Houston Exploration Co. v. Wellington Underwriting Agencies, Ltd.
352 S.W.3d 462
| Tex. | 2011Background
- In 2002 Offshore Specialty Fabricators built a Gulf of Mexico drilling platform for The Houston Exploration Company and obtained builder's risk insurance naming Houston as an additional insured; Lloyd's of London market provided coverage via a London broker chain.
- Lary Insurance Services procured coverage through Wellington Underwriting Agencies Limited as lead for a group of underwriters, using a 2001 WELCAR Offshore Construction Project Policy form with multiple terms lined through by the parties.
- The form policy covered all risks of physical loss with Section I and expressly restricted reimbursement to costs listed in the lined-through terms; five such provisions, including paragraph 13 for weather stand-by charges, were struck through.
- Weather stand-by charges were disputed as reimbursable; Offshore/Houston incurred about $3.256 million in losses including roughly $1 million for stand-by charges when repairs were delayed by storms; Underwriters paid part but refused stand-by costs.
- The trial court held the policy unambiguously covered weather stand-by charges, but the Court of Appeals held deletions could prove the parties' intent that stand-by charges were not reimbursable; the Texas Supreme Court affirmed the Court of Appeals.
- Justice Johnson concurred agreeing Parts I and III, but his concurrence noted the stricken paragraph 13 could be considered for context; Chief Justice Jefferson dissented.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did deletions of terms in the form policy reflect the parties' intent to exclude stand-by charges? | Houston/Houston argues deletions show intent to deny weather stand-by reimbursement. | Wellington argues deletions are to be ignored or treated as nonbinding context. | Yes; deletions indicate intent to exclude stand-by charges. |
| Should stricken language be treated as controlling when interpreting an integrated policy? | deletions control interpretation to exclude standby costs. | stricken text is extrinsic evidence and should not vary unambiguous contract language. | Deleted language may be considered for context; however, the court nonetheless held deletion excludes standby costs. |
| Do other provisions (1.a, 1.d) nevertheless require standby costs or confirm exclusion offered by deletions? | 1.a and 1.d support coverage for standby costs when related to repairs. | Standby costs are not necessarily incurred or used in repairs and are not covered due to deletions. | The court concluded deletions remove standby charges from indemnity; other clauses do not create coverage in this context. |
| Is the policy’s overall construction ambiguous, or can the policy be read unambiguously without the stricken text? | Policy is ambiguous if stricken text is read in; but the majority holds it is unambiguous without it. | Deleted text should inform understanding; reading it otherwise creates ambiguity. | Policy interpreted without stricken text is unambiguous in excluding standby charges. |
Key Cases Cited
- Gibson v. Turner, 294 S.W.2d 781 (Tex. 1956) (deletions in form contracts reflect intent and must be considered)
- Dwyer v. Houston Pipe Line Co., 31 S.W.3d 654 (Tex.App.-Houston [1st Dist.] 2000, pet. denied) (deletions can determine true meaning of terms)
- Sun Oil Co. (Delaware) v. Madeley, 626 S.W.2d 726 (Tex.1981) (parol evidence restrictions and surrounding circumstances)
- National Union Fire Ins. Co. of Pittsburgh, Pa. v. CBI Indus., Inc., 907 S.W.2d 517 (Tex.1995) (extrinsic evidence limitations in contract interpretation)
- Westchester Fire Ins. Co. v. Stewart & Stevenson Servs., Inc., 31 S.W.3d 654 (Tex.App.-Houston [1st Dist.] 2000, pet. denied) (deletions and interpretation of insurance form terms)