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Ninth Circuit Holds Contractual Liability Exclusion Precludes Coverage


In a recent decision, the United States Court of Appeals for the Ninth Circuit held an insurer was not obligated to pay a judgment obtained against its insured under the contractual liability exclusion in the issued insurance policy.  APL Co. Pte. Ltd. v. Valley Forge Ins. Co., No. 11-18065 (9th Cir. 2013).

In the underlying suit, APL Co. Pte. Ltd. (“APL”) shipped hair spray and mousse products for U.G. Co. Inc., (“U.G.”) from Istanbul, Turkey to California.  The product leaked from the shipping containers, causing damage to APL.  APL was awarded judgment on contract claims against U.G., and subsequently commenced proceedings against Valley Forge Ins. Co. (“Valley Forge”), U.G.’s insurer, to collect the judgment.

Valley Forge argued that the contractual liability exclusion in U.G.’s commercial general liability insurance policy precluded coverage and did not require them to pay the judgment.  The insurance policy excluded coverage “for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement.”  APL argued that the “insured contract” exception to the contractual liability exclusion applied to extend coverage.  Under the Bill of Lading, U.G. contractually agreed to indemnify APL for damages it sustained when third parties packed the container.  APL argued that because a third party prepared the container for shipment, U.G. was obligated to indemnify APL for any damage and thus, the Bill of Lading was an “insured contract.” 

The Ninth Circuit disagreed, holding that the plain language of the “insured contract” exception only applied if the insured had assumed a contracting party’s tort liability against a third party.  The exception did not apply to the situation where the contracting party’s own damages were caused by a third party.  Therefore, Valley Forge had no duty to indemnify APL under U.G.’s insurance contract.

 To read more on this Download APL Co Pte Ltd v Valley Forge Ins Co