A recent opinion out of the Fourth District Court of Appeal in Florida highlights the importance of properly pleading claims so that insurance coverage is triggered.

In Mid-Continent Cas. Co. v. Royal Crane, LLC, Cloutier Brothers, Inc. leased a crane and crane operator from Royal Crane, LLC. During construction, a truss fell from the crane and injured a construction worker. The worker sued Royal Crane, asserting claims for negligence, strict liability, and gross negligence. Royal Crane tendered its defense of the lawsuit to Cloutier under an indemnity clause in the parties’ rental agreement. Cloutier declined the tender “at the behest” of its insurer, Mid-Continent.

So Royal Crane sued, bringing a third-party action against Cloutier for contractual indemnification and breach of the rental agreement. Cloutier tendered the defense of these claims to Mid-Continent, which denied the duty to defend under the exclusion for Cloutier’s potential obligation to pay “by reason of the assumption of liability in a contract or agreement.” The poison pill for coverage turned on Royal Crane’s failure to plead around this exclusion.

2343917330_3b1df65cf6_zWithout a defense from either Cloutier or Mid-Continent, Royal Crane settled with the worker and entered into what is known as a “Coblentz settlement agreement” with Cloutier , which included a consent judgment for the settlement amount, the attorney’s fees and costs expended by Royal Crane, and an assignment of Cloutier’s rights against its insurer.

Royal Crane then sued Mid-Continent. Mid-Continent’s defense was that the “Contractual Liability” exclusion applied to preclude coverage. This exclusion precludes coverage for bodily injury that Cloutier was obligated to pay “by reason of the assumption of liability in a contract or agreement.” There are two exceptions to this exclusion: (1) where Cloutier would have been liable “in the absence of the contract or agreement,” or (2) where Cloutier assumed the liability in a contract or agreement that is an “insured contract,” provided the bodily injury occurs subsequent to the execution of the contract or agreement.

Royal Crane moved for partial summary judgment on the issues of coverage and the duty to defend, arguing that the second exception to the exclusion applied — that is, that Cloutier assumed Royal Crane’s liability for the worker’s injuries under the rental agreement, which contained the indemnity provision. An “insured contract” means an agreement in which the insured assumes

the tort liability of another party to pay for ‘bodily injury’ . . . to a third person or organization, provided the ‘bodily injury’ . . . is caused, in whole or part, by you or by those acting on your behalf. Tort liability means a liability that would be imposed by law in the absence of any contract.

The trial court granted Royal Crane’s motion for partial summary judgment, finding that the rental agreement’s indemnification clause constituted an “insured contract.” Mid-Continent appealed.

This victory for the insured did not last. The appellate court first analyzed whether the policy extends coverage by an “insured contract” only for vicarious liability on behalf of the insured. The court rejected this narrow interpretation, holding that coverage extends to situations in which liability is shared by the insured/indemnitor and its indemnitee. In other words, coverage will extend “so long as the named insured caused some part of the injuries or damages.”

Applying the rule, the court found that Royal Crane’s complaint failed to allege any legal theory under which Cloutier could have “caused the injury in whole or in part.” As a result, the rental agreement did not fall within the definition of an “insured contract” and the exception to the contractual-liability exclusion did not apply.

This opinion is a stark reminder of the importance of having knowledgeable coverage counsel representing your interests so that, when insurance coverage is the goal, claims can be pleaded in a manner to maximize insurance coverage. The appellate court’s decision even gives a virtual road map as to how this might have been done, including reliance on the “borrowed servant” doctrine or alleging some kind of control retained by the insured over how the work was being done. Coverage counsel can help prevent pleading that falls short of this goal.

Opinion reprinted from WestlawNext with permission of Thomson Reuters. If you wish to check the currency of this case by using KeyCite on WestlawNext, please visit www.next.westlaw.com.