Massachusetts Court Holds Insured Contract Does Not Compel a Duty to Defend

by Traub Lieberman Straus & Shrewsberry LLP
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In its recent decision in Jiminy Peak Mountain Resort, LLC v. Wiegand Sports, 2016 U.S. Dist. LEXIS 34209 (D. Mass. Mar. 16, 2016), the United States District Court for the District of Massachusetts had occasion to consider an insurer’s defense obligations resulting from the “insured contract” exception to a contractual liability exclusion.

Navigators insured, Wiegand Sports, sold and installed an alpine coaster ride to Jiminy Peak to be used at its ski resort.  Jiminy Peak’s contract with Wiegand contained an indemnification provision requiring Wiegand to defend Jiminy Peak against any product liability suit provided that Jiminy Peak performed all ongoing maintenance obligations.  The contract also required Jiminy Peak to defend Weigand and hold it harmless for any loss resulting from Jiminy Peak’s negligence in maintaining or operating the coaster.   Jiminy Peak and Wiegand were sued by two individuals who were seriously injured while riding the coaster.  The underlying suit included a cause of action against Jiminy Peak for negligence and a products liability claim against Wiegand.  Jiminy Peak claimed that Wiegand’s defense obligation was triggered and that as such, Navigator’s had an obligation to provide that defense.

The Navigators policy had an exclusion for obligations assumed under a contract, with an exception for obligations assumed pursuant to an insured contract, a term defined as “”[t]hat part of any other contract or agreement pertaining to [Wiegand’s] business . . . under which [Wiegand] assume[d] the tort liability of another party to pay for ‘bodily injury’ . . . to a third person or organization.” The Policy defined the term “tort liabililty” as “a liability that would be imposed by law in the absence of any contract or agreement.”

Jiminy Peak argued that it was entitled to a defense from Wiegand in the underlying suit, that its contract with Wiegand was an “insured contract” for the purposes of the Navigators policy, and that as such, Navigators had a duty to defend Jiminy Peak.  Navigators conceded that the contract between Jiminy Peak and Wiegand was an insured contract.  It nevertheless contended that its coverage obligations ran only to Wiegand, not to Jiminy Peak, which was not an insured or additional insured under its policy.  Navigators agreed that it might ultimately have a duty to indemnity Wiegand for its own indemnity obligation to Jiminy Peak, but that this would depend on a court ruling that the underlying indemnity obligation was triggered and to what except.  Navigators further contended that it would be up to Wiegand to decide whether to seek reimbursement for any such amounts from Navigators, but that Jiminy Peak could not compel Navigators to undertake its defense.

The court agreed with Navigators, finding no case law support for a court to compel an insurer to defend a third-party beneficiary of a policy.  Any indemnity obligations that Wiegand might have to Jiminy Peak, explained the court, would be considered “damages” under the Navigators policy, which necessarily would be treated different than a duty to defend obligation.  The court also observed that a Jiminy Peak could have protected itself by having written the contract to require additional insured status under Wiegand’s insurance.   Its failure to do so precluded its ability to demand a defense from Navigators.  As the court noted:

In the absence of a contractual relationship between Navigators and Jiminy, the court finds no legal basis for ordering Navigators to pay Jiminy’s defense costs directly. Any obligation upon Navigators to pay such costs will arise only after an insured, in this case Wiegand, makes a claim for payment and then its only obligation will be to Wiegand.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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