Insurers Could Face Future Litigation Complications as Federal Appeals Court Clarifies No Duty to Defend Doesn’t Mean No Duty to Indemnify


A recently published legal opinion from the United States Court of Appeals for the Fifth Circuit concerns when an insurer has a duty to indemnify under Texas state law. This principle applies even if the insurance company has no legal duty to defend a tort action against the insured party. Essentially, the Court ruled that it is faulty to assume that the duty to indemnify may not exist where no duty to defend exists.

Insurers Need to Reassess Their Litigation Strategies

Insurance companies need to reassess their litigation strategies in light of Liberty Mut. Fire Ins. Co. v. Copart of Conn., Inc.. In this case, the insurer requested that the court declare that it did not have any legal duty to defend or indemnify its insured, Copart, Inc., in a civil lawsuit. The court held that the duty to defend is determined by the facts of the specific situation as alleged in the initial pleadings as well as the terms of the insurance policy itself. In addition, the court noted that the duty to indemnify “cannot be ascertained until the completion of litigation, when liability is established, if at all.”

Insurance companies and the law firms representing them need to take into account how this legal ruling will affect their approach to writing coverage and influence their litigation strategies. The in-house legal departments for insurers need to focus on how they can abide by this ruling and do everything within their power to protect their insurers and keep them informed of their legal rights.

The court of appeals ruled that the district court erred by equating no duty to defend with no duty to indemnify. The Texas trial court had granted summary judgment, holding that the insurer had no duty to defend or indemnify Copart, Inc. The Fifth Circuit reversed and remanded the case to be heard with its updated holding regarding an insurer’s duty to indemnify.

Case Background and Procedural History

Eight property owners filed a civil lawsuit against Copart, Inc., an online car auction corporation. The plaintiffs in the case argued that a single creek passed along Copart’s real properties in the state of South Carolina. A salvage yard and other buildings passed chemical pollutants onto the land belonging to the plaintiffs.

Liberty Mutual was the insurance company which had underwritten commercial liability policies to Copart, Inc. The insurance company sought a declaration from the trial court that it had no legal duty to indemnify or defend Copart, Inc. in the civil lawsuit. The district court in Texas granted Liberty Mutual’s motion for summary judgment, dismissing the civil lawsuit. The Fifth Circuit held that the insurer may be obligated to indemnify Copart, Inc. and remanded the case for further proceedings.

Future related cases will significantly impact the insurance coverage landscape; and, some may even warrant review by the United States Supreme Court. Attorneys who represent insurance companies need to be prepared for changing circumstances regarding insurance indemnity and legal liability. Judges reviewing these cases will also be making decisions regarding the future contours of insurance coverage, including indemnity clauses.

Insurance Companies Need to Review Their Indemnification Policies and Procedures

Insurance companies should work with litigation counsel to review how existing indemnification policies will impact current and future litigation. Umbrella liability policies provide a wide scope of coverage for defending lawsuits and indemnifying insured entities. In-house counsel and outside counsel will need to consult with insured businesses to ensure they can protect themselves in the event of any adverse decision handed down by state, federal, and appellate courts.

Many insurance companies may need to revise their indemnification clauses to ensure that they are appropriately protected in the event of a civil lawsuit. It is essential to develop a wide range of strategies which will help carriers protect their assets, their shareholders, and their board of directors, as well as make certain their insured have adequate and appropriate protections.

Insurance Policies, Indemnity Clauses, and Arbitration Clauses

It is important for insurance providers to retain experienced and knowledgeable insurance defense lawyers to help them in each and every case.

The Benefits of Retaining Experienced Insurance Defense Attorneys

Our law firm has over 75 years of experience adeptly and successfully working with insurance companies. Our attorneys have been called upon to represent insurers in high-stakes coverage litigation in state and federal courts throughout Texas.