The Importance of Reading Your Insurance Policy: Louisiana Court of Appeals Denies Coverage in Logging Accident Case

In a recent Louisiana Court of Appeals case, an injured logger was not able to collect damages from his employer’s insurance company because the subcontractor at fault for the accident was found to be not covered.

Travis Palmer was working for A.T. Martinez (ATM), LLC, as a logging truck driver and was injured when he was struck by a log while his employer’s truck was being loaded with timber. Palmer sued his employer’s insurer, Royal Indemnity Company (Royal), alleging that they provided general liability coverage even though a subcontractor, KLM Logging (KLM) was at fault. The trial court granted a motion for summary judgment in favor of the Palmer and found that the insurance policy in question covered KLM but the court of appeals disagreed on appeal.

Royal denied coverage here on the primary grounds that KLM did not meet the definition of “an insured” or an “additional insured” under the terms of the policy issued to ATM. In addition, there was no agreement between ATM and KLM that required ATM to name KLM as an insured for the timber cutting/loading operations or for any other subcontractor work. KLM and ATM did allege, however, that had an oral agreement that ATM’s insurance would also cover KLM. The two owners of the respective corporations (who happen to be parent and child) claim that KLM paid insurance premiums to Royal for this coverage by virtue of ATM withholding part of the payments they owed to KLM. ATM believed that the policy covered their subcontractors, even though the owners admitted they never read it.

ATM’s insurance agent, Mac Pace, also thought subcontractors were covered. Pace had been ATM’s agent for over 25 years. According to Pace, he obtained the policy through George Pusey of O’Donovan and Associates, Royal’s Managing General Agent and requested the same coverage for subcontractors as he had previously obtained for ATM from the Hartford insurance company. The trial court found that ATM had an agreement with KLM to provide KLM with coverage and that ATM and Pace had intended to get coverage, reforming the contract to provide coverage.

Interpreting an Insurance Policy: Plain Language or Latitude?

An insurance policy is a contract between the insured and the insurer. As such, the intent of the parties to the contract is deemed through the plain meaning of the language of the policy under La.C.C. art. 2047. If the language is clear, the policy must be enforced as written.

The crux of the case here is the meaning of the provision in the policy regarding “who is an insured” and whether the language of the policy requires a written contract to add an additional insured or whether an oral agreement, as existed here to name KLM as an additional insured, would suffice.

The policy contains the following provision:


5. a. Any person or organization you are required by a written contract, agreement or permit to name as an insured is an insured but only with respect to liability arising out of:
1. “Your work” performed for that insured at the location designated in the contract, agreement or permit; or
2. Premises owned or used by you.
b. This insurance does not apply unless the contract, agreement or permit is executed prior to the “bodily injury” or “property damage.”

Royal contends that the word “written” in the policy at 5.a. modifies the words “contract, agreement, or permit”, requiring something in writing to add an insured. Palmer and the other appellees, however, contend that the provision contemplates the possibility of an oral agreement because the word “written” should not be read to modify “agreement” or conversely, that the policy is ambiguous and must be construed in favor of coverage.

The Court of Appeals disagreed with the appellees and found that the policy requires a written document.

Although there is no hard fast rule stating that an adjective before a series of nouns modifies all nouns in the series, in this context, such would be the only reasonable construction of the phrase “written contract, agreement, or permit.” According to the Court, to read the phrase otherwise would be “strained and implausible.” The appellees make other efforts to argue that an agreement does not need to be written, such as stating that because the terms “contract” and “agreement” are separated by commas, the term “written contract” is separate from “agreement,” which is not modified by “written.” Despite a protracted effort, however, the Court does not deviate from the standard interpretation of the phrase.

The Court found that when reading the phrase in the context of the policy provision, the only reasonable way to interpret the construction would be that there must be a written document–whether it be a contract, agreement, or permit. One exception to this rule would be in the case where there is written evidence of an oral agreement. Either way, there must be something written.

Here, there was no written document that met the requirement of the policy, but what about deposition testimony indicating that ATM and KLM had a longstanding oral agreement that ATM would procure general liability insurance coverage that covered KLM? There was also testimony that KLM paid for coverage through their payroll, and the trial court relied on an insurance application as “written” evidence of ATM’s intent to provide coverage. The Court of Appeals did not accept these arguments and disagreed with the trial court.

First, the “application” actually related to Owner’s and Contractor’s Protective Insurance, not CGL insurance which applies here. Second, this was not a situation when reformation of an insurance policy is permitted due to mutual mistake or error, which must be proven by clear and convincing evidence. The self-serving deposition testimony that evidenced ATM’s intent to provide coverage and that ATM had an oral agreement with KLM did not meet the high clear and convincing standard.

The bottom line is that because the policy requiring a writing was clear and unambiguous and the undisputed facts were that this requirement was not met, coverage should not be provided and the decision had to be reversed. Complicated in of itself, the legal complexities illustrate why a qualified and experienced attorney is necessary.

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