In Sturla, Inc. v. Fireman’s Fund Ins. Co., 67 Haw. 203, 684 P.2d 960 (1984), the Hawai`i Supreme Court determined that the distributor of allegedly defective carpet was an insured under a Vendor’s Endorsement, but found there was no coverage based on exclusions in the policy.  The opposite result was reached in a recent case from the Fifth Circuit where the Court determined an insured under a Vendor’s Endorsement was covered by the policy in a product liability suit. See Weaver v. CCA Industries, Inc., No. 07-30597 (5th Cir. May 27, 2008).

     Weaver sued for a stroke allegedly incurred when he ingested Permathene, a product marketed and sold by CCA.  Weaver alleged Permathene, a diet drug/appetite suppressant, contained phenylprpanolamine.  He filed a products liability suit against CCA, as manufacturer and seller of Permathene.

     Although CCA sold and marketed Permathene, Phoenix Laboratories, Inc. manufactured the product using a formula provided by CCA.  Weaver did not sue Phoenix.  CCA demanded a defense and indemnification for Weaver’s suit from Phoenix’s insurer, New York Marine & General Insurance Company.  Although CCA was not a named insured under the policy, it claimed coverage under the vendor’s endorsement, which read,

     "In consideration of the premium charged, it is hereby agreed that the definition of insured is amended to include any person or organization designated as a vendor but only with respect to the distribution or sale in the regular course of the vendor’s business of the Named Insured’s products . . . ."

     When NY Marine denied coverage, CCA filed a third-party complaint against the insurer. The district court found that CCA was not an additional insured under the endorsement because the claims were based on CCA’s independent negligence. 

     The Fifth Circuit reversed.  Weaver’s suit alleged not only the independent negligence of CCA, but also asserted a strict liability claim, alleging the product was unreasonably dangerous.  Therefore, if Phoenix failed to follow the formula in manufacturing the product, CCA could be liable as a manufacturer under strict liability despite its lack of fault.  Thus, CCA qualified as an additional insured under the endorsement.  The Fifth Circuit further determined the district court erred in relying upon two exclusions to deny coverage.