The court considered the validity of a contractual provision to provide insurance when the indemnity clause was deemed invalid. See Travelers Lloyds Ins. Co. v. Pacific Employers Ins. Co., 2010 U.S. App. LEXIS 7113 (5th Cir. April 6, 2010).
The landlord, The Centre, leased commercial property to the tenant, Best Buy Stores, Inc. Pursuant to the lease, the tenant agreed to obtain commercial general liability insurance and name the landlord as an additional insured. Further, the tenant agreed to indemnify and hold the landlord harmless against all claims arising out claims due to any occurrence on the property. Best Buy purchased an "Excess Commercial General Liability Policy" from Pacific. The policy covered additional insureds, but only with respect to liability arising out of Best Buy's operations.
The victim was injured when he fell from his wheel chair while exiting Best Buy's store. The victim sued Best Buy and The Centre for defects in the exit ramp and sidewalk. Travelers insured The Centre through a CGL policy. Travelers demanded that Best Buy and Pacific defend and indemnify The Centre. When Best Buy and Pacific declined, Traveler's settled for $250,000 and incurred $275,000 in attorney's fees. Travelers sued for a declaration that Pacific and Best Buy were required to defend The Centre and reimburse Travelers for defense costs. The district court granted summary judgment to Travelers.
On appeal, the Fifth Circuit determined the indemnity provision was void under Texas law because it required Best Buy to indemnify even for The Centre's own negligence. The additional insured provision was valid, however, despite the void indemnity provision present in the same contract.
Next, the Court considered the two policies' "Other Insurance" clauses to determine the priority of coverage. The two policies could be construed to conflict one another. The Travelers policy stated that it was "excess over any of the other insurance, whether primary, excess, contingent, or on any other basis." The Pacific policy expressed an intent that it was to be excess over other insurance "unless that insurance is written specifically to apply in excess of the Limits shown in the Declarations."
A reasonable construction of the Travelers policy was that it was excess to the Pacific policy. Likewise, the Pacific policy could reasonably be construed to provide that it was excess to the Travelers policy. Given this conflict in the "Other Insurance" provisions, each insurer had to share in the costs of the underlying litigation against The Centre.