Fifth Circuit Challenges Defense Denial From Broad Exclusionary Language
By David A. Gauntlett
Introduction
Different jurisdictions apply different standards when evaluating an insurer’s duty to defend claims based on the underlying factual allegations. However, where policy language and exclusions cannot eviscerate all potential coverage, the duty to defend is still triggered. A recent Fifth Circuit of Appeals case challenges a District Court’s ruling that found no duty to defend based on a broad reading of an “occurrence” definition against intentional conduct, while not addressing allegations that otherwise fell within the policy language.
Travelers Prop. Cas. Co. of Am., et al. v. Ericsson Inc., et al
The case, Travelers Prop. Cas. Co. of Am., et al. v. Ericsson Inc.,[1] et al, arose from an underlying claim that Ericsson paid foreign terrorist organizations (“FTO”) to protect their oil and gas projects in the Middle East. The underlying plaintiffs alleged that by not attacking Ericsson, the FTO attacked other targets across Iraq, Afghanistan, Syria, Turkey, and Niger that resulted in the death of American service members or civilians. Therefore, Ericsson’s conduct violated the Anti-Terrorism Act (“ATA”) by knowingly providing assistance to someone who committed an act of terrorism.
The District Court dismissed ruling on the duty to indemnify pending underlying adjudication and instead focused on whether the alleged injuries constitute an “occurrence;” were “expected or intended;” or create a duty to defend.[2] It ruled the underlying claims factually alleged intentional conduct, which could not constitute an “occurrence,” explicitly defined as an “accident” in the policy language. Accordingly, the District Court found no duty to defend.
However, the Fifth Circuit of Appeals challenges this decision. Judge Higginson questioned the broad application of intentionality under the ATA, saying it could apply to any energy company due to their significant payouts, where some of it could “[dribble] into the hands of al-Qaida.”[3] Opposing counsel challenges the District Court’s ruling, arguing “[t]his is a straightforward case under the Texas rule that any potentially covered allegation is enough to trigger the duty to defend.”[4]
Situating Ericsson Among Other Insurance Coverage Cases
In My Choice Software, LLC v. Travelers Cas. Ins. Co. of Am.,[5] Travelers argued a similar position to invoke broad “arising out of” exclusionary language to escape coverage for the entire suit. There, the Ninth Circuit of Appeals disagreed, stating:
“[The] ’arising out of’ exclusionary language to the allegations asserted in the [underlying complaint] runs counter to the principle that ‘insurance coverage is interpreted broadly so as to afford the greatest possible protection to the insured, [whereas]…exclusionary clauses are interpreted narrowly against the insurer.’”[6]
“Arising out of” may be construed broadly in coverage provisions, but it is construed narrowly in exclusionary clauses to afford the greatest possible coverage to the insured.[7] Thus, while some acts fell within the “arising out of” exclusionary language, not all did. The principle of affording the greatest protection to the insured determines that Travelers failed to eviscerate all potential coverage by not proving all claims fell under an exclusion. Where the underlying allegations do not arise from excluded conduct, Travelers’ duty to defend ultimately remained intact. Both in Ericsson and My Choice, Travelers invokes sweeping language to escape defense and indemnity of the underlying action.
In contrast, the Ninth Circuit in Big 5 Sporting Goods Corp. v. Zurich Am. Ins. Co.[8] ruled that an insurer ”may have a duty to defend against a claim that is meritless or frivolous…but not against a claim that is plainly not covered because of an exclusion.”[9] This principle clarifies that a broad duty to defend is nevertheless constrained by the exclusionary language of the policy when allegations unambiguously fall within it. Additionally, this reinforces Texas’s “eight-corners” test to determine coverage in Ericsson, where “courts determine whether a duty to defend exists solely by comparing the allegations in the underlying pleadings with the insurance policy’s terms.”[10] In Ericsson, weighing the underlying factual allegations carries particular weight because “[n]one…suggest that the payments were ever made involuntarily,” even when Ericsson asserted legal theories their conduct was “reckless” and unintentional.[11]
Underlying Insurance Coverage Principles
Additionally, the Ninth Circuit is currently addressing an appeal from Under the Weather, LLC v. Ohio Sec. Ins. Co.,[12]which was similarly dismissed without evaluating all potential coverage in a mixed action. This appeal addresses a principle under Waller v. Truck Exch. Inc.,[13] which requires California courts to determine if the insured has potential coverage before the insurer may invoke exclusions. Waller’s sequencing rule is underlined by the insured initially possessing the burden to prove its claim falls within policy provisions, and then the insurer proving the claim falls within an exclusion. In mixed actions like Under the Weather and Ericsson, addressing the insurer’s exclusions first denies the insured the opportunity to prove some allegations fall outside of the exclusionary language of the policy. This limits the scope of the issues the ruling may serve as authority to, as the Court does not address every claim.
Rosen v. State Farm General Ins. Co.,[14] elaborates on this principle: “an opinion is only authority for those issues actually considered or decided.” In jurisdictions that recognize Waller, like the Ninth Circuit, other authority must rule on coverage issues before exclusions to sever as authority. For example, My Choice Software rejected Contintential Cas. Co. v. City of Richmond’s[15] approach because it was not consistent with the Waller standard.[16] Rather, Richmond used a broad “arising out of” exclusion that did not first address if potential coverage attached. In this matter, California courts have been clear: if the Court did not actually analyze the underlying issues before applying exclusions, the case cannot be authority for the coverage issues. Insurers may not bypass addressing coverage theories by using authority insufficient of the Waller and Rosen standards.
Furthermore, Atlantic Mutual Ins. Co. v. J. Lamb, Inc.[17] explains that exclusions may only apply if it eviscerates potential “in all possible worlds.”[18] This additionally reinforces that insurers may not escape their duty to defend if an exclusion only applies to part of the factual allegations. While some District Courts do not reach additional arguments after determining exclusions apply—indeed, the District Court in Ericsson did not address if the claims arose from “War” after concluding the “occurrence” language precluded coverage—this is an analytical error inconsistent with governing law of the Ninth Circuit. The exclusions and the coverage applicability fundamentally address different questions: whether the insurer can deny coverage based on the underlying action, or whether the insurer can prove the underlying action does not raise a single potentially covered issue. The latter is what courts must address when determining the duty to defend.
Conclusion
Taken together, the aforementioned cases all address an insurer’s duty to defend a mixed action when evaluating broad protections for the insured against a narrow interpretation of exclusions. While Big 5 ruled against the insured it nevertheless shows that the Fifth Circuit in Ericsson, much like the Ninth Circuit, must carefully weigh factual allegations against the appropriately-narrowed policy exclusions to afford the greatest protection to the insured.
Cases fundamental to evaluating applicable coverage prior to the application of exclusion provisions further challenge the District Court ruling of Ericsson. Over time, Circuit Courts have developed their own rules to properly ascertain the duty to defend from the factual allegations. Further litigation will reveal how the Ninth Circuit of Appeals’ precedents translate into the Fifth Circuit’s, as well as how the Fifth Circuit addresses its district’s tests for evaluating coverage.
[1]Travelers Prop. Cas. Co. of Am. v. Ericsson Inc., Civil Action No. 4:23-cv-1068, 2025 LX 399843 (E.D. Tex. Aug. 18, 2025).
[2]Id. at *15.
[3] Spencer Brewer, 5th Circ. Presses Ericsson Insurers On Terrorism Suit Defense, Law360 (July 7, 2026).
[4]Id.
[5]My Choice Software, LLC v. Travelers Cas. Ins. Co. of Am., 823 Fed. Appx. 510 (9th Cir. Cal. Aug. 19, 2020).
[6]Id. at 512 (quoting MacKinnon v. Truck Ins. Exchange, 31 Cal. 4th 635).
[7]Tower Ins. Co. v. Capurro Enters., No. C 11-03806, 2012 U.S. Dist. LEXIS 46443 (N.D. Cal. Apr. 2, 2012).
[8]Big 5 Sporting Goods Corp. v. Zurich Am. Ins. Co., 635 F. App'x 351 (9th Cir. 2015).
[9]Id. at 353.
[10]Ericsson, 2025 LX 399843, *13 (E.D. Tex. Aug. 18, 2025).
[11]Id. at *19.
[12]Under the Weather v. Ohio Sec. Ins. Co., No. 2:25-cv-11702-SVW-DSR, 2026 LX 299578 (C.D. Cal. Apr. 23, 2026).
[13]Waller v. Truck Exch. Inc., 11 Cal. 4th 1, 16 (1995).
[14]Rosen v. State Farm General Ins. Co., 30 Cal. 4th 1070, 1076 (2003).
[15]Continental Cas. Co. v. City of Richmond, 763 F.2d 1076, 1080 (9th Cir. 1985)
[16]My Choice Software, 823 F. App’x at 512.
[17]Atlantic Mutual Ins. Co. v. J. Lamb, Inc., 100 Cal. App. 4th 1017, 1039 (2002).
[18]Id.