Lexington Insurance Co. v. National Oilwell Nov, Inc.
355 S.W.3d 205
Tex. App.2011Background
- Lexington issued a CGL policy with a products liability endorsement and a $100,000 SIR to National's insureds.
- Albemarle filed a federal suit in Arkansas alleging damages from defective fiberglass downhole tubing (DHT) manufactured by National.
- National notified Lexington of Albemarle's suit in April 2005; Lexington issued a reservation of rights in April 2006 and began evaluating coverage.
- National incurred $703,179.27 in defense costs before settlement; Lexington declined to reimburse amounts above the SIR.
- Lexington sued in Texas for a declaration of rights, and National counterclaimed for breach of contract and prompt payment under the Texas Insurance Code.
- The trial court granted summary judgment in National's favor, holding Lexington had a defense obligation and was liable for defense costs beyond the SIR.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Duty to defend under policy | Lexington contends Albemarle's claims lack covered elements. | National argues the pleadings potentially trigger coverage under the products liability clause. | The court held Lexington had a duty to defend. |
| Coverage of Albemarle damages under insuring clause | Albemarle damages are repair/replace of the DHT only, not property damage. | Albemarle's incidental/consequential damages may constitute covered property damage. | Ambiguity resolved in insured's favor; allegations potentially trigger coverage. |
| Effect of policy exclusions on defense duty | Damages for repair/replacement and product liability should be excluded. | Other incidental damages fall outside the exclusions; pleadings show more than mere repair costs. | Exclusions did not bar coverage given the pleadings as a whole. |
| Notice and exhaustion of the self-insured retention | National failed to notify exhaustion of SIR in a timely manner and Lexington could be relieved. | Policy required notice of depletion; National complied; reservation language cannot create extrinsic duties. | No extra obligation beyond policy terms; proper notice complied with. |
| Prompt payment and counterclaims | If no defense duty, no fees beyond SIR; or misallocation of defense costs. | Duty to pay defense costs beyond SIR; self-insured retention not 'other insurance'. | Lexington liable for National's reasonable defense costs beyond the SIR; summary judgment affirmed. |
Key Cases Cited
- Zurich American Ins. Co. v. Nokia, Inc., 268 S.W.3d 487 (Tex. 2008) (duty to defend when pleadings raise potential covered claim)
- Nat'l Union Fire Ins. Co. v. Merchants Fast Motor Lines, Inc., 939 S.W.2d 139 (Tex.1997) (ambiguities resolved in insured's favor; duty to defend standard)
- Utica Nat'l Ins. Co. v. Am. Indem. Co., 141 S.W.3d 198 (Tex.2004) (duty to defend extends to potential covered claims; eight corners rule)
- Fiess v. State Farm Lloyds, 202 S.W.3d 744 (Tex.2006) (interpretation of insurance contract; ambiguity rule)
- Heyden Newport Chem. Corp. v. S. Gen. Ins. Co., 387 S.W.2d 22 (Tex.1965) (duty to defend is broad; allegations may support coverage)
- Balandran v. Safeco Ins. Co. of Am., 972 S.W.2d 738 (Tex.1988) (ambiguous exclusionary clauses interpreted in insured's favor)