An excess liability policy that follows the form of a primary policy cannot exclude defense costs unless it clearly states its departure from the primary policy, a Texas appeals court ruled.
IN Ohio Casualty Insurance Co . v. Patterson-Uti Energy Inc.the Texas Court of Appeals for the 14th District in Houston ruled that Ohio Casualty, a unit of Liberty Mutual Insurance Co., “did not clearly and unambiguously exclude defense costs.”
Houston-based drilling company Patterson-Uti had purchased primary and excess coverage through Marsh USA Inc. for the 2017-2018 policy year, and communications between the policyholder and the broker show that Patterson-Uti wanted coverage for defense costs included in all policies, court papers say.
Patterson-Uti was sued for personal injury claims resulting in a large settlement. The primary policy, which was issued by another Liberty Mutual entity, and two other excess policies were exhausted, and Patterson-Uti made a claim for damages and defense costs on the Ohio Casualty policy. The insurer said its policy excludes the defense cost portion of the claim.
Upholding a court ruling, the appeals court ruled Tuesday that the excess policy does not define “damages”
; but the primary policy’s definition of “ultimate net loss” explains that damages covered by the policy include defense costs.Ohio Casualty argued that “damages” should be construed according to its ordinary meaning and do not include attorney’s fees for legal costs.
“Ohio Casualty provides little explanation as to why this court should look to the ordinary meaning of “damages” when the primary policy, which the excess policy follows, already defines the scope and meaning of the damages,” the court’s decision said.
Additionally, in denying the claim, Ohio Casualty confused the duty to defend with the duty to indemnify, the court ruled.
“While the language of the excess policy makes clear that Ohio Casualty is not required to provide a defense for the Patterson companies, this language tells us nothing about whether the excess policy requires Ohio Casualty to reimburse Patterson for defense costs incurred as part of a covered claim.” said the court.
A spokesman for Liberty Mutual said the insurer does not comment on matters of litigation.
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