FIFTH CIRCUIT FINDS “INSURED CONTRACT” DESPITE UNENFORCEABLE INDEMNITY PROVISION

As a matter of first impression for Texas Courts, last Monday the Fifth Circuit concluded that even if an indemnity provision between a contractor and a subcontractor fails to satisfy the express negligence doctrine and is unenforceable, the agreement to assume liability for the tort liability of another still qualifies as an “insured contract” under the policy so as to extend coverage to an additional insured.  In Gilbane Building Company v. Admiral Insurance Company, 2011 WL 6153370 (5th Cir. (Tex.), December 12, 2011), a subcontractor’s employee was injured on the job and sued the contractor who sought coverage as an additional insured under the subcontractor’s CGL policy with Admiral.  The trial court found that the insurer had a duty to defend and indemnify the contractor and this appeal followed.

As a matter of first impression for Texas courts, the Fifth Circuit found that even if an indemnity agreement between a subcontractor and contractor failed to meet the express negligence rule, it may still qualify as an insured contract so as to trigger additional insured status under related insurance policy provisions.  The court then observed that the facts alleged in the petition failed to implicate the subcontractor’s or employee’s negligence so as to trigger a duty to defend the additional insured.  But the actual facts revealed some negligence on the employee and therefore, triggered the insurer’s duty to indemnify the contractor for the cost of settlement with the injured employee.  Accordingly, the trial court’s finding that the insurer had a duty to defend the contractor was reversed and the finding that the insurer had a duty to indemnify the contractor was affirmed.

Editor’s Note:  This is one of the very rare cases in which the generally broader duty to defend can negated while a duty to indemnify is still found.