Texas Supreme Court Liberally Construes Additional Insured Provision and Finds it Does Not Exclude Liabilities Arising Out of Additional Insured’s Sole Negligence
July 21, 2008
The Texas Supreme Court reversed itself and withdrew its 2006 opinion in Evanston Ins. Co. v. Atofina Petrochemicals, Inc., 2006 WL 1195330 (Tex. May 5, 2006), holding that one may be an additional insured for liabilities arising from one's sole negligence even if additional insured status is conditioned upon liability arising out of operations performed by the named insured. Evanston Ins. Co. v. Atofina Petrochemicals, Inc., 2008 WL 400394 (Tex. Feb. 15, 2008), opinion withdrawn and superseded on rehearing, 2008 WL 2405005 (Tex. June 13, 2008).
A refinery contracted with a maintenance contractor, and the contractor agreed to indemnify the refinery from injuries and losses except for losses attributable to the refinery's sole negligence. The refinery was also to be named an additional insured on the contractor's policies. An employee of the contractor died at the refinery, and his survivors filed a wrongful death action against the contractor and refinery. The contractor's CGL carrier tendered its limits, and the refinery demanded coverage as an additional insured under the excess policy. The excess carrier denied the claim, and the refinery joined the carrier as a third-party defendant in the lawsuit and sought a declaration of coverage. That action was severed, and the refinery and carrier both moved for partial summary judgment. While those motions were pending, the underlying lawsuit settled for an amount in excess of the CGL limits. The refinery sought to recover that excess amount from the excess carrier, and the trial court granted the insurer's summary judgment that it owed no coverage.
The insurer argued on appeal that it did not owe indemnity to the refinery because the refinery agreed in the services contract that it would not seek indemnification for losses resulting from its own negligence. The refinery, however, argued that it was an additional insured under the excess policy based on the policy's definition of "insured" that included a person or organization for whom the insured agreed to provide insurance as afforded by the policy "but only with respect to operations performed by you or on your behalf." However, a second provision provided that coverage could not extend beyond that provided by the underlying policy which specifically excluded coverage for the additional insured's sole negligence. The insurer argued that the phrase "but only with respect to operations performed by you or on behalf" does not include a claim in which the putative additional insured is solely at fault. The court of appeals reversed, and the Supreme Court accepted review.
The Supreme Court found that the policy's two definitions of "insured" operated independently, but also broadly construed the phrase "with respect to operations performed by you," rejecting the insurer's contention that the refinery's sole negligence meant that its liability was not "with respect to operations performed by [the contractor]." The refinery was thus considered an additional insured. Additionally, the Supreme Court concluded that the insurer's denial of coverage barred it from challenging the reasonableness of the settlement of the underlying lawsuit and that it was bound to pay the settlement. The Supreme Court also found that the refinery was a third-party claimant under the excess policy and was therefore not entitled to recovery of statutory late payment penalties and attorneys' fees.
