The Texas Supreme Court, overruling a lower state appeals court, ruled Friday that a unit of American International Group Inc. and Starr Indemnity & Liability Insurance Co. must compensate ExxonMobil Corp. about $20 million for a workplace settlement.
ExxonMobil hired Corpus Christi, Texas-based Savage Refinery Services as an independent contractor at its Baytown, Texas refinery, according to the unanimous decision of the Texas Supreme Court in ExxonMobil Corp. v. National Union Fire Insurance Co . of Pittsburgh, PA, and Starr Indemnity & Liability Insurance Co.
Under the service agreement, Savage promised to obtain at least a specified minimum amount of liability insurance for its employees and to name Exxon as an additional insured.
Savage ultimately obtained five different policies, with AIG unit National Union underwriting a primary commercial general liability policy and an umbrella policy, and Starr Indemnity underwriting an umbrella policy, according to the ruling.
In 2013, two Savage employees were injured in a workplace accident and sought compensation for their injuries, which Exxon later settled at more than $24 million.
About $5 million of the settlement came from some of Savage’s primary policies under which Exxon was recognized as an additional insured, including the primary policy underwritten by National Union, which was exhausted.
Exxon paid the rest of the settlement out of pocket after National Union and Starr both denied coverage under their umbrella policies.
In the ensuing trial, a trial court ruled that National Union, but not Starr, was liable to reimburse Exxon for the approximately $20 million it had paid in the settlement.
A state appeals court reversed the judgment and found in National Union’s favor, and it affirmed the summary judgment in Starr’s favor.
In reversing the ruling, the Texas Supreme Court said: “The question presented in this case is whether an insurance policy contains the payout limits of an underlying service agreement.
“Based on ordinary rules of contract interpretation and our precedents applying the incorporation-by-reference doctrine, we hold that it does not,” the state supreme court said.
“Any venture beyond the four corners of a policy must be carefully limited to the scope of that policy’s clearly authorized reference,” the ruling said.
The umbrella policy “says nothing at all, even by reference, about the service agreement’s payout limitsmuch less with the clarity that our cases would require for incorporation, the ruling said, reversing the appeals court and remanding the case for further proceedings.
Attorneys in the case did not respond to requests for comment.