788 F.3d 456
5th Cir.2015Background
- Endeavor Energy Resources owned a Texas oil well; Basic Energy Services contracted to perform services and to indemnify Endeavor for Endeavor employees’ claims.
- The parties’ master services agreement (MSA) required each to obtain insurance, including $1,000,000 per occurrence CGL and $4,000,000 excess liability, totaling $5,000,000 for claims by each party’s own employees.
- Basic’s excess policies defined an insured as a party to whom Basic is obliged by an Insured Contract to provide insurance, i.e., liability arising out of operations by Basic or on its behalf.
- Endeavor obtained insurance in three layers totaling $21,000,000; Basic carried three layers totaling $51,000,000, with specific wording about insureds and contracts.
- Fire in August 2010 killed two Basic employees; wrongful-death suits and settlements exceeded $11,000,000; Ironshore sought a declaration that Basic’s excess insurers must cover Endeavor up to policy limits.
- The district court held that Basic’s policies incorporate the MSA’s $5,000,000 minimum, limiting Endeavor’s recovery; Ironshore appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does the MSA limit incorporation into the policies cap Endeavor’s coverage at $5 million? | Ironshore argues policies do not limit coverage; MSA sets only a minimum. | Aspen/Dornoch contend policies read in conjunction with the MSA, limiting coverage to $5 million. | Yes; the coverage is limited to $5 million. |
| Can the “Insured Contract” clause alone incorporate the MSA’s limit, or is the additional “where required” element also needed? | Ironshore contends Insured Contract alone suffices to incorporate the limit. | Defendants rely on Deepwater Horizon’s combination of Insured Contract and where required to limit coverage. | The Insured Contract provision alone can incorporate the limitation, and Deepwater Horizon supports this approach; thus $5 million limit applies. |
Key Cases Cited
- Evanston Ins. Co. v. ATOFINA Petrochems., Inc., 256 S.W.3d 660 (Tex. 2008) (insurance contracts may incorporate extrinsic contract terms by reference)
- Am. Int’l Specialty Lines Ins. Co. v. Rentech Steel, LLC, 620 F.3d 558 (5th Cir. 2010) (Erie-guess on state-law contract interpretation in insurance context)
- Wisznia Co. v. Gen. Star Indem. Co., 759 F.3d 446 (5th Cir. 2014) (de novo review of insurance contract interpretation under Texas law)
- National Union Fire Ins. Co. of Pittsburgh v. Kasler, 906 F.2d 196 (5th Cir. 1990) (insurance contract interpretation under Texas law; de novo review standard)
- Certain Underwriters at Lloyd’s London v. Oryx Energy Co., 142 F.3d 255 (5th Cir. 1998) (insurer’s duties and limits when indemnity and insurance obligations are at issue)