Fourth Circuit decides duty to defend case

In COWAN SYSTEMS v. HARLEYSVILLE MUTUAL INSURANCE, the Fourth Circuit held that Harleysville Mutual Insurance Company had a contractual duty to provide Cowan Systems, Inc. with a defense in an action commenced against Cowan by Linens N Things, Inc., who, facing a claim for premises liability, sought indemnity from Cowan based on an indemnification provision in a commercial contract between them. At base, a driver for Cowan was injured while he was delivering an empty Linens N Things trailer to a mud lot leased by Linens N Things. He fell on the ice and then filed a personal injury action against Linens N Things alleging that Linens N Things had negligently failed to remove ice and snow from the mud lot. Linens N Things filed a third-party complaint against Cowan to have Cowan indemnify Linens N Things for its premises liability. When Cowan presented the suit papers to its insurer, Harleysville, Harleysville denied coverage, claiming that it had no duty to defend.

Harleysville conceded that the CGL policy provided Cowan coverage for certain tort liability that Cowan assumed by contract. But, it argued that the contractual coverage did not insure Cowan's indemnification of liability to an employee of Cowan because the driver was not a "third person or organization" whose claim was covered by the contractual coverage provision. The Fourth Circuit found that employment status did not change the fact the driver was not a party to the Truckload Transportation Agreement and therefore was also a "third person" with respect to the contractual indemnification in that agreement. Accordingly, coverage existed.