FIFTH CIRCUIT FINDS INSURED CONTRACT EXCEPTION INAPPLICABLE AND REVERSES DISTRICT COURT

Last Monday, in Colony Nat’l Ins. Co. v. Manitex, L.L.C., No. 11-50068 (5th Cir. Feb. 20, 2012), the Fifth Circuit reversed a district court’s order granting summary judgment in favor of Manitex, L.L.C. and remanded the case for entry of summary judgment in favor of Colony National Insurance.  JLG Industries, Inc. manufactured and sold a boom truck crane line of products to Powerscreen, USC, Inc., and Powerscreen assumed JLG’s liabilities associated with the cranes.  Powerscreen later sold the cranes to Manitex.  On November 8, 2006, a JLG-manufactured crane allegedly malfunctioned, injuring Hugh Hawkins  and  Joshua  Martin,  who  subsequently  sued  JLG.   Manitex  defended  JLG  based  upon  its perceived obligation to do so under its purchase agreement with Powerscreen.  Manitex’s insurer, Colony, sought a declaratory judgment from the district court that it had no duty to defend or indemnify Manitex. Manitex, in turn, sought a declaratory judgment that the policy covered defense of the Hawkins/Martin suit against JLG and indemnity for damages arising out of it. On cross-motions for summary judgment, the district court denied Colony’s motion and granted Manitex’s motion.  An appeal followed.

The Colony policy issued to Manitex excludes “contractual liability”; i.e. - “‘bodily injury’ or ‘property damage’ for which the insured is obligated to pay damages by the reasons of the assumption of liability in a contract or agreement.” An exception to the contractual liability applies when liability is assumed in an “insured contract,” which is a contract or agreement under which Manitex assumed the tort liability of another party that would be imposed by law in the absence of any contract or agreement.

The Court of Appeals found that Manitex did not assume tort liability of JLG through the Powerscreen- Manitex Purchase Agreement. Manitex assumed Powerscreen’s liability, which arose strictly from a contract, namely, its purchase agreement with JLG. If that contract did not exist, then Powerscreen would have had no liability related to the Hawkins and Martin claims. Powerscreen’s liability, therefore, was not one that “would be imposed by law in the absence of any contract or agreement.” Therefore, it was not “tort  liability.”  Given  that  Manitex  did  not  assume  tort  liability  through  the  Powerscreen–Manitex Purchase Agreement, that Agreement was not an “insured contract,” and the exception to the contractual liability exclusion did not apply.