A federal appeals court ruled on Wednesday that the absence of a duty to defend does not foreclose the potential for indemnity coverage under primary and umbrella liability policies. The decision in Hartford Casualty Insurance Co. et al. v. DP Engineering LLC, stems from a March 31, 2013, incident where an industrial crane collapsed at a nuclear generating facility near Russellville, Arkansas, causing significant damage and injuries, including one death.
Focusing on the coverage issues, the court acknowledged that the duty to defend is typically broader than the duty to indemnify, and assessed the carrier’s defense obligation under an “eight corners” analysis. Based on its review of the policies and the allegations as alleged in the underlying complaint, the court concluded that all of the allegations fall within the policies’ “professional services” exclusion, thus barring any defense obligation. In contrast, the court explained that the carriers’ duties to indemnify would be based on the facts as ascertained in the underlying lawsuit. As such, with one exception, as noted in the decision, the court ruled that the carriers’ indemnity obligations could not be determined until final adjudication of the underlying lawsuit, thus holding open the potential for coverage despite the absence of any duty to defend.
The decision in DP Engineering is an important reminder for policyholders that coverage may still exist even after a court rules that the carrier need not defend the claim. Often, policyholders will place too much emphasis on the concept that an insurer’s duty to defend is broader than the duty to indemnify and, that consequently, a determination of no defense owed necessarily means that no indemnity is owed, either. As the Fifth Circuit’s decision illustrates, however, that is not always the case. Policyholders, therefore, should be careful not to prematurely abandon a claim for indemnification simply because there appears to be no duty to defend under the language of the policy and the allegations asserted in the complaint. Consultation with experience coverage counsel can help avoid such abandonments and help secure coverage when it is rightfully due under the policy.