Fifth Circuit Addresses Contractual Liability Exclusion

In its recent decision in Colony Nat'l Ins. Co. v. Manitex, L.L.C., 2012 U.S. App. LEXIS 3311 (5th Cir. Feb. 20, 2012), the United States Court of Appeals for the Fifth Circuit, applying Texas law, considered what constituted an “insured contract” for the purpose of a contractual liability exclusion in a general liability policy.

Manitex involved two asset purchase agreements effecting a transfer of the assets and certain liabilities of an initial product manufacturer. JLG manufactured and sold a line of boom truck cranes.  Powerscreen purchased JLG’s assets and liabilities, including JLG’s liabilities associated with the cranes.  Powerscreen, in turn, was sold to Manitex, which assumed Powerscreen’s liabilities associated with the cranes.  Manitex was insured under a general liability policy issued by Colony.  During the Colony policy period, an individual was injured while using of the JLG manufactured cranes.  That individual later filed suit against JLG, and Manitex provided JLG with a defense in the suit.  Colony sought a judicial declaration that it did not have an obligation under its policy to indemnify Manitex for its own indemnity obligations vis-à-vis JLG.   The United States District Court for the Western District of Texas ruled on motion for summary judgment that Colony at least had a duty to reimburse Manitex for costs incurred in defending JLG.  On interlocutory appeal, however, the Fifth Circuit reversed the lower court.

The exclusion at issue in Manitex was a contractual liability exclusion barring coverage for “bodily injury” or “property damage” for which Manitex became obligated to pay “by the reason of the assumption of liability in a contract or agreement.”  The exclusion contained a typical exception for liability “assumed in an ‘insured contract,’” but only if the “bodily injury” or “property damage” occurred subsequent to the execution of the contract or agreement.

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