FIFTH CIRCUIT FINDS INSURANCE CARRIER HAS NO DUTY TO RETROACTIVELY DEFEND AN ADDITIONAL INSURED

October 22, 2012

Last Friday, the Fifth Circuit affirmed a district court’s decision that an insurer had no duty under the policy to defend an additional insured.  In Ace American Insurance Co.  v.  Freeport Welding & Fabricating, No.   12-20002,  2012  WL  5077688,  (5th  Cir.   October  19,  2012),  Freeport  Welding  &  Fabricating (“Freeport”) sued Ace American Insurance Company (“Ace”) for defense and indemnity arising from an underlying personal injury law suit filed in Texas state court.

In  2008,  Freeport  issued  a  purchase  order  to  Brand  Industrial,  L.L.C.   (“Brand  Industrial”)  for  the installation of lining inside of a quench chamber.  Brand Industrial’s work was subsequently taken over by its parent company, Brand Energy Solutions, LLC (“Brand Energy”) in January 2009.  Afterward, Freeport and Brand Energy entered into a purchase agreement.  The purchase agreement started on January 1, 2009 and  was  indefinitely  valid  until  cancelled  in  writing  by  the  parties.   Importantly,  the  2009  purchase agreement served as a contract wherein Brand Energy agreed to provide insurance coverage to Freeport for all purchase orders entered into by Brand Energy and Freeport.

In May 2009, the workers started the installation of the lining and completely fulfilled the 2008 purchase order by August 2009.  Several workers were injured during the installation and sued Freeport.  Afterward, pursuant  to  the  2009  purchase  agreement,  counsel  for  Freeport  tendered  defense  to  Brand  Energy’s insurance carrier, Ace.  Ace denied the tender of defense and filed for declaratory judgment in the District Court for the Southern District of Texas.  The parties filed cross motions seeking summary judgment, and the district court rendered judgment in favor of the insurance carrier holding that it had no duty to defend Freeport as an additional insured under the policy.

On Appeal, the Fifth Circuit determined the May 2009 purchase agreement served as a contract granting Freeport additional insured status under the policy; however, the May 2009 purchase agreement did not apply retroactively to work negotiated under the 2008 purchase order.  The Fifth Circuit affirmed the district court’s holding that Ace had no duty to defend Freeport and remanded the case for determination of whether or not Ace had a duty to indemnify.