “execution” is not defined in either policy but the insurer claimed the contract between Global and All States is not valid because Global did not sign the contract prior to the accident; the insurer stated that “to execute” may only mean “to sign”. However, the court pointed out that Texas law recognizes that a contract need not be signed to be executed unless the parties explicitly require signatures as a condition of mutual assent. In this instance, Global offered the subcontract to All States and All States accepted by signing and actually beginning the work. So, both parties agreed that the contract was effective and that both were operating under the agreement when the accident occurred; there was no requirement for a signature by Global for the contract to be considered executed.

Moreover, the court continued, there was no language in the policies themselves requiring both parties to sign the contract, and there was no evidence raising a fact issue of the parties' intent to require that all parties to the contract sign it as a condition precedent to the contract's validity. In fact, the evidence shows just the opposite. Therefore, the subsequent to execution exclusions in both the general liability policy and the auto policy did not bar coverage. This portion of the lower courts' rulings was affirmed by the Texas Supreme Court.

 Editor's Note: In this decision, the Texas Supreme Court clarifies two issues that can often cause coverage disputes. The court emphasizes the three requirements that must exist for a court to hold that an injury arises from the use of an auto, the most important of which is the fact that the auto itself must produce the injury, not just merely contribute to cause the conditions that produce the injury. Also, at least in Texas , contracts need not be signed to be considered executed; mutual assent can be inferred from the circumstances.