McCarter & English LLO on Martco Ltd. Partnership v. Wellons, Inc.

McCarter & English LLO on Martco Ltd. Partnership v. Wellons, Inc.

 
In Martco Ltd. Partnership v. Wellons, Inc., No. 08-31247 & No. 08-31248, 2009 U.S. App. LEXIS 25428 (5th Cir. Nov. 19, 2009), the United States Court of Appeals for the Fifth Circuit rejected an insurance carrier’s argument that a commercial general liability (“CGL) policy allegedly did not provide coverage for a breach of contract claims. A growing jurisprudence has developed supporting the notion that breach of contract claims are per se not covered by CGL policies for a variety of reasons, all which ultimately attempt to conform to the alleged scope of what CGL policies are “intended” to insure. Some of these cases have gone so far as to use the gist of the action doctrine to recast a third party’s allegations of negligence as a breach of contract claim to support a denial of coverage.   
 
The Fifth Circuit, however, did not follow that jurisprudence, and instead applied basic rules of contract interpretation to the terms of the policy at issue and the allegations of the underlying complaint to find coverage for property damage caused by the insured’s malfunctioning product The Fifth Circuit first held that the insurance company was obligated to defend the policyholder, because the allegations of the underlying complaint potentially fell within the coverage grant of the policy. Next, the court held that, although the facts adduced at trial might have been slightly different than those alleged in the complaint, those actual facts still fell within coverage, thereby implicating the carrier’s duty to indemnify as well. The decision in Martco is an important victory for policyholders and an encouraging sign that courts will not strain to rewrite insurance policies for insurance companies by crafting an exclusion for covered claims, simply because they arise out of a contractual relationship.
 
 
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