United States Court of Appeals Fifth Circuit F I L E D UNITED STATES COURT OF APPEALS March 31, 2003 For the Fifth Circuit Charles R. Fulbruge III Clerk

No. 02-20096

NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH,PENNSYLVANIA,

Plaintiff-Appellee,

VERSUS

ZURICH INSURANCE COMPANY and ZURICH AMERICAN INSURANCE COMPANY,

Defendants-Appellants.

Appeal from the United States District Court For the Southern District of Texas, Houston Division H-00-CV-4065

Before KING, Chief Judge, DAVIS, Circuit Judge, and VANCE*,

District Judge.

PER CURIAM:**

I.

The single question presented in this appeal is whether

appellants, Zurich Insurance Company and Zurich American Insurance

* District Judge of the Eastern District of Louisiana, sitting by designation. ** Pursuant to 5TH CIR. R. 47.5, the Court has determined that this opinion should not be published and is not precedent except under the limited circumstances set forth in 5TH CIR. R. 47.5.4. Company(Zurich) owe indemnity and defense to Walls Industries,

Inc.(Walls) as an additional insured under Zurich’s policy insuring

Spring Industries, Inc. (Springs).

Zurich’s named insured, Springs, manufacturers fabric that it

sells in bulk to purchasers throughout the country. The fabric has

a variety of uses from clothing to umbrellas. Springs sold fabric

to Walls which used it to manufacture coveralls to be worn while

using welding equipment.

The Zurich policy includes a vendor’s endorsement that

provides additional insured status to vendors of Springs’ products.

Walls claims that it is entitled to additional insured status under

this endorsement and coverage under the policy which requires

Zurich to defend and indemnify it.

Walls and its insurer, National Union, seek recovery in this

suit for all sums it expended in the defense and indemnification of

Walls in an underlying lawsuit styled McGrew v. Walls Industries,

Inc., et al filed in Jackson County, Texas. The plaintiff in

McGrew sought to recover for injuries that resulted from burns

sustained while he was wearing Walls’ “master made” coveralls while

using welding equipment. The complaint against Walls focused on

the fact that Walls marketed the coveralls specifically for use

with welding equipment without warning consumers of the fabric’s

flammability and without incorporating a fire retardant chemical

within the fabric structure. The Walls coveralls McGrew was

wearing at the time of his injuries were made from a portion of the

2 fabric Walls purchased from Springs. Zurich refused to defend or

indemnify Walls and Walls insurer, National Union, undertook Walls’

defense. National Union paid $135,000 to settle the McGrew lawsuit

and also incurred $46,409.03 in attorney’s fees. Walls and

National Union’s suit in the district court sought to recoup these

losses from Zurich. On cross motions for summary judgment, the

district court granted Walls’ motion and denied Zurich’s motion,

holding that Walls and National Union were entitled to

reimbursement of the entire amount it expended in defending and

settling the McGrew action. Zurich challenges the district court’s

rulings in this appeal.

II.

Zurich asserts a number of coverage defenses including

arguments that Walls is not an additional insured under the

policy and that certain exclusions apply to exclude coverage to

Walls. We find it unnecessary to consider these arguments

because the amount Walls expended for defense and indemnity of

the McGrew suit is below the $250,000 deductible provided for in

Zurich’s policy. Under the plain language of Section A of

Zurich’s policy, Zurich has no obligations under the policy until

damages exceed $250,000. The deductible applies to Zurich’s duty

to indemnify its insureds as well as “all expenses for covered

losses”. This later phrase includes defense costs.

Because we conclude that the losses Walls and National Union

seek to recover in this case are below the deductible amount in

3 Zurich’s policy, Zurich has no obligations under the policy and

the district court erred in granting National Union’s motion for

summary judgment and denying Zurich’s motion for summary

judgment. We therefore reverse the judgment of the district

court and render judgment in favor of Zurich.

REVERSED AND RENDERED.

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