- Fifth Circuit Requires Underwriters to Pay for Removal of Debris Claims Under Excess Policies
- September 5, 2014 | Author: William C. Baldwin
- Law Firm: Jones Walker LLP - New Orleans Office
After Hurricane Ike caused extensive damage to W&T Offshore's operations and required expensive removal of debris costs, W&T Offshore's excess underwriters filed a preemptive declaratory judgment action, seeking a ruling that the underwriters were not obligated to pay claims under their excess policy for removal of debris. The underwriters argued that their respective policies, which were identical in all relevant aspects, were not triggered because W&T had not exhausted its primary limits with claims that were covered by the excess policies. In other words, the excess carriers argued that W&T Offshore's primary limits had to be exhausted by claims that would be covered under the excess policies before W&T Offshore could tap into excess coverage. On cross motions for summary judgment, the United States District Court for the Southern District of Texas agreed with the excess underwriters, finding that there was no obligation to indemnify W&T Offshore for the removal of debris claims under the excess policies.
W&T Offshore appealed to the Fifth Circuit, reiterating its argument that its removal of debris claims were covered under the excess policies regardless of whether the primary policies were exhausted by virtue of claims that would have been covered under the excess policies. The Fifth Circuit reversed the District Court and entered summary judgment in favor of W&T Offshore. The Fifth Circuit quoted the coverage provision in the policies, noting that the coverage provision was silent as to how the underlying limit(s) must be reached before coverage under the excess policies would be triggered. The court found that if the underlying policy limits were reached due to claims that would be covered by the excess policies, then the excess carriers' obligations were greater than if the claims were not covered by the excess policies. Specifically, if the claims would be covered by the excess policies, then excess underwriters were required to defend against any suit claiming damages covered by the policy. Conversely, the court found that there may be situations where the excess policies afforded coverage but not the obligation to defend the underlying claims. The Fifth Circuit distinguished the excess policies from the excess policy found in Westchester Fire Insurance Co. v. Stewart v. Stevenson Services, Inc., 31 S.W.3d 654 (Tex. App. - Houston [1st Dist.] 2000, pet. denied), wherein the relevant provision expressly declared that excess coverage was dependent on how the primary layer(s) were exhausted.
The Fifth Circuit's decision in Indemnity Insurance Co. of North America v. W&T Offshore, Inc., -- F.3d --, 2014 WL 2853586 (5th Cir. 2014), illustrates the importance of securing excess coverage with unambiguous coverage provisions. Although coverage was ultimately found in favor of the insured, the coverage provisions in question were sufficiently vague to allow the district court to find no coverage. These issues may be resolved by discussion with the insured's brokers and carriers.