Introduction. In Lyda Swinerton Builders, Inc. v. Oklahoma Sur. Co., 16-20195, 2018 WL 4113795 (5th Cir. Aug. 29, 2018), the United States Firth Circuit Court of Appeals had to decide whether a subcontractor’s commercial general liability (“CGL”) insurance policy covered the defense of the general contractor named as an additional insured under the policy.
Background. Lyda Swinerton Builders, Inc. (“Lyda”) was hired as the general contractor to build a 10 story building in College Station, Texas. Lyda hired numerous subcontractors including roofer, A. D. Wills Company, Inc. (“Willis”). The subcontract agreement between Lyda and Willis contained a broad indemnity clause requiring Willis to indemnify and hold harmless Lyda and the owner of the project including against property claims, arising out of Willis’s work.
Willis obtained a CGL insurance policy that identified Willis as the named insured, provided contractual liability coverage, and contained an endorsement naming Lyda as an additional insured.
The project owner later sued Lyda for allegedly failing to properly perform its work resulting in damages to the owner. The allegations included that the roof was affected by the deficient work and that Lyda’s negligence caused loss of use of the building and property damage separate and apart from Lyda’s scope of work under the contract documents.
Issue. Lyda requested that the CGL insurance carrier cover its defense against the lawsuit by the project owner, since Lyda was an additional insured under the CGL insurance policy. The carrier denied the request and another lawsuit ensued including between Lyda and the carrier.
Court’s holding. The United States 5th Circuit Court of Appeals held in the lawsuit between Lyda and the CGL insurance carrier that:
- The CGL insurance policy obligated the carrier to defend Lyda as an additional insured against the underlying lawsuit filed by the owner of the project.
- The carrier’s failure to tender a defense and pay for defense costs also would entitle Lyda to recover an 18% penalty against the carrier under the Texas Prompt Payment of Claims Act.
- If Lyda establishes that the carrier’s misrepresentations caused it to be deprived of a defense, Lyda can recover the defense costs under Chapter 541 of the Texas Insurance Code–without limitation from the independent-injury rule–which may also entitle Lyda to recover treble damages if the carrier knowingly violated the statute.