Reverse a decision on the Texas Court of Appeal that allows Anadarkos Lloyds of London over-insurers to flee cover for more than $ 100 million in defense costs incurred in connection with claims from the Deepwater Horizon well blowout, the Texas Supreme Court claimed that the insurers' obligations to pay defense costs under an "energy package" liability policy are not covered by a joint venture coverage liability insurance policy. Anadarko Petroleum Corp et al. v. Houston Casualty Co. et al No. 16-1013 (Tex Jan. 25, 2019).
While Lloyds of London's insurers had agreed to pay Anadarko $ 37.5 million in damages, they refused to cover $ 1
Agreed with Anadarko and dismissing the insurers' reading of the policy, the Supreme Court of Texas found that the term "liability insurance" refers to Anadarko's liability to third parties for damages. Anadarko's defense costs are not claiming liability or claims for damages against Anadarko. The insurance liability does not therefore cover defense costs, even though defense costs are also covered by the policy as part of "Ultimate Net Loss". Therefore, the joint venture provision, which contained only a limit with respect for Anadarko's liability, did not limit the liability of the insurance company for Anadarko's defense costs.
When the court concluded, the Texas Supreme Court considered established insurance construction rules, which led to the term "liability insurance" being distinguished from "Ultimate Net Loss". While the latter is defined in the policy and includes both damages and defense costs, the term "liability" is not defined. In determining the parties' intention, the Court considered how the term "liability" is usually used in legal and insurance contexts. The Court also examined how the policy uses the term "debt" and consistently distinguishes between an "insured" and "expenses". The Court concluded that "liability" in the policy refers to an obligation by law to pay damages to a third party who submits a claim The term liability limitation does not include Anadarko's voluntarily assumed obligation to pay lawyers, investigators or others to provide services to defend liability. Consequently, the reference to "insurance liability" in the policy does not include "defense costs." As defense expenditure is not "debt", the joint venture clause does not limit the insurer's obligation to pay such expenses. The Supreme Court of Texas submitted the case to the trial for further negotiations consistent with its possession.
The Supreme Court's view in Anadarko is a significant victory for the takers. The case is an example of how huge dollar value can lead to the most basic construction problem. Unfortunately, the insurance companies' arguments focusing on seemingly accurate insurance policies are not uncommon. The Supreme Court's view in Anadarko however, gives convincing support to policyholders to oppose arguments from insurers seeking to limit the coverage of defense costs based on the "liability" limits of the principles.
Specifically, the opinion will have a profound impact on insurance cover for energy companies, as the "energy package" insurance form issued to Anadarko is commonly used in the energy sector, particularly by oil and gas companies. More generally, the Supreme Court's view can have far-reaching implications, as the insurance policy of Anadarko's policy is almost identical to the language of standard liability insurance throughout the United States. For example, the perception is consistent with the common understanding that "defense costs" are beyond the bounds of "responsibility" in such policies, unless the policy expressly states otherwise.
Finally, the ruling party's ruling was inconsistent with former Texas and could have led to widespread disputes within the framework of Texas Law's liability policy. The Texas Supreme Court reversal clarifies how Texas courts should apply policy building rules. In this regard, the Supreme Court's views serve to correct the ship and bring Texas case law back into line with the occurrence.