Southern District Finds Coverage Despite Competing “Other Insurance” Clauses

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United Parcel Service, Inc.  (UPS) brought a declaratory judgment action against Lexington Insurance Company (Lexington) seeking a declaration that Lexington was obligated to defend and indemnify UPS in an underlying personal injury action.

UPS entered into a Guard Services Agreement (GSA) with Adelis for uniformed guards.  The GSA required Adelis to carry commercial general liability insurance coverage, naming UPS as an additional insured, and requiring Adelis to defend and indemnify UPS against claims arising from any act or omission by any Adelis employee, or any injury suffered by any employee of Adelis.   In the underlying action, an Adelis security guard sued UPS when she was hit and injured by a tow car operated by a UPS employee. UPS’s insurer, Liberty, tendered the defense to Adelis’s insurer, Lexington, requesting complete indemnification. Lexington denied the tender, alleging that the incident was the result of the sole negligence of the UPS employee.

The court noted that Lexington’s Assumed Contract Exclusion did not apply to ‘insured contracts,’ which the policy defined as “that part of any other contract or agreement pertaining to Adelis’s business under which Adelis assumes the tort liability of another party to pay for ‘bodily injury’ to a third person or organization.”  The court concluded that Lexington was required to indemnify UPS because the GSA was an insured contract which pertained to Adelis’s business, and required Adelis to assume the tort liability of UPS for the bodily injury of third parties.  The court also noted that the Liberty and Lexington insurance policies contained “other insurance” clauses stating that coverage was primary unless the insured has other primary coverage through an additional insured endorsement, in which case the coverage shall be excess. The court held that because the Lexington Policy covered UPS as an additional insured while the Liberty Policy covered UPS as a primary insured, the “other insurance” clause in the Liberty contract was triggered while the “other insurance” clause in Lexington’s policy was not. Thus, Lexington’s coverage remained primary.

For a copy of the decision, click here.