As we reported nearly three months ago, the First Court of Appeals [Houston] handed down a decision in a coverage dispute between an additional insured and CGL carriers that flatly contravenes recent SCOTX precedent. In the related appeals National Union Fire Insurance Company of Pittsburgh, PA. v. Exxon Mobil Corporation and Starr Indemnity & Liability Insurance Company and Exxon Mobil Corporation v. Starr Indemnity & Liability Insurance Company (No. 01-19-00852-CV; Opinion issued September 21, 2021), the court of appeals reversed a summary judgment in favor of the additional insured, Exxon, for reimbursement of damages and attorney’s fees under its contractor’s CGL coverage. Yesterday TCJL filed an amicus curiae brief in support of Exxon Mobil’s petition for review to the Texas Supreme Court.

The underlying litigation commenced in 2013. Exxon contracted with Savage Refinery Services, LLC for construction services at its Baytown Refinery. As is standard practice, Exxon required Savage to carry “its normal and customary” CGL for injury, death, or property damage and to cover Exxon as an additional insured. While performing services at the plant, two Savage employees were injured by a release of hot water and steam. One of the employees filed a lawsuit against Exxon, while the other sought payment of damages outside of litigation. Exxon ultimately settled with both for about $22 million. It then sought reimbursement of the settlement amount and attorney’s fees from Savage’s CGL and umbrella policy carriers, AIG Europe Limited, National Union, and Starr. AIG paid its limit, but National Union and Starr denied coverage. Exxon filed breach of contract claims against both companies, as well as a declaratory judgment claim. The trial court granted summary judgment for Exxon against National Union. It also granted summary judgment for Starr against Exxon on the basis that the Starr policy covered marine risks and was not a CGL policy. Everybody appealed.

This is the second time the same issue had come through the Houston courts of appeals in a matter arising from the same accident. In this second round, the First Court looked almost exclusively to the Service Agreement to bootstrap Exxon out from under the plain language of the CGL policy, which covers additional insureds like Exxon. The court of appeals also concocted an interpretation of “commercial general liability” coverage that allowed it to sidestep SCOTX’s clear holding in State of Pennsylvania, Deepwater Horizon, and other cases that an insurance policy must explicitlyincorporate extrinsic documents. If the policy does not do that, then a court may only look to the extrinsic document to determine the contractor’s insurance obligations to the additional insured. Exxon’s contract with Savage dictates that Savage cover Exxon for the very occurrences that happened in this case. That should be the end of the story, but it appears that SCOTX will have to tell the First Court that they really meant it the first time.

As referred to above, in 2019, SCOTX handed down an opinion in Exxon Mobil Corporation v. The Insurance Company of the State of Pennsylvania (No. 17-0200), in which TCJL likewise participated as amicus curiae. That case involved the carrier’s attempt to recover from Exxon the workers’ compensation benefits paid to Savage’s employees under a subrogation provision in its policy with Savage. Exxon argued that the carrier had waived its subrogation right in the policy. The carrier argued that Exxon’s service contract with Savage limited Savage’s obligation to indemnify Exxon for Exxon’s tort liability and that Savage could not therefore waive subrogation for liability it did not assume under that contract. SCOTX agreed with Exxon that the language of the policy controls and that extrinsic documents, such as service contracts, should only be consulted if explicitly incorporated by reference into the policy. The Court only referred to the service contract to determine whether Savage was required to provide Exxon with a waiver of subrogation, which Savage was. Absent an explicit provision in the carrier’s endorsement, therefore, the carrier was not entitled to subrogation from Exxon. As Justice Guzman wrote, “Mere reference to a constitutional obligation to provide the waiver does not import extrinsic limits on the waiver’s application.”

TCJL’s brief in the current case recapitulates our arguments in State of Pennsylvania that the court of appeals’ erroneous incorporation of a service agreement into the primary insurance policy deprives the additional insured of coverage it bargained and paid for. It also confers a windfall on the insurer, which reaped the benefit of selling the policy and then sought to avoid its indemnity obligation under the policy. We believe that SCOTX’s insistence that a contract must explicitly incorporate extrinsic documents provides a bright line rule that businesses clearly understand and upon which they can confidently rely. The court of appeals’ decision undermines that policy and introduces significant uncertainty into carefully negotiated agreements to allocate risk in construction contracts. We urge SCOTX to accept review and remind the court of appeals of the Court’s prior opinions on the issue.

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