Cox Operating, L.L.C. v. St. Paul Surplus Lines Insurance
2015 U.S. App. LEXIS 13318
| 5th Cir. | 2015Background
- Cox Operating (insured) performed extensive pollution clean-up and wreckage removal after Hurricane Katrina (work completed Sept. 2007) and sought coverage under St. Paul Surplus Lines’ primary and excess pollution-clean-up policies.
- Policies defined “pollution clean-up costs” and required such costs to be "reported to [St. Paul] within one year of the ending date of that pollution work." The excess policy had a $20 million limit and applied after the $1M primary limit.
- Cox gave initial notice Oct. 17, 2005. St. Paul largely failed to investigate or request documents within 30 days and paid $1,480,395 (policy limits). On Aug. 30, 2007 St. Paul sent a letter denying additional coverage and filed suit seeking declaratory relief.
- Cox counterclaimed for breach and for statutory penalty interest under the Texas Prompt Payment of Claims Act (Tex. Ins. Code §§ 542.051–.061). Cox’s compiled claim (post-submission) totaled $10,945,498.62; jury awarded Cox $9,465,103.22 in breach damages.
- The district court awarded Cox $13,064,948.28 in penalty interest under the Prompt Payment Act, prejudgment interest, and fees. St. Paul appealed arguing (1) some costs were untimely reported (policy one-year rule), (2) some costs were already reimbursed by ROWD insurers (double recovery), and (3) penalty-interest accrual date was wrong.
Issues
| Issue | Cox’s Argument | St. Paul’s Argument | Held |
|---|---|---|---|
| Whether the policy’s one-year reporting requirement is a nonwaivable definitional limit on covered costs or a waivable condition precedent | The one-year rule is a waivable condition precedent; St. Paul waived it by denying coverage while work was ongoing | The one-year rule appears in the definition of covered costs and thus defines scope of coverage and cannot be waived | Court held requirement was not an unwaivable definitional cutoff; considering whole policy, parties did not intend it to be nonwaivable, so St. Paul waived it by denying claim |
| Whether the jury award included amounts already reimbursed by ROWD insurers (impermissible double recovery) | Jury verdict that award was "over and above" prior recoveries should stand; ROWD payments were not traceable to specific invoices | At least $2,179,580.27 of award overlapped with amounts paid by ROWD insurers and must be offset under indemnity principle | Court held evidence of overlap was conflicted and insufficient to overturn jury; no double-recovery reduction as matter of law |
| Whether violation of § 542.055 (failure to investigate/request documents within 30 days) can trigger penalty interest under § 542.060, and when interest accrues | Violation of any Act deadline (including § 542.055) triggers § 542.060; district court’s accrual calculation acceptable | Penalty interest should accrue only after insurer receives sufficient information to adjust claim (i.e., after § 542.058 60-day payment-trigger window), and on an invoice-by-invoice or whole-claim basis | Court interpreted § 542.060 to apply to violations of any subchapter deadline; affirmed district court’s award and accrual period (court declined Cox’s cross-appeal for earlier accrual) |
| Whether district court erred in denying JMOL re: damages/interest calculations | Cox argued record supported jury; district court properly denied JMOL | St. Paul argued facts compelled JMOL on untimely costs, double recovery, and interest accrual | Court reviewed de novo and affirmed denial of JMOL; reasonable jurors could reach verdicts rendered |
Key Cases Cited
- Minn. Mut. Life Ins. Co. v. Morse, 487 S.W.2d 317 (Tex. 1972) (waiver and estoppel cannot enlarge policy risks)
- Matador Petroleum Corp. v. St. Paul Surplus Lines Ins. Co., 174 F.3d 653 (5th Cir. 1999) (notice provision in policy may define nonwaivable scope depending on parties’ objective intent)
- Mid-Continent Ins. Co. v. Liberty Mut. Ins. Co., 236 S.W.3d 765 (Tex. 2007) (principle of indemnity: insured may not recover more than once for same loss)
- Lamar Homes, Inc. v. Mid-Continent Cas. Co., 242 S.W.3d 1 (Tex. 2007) (Prompt Payment Act applies to defense-benefit claims; accrual tied to last piece of information needed to value loss)
- EEOC v. Boh Bros. Constr. Co., 731 F.3d 444 (5th Cir. 2013) (standard for judgment as a matter of law/JMOL review)