• Fifth Circuit Holds under Texas Law That Scope of Coverage for Additional Insured Is Determined Solely By Terms of Policy, Not By Contract Creating Additional Insured Status
  • March 22, 2013 | Author: George B. Hall
  • Law Firm: Phelps Dunbar LLP - New Orleans Office
  • The U.S. Fifth Circuit Court of Appeals, applying Texas law, held that when a named insured agrees to indemnify and secure insurance for an additional insured, the terms of the policy—not the indemnity agreement—determines the insurers’ coverage obligations.  In re Deepwater Horizon, 2013 WL 776354 (5th Cir. Mar. 1, 2013).

    The issue involved the extent to which an offshore drilling contractor’s policies cover liabilities not assumed by the contractor, in this case “above surface” pollution.  The drilling contract required the drilling contractor to maintain insurance naming the oil company as an additional insured and to indemnify it for certain liabilities.

    In the oil company’s motion for judgment on the pleadings, the parties conceded that the contract was an “insured contract” under the policies that qualified the oil company as an additional insured under the policies.  However, the parties disputed whether the scope of coverage available to the oil company as an additional insured was to be determined by only the policies or also by the obligations assumed by the named insured in the contract.  The district court entered judgment on the pleadings finding that the oil company was an additional insured only as to liabilities the drilling contractor explicitly assumed under the drilling contract.

    In reversing, the Fifth Circuit held that under Texas Supreme Court jurisprudence only the policy itself may establish the extent to which an additional insured has coverage.  The Fifth Circuit observed that the oil company was not seeking indemnity, but was seeking coverage from the drilling contractor’s insurers.  It also found that the additional insured provision was a “discrete requirement” in the drilling contract and therefore separate from and additional to the indemnity provisions.  The Fifth Circuit found that the oil company is entitled to unlimited coverage as an additional insured under the policies.  A petition for rehearing en banc and/or certification to the Texas Supreme Court is pending.