• Federal Court in Texas Finds Insurer Does Not Owe Duty to Defend or Indemnify Party Alleged to Be Liable Under Theories of Alter Ego, Joint Venture and Joint Enterprise
  • January 31, 2013 | Author: George B. Hall
  • Law Firm: Phelps Dunbar LLP - New Orleans Office
  • A federal court in Texas recently determined an insurer did not have a duty to defend or indemnify a party alleged to be liable under theories of alter ego, joint venture and joint enterprise because of, inter alia, a contractual liability exclusion. See, Gemini Ins. Co. v. Austin Diversified Products, Inc., Case No. 03:09-cv-02131 (N.D. Tex. Dec. 14, 2012).

    After the death of a tree-trimming employee, a general contractor sought defense and indemnification from the employee’s employer. When its insurer denied coverage, the general contractor sought defense and indemnity from an entity related to the deceased’s former employee under theories of alter ego, joint venture and joint enterprise, claiming that the employer was undercapitalized. That party’s insurer brought a declaratory judgment action seeking a determination that coverage did not exist.

    The court accepted the pleaded facts as true and substituted the related party as the alter ego of the decedent’s employer. The court then determined that the insured’s business was solely a cleaning products producer and distributor, and that the policy contained a contractual liability exclusion that limited coverage only to contracts arising from that business. Since the underlying accident related to tree-trimming, the court found the exclusion applied and that there was no duty to defend. The court also concluded that the insurer did not have a duty to indemnify because (1) the policy contained an exclusion for liability premised on joint enterprise and (2) Texas law would not force an insurer to cover entities of which it had no knowledge, whether or not related to a named insured.