The U.S. Fifth Circuit Court of Appeals recently upheld a district court’s finding that an additional insured is not entitled to coverage under a CGL policy for liability of another that it contractually assumes. Int'l Offshore Servs., L.L.C. v. Linear Controls Operating, Inc., 2016 WL 1658100 (5th Cir. Apr. 26, 2016).

A subcontractor’s employee was injured on a boat chartered by the contractor. The charter between the boat owner and the contractor required the contractor to defend and indemnify the boat owner for the injury or death of its employees and of those of its subcontractors. The boat owner filed a declaratory judgment action against the contractor and the subcontractor for defense and indemnity for the subcontractor’s employee’s injury.

The Master Service Agreement (MSA) between the contractor and the subcontractor required the subcontractor to maintain insurance for the contractor as an additional insured “for obligations undertaken and liabilities assumed by [the subcontractor] under” the MSA, including “Contractual Liability, insuring the indemnity agreements contained in this contract.” The subcontractor secured coverage for “indemnities as required by [the] Contract,” and the contractor paid the premium. The subcontractor’s policy listed the contractor as an additional insured but excluded coverage for contractual liability except liability assumed in an “insured contract.” The term “insured contract” was defined as “[t]hat part of any other contract or agreement pertaining to your business … under which you assume the tort liability of another party to pay for ‘bodily injury’ … to a third person.” The policy provided that the terms “you” or “your” “refer[red] to the Named Insured shown in the Declarations, and any other person or organization qualifying as a Named Insured under [the] policy.” The district court concluded the charter was not an “insured contract” because the policy defined the terms “you” and “your” to include only Named Insureds and not additional insureds such as the contractor.

The Fifth Circuit affirmed, finding the contractor entitled to coverage for its contractual liability only if it were a Named Insured under the subcontractor’s policy, and it was not. The Fifth Circuit held that the contractor did not have coverage for its contractual liability under the charter with the boat owner.