40 F. Supp. 3d 807
W.D. Tex.2014Background
- On August 19, 2010 a flash fire at the Herren #4 well killed two Basic Energy employees; Basic was contracted to assist Exxcel (a contractor for Endeavor). Basic and Exxcel/Endeavor had a Master Services Agreement (MSA) with mutual indemnity and insurance obligations.
- The MSA required Basic to procure $1M primary and $4M excess (total $5M) coverage for Endeavor/Exxcel, name them as additional insureds, waive subrogation, and make coverage primary and non‑contributory.
- Basic carried a $1M primary policy, a $10M first‑layer excess, and a $40M second‑layer excess; Endeavor had its own primary and excess layers including Ironshore ($10M) and Axis ($10M).
- After settlement demands exceeded primary and first excess limits, Endeavor/Exxcel and Ironshore sought coverage from Basic’s excess insurers for up to the full limits of Basic’s excess layers (arguing entitlement up to ~$51M).
- Defendants (Basic’s excess insurers) contended that, under the umbrella policies’ incorporation of the MSA, additional‑insured coverage was limited to the $5M required by the MSA.
- Ironshore sued for declaratory relief; both sides moved for summary judgment. The district court granted defendants’ motion, held available limits were $5,000,000, and noted the $1,000,000 primary was already exhausted.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the court may consider the underlying MSA when construing the umbrella/ excess policies | ATOFINA/Aubris prohibit looking beyond the umbrella policy; court must treat policy language alone as providing full excess limits | Umbrella policies reference an “insurance contract” (the MSA); courts may incorporate and construe the MSA with the policy | Court may examine the MSA together with the umbrella policies; ATOFINA/Aubris do not bar incorporation where the policy references an outside contract |
| Scope of additional‑insured/insured‑contract coverage in the excess policies | The MSA only sets minimum insurance to procure; insurers intended to provide all coverage available under Basic’s excess layers (potentially ~$51M) | The policies incorporate the MSA, which required only $5M total; insurers intended to satisfy MSA obligations, not assume unlimited additional risk | Coverage is limited to $5,000,000 as required by the MSA; insurers are not obligated to pay beyond that amount |
| Whether contractual language is ambiguous, requiring contra proferentem | Ironshore: language is at least reasonably susceptible to multiple meanings; ambiguities should be construed in favor of the insured | Defendants: contract and policy read together are reasonably susceptible to only one sensible meaning—$5M limit | Court found no ambiguity; contra proferentem inapplicable |
| Whether the court should declare available limits and allocation given exhausted primary | Ironshore sought declaration of full available limits from Basic’s excess insurers | Defendants sought declaration limiting available coverage to $5M (with $1M primary already exhausted) | Court declared available limits $5,000,000 and noted the $1,000,000 primary was exhausted, leaving $4,000,000 to contribute |
Key Cases Cited
- Celotex Corp. v. Catrett, 477 U.S. 317 (summary judgment standard)
- Anderson v. Liberty Lobby, 477 U.S. 242 (genuine‑issue standard for summary judgment)
- Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574 (burden on nonmovant at summary judgment)
- LeBlanc v. Global Marine Drilling Co., 193 F.3d 873 (additional‑insured coverage limited to indemnity obligations in underlying contract)
- Certain Underwriters at Lloyd’s London v. Oryx Energy Co., 142 F.3d 255 (policy and underlying contract construed together to limit coverage)
- Becker v. Tidewater, Inc., 586 F.3d 358 (read umbrella policy and referenced contract together to determine coverage scope)
- Evanston Ins. Co. v. ATOFINA Petrochemicals, Inc., 256 S.W.3d 660 (Tex. 2008) (court limited analysis to policy where policy did not reference other documents)