Tuesday, July 26, 2011

Fifth Circuit Agrees: Duty to Indemnify Broader than Duty to Defend Under Texas Law


In D.R. Horton-Texas, Ltd. v. Markel Int’l Ins. Co., 300 S.W. 3d 740 (Tex. 2009) and Burlington Northern & Santa Fe Railway Co. v. Nat'l Union Fire Ins. Co., 334 S.W.3d 217 (Tex. 2010), the Texas Supreme Court established the rule that an insurer can have a duty to indemnify even in the absence of a corresponding duty to defend.  The United States Court of Appeals for the Fifth Circuit recently addressed this concept in Colony Ins. Co. v. Peachtree Construction, Ltd., 2011 U.S. App. LEXIS 14740 (July 19, 2011).

Peachtree was a general contractor hired by the State of Texas for a highway-repaving project.  Peachtree contracted with a third party, CrossRoads, to provide construction signs, barricades and warning devices.  Pursuant to this contract, CrossRoads was required to name Peachtree as an additional insured under its primary and excess liability policies.   Colony was CrossRoads’ primary liability carrier.

Peachtree was later sued in a wrongful death action arising out of a motorcycle crash that happened at the construction site. While the suit alleged that Peachtree failed to use proper signage and warnings, CrossRoads was not named as a defendant nor did it contain any allegations concerning CrossRoad’s negligence.  Peachtree tendered the matter to CrossRoad’s insurers.  Colony provided Peachtree with a defense under a reservation of rights, but commenced a declaratory judgment action, arguing that it had no duty to defend or indemnify since the underlying matter did not allege negligence on the part of CrossRoads. The federal district court granted summary judgment in favor of Colony, holding that because the underlying suit did not allege any negligent arising out of CrossRoads’ work, Colony had no duty to defend Peachtree, and as such, it could not have a duty to defend.

Peachtree did not appeal the aspect of the district court’s concerning the duty to defend.  Rather, its appeal was limited to the issue of whether in light of the D.R. Horton decision (the matter apparently was briefed before the Burlington Northern decision), Colony could have a duty to indemnify even though its defense obligation was not triggered.  The Fifth Circuit, citing to D.R. Horton, agreed that indemnity obligation could arise even in the absence of a defense obligation, explaining that under Texas law, the duty to indemnify is not subordinate to the duty to defend and, in fact, requires a separate factual analysis.  Even though the underlying suit did not contain any allegations concerning CrossRoads’ own negligence that would trigger a defense obligation, the district court was still required to consider whether Colony had a duty to indemnify.  As the Fifth Circuit explained, “[w]here there has been an underlying trial on the issue of liability, the facts adduced at trial might differ from the allegations, and thus, a duty to indemnify could be shown notwithstanding the absence of a duty to defend.”  Thus, the lower court was required to consider any factual evidence offered by Peachtree, including evidence extrinsic to the underlying complaint, to determine whether the accident arose out of CrossRoads’ work performed on behalf of Peachtree such that Colony’s indemnity obligation was triggered.

1 comment :

  1. Yes insurer can have a duty to indemnify in the absense of a corresponding duty.Reading this article gives very helpful knowledge to read and to use.
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