Fifth Circuit Reverses: Insured v. Insured Exclusion Does Not Apply To Indemnity Claim

Applying Louisiana law, the United States Court of Appeals for the Fifth Circuit has reversed a summary judgment ruling in favor of an insurer, holding that a CGL policy’s insured v. insured exclusion does not apply where the suit between the insureds was for indemnification, and not for property damage. Kinsale Ins. Co. v. Georgia-Pacific, LLC, 2015 WL 4529290 (5th Cir. July 27, 2015).

The insurer issued a commercial general liability policy to the insured excavation company. The policy contained an exclusion precluding coverage for “claims or ‘suits’ for ‘bodily injury,’ ‘property damage,’ or ‘personal and advertising injury’ brought by one insured against another insured” (insured v. insured exclusion).

The insured was hired to perform demolition work by a paper company, which was an additional insured under the policy. After a fire caused damage to equipment leased to the insured, the leasing company sued the insured for property damage. In that suit, the insured filed a third-party demand for indemnification against the paper company, which then sought coverage under the policy. The insurer denied coverage based on the insured v. insured exclusion and filed a declaratory judgment action. The district court granted the insurer’s summary judgment motion, holding that the unambiguous insured v. insured exclusion barred coverage because the third-party demand arose as a result of property damage.

On appeal, the Fifth Circuit reversed. Although it agreed with the district court that the litigation between the insureds constituted a “suit” under the policy, it found that the exclusion “requires that the claim or suit for property damage be brought by one of the insureds against another insured.” Because the property damage claim was actually brought by a third-party stranger to the policy, while the insured’s claim against the additional insured paper company sought indemnification, the court concluded that the “claim” between the insureds was not for “property damage.” Adding that “the plain meaning of the exclusion makes it inapplicable to an indemnity claim,” the court concluded that the insured v. insured exclusion did not apply.

The court acknowledged that the litigation may in fact become a battle between the insureds over liability for the damage caused by the fire, a contest that the insurer undoubtedly sought to avoid with the insured v. insured exclusion, but ultimately concluded that the insurer’s underlying purpose in including the exclusion could not trump the exclusion’s actual plain language.


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