Subcontractor’s Insurer Owes Duty To Defend Contractor For Liability Suits Arising From Fatal Fireworks Explosion

Company A had a contract with the federal government to destroy seized fireworks and hired Company B to actually destroy them.  While Company B was in the process of destroying the fireworks, an explosion occurred that killed five Company B employees.  Multiple liability suits followed.  Company A’s insurer has paid more than $1.5 million in defense of the liability suits and brought suit alleging that Company B’s insurer owed a duty to defend Company A from the liability suits (Company B could not be sued directly because of workers’ compensation protection).  Company A’s insurer claimed that Company A was an additional insured to a general liability policy issued to Company B.  The U.S. District Court for the District of Hawaii agreed and held that Company B’s insurer had a duty to defend Company A.

The liability suits asserted claims for “bodily injury” arising out of an “occurrence” (the incident) during the “policy period” for purposes of the Comprehensive General Liability Coverage of the policy.  Company B’s insurer argued that Company A, even though listed as an additional insured, was not an additional insured for the underlying claims because the specific endorsement in question applied only to claims of vicarious liability arising out of Company B’s operations.  The court disagreed, finding that the claims made in the liability suits was consistent with the assertion of vicarious liability claims.  The court also rejected Company B’s insurer’s argument that the “pollutants” policy exclusion was applicable, as the court concluded that even if fireworks could be considered a pollutant, it was not clear that the liability suits arose out of “the discharge, dispersal, seepage, migration, release or escape” of the fireworks.  If, for example, the fireworks exploded after catching on fire from static or an equipment spark, the court expressed doubt that the exclusion would apply.  Accordingly, the court could not conclude that the existence of the pollution exclusion left no possibility of coverage, and thus held that Company B’s insurer owed Company A a duty to defend it in the liability suits.