573 S.W.3d 187
Tex.2019Background
- Anadarko (25% owner) participated in the Macondo well joint venture; the Deepwater Horizon blowout triggered massive third‑party and government claims and MDL proceedings. Anadarko settled joint‑venture liability with BP (transferred interest and paid $4 billion) but BP did not pay Anadarko’s defense costs.
- Anadarko purchased a Lloyd’s “energy package” policy providing $150 million excess‑liability coverage in Section III; Underwriters already paid $37.5 million (25% of $150M) under the policy.
- Section III defines "Ultimate Net Loss" to include both damages (liabilities) and "Defence Expenses," but the policy does not obligate Underwriters to defend; it reimburses Anadarko for defense expenses it incurs.
- The policy contains a "Joint Venture Provision" that (1) caps Underwriters’ liability for liabilities arising from a joint venture at the insured’s percentage interest × the Section III limit (here 25% × $150M = $37.5M), and also (2) contains two exceptions if Anadarko contractually assumes the whole liability or becomes legally liable for a larger percentage.
- Anadarko sued seeking payment of its defense expenses beyond the $37.5M already paid (i.e., up to the $150M limit). Trial court partially granted Anadarko summary judgment; the court of appeals reversed and rendered judgment for Underwriters. The Supreme Court of Texas granted review.
Issues
| Issue | Plaintiff's Argument (Anadarko) | Defendant's Argument (Underwriters) | Held |
|---|---|---|---|
| Whether the Joint Venture Provision’s first clause limits coverage for defense expenses | "Liability . . . insured" in the clause refers only to third‑party liabilities (damages), not to defense expenses; defense costs are separately insured as part of Ultimate Net Loss and therefore not scaled by JV clause | The clause limits Underwriters’ liability "under Section III," which is for Ultimate Net Loss (that includes defense expenses), so the JV clause scales coverage for defense costs too | Held for Anadarko: the JV clause limits only third‑party liabilities, not defense expenses; defense expenses remain covered up to the $150M Section III cap (subject to payments already made) |
| Whether the JV clause should be read to "scale" the Section III limit whenever it "applies" | JV clause limits liability "as regards" insured liabilities arising from a joint venture; that phrase confines the cap to liabilities, not to defense expenses | The "as regards" phrase is merely a trigger/condition, so once triggered it scales all Section III obligations (including defense expenses) | Held for Anadarko: "as regards" means "with respect to" and confines the cap to liabilities; it does not scale defense expenses |
| Whether the policy’s use of "liability" should be given a broad dictionary meaning to include defense costs | "Liability" in context and throughout the policy contrasts with "expenses"; consistent usage shows "liability" means legally imposed obligations to pay third‑party damages | Broad dictionary definitions support including defense obligations as liabilities; Section III insures Ultimate Net Loss, which includes defense costs | Held for Anadarko: context controls; policy repeatedly distinguishes liabilities and expenses, so "liability" does not include defense expenses |
| Whether the JV clause interpretation would lead to an absurd result (two limits) | Interpreting the clause to exclude defense expenses yields two practical caps (37.5M for liabilities; up to 150M for combined liabilities+defense) but is not absurd and follows textual usage | Interpreting the clause literally otherwise produces an odd or impractical double‑limit and should be avoided | Held: not absurd; double‑limit is textually compelled and permissible; absurdity doctrine not invoked |
Key Cases Cited
- In re Deepwater Horizon, 470 S.W.3d 452 (Tex. 2015) (insurance‑policy interpretation principles in Deepwater Horizon context)
- RSUI Indem. Co. v. The Lynd Co., 466 S.W.3d 113 (Tex. 2015) (contract‑interpretation: give words ordinary meaning and read provisions in context)
- Lamar Homes, Inc. v. Mid‑Continent Cas. Co., 242 S.W.3d 1 (Tex. 2007) (attorney fees and defense costs are distinguishable from damages)
- Evanston Ins. Co. v. ATOFINA Petrochemicals, Inc., 256 S.W.3d 660 (Tex. 2008) (limiting provisions are construed strictly in favor of coverage)
- Combs v. Health Care Servs. Corp., 401 S.W.3d 623 (Tex. 2013) (absurdity doctrine is narrowly applied)