Last week, The Corpus Christi Court of Appeals affirmed a trial court’s judgment granting Farmers Insurance Exchange’s (FIE) and Wasp Construction, LLC’s (Wasp) motions for summary judgment on United Specialty Insurance Company’s (USIC) claims that its insured, Cantu Construction, Inc. (Cantu), was an additional insured under the FIE policy, that the policy therefore imposed a duty on FIE to defend and indemnify Cantu, and that Wasp breached its subcontract with Cantu by failing to defend and indemnify him against claims in an underlying tort action. United Specialty Ins. Co. v. Farmers Ins. Exchange v. Wasp Constr. Co., Nos. 13-19-00127CV, 13-19-00128-CV, 2020 WL 6343341 (Tex. App.—Corpus Christi, Oct. 29, 2020) involved a consolidated appeal from cross-motions for summary judgment arising from a dispute between the insurers and one of the alleged underlying tortfeasors, Cantu.

Cantu was a general contractor and accepted a bid from Wasp on August 26, 2014 to perform water and sewer improvement on a project. Wasp held a “business owners policy” with FIE and Cantu carried a liability policy with USIC. Wasp’s FIE policy contained an additional insured provision that extended coverage to any person or organization Wasp was performing operations for, if Wasp and such person/organization agreed in a written contract that such person/organization would be included as an additional insured.

At the time Wasp began working on the project, Cantu was not named as an additional insured. On August 30, 2014, just four days after the bid was accepted, a Wasp employee was severely injured on the job and filed suit against Wasp and Cantu in addition to seeking workers’ compensation benefits.

The formal subcontract between Wasp and Cantu was not signed until October 9, 2014 and stipulated that it was entered into on September 12, 2014—two weeks after the accident. While working to settle the Wasp employee’s tort action, a dispute arose between USIC, FIE, and Wasp. USIC, as assignee and subrogees of Cantu, alleged that FIE was responsible for defending Cantu as an additional insured under Wasp’s policy, that Wasp wrongfully failed to defend and indemnify Cantu in the underlying suit, and Wasp failed to provide additional insured coverage under its FIE policy to Cantu. In response, FIE argued that Cantu was not an additional insured under Wasp’s insurance because the parties’ subcontract was not in effect until after the date of Wasp’s employee’s on-the-job accident. FIE further argued that it therefore did not breach the subcontract and did not owe a duty to defend and indemnify Cantu.

The Court agreed with FIE, disapproving of USIC’s argument that the two parties had entered into an oral agreement prior to the Wasp Employee’s accident and the subcontract was simply a memorialization of the agreement. Instead, the Court concluded that the plain, unambiguous language contained in the FIE policy required the parties to enter a written contract calling for Cantu to be named as an additional insured on the policy.

USIC further argued that, even if the parties entered into a subcontract after the date of the Wasp employee’s accident, the additional policy did not state that the written agreement naming an additional insured had to be executed prior to the event requiring coverage. However, the Court cited multiple cases in which it was held that, even if the policy “did not plainly dictate that the written agreements for additional insureds be executed prior to the vent requiring coverage . . .  the courts nonetheless held the policies required the insured and prospective additional insured to have entered into a written contract prior to an incident for the additional insured status to attach.”

Thus, the Court concluded that, for Cantu to become an additional insured, Wasp and Cantu must have agreed via a written contract prior to the reported loss. As such, the Court affirmed the trial court’s order granting FIE’s motion for summary judgment.

USIC also claimed Wasp breached the subcontract with Cantu by failing to defend or indemnify Cantu for claims asserted against it in the underlying suit by Wasp’s employee. Wasp argued—and the Court agreed—that USIC’s claim was barred by res judicata because the trial court in the underlying suit granted Wasp’s motion to dismiss Cantu’s claims against it with prejudice. And, although USIC was not named in the underlying lawsuit, privity between USIC and Wasp existed because USIC was involved the settlement negotiations in the underlying suit, was present when the trial court granted Wasp’s motion to dismiss Cantu’s claims, had control of the action even if they were not parties to it, had interests represented by a party to the action, and were now deriving their claims through a party to the prior action. Consequently, the Court affirmed the trial court’s order granting Wasp’s motion for summary judgment.

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