Whether a duty to defend was triggered by allegations of the failure to disclose a chemical's dangerous characteristics was the issue in Shell Chemical L.P. v. Discover Prop. & Cas. Ins. Co., 2010 U.S. Dist. LEXIS 30143 (S.D. Tex. March 29, 2010). 

   Mission Petroleum was an interstate carrier delivering naphtha to one of Shell's customers.  As required under the contract with Shell, Mission added Shell as an additional insured to its liability insurance policies.  Mission had two Commercial Truckers policies and a Commercial General Liability policy.

   While Mission was unloading the naphtha at a customer's location, an explosion and fire occurred.  Extensive damage was caused to the customer's property.  The customer sued Shell, alleging that Shell failed to disclose that naphtha was capable of creating a static charge, which constituted negligence.  Discover refused to defend Shell under all three policies.

   In the coverage action, the court determined there was no duty to defend under the Commercial Travelers policies.  Shell was an additional insured, but only with respect to the insured's (Mission) liability for acts or omissions.  The underlying suit asserted a cause of action against Shell based on its own failure to make necessary disclosures.  Therefore, there was no duty to defend under the Commercial Travelers policies.

   There was a duty to defend Shell under the CGL policy, however.  The underlying suit alleged that Shell failed to disclose the hazardous nature of naphtha, which caused the explosion and fire that damaged the customer's property.  These underlying allegations potentially stated a claim for property damage caused by an occurrence as defined by the policy.

   Nevertheless, Discover argued it had delegated the duty to defend to the named insured, Mission.  The policy provided Discover could delegate the duty to defend subject to listed conditions.  There was no evidence that the conditions had been satisfied or that Discover had actually delegated to Mission its duty to defend Shell.  Further, case law from Texas and other jurisdictions held that an insurer's duty to defend was not delegable.