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A Better Partnership
July 23, 2014

COA concludes that contractual exclusion in standard commercial general liability insurance policies only excludes the assumption of the liability of a third party

In Travelers Property Casualty Company of American v Peaker Services, Inc., No. 315070, the Court of Appeals addressed the scope of an exclusion found in a standard commercial general liability insurance policy.  This exclusion barred coverage for damages the insured must pay "by reason of the assumption of liability in a contract."  The insurance company argued that this exclusion applied to a claim against an insured for a breach of contract, resulting from machinery that had been improperly calibrated by the insured, causing property damage to a third party.  The insurer contended that, but virtue of the warranties that had allegedly been breached, the insured had contractually assumed its own liability and the exclusion applied.  The Court of Appeals disagreed, finding that the definition of "assumption" as well as the bulk of persuasive authority from other courts all weighed in favor of the conclusion that this exclusion is only triggered by the insured's assumption of the legal obligations or responsibilities of another party.  Thus, because the insured did not contractually assume the liabilities of another party, the exclusion did not apply.   

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