Continental Casualty Co. v. North American Capacity Insurance
683 F.3d 79
5th Cir.2012Background
- Valero contracted Encompass to design and build a co-generation facility; Encompass subcontracted ECCO to perform electrical work.
- Encompass was an insured under four policies: Continental CGL; Columbia professional policy; National Union umbrella; North American作为 ECCO’s primary insured.
- Valero’s 2002 refinery incidents included outages and a fire leading to over $40 million in claims against Encompass.
- Encompass filed for Chapter 11 in 2002; a 2003 bankruptcy settlement with Valero allowed collection from insurers but did not concede liability.
- Disputes arose over which insurers had a duty to defend and how to allocate defense costs; National Union defended after Continental and North American declined, incurring substantial costs.
- District court held the three primaries owed proportional defense costs; National Union could recover its defense costs from primaries via subrogation under its policy.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether National Union may recover defense costs from primaries via contractual subrogation | National Union may recover under contractual subrogation | Primaries argue subrogation barred by 'empty shoes' doctrine | National Union may recover via contractual subrogation |
| Whether the 2003 bankruptcy assignment and 2005 assignment affected National Union’s subrogation rights | Assignments do not extinguish subrogation rights | Assignments transfer insured rights to Valero, limiting subrogation | Assignments do not eliminate National Union’s contractual subrogation rights |
| Whether Continental, Columbia, and North American owed a primary defense to Encompass for Valero claims | All three policies triggered by Valero allegations | Policies either exhausted limits or were excess; some disputes on triggers | Each policy issued by Continental, Columbia, and North American was triggered and owed a primary defense |
| How defense costs should be allocated among the three primary insurers for pre-2006 costs | Costs should be allocated according to pro rata primary duties | Allocation should reflect policy language; disagreements about excess/primary status | Defense costs prorated equally among Continental, Columbia, and North American |
| Whether North American was properly treated as a primary insurer or excess carrier | North American owed primary defense | Continental/Columbia argued North American excess | North American was properly treated as primary for defense duties among the three primary insurers. |
Key Cases Cited
- Mid-Continent Ins. Co. v. Liberty Mut. Ins. Co., 236 S.W.3d 765 (Tex. 2007) (bar to subrogation limited to the insured being fully indemnified; not universally applicable)
- Peachtree Constr., Ltd. v. Colony Ins. Co., 647 F.3d 248 (5th Cir. 2011) (contractual subrogation not barred solely due to insured being indemnified; facts matter)
- Amerisure Ins. Co. v. Navigators Ins. Co., 611 F.3d 299 (5th Cir. 2010) (distinguishes Mid-Continent; coinsurers may seek subrogation when insured not fully indemnified)
- Judwin Properties, Inc. v. United States Fire Insurance Co., 973 F.2d 432 (5th Cir. 1992) (insurer may settle with some claimants to exhaust limits; duty to defend can end with exhaustion)
- Hardware Dealers Mut. Fire Ins. Co. v. Farmers Ins. Exch., 444 S.W.2d 583 (Tex. 1969) (conflict among concurrent policies; prorating or selecting remaining language)
- Horace Mann Ins. Co. v. Barbara B., 846 P.2d 792 (Cal. 1993) (duty to defend broader than indemnity; extrinsic evidence may shape defense duty)