Indemnity Insurance Co. of North America v. W & T Offshore, Inc.
756 F.3d 347
5th Cir.2014Background
- W&T Offshore purchased primary (Energy Package and Primary Liability) and excess/umbrella (Underwriters) policies; Umbrella policies cover third-party liability (including endorsed ROD claims), not W&T’s first-party property or OOE losses.
- Hurricane Ike generated >$150M in OOE and property-damage claims under the Energy Package, exhausting the underlying limits; W&T expected >$50M in ROD claims to be presented to the Umbrella insurers.
- Underwriters sought declaratory relief that their Umbrella policies were not triggered because the Retained Limit (aggregate underlying limits) was exhausted by claims not covered by the Umbrellas (OOE/property claims).
- The Umbrella policy’s Coverage requires payment for sums in excess of the Retained Limit; Retained Limit is defined as the greater of (1) total applicable limits of underlying policies or (2) a specified SIR for losses not covered by underlying insurance.
- Section III.D addresses what happens if underlying limits are reduced or exhausted by claims that "would be insured by our Policy," and Section II.A.1 ties defense obligations to exhaustion "by payment of claims to which this Policy applies." Underwriters relied on these to argue exhaustion must be by covered claims.
- The district court sided with Underwriters; the Fifth Circuit reversed, holding the Umbrella was triggered once the Retained Limit (underlying limits) was met/exhausted, regardless of whether exhaustion resulted from claims covered by the Umbrella.
Issues
| Issue | Plaintiff's Argument (Underwriters) | Defendant's Argument (W&T) | Held |
|---|---|---|---|
| Whether Umbrella coverage is triggered only when underlying limits are exhausted by claims that would be covered by the Umbrella | Exhaustion must be caused by claims covered by the Umbrella; exhaustion by non-covered (first-party) claims does not trigger excess coverage | The Retained Limit is met when underlying limits are exhausted by any claims; Umbrella triggers once Retained Limit is met, regardless of cause | Court held Umbrella triggers when Retained Limit (underlying limits) is met/exhausted irrespective of whether exhaustion resulted from covered claims; judgment for W&T |
| Proper interpretation of § III.D (reduction/exhaustion language) | § III.D means exhaustion must be by covered claims; it is equivalent (converse) to Westchester-type clause | § III.D describes special consequences if exhaustion is by covered claims (e.g., defense duties), but does not limit triggering of Retained Limit to covered claims | Court rejected the converse/conflation argument; § III.D does not negate plain Retained Limit definition and triggering rule |
| Whether Underwriters must assume defense/act as underlying insurer after exhaustion | If exhaustion is by covered claims, Underwriters must continue in force as underlying insurer and defend | Underwriters will have those duties only when exhaustion is by covered claims; that does not affect whether Retained Limit was met | Court construed defense duties as contingent on exhaustion by covered claims but separate from the trigger for excess payment obligations |
| Whether policy language is ambiguous and should be construed for insured | Language supports Underwriters’ narrowed reading creating ambiguity | Policy language is unambiguous when read as a whole and favors W&T’s interpretation | Court found policy unambiguous in context and enforced plain meaning in favor of W&T |
Key Cases Cited
- Greenwood 950, L.L.C. v. Chesapeake Louisiana, L.P., 683 F.3d 666 (5th Cir. 2012) (standard of review for summary judgment and contract interpretation)
- Travelers Lloyds Ins. Co. v. Pac. Emp’rs Ins. Co., 602 F.3d 677 (5th Cir. 2010) (Texas contract interpretation principles for insurance policies)
- Tittle v. Enron Corp., 463 F.3d 410 (5th Cir. 2006) (read contract to give meaning to all terms; harmonize provisions)
- Westchester Fire Ins. Co. v. Stewart & Stevenson Servs., Inc., 31 S.W.3d 654 (Tex. App.—Houston [1st Dist.] 2000, pet. denied) (policy that expressly treats exhaustion by non-covered losses as not reducing underlying limits)