942 F.3d 682
5th Cir.2019Background
- James Brenek II was fatally electrocuted on a Texas rig; he worked for Guichard (a Louisiana subcontractor). Aggreko (lessor) was an additional insured under a commercial policy issued to Guichard by Gray (Louisiana insurer; $1,000,000 limit, $50,000 SIR). Aggreko also had a primary policy from Indian Harbor.
- Gray defended Aggreko and Rutherford as additional insureds; Gray paid $50,000 to Rutherford and $950,000 to the Breneks on behalf of Aggreko on Feb. 8, 2017.
- The Breneks executed a Release and a Covenant Not To Execute agreeing not to execute any judgment against Aggreko except to the extent recoverable from available insurance and to enforce judgment only against available insurance.
- Gray notified Aggreko it considered its policy limits exhausted and moved to withdraw its defense; Indian Harbor sued Gray for declaratory relief. The cases were consolidated in the Eastern District of Texas.
- The district court held Texas law applied and ruled Gray’s payment plus the Covenant Not To Execute exhausted Gray’s policy limits and terminated Gray’s duty to defend. The Fifth Circuit affirmed, concluding the result would be the same under Texas and Louisiana law.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Choice of law | Texas law governs the policy and Covenant | Gray urged Louisiana law (or said choice not outcome-determinative) | Court determined outcome same under both states and applied Texas law; no conflict analysis needed beyond showing convergence |
| Does Gray’s $950,000 payment + Covenant Not To Execute constitute a "settlement" that exhausts policy limits and ends Gray’s duty to defend Aggreko? | Indian Harbor: Not a settlement because there was no release of Aggreko’s tort liability or termination of the lawsuit; duty to defend continues | Gray: Covenant provided equivalent protection to a release; policy language does not require an explicit release; payment exhausted limits | Court: Payment + Covenant constituted a settlement/compromise under Texas and Louisiana law and exhausted Gray’s duty to defend (no evidence of bad faith or impropriety) |
Key Cases Cited
- Continental Cas. Co. v. North Am. Capacity Ins. Co., 683 F.3d 79 (5th Cir. 2012) (payment without an effective settlement that ended dispute did not exhaust duty to defend in that case)
- Judwin Props., Inc. v. U.S. Fire Ins. Co., 973 F.2d 432 (5th Cir. 1992) (insurer’s payment of limits deemed exhaustion; court did not consider lack-of-release argument raised first on appeal)
- Kings Park Apts., Ltd. v. Nat’l Union Fire Ins. Co., 101 S.W.3d 525 (Tex. App.—Houston [1st Dist.] 2003) (payment of limits on behalf of insured plus covenant not to execute can exhaust primary insurer and benefit the insured by enabling pursuit of excess coverage)
- Tex. Farmers Ins. Co. v. Soriano, 881 S.W.2d 312 (Tex. 1994) (insurer with inadequate proceeds may reasonably settle some claims to promote settlement; exhaustion can occur without resolving all claims)
- Gasquet v. Commercial Union Ins. Co., 391 So. 2d 466 (La. App. 4 Cir. 1980) (recognizes releases that protect primary insurer and reserve claims only to extent of excess coverage—so-called "Gasquet" releases)
- Pareti v. Sentry Indem. Co., 536 So. 2d 417 (La. 1988) (insurer who in good faith settles for limits may have no further duty to defend; caution against tenders made in bad faith)