The district court ruled that there was no duty to defend the purported additional insured because a purchase order did not invoke additional insured status. Fed. Signal Corp. v. Tammcor Indus., 2016 U.S. Dist. LEXIS 47574 (N.D. Ill. April 7, 2016). 

   Federal Signal designed a speaker system that was installed on a Navy supply ship. Tammcor supplied Federal Signal with the metal housing for the speaker system. A speaker on the ship allegedly malfunctioned and sent debris into the eyes of a nearby person. The injured party sued Federal Signal. The parties ultimately settled. 

   Federal Signal then sought indemnification for defending and settling the lawsuit. It sued Tammcor and also named Tammcor's insurer, Peerless Indemnity Insurance, as a defendant. The lawsuit alleged that Federal Signal was an "additional insured" under Peerless' policy with Tammcor. 

   The Peerless policy stated that an additional insured was "any person or organization when [Tammcor] and such person or organization have agreed in writing in a contract or agreement that such person or organization be added as an additional insured on [Tammcor's] policy." Federal Signal argued that the purchase order from Tammcor for the parts used in the speaker system was a sufficient contract. The purchase order stated:

INDEMNIFICATION; [Tammcor] shall defend, indemnify, and hold harmless [Federal Signal] against all damages, clams or liabilities and expenses . .. . arising out of or resulting in any way from any defect in the goods or services purchased hereunder, or from any act or omissions of [Tammcor], its agents, employees or subcontractors.

    Peerless moved for summary judgment to establish it had no duty to indemnify Federal Signal as an additional insured. Under the policy, Peerless agreed to confer additional insured status on a party only when Tammcor and that party "agreed in writing that such party be added as an additional insured." The purchase orders' terms stated that Tammcor, not Peerless, would indemnify Federal Signal for all relevant damages.

    Federal Signal argued that the provision implied that Peerless would indemnify the company by default. But the provision was unambiguous: Tammcor alone was on the hook for Federal Signal's legal liability. The terms of the purchase order did not state that "Tammcor and its insurer(s) indemnify you for all liabilities." There was no evidence that Federal Signal believed that it was covered directly under an insurance policy held by Tammcor. Nor was there any evidence that Federal Signal ever inquired about its status as an additional insured prior to the accident. 

SOURCE: Insurance Law Hawaii – Read entire story here.

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