Indemnification Claim Extinguishes Fire Caused By Insured V. Insured Exclusion

The Fifth Circuit recently delivered good news to policyholders in a July 27, 2015 opinion that supports the argument that an indemnification right among co-insured parties may be covered, notwithstanding the insured-versus-insured exclusion. In Kinsale Insurance Co. v. Georgia-Pacific LLC, the indemnification right prevailed because the claim for which coverage was sought was for an indemnification request, not for the underlying property damage arising from a fire.

Georgia-Pacific hired Advanced Services, Inc. to demolish a plywood plant. Advanced Services, in turn, leased equipment for the work from H&E Equipment Services ("H&E"). When a fire in the plant damaged this equipment, H&E brought sued Advanced Services, which, in turn, brought a third-party demand for indemnification against Georgia-Pacific. Advanced Services held a Commercial General Liability policy issued by Kinsale Insurance Company, under which Georgia Pacific was an additional insured. The policy contained an insured-versus-insured policy exclusion that provided, in relevant part: "This insurance does not apply to claims or 'suits' for 'bodily injury,' 'property damage' or 'personal and advertising injury' brought by one insured against any other insured."

Georgia-Pacific filed a claim under the insurance policy for any indemnification it might owe Advanced Services, but Kinsale Insurance denied the claim, citing the insured-versus-insured exclusion. The insurer then filed an action for a declaratory judgment that it did not owe indemnity to Georgia-Pacific, and the district court—applying Louisiana law—granted summary judgment in Kinsale's favor. It held that the policy exclusion applied, as the original suit was for property damage, which is explicitly included in the exclusion.

The Fifth Circuit disagreed, finding that, because Advanced Service's suit against Georgia-Pacific did not seek damages, but rather, indemnification, the exclusion did not apply. It was not persuasive to the court that the original action for which the indemnity was sought was for property damage, and the property damage claim was not brought by one insured against another. The court distinguished a prior Fifth Circuit case, Fidelity & Deposit Co. of Maryland v. Conner, pointing out that the exclusion in that case applied to any claim, without limitation based on the nature of the claim.

In making its decision, the court noted, "We do not deny that it is possible that Advanced's indemnity claims could become a battle between two insureds over who, if either, was responsible for the fire and even whether there was shared responsibility. One central purpose of the insured versus insured exclusion no doubt is to keep the insurance company free from such litigation." Nonetheless, the court found that the exclusion did not apply because this was not a claim for property damage, but one for indemnity.

The Fifth Circuit's decision serves as a reminder for policyholders to look carefully at their insured versus insured exclusion to see if it is broadly worded to apply to all claims, or whether it is limited to certain types of claims, such as bodily injury and property damage in this case.

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