Mid-Continent Cas. Co. v. Petroleum Solutions, Inc., 917 F.3d 352

Background

PSI installed an underground fuel tank system for Head in 1997; a leak was discovered in 2001. Mid-Continent insured PSI under a commercial general liability policy (the Policy) and assumed PSI’s defense, reserving coverage rights.
PSI asserted a third-party claim against Titeflex (manufacturer of a flex connector); Titeflex counterclaimed under Tex. Civ. Prac. & Rem. Code § 82.002. A jury ultimately entered judgment for Titeflex on its counterclaim.
Mid-Continent sued for declaratory relief, arguing (1) PSI breached the Policy’s Cooperation Clause by refusing to dismiss its third-party claim against Titeflex and (2) the Professional Liability Endorsement (PLE) either did not provide coverage or was precluded by Exclusion q (intentional-loss exclusion).
The district court held the Cooperation Clause applied to PSI’s third-party claim (but found factual issues about compliance) and concluded only part of the Titeflex judgment was covered; the case went to trial on cooperation and waiver and a jury found for PSI.
On appeal the Fifth Circuit affirmed the jury-instruction ruling, reversed the district court’s summary judgment limiting coverage, and held the PLE covers the entire Titeflex monetary judgment; Exclusion q did not bar coverage.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Does the Cooperation Clause require PSI to dismiss its affirmative third-party claim?	Mid-Continent: Clause can require cooperation, including dismissal of third-party claims to facilitate settlement.	PSI: Clause cannot be read to force insured to surrender affirmative rights against third parties.	Court declined to decide categorically; found instruction using a "reasonable and justified" standard proper and jury found PSI complied.
Was the jury instruction on cooperation an abuse of discretion?	Mid-Continent: Instruction improperly allowed jury to excuse non-cooperation.	PSI: Instruction correctly tethered to reasonableness under Texas law.	No abuse of discretion; instruction proper.
Does the PLE provide coverage for the entire Titeflex judgment (including monetary judgment)?	PSI: PLE expands "occurrence" and defines "Money Damages," covering the full monetary judgment arising from professional services.	Mid-Continent: PLE does not add coverage beyond the Insuring Agreement; judgment arose from refusal to dismiss, not professional services.	PLE covers the entire Titeflex monetary judgment; endorsement construed to add coverage and controls if conflict exists.
Does Exclusion q (intentional-loss) bar coverage?	Mid-Continent: PSI intentionally caused the loss by refusing to settle, so exclusion applies.	PSI: Relevant underlying conduct is the 2001 fuel leak, not refusal to settle; no intent to cause damage.	Exclusion q does not apply; Texas law requires intent to cause harm or substantial certainty of harm, which was not shown.

Key Cases Cited

Janvey v. Dillon Gage, Inc. of Dall., 856 F.3d 377 (5th Cir. 2017) (standard for reviewing jury instructions: abuse of discretion)
Lafarge Corp. v. Hartford Cas. Ins. Co., 61 F.3d 389 (5th Cir. 1995) (limitations on insurer using cooperation clause to control coverage litigation)
Davis-Ruiz Corp. v. Mid-Continent Cas. Co., [citation="281 F. App'x 267"] (5th Cir.) (PLEs can extend coverage to professional-services-related claims)
Mid-Continent Cas. Co. v. Bay Rock Operating Co., 614 F.3d 105 (5th Cir. 2010) (endorsement interpretation and interaction with policy exclusions)
Tanner v. Nationwide Mut. Fire Ins. Co., 289 S.W.3d 828 (Tex. 2009) (insurer’s intentional-loss exclusion requires intent to cause damage)
State Farm Fire & Cas. Co. v. S.S., 858 S.W.2d 374 (Tex. 1993) (intent inquiry for insurance exclusions and standard for substantial certainty)
Utica Nat’l Ins. Co. of Tex. v. Am. Indem. Co., 141 S.W.3d 198 (Tex. 2004) (insurer bears burden to prove applicability of an exclusion)