That was the issue in the case, Weyerhaeuser Company and Weyerhaeuser NR Company v. Burlington Insurance Company and Evanston Insurance Company, decided by the United States Court of Appeals for the Fifth Circuit on July 14, 2023.
The facts of the case are relatively straightforward. Weyerhaeuser NR Company (NR) is a wholly-owned subsidiary of Weyerhaeuser Company (W. Co.), one of the world’s largest owners of timberland and manufacturers of wood products. NR entered into a manufacturing agreement with Simsboro Coating Services, LLC (Simsboro), pursuant to which Simsboro agreed to provide NR with a fire-retardant coating for certain of its wood products. The manufacturing agreement required Simsboro to obtain commercial general liability insurance and to name “Weyerhaeuser and its Subsidiaries” as additional insureds.
Simsboro obtained a commercial general liability insurance policy from Burlington Insurance Company (BIC). It also obtained an excess policy from Evanston Insurance Company (EIC). The EIC excess policy provided the same coverage as the BIC primary policy but kicked in only for claims that exceeded the limit of liability of the BIC primary policy.
Both the BIC primary policy and the EIC excess policy named NR as an additional insured.
At some point, former employees of Simsboro sued Simsboro and W. Co. alleging that they were exposed to dangerous levels of formaldehyde as a result of the negligence of Simsboro and W. Co. and suffered personal injury. The lawsuits were subsequently settled by W. Co., after which W. Co. made a demand on BIC and EIC for reimbursement of the costs incurred by W. Co. in defending and settling the lawsuits. BIC and EIC denied the claim, and this lawsuit followed.
The District Court granted motions to dismiss filed by BIC and EIC. W. Co. and NR appealed.
BIC and EIC had denied the claim for a number of reasons, including the fact that W. Co. had settled the lawsuits without the prior consent of the insurance companies. However, the courts focused on a much simpler reason. W. Co. was not named as an additional insured under either the BIC primary policy or the EIC excess policy.
The Court restated what is known in some states as the “eight corners rule”. (In other states, it is known as the “four corners rule”, even though it is the same legal principle.) This rule provides that an insurance company has a duty to defend an insured in a lawsuit if the four corners of the complaint match the four corners of the policy. In other words, if the allegations in the complaint constitute a claim as defined in the policy. The court is only allowed to consider the two documents – the complaint and the policy – in reaching its decision. As long as the policy is unambiguous, it cannot look to extrinsic evidence, including the intent of the parties to the insurance contract.
In the instant case, the result was easy. While NR was named as an additional insured on both the BIC primary policy and the EIC excess policy, it was not named as a defendant in the lawsuits. And, while W. Co. was named as a defendant in the lawsuits, it was not named as an additional insured on the policies. As a result, neither BIC, nor EIC, had any obligation to defend or indemnify W. Co. from the costs incurred in defending and settling the lawsuits.
The moral of the story is that insurance is hard. Weyerhaeuser is a publicly-traded company and has, at times, been a Fortune 500 company. It has a vast legal department and unlimited resources. And, yet, it found itself uninsured at a cost of millions of dollars.
If you are reading this blog, we doubt that you are a publicly-traded company or a Fortune 500 company. You do not have unlimited resources. And, more importantly, you do not want to find yourself without insurance or with inadequate insurance.
That is why you need to call the insurance professionals at RMC Group. We will make sure that you and your business are fully protected. Contact us today at 239-298-8210 or [email protected].
Read other blogs about appeals court here.