The Contractual Liability Exclusion and the Insured Contract Exception
Mid Continent v. Union Ins. Co. (Tenth Cir, not published)
When S&W’s contractor Griffin, was hurt working on Noble’s site, he sued Noble. Noble asked S&W to indemnify it per their contract. The issue was which one of S&W’s insurers (primary or umbrella) was liable to pay for Griffin’s injuries. If the accident was Griffin’s fault, the primary carrier, Mid Continent was on the hook. Otherwise, the umbrella carrier, Union, had to pay.
The Mid Continent Policy contains “exclusions,” which limit Mid-Continent’s coverage. The exclusions in turn contain “exceptions,” which limit the scope of an exclusion and broaden Mid-Continent’s coverage. If an event is listed in an exception to an exclusion, Mid-Continent must cover that event.
The issue in this case involves an exception to an exclusion in the Policy. The “Contractual Liability Exclusion” limits coverage for, among other events, bodily injury arising from a contractual assumption of liability. The “Insured Contract Exception” narrows the Contractual Liability Exclusion so that Mid-Continent covers S&W’s contractual assumption of liability if S&W assumes that liability as part of an “insured contract.” The Contractual Liability Exclusion in the Policy provides: “This insurance does not apply to: . . . ‘Bodily injury’ . . . for which the insured is obligated to pay damages by reason of the assumption of liability in a contract . . .”. The Insured Contract Exception to the Contractual Liability Exclusion provides: “This exclusion does not apply to liability for damages: . . . Assumed in a contract that is an ‘insured contract’ . . . .”
Thus, because of the Contractual Liability Exclusion, Mid-Continent generally does not provide coverage for bodily injuries for which S&W (the insured) has assumed liability in a contract. But, Mid-Continent provides coverage if S&W assumed that liability as part of an insured contract by virtue of the Contract Exception to the Contractual Liability Exclusion. An insured contract is a contract where the insured assumes liability for bodily injury to a third party where the insured or those acting for the insured would be liable in tort.
It was agreed that Mid Continent would be liable if Griffin caused his injuries. So the question became, what does “cause” mean? Mid Continent relied on depositions to show that Griffin did not cause his injuries. Union put on experts to opine that Griffin caused the explosion when he took apart the machine he was working on, and that Griffin’s failure to wear flame resistant clothes contributed to his injuries. The trial court defined “cause” in its plain and ordinary usage to mean “be the cause of, effect, bring about; occasion, produce; induce.” The court found that Griffin caused, at least in part, his injuries because the explosion was caused by Griffin’s taking the machine apart. Thus, Mid Continent was liable.
There is also a nice discussion of determining causation under Oklahoma law and with regard to insurance policies.
