If an indemnity agreement is never triggered, is the agreement still an "insured contract" under a CGL policy? The court in Cheramie v. ERA Helicopters, LLC, 2010 U.S.Dist. LEXIS 128611 (E.D. La. Dec. 3, 2010) answered yes.
Dodi Cheramie, an employee of Professional Cleaning Maintenance Services, LLC ("PCMS"), sued ERA when she was injured while removing improperly loaded cargo from a helicopter. As an additional insured, ERA demanded a defense from PCMS's liability insurer, who filed a declaratory action to determine its coverage obligations.
Under a maintenance agreement with ERA, PCMS agreed to indemnify ERA for claims based upon personal injury suffered by any of PCMS's employees. Section 3.2 of the agreement also stated that ERA was the statutory employer of PCMS employees for purposes of the state workers' compensation statute.
The policy excluded coverage for "bodily injury" where the insured had to pay damages because of the assumption of liability under a contract or agreement. The exclusion did not apply, however, to liability for damages "assumed in a contract or agreement that is an 'insured contract.'" An 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 to pay for . . . 'bodily injury' to a third person or organization."
In its motion for summary judgment, ERA argued that the insurer owed coverage to PCMS for defense and indemnity obligations because the maintenance agreement was an insured contract even though ERA could be held to be the statutory employer of Cheramie. Making the opposite argument, the insurer contended that the maintenance agreement was not an insured contract because ERA could not incur tort liability by virtue of section 3.2, wherein ERA was made the statutory employer of Cheramie.
PCMS assumed ERA's tort liability when it entered the maintenance agreement. Consequently, the court agreed with ERA that maintenance agreement remained an insured contract even though the indemnity provision may never be triggered if ERA had a viable statutory employer defense. The insurer and PCMS therefore owed ERA a defense under the indemnity agreement and the policy.
