A federal appeals court has reversed a lower court ruling and held a Hanover Insurance Group Inc. unit is not obligated to defend or indemnify a bakery in connection with an automobile accident under an endorsement in its coverage.

In April 2013, a truck owned by Rome, New York-based Risen Foods L.L.C. and driven by a Risen employee collided with a truck driven by Jason J. Tanner, who suffered serious injuries, according to Monday’s ruling by the 2nd U.S. Circuit Court of Appeals in New York in Citizens Insurance Co. of America v. Risen Foods L.L.C., Petr A. Tkach, Jason J. Tanner, Cristina Tanner.

The Risen vehicle was insured under a commercial auto policy from Bloomington, Illinois-based State Farm Insurance Co. with a liability limit of $1 million per occurrence, according to the ruling.

State Farm has provided defense and indemnity coverage to Risen and the Risen truck driver with respect to the underlying suit and offered close to the policy limit to settle it, according to the ruling.

Hanover unit Citizens Insurance, based in Worcester, Massachusetts, had issued to Risen a businessowners policy with a $1 million per occurrence limit, and an umbrella policy with a $2 million per occurrence limit, according to the ruling.

The businessowners policy had an exclusion for bodily injury or property damage arising out of the ownership of any auto owned by the insured.  It also contained an endorsement stating there would be coverage for “hired” and “nonowned” vehicles.

The umbrella policy said it is not obligated to defend against a suit seeking damages for bodily injury or property damage “to which this insurance does not apply.”

After Citizens denied coverage in connection with the accident, the insurer filed suit seeking a declaration it had no duty to defend the company or the driver with respect to the Tanners’ lawsuit.

The U.S. District Court in Syracuse, New York, denied Citizens’ motion and ruled it was obligated to defend and indemnify the bakery, which a three-judge appeals court panel unanimously overturned in its ruling. 

In ruling in Citizen’s favor, the 2nd Circuit panel pointed to a ruling in a comparable case, in which it held that an insurer’s endorsement “did not generally cover auto accidents; it covered only accidents arising from the use of a ‘Hired Auto’ or ‘Non-Owned Auto.’”

The “operative language” in that ruling “is identical to the operative language in the endorsement added to the Citizens businessowners policy in the pending case,” said the ruling.

“As to the umbrella policy, it is arguable that it provides no coverage simply because the only listed underlying policy, the businessowners policy, does not provide coverage, and the State Farm policy, which does provide coverage, was not listed,” said the ruling, in reversing the District Court’s ruling.