PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

COWAN SYSTEMS, INCORPORATED, 

Plaintiff-Appellee,

v.  No. 05-2253

HARLEYSVILLE MUTUAL INSURANCE

COMPANY,

Defendant-Appellant. 

Appeal from the United States District Court

for the District of Maryland, at Baltimore.

Catherine C. Blake, District Judge.

(CA-05-217-CCB)

Argued: May 23, 2006

Decided: August 8, 2006

Before WILKINSON and NIEMEYER, Circuit Judges,

and Henry F. FLOYD, United States District Judge for

the District of South Carolina, sitting by designation.

Affirmed by published opinion. Judge Niemeyer wrote the opinion,

in which Judge Wilkinson and Judge Floyd joined. 

COUNSEL

ARGUED: William Carlos Parler, Jr., PARLER & WOBBER, Towson, Maryland, for Appellant. David A. Skomba, FRANKLIN &

PROKOPIK, Baltimore, Maryland, for Appellee. ON BRIEF: Denise

E. Mobley, PARLER & WOBBER, Towson, Maryland, for Appel-
lant. Shannon O. Colvin, FRANKLIN & PROKOPIK, Baltimore,

Maryland, for Appellee. 

OPINION

NIEMEYER, Circuit Judge: 

In this insurance coverage case, we hold that Harleysville Mutual

Insurance Company had a contractual duty to provide Cowan Systems, Inc. with a defense in an action commenced against Cowan by

Linens N Things, Inc., who, facing a claim for premises liability,

sought indemnity from Cowan based on an indemnification provision

in a commercial contract between them. 

George Shaffer, a tractor-trailer driver for Cowan, was injured

while he was delivering an empty Linens N Things trailer to a mud

lot leased by Linens N Things. After disconnecting the empty trailer,

Shaffer slipped and fell on ice in the mud lot, injuring his knee. Shaffer filed a personal injury action against Linens N Things alleging that

Linens N Things had negligently failed to remove ice and snow from

the mud lot. 

Relying on an indemnity provision in its transportation contract

with Cowan, Linens N Things filed a third-party complaint against

Cowan to have Cowan indemnify Linens N Things for its premises

liability. 

When Cowan presented the suit papers to its insurer, Harleysville,

Harleysville denied coverage, claiming that it had no duty to defend

because of the limited scope of contractual coverage and various

exclusions in its policy. Cowan commenced this action for declaratory

judgment. In granting Cowan summary judgment, the district court

concluded that Linens N Things’ claims against Cowan fell within the

policy’s scope of coverage and that the exclusions relied on by Harleysville were inapplicable. The court ordered Harleysville to reimburse Cowan for its attorneys fees, costs, and expenses. Cowan Sys.,

Inc. v. Harleysville Mut. Ins. Co., 2005 U.S. Dist. LEXIS 22197, at

*35 (D. Md. 2005). 

2 COWAN SYSTEMS v. HARLEYSVILLE MUTUAL INSURANCE
For the reasons that follow, we affirm. 

I

Cowan, a transportation company based in Baltimore, Maryland,

entered into a "Truckload Transportation Agreement" with Linens N

Things’ Clifton, New Jersey, office to provide transportation services

for Linens N Things. George Shaffer worked for Cowan as a shuttle

driver, transporting Linens N Things trailers from its depot to a mud

lot in Gloucester County, New Jersey, which Linens N Things leased

from Erdner Brothers, Inc. for storing its trailers. 

On January 9, 2001, after "dropping" a trailer at the mud lot, Shaffer slipped and fell on ice, injuring his knee. Shaffer commenced a

personal injury action in the Superior Court of New Jersey in

Gloucester County against Linens N Things and Erdner Brothers,

alleging that either or both were negligent in failing "to provide for

snow and ice removal" at the mud lot. In the same action, Linens N

Things filed a third-party complaint against Cowan, alleging that

under the "Truckload Transportation Agreement," Cowan had agreed

to indemnify Linens N Things

from and against all claims, actions, losses, damages,

expenses, judgments, and costs (including attorney’s fees

and costs) resulting from or arising out of damage or injury

to persons (including employees, agents, or subcontractors

of Shipper) or property, caused in whole or in part by

[Cowan’s] performance or nonperformance, including, but

not limited to loading, handling, transportation, and unloading for delivery of any shipment hereunder by [Cowan] or

any of [Cowan’s] directors, officers, employees, agents or

subcontractors in the performance of this Agreement. 

Cowan forwarded the suit papers to Harleysville, who had issued

Cowan a Commercial General Liability ("CGL") insurance policy,

and requested that Harleysville provide Cowan with a defense against

Linens N Things’ third-party complaint. Harleysville refused to provide Cowan with a defense, citing to limitations of coverage and to

multiple policy exclusions relating to contract liability, bodily injury

suffered by the insured’s employee, and bodily injury arising from the

COWAN SYSTEMS v. HARLEYSVILLE MUTUAL INSURANCE 3
use of any auto owned by the insured. Harleysville concluded, "[w]e

will not be able to provide for your defense or indemnification for the

Third-Party Complaint filed in this matter." Cowan defended itself in

the underlying action at its own expense and obtained a summary

judgment in its favor. 

Cowan commenced this action against Harleysville, seeking a

declaratory judgment that Harleysville breached its duty to defend

Cowan in the action commenced against it by Linens N Things. Harleysville filed a motion for summary judgment, claiming that it properly denied coverage to Cowan based on limitations in its contractual

coverage and exclusions for (1) workers’ compensation, (2) employer’s liability, and (3) "auto" liability. Cowan filed a cross-motion for

summary judgment, arguing to the contrary. 

The district court entered summary judgment in favor of Cowan on

November 14, 2005, holding that Cowan’s indemnification agreement

was an insured contract and that none of the asserted exclusions were

applicable. It concluded therefore that Harleysville had a duty to

defend Cowan in the underlying litigation. The court ordered Harleysville to reimburse Cowan for all of its costs and expenses, including

attorneys fees, in defending the underlying litigation, as well as its

attorneys fees in prosecuting this declaratory judgment action, as provided by Maryland law. From the district court’s judgment, Harleysville filed this appeal. 

II

Under Maryland law, which the parties agree is controlling, the

insurer’s duty to defend is a "contractual duty arising out of the terms

of a liability insurance policy" and is "broader than the duty to indemnify." Litz v. State Farm Fire & Cas. Co., 695 A.2d 566, 569 (Md.

1997). Whereas the insurer’s duty to indemnify only attaches upon

liability, "[a]n insurance company has a duty to defend its insured for

all claims that are potentially covered under the policy." Walk v. Hartford Cas. Ins. Co., 852 A.2d 98, 106 (Md. 2004) (emphasis added);

Brohawn v. Transamerica Ins. Co., 347 A.2d 842, 850 (Md. 1975)

("Even if a tort plaintiff does not allege facts which clearly bring the

claim within or without the policy coverage, the insurer must still

4 COWAN SYSTEMS v. HARLEYSVILLE MUTUAL INSURANCE
defend if there is a potentiality that the claim could be covered by the

policy"). 

To establish whether an insurance company has a duty to defend

its insured, a two-part inquiry is undertaken, asking:

(1) what is the coverage and what are the defenses under the

terms and requirements of the insurance policy? [and] (2) do

the allegations in the [underlying] tort action potentially

bring the tort claim within the policy’s coverage? 

Montgomery County Bd. of Educ. v. Horace Mann Ins. Co., 860 A.2d

909, 915 (Md. 2004) (first alteration in original) (quoting St. Paul

Fire & Marine Ins. v. Pryeski, 438 A.2d 282, 285 (Md. 1981)).

Before the decision in Aetna Casualty & Surety Co. v. Cochran, 651

A.2d 859 (Md. 1995), Maryland courts answered these two questions

by applying the "eight corners" rule, under which only the underlying

complaint and the insurance policy could be consulted to determine

the potentiality of coverage. In Cochran, however, the Maryland

Court of Appeals modified the rule to allow insureds to introduce

extrinsic evidence for the purpose of demonstrating coverage. The

court kept in place an asymmetrical prohibition on the use of extrinsic

evidence by the insurer. Thus, in deciding whether to defend, an

insurer may only rely on the language of the policy and the facts

alleged in the complaint, and not on outside evidence, as that would

risk deciding the question on facts not advanced in the underlying

action. Id. at 866. Moreover, any doubts about the potentiality of coverage must be resolved in favor of the insured. See Walk, 852 A.2d

at 106-07 ("If there is any doubt as to whether there is a duty to

defend, it is resolved in favor of the insured"). 

The parties do not dispute that the CGL policy’s affirmative insuring provisions afford coverage in specified circumstances for tort liability assumed in a contract. The policy issued by Harleysville to

Cowan insures Cowan’s contractual liability insofar as Cowan

assume[d] the tort liability of another party to pay for "bodily injury" or "property damage" to a third person or organization. Tort liability means a liability that would be imposed

by law in the absence of any contract or agreement. 

COWAN SYSTEMS v. HARLEYSVILLE MUTUAL INSURANCE 5
The tort liability alleged in the underlying complaint filed by Shaffer

against Linens N Things was Linens N Things’ negligence in failing

to remove snow and ice from the mud lot, and the contract assuming

this tort liability was the Truckload Transportation Agreement

between Linens N Things and Cowan, in which Cowan agreed to

indemnify Linens N Things for all claims "resulting from or arising

out of" injury to persons "caused in whole or in part by [Cowan’s]

performance of the transportation agreement." 

Even though Harleysville agrees that the CGL policy provides

Cowan coverage for certain tort liability that Cowan assumed by contract, it argues that the contractual coverage does not insure Cowan’s

indemnification of liability to an employee of Cowan. In addition,

Harleysville contends that three policy exclusions apply to deny

Cowan coverage in this case: (1) the workers’ compensation exclusion; (2) the employer’s liability exclusion; and (3) the auto exclusion. We address Harleysville’s points seriatim. 

III

First, Harleysville contends that its policy’s contractual coverage

does not extend to Cowan’s agreement to indemnify Linens N Things

because Linens N Things’ liability arose from the claim of Shaffer,

who was Cowan’s employee and therefore not a "third person or organization" whose claim was covered by the contractual coverage provision. We conclude, however, that Harleysville’s contention rests on

a misconstruction of who a "third person" is. 

Under the Truckload Transportation Agreement between Cowan

and Linens N Things, Cowan agreed to indemnify Linens N Things

for torts arising out of the transportation operations conducted by

Cowan. Thus, Cowan, as the insured, assumed the tort liability of "another party," i.e. Linens N Things. In this case, Linens N Things’ liability was based on a breach of its duty to Shaffer, who was a "third

person." Shaffer was not its employee and so was a "third person"

with respect to it. Moreover, Shaffer was not a party to the Truckload

Transportation Agreement and therefore was also a "third person"

with respect to the contractual indemnification in that agreement.

Because Cowan was assuming Linens N Things’ tort liability to Shaffer and because Shaffer was a "third person" with respect to Linens

6 COWAN SYSTEMS v. HARLEYSVILLE MUTUAL INSURANCE
N Things, the conditions of contractual coverage were satisfied.

Stated otherwise in the language of the contractual coverage, Shaffer

was a third person with respect to Linens N Things, which faced tort

liability arising from Shaffer’s personal injury suit. In bringing its

third-party complaint, Linens N Things sought to shift its own tort liability (created by a third person) to Cowan under the indemnity provisions of their "Truckload Transportation Agreement." This is just the

circumstance under which the contractual coverage provides insurance to Cowan. 

IV

Harleysville next contends that the policy’s workers’ compensation

exclusion applies to deny coverage in this case because Shaffer was

an employee who received workers’ compensation by reason of his

employment with Cowan. The CGL policy excludes coverage for

"[a]ny obligation of the insured [Cowan] under a workers’ compensation, disability benefits, or unemployment compensation law or any

similar law." Harleysville contends that this provision applies to bar

coverage, reasoning that "Shaffer’s compensation from Cowan related

to an on-the-job injury, as contemplated by the policy, [and] is limited

to that which he would receive vis-à-vis the State’s statutory workers’

compensation scheme." It argues that permitting Shaffer to recover

through his employer’s insurance would enable him to obtain duplicative recovery — one from workers’ compensation and one from Harleysville. 

This contention, however, ignores the fact that Cowan was not

seeking coverage from Harleysville for a "workers’ compensation,

disability benefits, or unemployment compensation" claim made

against it. Rather, it was seeking coverage for a contractual obligation

in which it undertook to indemnify Linens N Things. And Linens N

Things was not seeking to pass on to Cowan any workers’ compensation liability. It was seeking indemnification from Cowan for its

premises liability. In short, no obligation for workers’ compensation

was involved directly or indirectly, and for that reason, the exclusion

is inapplicable. 

V

Harleysville also contends that its policy’s employer’s liability

exclusion applies to deny Cowan coverage. The CGL policy excludes

COWAN SYSTEMS v. HARLEYSVILLE MUTUAL INSURANCE 7
coverage for "bodily injury" to an employee that "aris[es] out of and

in the course of employment by the insured," and the exclusion

applies "(1) whether the insured may be liable as an employer or in

any other capacity; and (2) to any obligation to share damages with

or repay someone else who must pay damages because of the injury."

Because Shaffer was employed by Cowan at the time of his accident,

Harleysville contends that this exclusion applies.

This argument might be persuasive but for the fact that the employer’s liability exclusion contains an exception for "insured contracts."

That exception states that the employer’s liability "exclusion does not

apply to liability assumed by the insured under an ‘insured contract.’"

"Insured contract" is defined in the policy as

[t]hat part of any other contract or agreement pertaining to

your business . . . under which you assume the tort liability

of another party to pay for "bodily injury" or "property damage" to a third person or organization. Tort liability means

a liability that would be imposed by law in the absence of

any contract or agreement. 

Given this exception, if an employer enters an agreement to insure

another party for its tort liability, then the employer’s liability exclusion, which exempts coverage of bodily injury to an employee arising

from actions undertaken during the course of employment, is rendered

inapplicable. See Riviera Beach Volunteer Fire Co. v. Fidelity & Cas.

Co. of New York, 388 F. Supp. 1114, 1125 (D. Md. 1975) (holding

that "where courts have found implied contractual obligations of

indemnification between the third party and the employer, as distinguished from mere tort liability, they have required the insurer to

defend the employer in the third-party action" (quoting Kipka v. Chicago & Northwestern Ry., 289 F. Supp. 750, 756 (D. Minn. 1968))).

As we have already noted, Cowan’s indemnification agreement

with Linens N Things is an "insured contract," and by this indemnification agreement, Cowan assumed the "tort liability of another party

[Linens N Things] to pay for ‘bodily injury’ . . . to a third person

[Shaffer]." 

8 COWAN SYSTEMS v. HARLEYSVILLE MUTUAL INSURANCE
VI

Finally, Harleysville contends that the CGL policy’s "auto" exclusion applies to deny Cowan coverage. The CGL policy excludes coverage for:

"Bodily injury" or "property damage" arising out of the

ownership, maintenance, use or entrustment to others of any

aircraft, "auto," or watercraft owned or operated by or rented

or loaned to any insured. Use includes operation and "loading or unloading." 

Harleysville argues that this exclusion applies to Shaffer’s claims

because (1) Shaffer was injured as he was attempting to get back into

his truck, and (2) "but for the use of the automobile [i.e. the truck] in

the course of his employment, Shaffer would not have been at the

mud lot where he sustained his injuries, irrespective of the theory

upon which liability rests." 

First, we note that Harleysville’s argument is based on the assumption that Shaffer was injured as he was attempting to get into his

truck. That fact, however, is not alleged in the underlying complaint.

The complaint merely states that on January 9, when Shaffer was

working for Cowan, delivering an empty trailer to the mud lot, he

"slipped and fell, suffering injuries." As for the cause of the slip and

fall, Shaffer alleged that

The defendants failed to properly maintain its [sic] site;

failed to properly supervise its [sic] site; failed to comply

with ordinary and customary safety procedures; carelessly

and negligently failed to provide for snow and ice removal,

creating an unsafe condition; failed to provide any guards,

light or other device to warn of the unsafe conditions; and

breached other duties as shall become known in the future.

These allegations state a straightforward claim for premises liability,

charging Linens N Things (as well as Erdner Brothers) with the negligent failure to maintain the mud lot in a safe condition. 

COWAN SYSTEMS v. HARLEYSVILLE MUTUAL INSURANCE 9
In arguing that Shaffer was injured as he was entering his truck,

Harleysville runs afoul of the Maryland rule which prohibits the

insurer from introducing extrinsic evidence to determine the potentiality of coverage. See Cochran, 651 A.2d at 862; Montgomery County,

860 A.2d at 915. Looking at only the allegations of the underlying

complaint and comparing them to the policy of insurance, there is no

basis from which to conclude that this accident arose out of the use

of an "auto." 

Even if extrinsic evidence concerning the circumstances of Shaffer’s injuries are considered, the record demonstrates that Shaffer’s

tort suit did not "arise out of the . . . use" of an "auto." The record

shows that Shaffer’s injuries were caused by a slip and fall on the

snow and ice that covered the mud lot, which occurred as he was

attempting to get back into a truck. The presence of the truck, without

more, was not a proximate cause of his injuries; rather, if anything,

his fall was caused by the condition of the mud lot and his loss of

footing on the mud lot. Harleysville has provided us with no authority

to support a position that the mere presence of an automobile at the

scene of a slip and fall constitutes "use of an auto" sufficient to trigger

the auto exclusion. 

Harleysville’s reliance on Northern Assurance Company of America v. EDP Floors, Inc., 533 A.2d 682 (Md. 1987), and Rubins Contractors, Inc. v. Lumbermens Mutual Insurance Co., 821 F.2d 671

(D.C. Cir. 1987), is badly misplaced. Those cases stand for the proposition that "use" of an automobile may trigger the auto exclusion "regardless of whether the injury may also be said to have arisen out of

other causes further back in the sequence of events." Northern Assurance, 533 A.2d at 689. In Rubins Contractors, the court held that the

exclusion applied to injuries caused by an employee driving a company truck, despite the employer’s claim that the accident resulted

from negligent entrustment rather than from the employee’s "use" of

an automobile. The court rejected the employer’s position, holding

that "[i]t seems an extraordinary non sequitur to say that liability has

not resulted from ownership or use of an automobile merely because

the tort has a component separate from motor vehicle operation." 821

F.2d at 676. The Rubins court did not hold, however, what would be

an equally extraordinary non sequitur, namely, that liability results —

and the automobile exclusion applies — merely because there was an

10 COWAN SYSTEMS v. HARLEYSVILLE MUTUAL INSURANCE
automobile at the scene of the accident. As the district court in this

case correctly observed, "[h]olding that the operation of the automobile need not be the sole or proximate cause is not the same as saying

an automobile need merely be present in order for the exclusion to

apply." Cowan Sys., Inc. v. Harleysville Mutual Ins. Co., 2005 U.S.

Dist. LEXIS 22197 at *17. 

* * *

The CGL policy provides coverage for tort liability assumed by

Cowan in a contract, and by focusing on the precise nature of the liability claimed in the underlying suit — i.e. the tort liability of Linens

N Things and Cowan’s contractual liability for indemnification of

Linens N Things — coverage vel non may be readily determined, as

outlined above. The judgment of the district court is 

AFFIRMED.

COWAN SYSTEMS v. HARLEYSVILLE MUTUAL INSURANCE 11