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A federal appeals court upheld a lower court decision Thursday, ruling James River Insurance Co. must defend an Alabama fireworks company in litigation stemming from an accident in which two workers were killed and a third severely injured.
James River agreed to defend Owens Cross, Alabama-based Ultratec Special Effects Inc. and other defendants in underlying litigation filed in connection with the 2015 accident, subject to a reservation of rights, according to the ruling in James River Insurance Co. v. Ultratec Special Effects Inc. et al.
Ultratec Special Effects unit Ultratec HSV had obtained the James River policy, and both businesses as well as an Ultratec Special Effects employee and an associated business are defendants in the underlying litigation.
A three-judge appeals court ruled an “Employer’s Liability Exclusion,” which says coverage is excluded when employees are performing duties “related to the conduct of any insured’s business” was ambiguous.
“James River argues that the exclusion unambiguously applies equally to all the insureds,” the ruling said.
“The Defendants respond that the Exclusion is ambiguous because the phrase ‘any Insured’ could also be interpreted to apply only to the Employee’s claims against their employer, Ultratec HSV,” but “not affect coverage for claims an Ultratec HSV employee brings against another insured who is not her employer.”
“Because Ultratec (Special Effects) is being sued by another insured’s employees and not its own, the Defendants say, James River has a duty to defend it in the underlying action.”
“The Exclusion is ambiguous under Alabama law because it is reasonably open to either interpretation,” the panel said. “We must construe the ambiguous provision in favor of coverage,” it said, in affirming the ruling by the U.S. District Court in Birmingham.
The district court did not rule whether James River also has a duty to indemnify, holding it was not ripe for adjudication until liability was determined in the underlying litigation.
Attorneys in the case had no comment or did not respond to a request for comment.