POLICYHOLDER DOES NOT HAVE THE RIGHT TO ASSUME A POLICY RENEWAL IS BASED ON THE SAME TERMS AS THE ORIGINAL POLICY

April 8, 2013

The Fifth Circuit recently affirmed a federal District Court’s grant of an insurer’s summary judgment regarding an insurer’s duty to defend under a commercial general liability policy. In Materials Evaluation and Technology v. Mid-Continent Casualty Company, No 12-40186, (5th Cir., March 18, 2013) the insured annually renewed its coverage through at least 2004. The 2002 policy, which was effective from July  2002 to July 2003 provided for an Employer’s Liability Exclusion. Through the Exclusion, the 2002 policy provided coverage for employee injuries arising from third-party contractual relationships.

The following year, the insured renewed its policy for the period of July 2003 to July 2004. The coverage for the 2003 policy also contained the same Exclusion as the 2002 policy. However, the 2003 policy differed from the 2002 policy because the renewed 2003 policy also contained an endorsement excluding liability arising out of third-party relationships.

In 2003, the insured executed an agreement to provide various testing services at a DuPont facility in Beaumont, Texas. The agreement included an indemnity clause which required the insured and DuPont to indemnify each other. In 2004, two of the insured’s employees sustained bodily injuries while working at the DuPont facility.  DuPont settled with the insured’s injured employees and sought indemnity from the insured. The insured refused and was subsequently sued for breach of contract. Afterward, the insured tendered defense to Mid-Continent Casualty Company.  Mid-Continent determined that the Endorsement in the 2003 policy precluded coverage and the District Court agreed.  

The Fifth Circuit rejected the insured’s argument that the 2003 policy was on the same terms as the 2002 policy because Texas law generally provides that a policy renewal is on the same terms as the original. The Court carefully distinguished the case law the insured relied upon and then stressed that the cases were limited to their particular circumstances and did not “stand for the blanket proposition that a policyholder has a right to assume that a renewal policy is on the same terms as the original.”

Because the 2003 Policy language with the endorsement specifically excluded liability arising from third party contracts, the Court determined the 2003 Policy specifically negated Mid-Continent’s duty to defend the insured.