Mr. Craft subsequently sued Wilson Equipment, which answered and filed a third-party complaint against Motorists Mutual. In the third-party complaint, Wilson Equipment alleged that Stanley Pipeline was contractually obligated to indemnify Wilson Equipment and to obtain a liability insurance policy in the amount of $500,000 with Wilson Equipment listed as an additional insured. Wilson Equipment maintained that Stanley Pipeline had obtained such a liability insurance policy from Motorists Mutual and that Wilson Equipment was an additional insured under that policy as required by the indemnification provision of the rental contract.

Motorists Mutual moved for summary judgment, alleging that Stanley Pipeline owed no contractual duty to indemnify Wilson Equipment and, therefore, that Wilson Equipment was not an additional insured under the Motorists Mutual policy.

Wilson Equipment also moved for summary judgment.

The trial court denied Wilson Equipment's motion for summary judgment but granted Motorists Mutual's motion. It determined that Stanley Pipeline did not owe Wilson Equipment a contractual duty to indemnify Wilson Equipment against Mr. Craft's claims under the indemnification provision of the rental contract. The trial court interpreted the rental contract's indemnification provision to be inapplicable, reasoning that Stanley Pipeline would not have agreed to indemnify against Wilson Equipment's conduct that purportedly occurred prior to execution of the rental contract.

Wilson Equipment appealed.

The Indemnification Provision

The rental contract's indemnification provision stated:

LESSEE will indemnify, hold harmless and defend LESSOR, its officers, directors, and employees against all actions, claims, damages, demands, suits, and other claims, . . . howsoever arising or incurred, because of the Equipment, or the storage, use of operation thereof, and shall assume all risks associated therewith. LESSEE, at its own expense, shall secure the following insurance which shall list LESSOR as an additional insured thereon, as follows:

a. General Liability insurance in the amount of no less than $500,000 which lists LESSOR as an additional insured[.]

The Motorists Mutual Insurance Policy

The Motorists Mutual policy provided:

VIII. ADDITIONAL INSURED – LESSOR OF LEASED EQUIPMENT – AUTOMATIC STATUS WHEN REQUIRED IN LEASE AGREEMENT WITH YOU

This coverage modifies insurance provided under the Commercial General Liability Coverage Form.

A. Who is An Insured (Section II) is amended to include as an additional insured any person or organization from whom you lease equipment when you and such person or organization have agreed in writing in a contract or agreement that such person or organization be added as an additional insured on your policy. Such person or organization is an insured only with respect to their liability for “bodily injury,” “property damage” or “personal and advertising injury” caused, in whole or in part by your maintenance, operation or use of equipment leased to you by such person or organization. 

The appellate court affirmed.

In its decision, the appellate court found that the indemnification provision's language was “clear and unambiguous.” The appellate court added that it “plainly” stated that Stanley Pipeline assumed “all risks” associated with the rental and use of the equipment.

The appellate court added that there was nothing in the record that established that Wilson Equipment and Stanley Pipeline were not of equal bargaining power in entering into the rental contract.

Accordingly, the appellate court ruled that the rental contract's indemnification provision was “valid and unequivocal” and that, under its “clear terms,” the indemnification provision had been triggered by Mr. Craft's claims against Wilson Equipment. Once the indemnification provision was triggered, Stanley Pipeline became contractually bound to hold Wilson Equipment harmless for any liability resulting from Craft's claims, the appellate court said.

Having determined that the indemnification provision in the rental contract between Stanley Pipeline and Wilson Equipment was valid, the appellate court then decided that Wilson Equipment was an additional insured under Stanley Pipeline's insurance policy issued by Motorists Mutual.

The appellate court reasoned that the Motorists Mutual policy “plainly and succinctly” stated that an additional insured was “any person or organization from whom you lease equipment when you and such person or organization have agreed in writing in a contract or agreement that such person or organization be added as an additional insured on your policy.” The appellate court said that, given that the Motorists Mutual policy was a condition in the rental contract and had been obtained by Stanley Pipeline to comply with the written terms of that agreement, it had to conclude as a matter of law that Wilson Equipment was an additional insured under the Motorists Mutual policy and had to be afforded coverage.

The appellate court pointed out that Mr. Craft's alleged injury arose from the use of the equipment, triggering the coverage contemplated under the rental contract, as provided for in the policy. “To avoid coverage by way of semantical gymnastics would undermine the purpose and intent of the insurance coverage as clearly contemplated by the [r]ental [c]ontract,” the appellate court concluded.

The case is Wilson Equipment Co. v. Motorists Mutual Ins. Co., No. 2017-CA-001064-MR (Ky. Ct.App. July 27, 2018). BRIEFS FOR APPELLANT: John W. Walters Anthony M. Pernice Chad R. Wadlington Dylan S. Merrill Lexington, Kentucky. ORAL ARGUMENT FOR APPELLANT: John W. Walters Lexington, Kentucky. BRIEF FOR APPELLEE: Jennifer K. Nordstrom David W. Zahniser Fort Mitchell, Kentucky. ORAL ARGUMENT FOR APPELLEE: David W. Zahniser Fort Mitchell, Kentucky.