NEW ORLEANS—A federal appeals court ruled this week that a purchase agreement between two heavy equipment manufacturers is not an insured contract under which the buyer's insurer is responsible for third-party tort liability, a federal appeals court ruled this week.

A summary judgment in favor of Georgetown, Texas, heavy equipment operator Manitex L.L.C. was reversed Monday in a federal district appeals court in New Orleans in favor of excess and surplus lines insurer Colony National Insurance Co., a unit of Pembroke, Bermuda-based Argo Group International Ltd.

Manitex purchased and assumed liabilities for a boom truck crane line of products from Powerscreen USC Inc., who purchased the cranes from JLG Industries Inc. In November 2006, two workers injured when the crane malfunctioned sued JLG for negligence, breach of warranty and strict liability, according to court documents.

Manitex defended JLG based on its purchase agreement with Powerscreen and sought coverage from Colony, from whom a policy was purchased that covered the time period during which the injuries occurred.

Colony sought a declaratory judgment that it had no duty to defend or indemnify Manitex because of a policy exclusion to the coverage which provides that insurance does not apply to contractual liability, according to court documents.

An exception to the exclusion only applies if liability for damages is assumed in an “insured contract,” for which Manitex in turn sought declaratory judgment, according to court documents.

The district court determined that Colony was required to defend Manitex in the underlying lawsuit because Manitex assumed tort liability of a third-party through an insured contract.

But the three-judge panel of the Fifth Circuit of the United States Court of Appeals ruled that under the plain language of the policy, the purchase agreement did not constitute an insured contract, according to court documents.

“Manitex did not assume tort liability (as the policy defines that term) through the Powerscreen-Manitex purchase agreement,” the judges wrote. “Manitex did not assume tort liability through an insured contract, and therefore, Colony was not obligated to defend Manitex.”

The lower court's summary judgment for Manitex was reversed and the case remanded for summary judgment in favor of Colony.