# Evanston Insurance Company v. Atofina Petrochemicals, Inc.

> Texas Supreme Court · February 15, 2008

URL: https://www.frixlaw.com/law-library/cases/2834385

## Case

- **Court:** Texas Supreme Court
- **Decided:** February 15, 2008
- **Precedential status:** Published
- **Opinion:** Opinion
- **Cited by:** 0 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/2834385

## How later opinions describe it (automated extraction)

- applying Granite to slip-and-fall cases

## Opinion text

IN THE SUPREME COURT OF TEXAS
IN THE SUPREME COURT OF TEXAS
════════════
No. 03-0647
════════════
Evanston Insurance Company,
Petitioner,
v.
ATOFINA Petrochemicals,
Inc.
Respondent
════════════════════════════════════════════════════
On Petition for Review from the
Court of Appeals for the Ninth District of
Texas
════════════════════════════════════════════════════
Argued April 13,
2005
Justice Green delivered the opinion of the Court, in
which Chief Justice Jefferson, Justice
O’Neill, Justice Wainwright, Justice Brister, Justice Medina , and Justice Willett joined, and in which Justice Hecht and Justice Johnson joined as to Parts I,
II.A–II.D, and II.F.
Justice Hecht filed an
opinion concurring in part and dissenting in part, in which Justice Johnson joined.
Rehearing is granted. We withdraw the opinion and judgment previously issued in this case and substitute the
following opinion.
In this case, we examine the interplay between a contractual indemnity
provision and a service contract’s requirement to name an additional insured.
More particularly, we must decide whether a commercial umbrella insurance policy
that was purchased to secure the insured’s indemnity obligation in a service
contract with a third party also provides direct liability coverage for the
third party. In addition, we must decide whether the insurer is bound to pay the
amount of an underlying settlement between the additional insured and a
plaintiff. Finally, we must determine whether article 21.55 of the Texas
Insurance Code, the “Prompt Payment of Claims” statute, authorized the
imposition of penalties and attorney’s fees for the insurer’s failure to pay the
claim timely. We conclude that the umbrella policy provides coverage for
liabilities arising from the additional insured’s sole negligence, that the
settlement agreement binds the insurer to the amount recited therein, and that
the additional insured is not entitled to penalties for untimely payment of
claims. We affirm the judgment of the court of appeals to the extent that it
resolves the coverage dispute in favor of the additional insured, and to the
extent that it binds the insurer to the amount recited in the settlement
agreement, but we reverse the court of appeals’ judgment regarding damages and
attorney’s fees under article 21.55 and render judgment that the additional
insured is not entitled to recovery of such damages and fees.
I
ATOFINA Petrochemicals, Inc. [1] contracted with
Triple S Industrial Corporation to perform maintenance and construction work at
ATOFINA’s Port Arthur refinery. The service contract
contained an indemnity provision and a requirement that Triple S carry certain
minimum levels of liability insurance coverage. Triple S agreed to indemnify
ATOFINA from all personal injuries and property losses sustained during the
performance of the contract, “except to the extent that any such loss is
attributable to the concurrent or sole negligence, misconduct, or strict
liability of [ATOFINA].” Triple S also agreed to carry at least $500,000 of
primary comprehensive general liability (CGL) insurance, “[ i ] ncluding coverage for
contractual liability insuring the indemnity agreement,” and an excess (or
“umbrella”) liability policy “following form for [the CGL policy]” of at least
$500,000. Finally, the contract required Triple S to furnish certificates of
insurance to ATOFINA evidencing the required insurance coverages and showing ATOFINA as an additional insured on
the policies. Triple S complied with its contract obligations by purchasing a $1
million CGL policy from Admiral Insurance Company and a $9 million commercial
umbrella policy from Evanston Insurance Company, and by furnishing the required
certificates of insurance.
Matthew Todd Jones, a Triple S employee working at the ATOFINA facility
pursuant to his employer’s contract with ATOFINA, drowned after he fell through
the corroded roof of a storage tank filled with fuel oil. Jones’s survivors sued
Triple S and ATOFINA for wrongful death. Admiral tendered its $1 million policy
limits. ATOFINA then demanded coverage from Evanston as an additional insured under the
umbrella policy. Evanston denied the claim, and
ATOFINA brought Evanston into the case as a third-party
defendant for a declaration of coverage. ATOFINA then severed its suit against
Evanston from
the remainder of the Jones litigation. Both ATOFINA and Evanston moved for partial
summary judgment in the severed action. While the motions were pending, the
Jones case was settled for $6.75 million. ATOFINA seeks to recover from
Evanston the
$5.75 million not covered by Admiral.
The trial court granted summary judgment in favor of Evanston. The court of
appeals reversed the judgment, holding that the Evanston policy covered ATOFINA, and remanded
the case to the trial court for determination of statutory penalties and
attorney’s fees. [2]
II
Evanston
argues it should not have to indemnify ATOFINA for its contribution to the Jones
settlement for several reasons. First, it says ATOFINA agreed in its service
contract with Triple S that it would not seek indemnification for losses
resulting from its own negligence. Evanston says the language of its policy
similarly excludes coverage for such losses caused by ATOFINA’s negligence. The umbrella policy was a “following
form” policy as required by the service contract, meaning that its coverage was
no broader than the underlying policy, which identified ATOFINA as an additional
insured “only with respect to liability arising out of [Triple S’s] ongoing
operations performed for [ATOFINA], but in no event for [ ATOFINA’s ] sole negligence.” Second, Evanston says this court’s
decision in Fireman’s Fund Insurance Co. v. Commercial Standard Insurance
Co. [3] precludes
ATOFINA from obtaining a judgment for insurance proceeds based on losses arising
from its own negligence. [4] Finally, Evanston says the Jones settlement amount was
unreasonable and is thus unenforceable. We address these arguments in turn.
A
In its service contract with Triple S, ATOFINA disclaimed any right of
indemnity for losses “attributable to [its] concurrent or sole negligence.”
Under the terms of the service contract, ATOFINA is not entitled to be
indemnified by Triple S if the Jones loss was occasioned in any way by ATOFINA’s negligence. But ATOFINA does not seek indemnity
from Triple S; it claims instead that it is entitled to indemnification from
Evanston by virtue of its status as an additional
insured on the umbrella policy Evanston issued to Triple S. [5] Instead of looking, as the court of
appeals did, to the indemnity agreement in the service contract to determine the
scope of any coverage, we base our decision on the terms of the umbrella
insurance policy itself.
In support of its insured status, ATOFINA points to part III of the
Evanston policy,
which defines who is an insured. Section III.B.6 states that an insured
includes:
A person
or organization for whom you have agreed to provide
insurance as is afforded by this policy; but that person or organization is an
insured only with respect to operations performed by you or on your behalf, or
facilities owned or used by you.
ATOFINA claims
it is fully covered as an insured by virtue of this paragraph because it is a
“person or organization for whom [Triple S has] agreed to provide insurance,”
because the Evanston policy is the kind of insurance that
was intended to secure that obligation, and because the loss “respect[ ed ] . . . operations performed by [Triple S].”
But Evanston counters that ATOFINA fails to qualify
as an additional insured under section III.B.6 because the language does not
cover an additional insured for its own negligence. Although no fact finding has
been made regarding who was responsible for Jones’s death, Evanston contends that
because Jones’s death was caused solely by ATOFINA’s
negligence, the death did not “respect . . . operations performed by [Triple
S].”
The courts of appeals have confronted these additional insured provisions
on several occasions, producing divergent results. Like Triple S’s policy, the
insured contractor’s policy in Granite Construction Co. v. Bituminous
Insurance Cos. [6] provided for
additional insurance “only with respect to liability arising out of operations
performed for such insured.” [7] Granite adopted a fault-based
interpretation of “arising out of operations,” recognizing coverage only if an
insured’s wrongful act during the operation caused the injury. [8] The Granite court held that the
claim did not “ aris [e] out of operations performed by”
the insured because only the additional insured company was responsible for the
injury. [9]
The First and Third Courts of Appeals reached different results under a
more liberal causation theory of additional insured provisions. In those cases,
the additional insured provisions created coverage only “with respect to
liability arising out of” the named insured’s operations, and in both cases the
claimants alleged that the additional insured companies acted negligently. [10] In Admiral Insurance Co. v. Trident
NGL, Inc. , the court concluded:
[B] ecause the accident in this case occurred to a[n]
[insured’s] employee while the employee was on the premises for the purpose of
performing preventive maintenance on the compressor that exploded, the alleged
liability for the employee’s injuries “arose out of [the insured’s] operations,”
and, therefore, was covered by the “additional insured” provision. [11]
The court in
McCarthy Brothers Co. v. Continental Lloyds Insurance Co. applied a
similar theory to find that a worker’s slip-and-fall injury while retrieving
tools at the job site “arose out of” the insured subcontractor’s operation, even
for purposes of a negligence claim against the additional insured premises
owner. [12]
We prefer the reasoning of Admiral and McCarthy to
Granite for two reasons. First, Granite relied on an underlying
service contract that made the additional insured company responsible for the
specific injury-causing act. [13] However, our decisions since
Granite make clear that “the liability insurer is to determine its duty
to defend solely from terms of the policy and the pleadings of the third-party
claimant,” and, accordingly, that “evidence outside the four corners of these
two documents is generally prohibited.” [14] Even if we examine the service contract
here, we can easily distinguish this case from Granite . The service
contract between Triple S and ATOFINA does not assign responsibility for
maintaining the storage tank that caused Jones’s injury. Rather, the contract
gives Triple S the exclusive “power and authority to select the means, method
and manner of performing” the operation, and provides that Triple S “shall have
control of and be responsible for the WORK SITE.” Far from shifting any
responsibility to ATOFINA, the specific terms of the service contract make
Triple S responsible for all operations.
Second, regardless of the underlying service agreement’s terms, we do not
follow Granite because the fault-based interpretation of this kind of
additional insured endorsement no longer prevails. [15] Instead, we interpret “with respect to
operations” under a broader theory of causation. Generally, an event “respects”
operations if there exists “a causal connection or relation” between the event
and the operations; we do not require proximate cause or legal causation. [16] In cases in which the premises condition
caused a personal injury, the injury respects an operation if the operation
brings the person to the premises for purposes of that operation. [17] The particular attribution of fault
between insured and additional insured does not change the outcome. [18]
Our interpretation results, in part, from the ordinary and natural
meaning of the phrase “with respect to.” [19] It also results from our recognition
that, had the parties intended to insure ATOFINA for
vicarious liability only, “language clearly embodying that intention was
available.” [20] The majority of other courts facing the
issue have reached a similar result. [21]
Under section III.B.6 of the Evanston policy, the Jones injury
“respect[ ed ] [] operations
performed by [Triple S]” because Triple S employed Jones, who was performing the
operation at the time and place of the injury. Although the pleadings in the
underlying suit do not indicate whether or not Jones was performing a Triple S
operation at the precise time of the accident, Jones was present at ATOFINA’s facility for purposes of Triple S’s operations
when the accident occurred. As a result, even if ATOFINA’s negligence alone caused Jones’s injury, section
III.B.6 of the Evanston policy provides direct insurance
coverage to ATOFINA. [22]
B
Evanston and ATOFINA both look to section
III.B.5 of the policy to support their respective positions regarding the scope
of coverage under the Evanston policy. ATOFINA claims that section
III.B.5 provides an independent basis for coverage, while Evanston argues that
section III.B.5 does not apply. Section III.B.5 says an insured can be:
Any other person or organization who is insured under a policy of
“underlying insurance.” The coverage afforded such insureds under this policy will be no broader than the
“underlying insurance” except for this policy’s Limit of Insurance.
This is a
catch-all section that appears intended to bring within the policy coverage any
“other” entities that are insured by the underlying policy but are not included
within the preceding who-is-an-insured sections of paragraph III.B of the
policy. Because ATOFINA cannot be an insured under sections III.B.1 through
III.B.4, section III.B.5 applies in this case as long as ATOFINA was insured
under the Admiral policy.
Evanston
argues section III.B.5 establishes the policy’s identity as a “following form”
policy of the kind that was specified by the service contract, and that the
nature of the policy precludes coverage. [23] Under section III.B.5, coverage cannot
extend beyond what the underlying Admiral policy provides. Looking to the
underlying policy, which specifically excludes coverage for ATOFINA’s sole negligence, we conclude coverage under
section III.B.5 is limited and excludes losses caused by ATOFINA’s sole negligence. [24] On the record before us, we are unable
to determine as a matter of law whether the Jones accident was the product of
ATOFINA’s sole negligence. The Jones family originally
sued both ATOFINA and Triple S, alleging both parties were negligent. There were
allegations in ATOFINA’s pleadings that Jones himself
was contributorily negligent. Triple S was eventually
nonsuited , and the Jones’s claim against ATOFINA was
settled with no admission of liability by either party. Thus, without a
determination of liability, it is impossible to say whether ATOFINA’s responsibility for the accident, if any, excluded
it from coverage under section III.B.5 of the Evanston policy.
C
Evanston and ATOFINA disagree about the
scope of coverage available in the event that ATOFINA qualifies as an insured
under both sections III.B.5 and III.B.6 of the Evanston policy. ATOFINA favors a broader scope
of coverage under section III.B.6, relying on the fact that it, unlike section
III.B.5, does not expressly limit the coverage afforded to an insured to that
provided by an underlying policy.
When interpreting an insurance contract, we “must adopt the construction
of an exclusionary clause urged by the insured as long as that construction is
not unreasonable, even if the construction urged by the insurer appears to be
more reasonable or a more accurate reflection of the parties’ intent.” [25] “Exceptions or limitations on liability
are strictly construed against the insurer and in favor of the insured,” and
“[a]n intent to exclude coverage must be expressed in clear and unambiguous
language.” [26] Therefore, we must adopt ATOFINA’s broad interpretation of coverage unless there is
“clear and unambiguous” policy language requiring the limitations on coverage in
section III.B.5 to also restrict the coverage available when section III.B.6 or
any other who-is-an-insured clause independently provides coverage.
Reading paragraph III.B as a whole, we conclude that each
who-is-an-insured clause operates to grant coverage independently. Nothing in
paragraph III.B suggests that the limitations of one section granting coverage
should be read into another separate section granting coverage. [27] In fact, apart from section III.B.5,
other paragraph III.B sections contain disparate limiting language in their
definitions of “insured,” suggesting that each grant of coverage in paragraph
III.B can be read independently as a self-contained grant of coverage. For
example, section III.B.1 covers employees as “an insured” but excludes coverage
for certain bodily injury. For the same reason that we would not read the
section III.B.1 bodily injury limitation into the broad coverage of section
III.B.6, we refuse to read section III.B.5’s exclusion of coverage beyond the
scope of the Admiral policy into section III.B.6. Because ATOFINA is entitled to
coverage under more than one who-is-an-insured clause in paragraph III.B, it is
not unreasonable to conclude that the policy should be read to provide the
broader measure of coverage available under the applicable clauses. We therefore
hold that the Evanston policy provides the broader scope of
coverage that does not exclude liabilities arising out of ATOFINA’s sole negligence.
D
Evanston
next contends that this Court’s 1972 decision in Fireman’s Fund v. Commercial
Standard Ins. Co. [28] is dispositive
because, applying that holding, ATOFINA cannot recover insurance proceeds based
on losses arising from its own negligence. In Fireman’s Fund , we
addressed the relationship between indemnity agreements and the requirement of
liability insurance in service contracts. [29] In that case, General Motors Corporation
contracted with Sam P. Wallace Co., Inc. to perform work on its Arlington assembly
plant. [30] In the contract, Wallace agreed to
indemnify GM for any losses arising out of its work and to obtain liability
insurance to satisfy that obligation. [31] While performing under the contract, two
of Wallace’s employees were injured, and they sued GM for negligence. [32] After the case settled, a declaratory
judgment action was filed by the involved insurance carriers to resolve a
dispute over whether Wallace was required by its contract to indemnify GM for
GM’s negligence. [33] We followed the general rule in holding
that “a contract of indemnity will not afford protection to the indemnitee against the consequences of his
own negligence unless the contract clearly expresses such an obligation
in unequivocal terms.” [34] Wallace’s indemnity agreement with GM
failed to do that and thus we concluded that Wallace’s insurance carrier was not
required to indemnify GM. [35] In doing so, we noted that “all of the
relevant provisions of the contract should be considered when arriving at its
intent and meaning.” [36] In its contract with GM, several
provisions evinced Wallace’s intent to indemnify GM only with respect to losses
occasioned by its own negligence, not GM’s negligence. [37] For example, in one provision, Wallace
assumed liability “for any injuries or damages occasioned by his agents or
employees on the premises of the Owner.” [38] In another, under a section entitled
“Contractor’s Responsibility,” Wallace specifically excluded from its
responsibility the “negligence of [the] Owner [GM].” [39]
In Fireman’s Fund , Wallace’s obligation to purchase insurance was
to secure only its agreement to indemnify GM for Wallace’s own negligence. [40] We held that GM was not entitled to
indemnification because the contract did not specify that the indemnity
agreement extended to GM’s negligence. [41] However, it was never contended in
Fireman’s Fund that GM was an additional insured under Wallace’s
liability policy and was therefore entitled to coverage on that basis, a fact
that distinguishes Fireman’s Fund from this case. This case is similar
to Fireman’s Fund only in that Triple S was required to purchase
liability insurance to secure its indemnity agreement. But Triple S was also
required to add ATOFINA as an insured on its policies, which was not a
requirement of the contract in Fireman’s Fund .
This case is more analogous to our 1992 decision in Getty Oil Co. v.
Insurance Co. of North America . [42] In that case, Getty entered into a
contract to purchase chemicals from NL Industries. [43] The contract included an indemnity
provision and a broad insurance requirement which provided that “[a] ll insurance coverage carried by [NL] . . . shall extend to
and protect” Getty “whether or not required [by other provisions of the
contract].” [44] After an accident involving NL’s product
killed one of Getty’s contractors, and a jury found that Getty was 100 percent
responsible, NL’s insurer refused coverage for Getty
because the Texas Oilfield Anti-Indemnity Statute [45] prohibited indemnification for one’s own
negligence. [46] But we held that the insurance
requirement of the contract was separate and independent from the indemnity
provision and, consequently, the prohibition of the Anti-Indemnity Statute did
not apply. [47]
Although the service contract in this case does not include an insurance
requirement quite as clear as the one in Getty , it is clear enough—it
requires that ATOFINA “shall be named as additional insured in each of [Triple
S’s] policies.” Evanston argues that this “brief statement” in
the contract is insufficient to extend insured status to ATOFINA for its own
negligence because the insurance requirement and certificates of insurance
cannot expand coverage beyond the language of the policy. [48] While we agree that an insurance
certificate merely evinces the holder’s status as an insured and does not create
coverage, [49] it is unmistakable that the agreement in
this case to extend direct insured status to ATOFINA as an additional
insured is separate and independent from ATOFINA’s
agreement to forego contractual indemnity for its own negligence. We
disapprove the view that this kind of additional insured requirement fails to
establish a separate and independent obligation for insuring liability. [50] We conclude that our Fireman’s
Fund decision does not bar ATOFINA from obtaining insurance proceeds for
losses resulting from its own negligence.
E
Next we examine Evanston’s obligation to pay $5.75 million of
the $6.75 million settlement. Evanston argues
that ATOFINA failed to meet its burden of showing that the amount was
reasonable, and argues instead that its evidence proves the amount was
unreasonable as a matter of law, entitling Evanston to summary judgment. ATOFINA asserts
the opposite, contending that its summary judgment evidence proves the
settlement amount was reasonable as a matter of law. Before reaching that
question, we must address ATOFINA’s additional
contention that Evanston’s denial of coverage bars it from
challenging the reasonableness of the settlement.
Our last occasion to address this issue was Employers Casualty Co. v.
Block , [51] in which we held that if an insurer
wrongfully denies coverage and its insured then enters into an agreed judgment,
the insurer is barred from challenging the reasonableness of the settlement
amount. [52] Although this case presents some
different facts, Block ’s rule should apply nonetheless.
In Block , “[t]he basic issue before the trial court was the
reasonableness of the damages recited in the agreed judgment” between the
defendant roofing company and the plaintiff homeowners. [53] The Block court of appeals
“concluded that once it was determined that [the insurer] wrongfully failed to
defend its insured, [the insurer] was barred from collaterally attacking the
final agreed judgment.” [54] Block addressed two questions
concerning the effect of the agreed judgment between the plaintiffs and the
defendant roofing company. [55] First, did the agreed judgment bar the
insurer from contesting the reasonabless of damages? [56] Second, did the agreed judgment bar the
insurer from contesting the agreed judgment’s factual recitations relating to
coverage? [57] Block ’s answer was clear:
While
we agree with the court of appeals’ conclusion that [the insurer] was barred
from collaterally attacking the agreed judgment by litigating the reasonableness
of the damages recited therein , we do not agree with its conclusion that the
recitation in the agreed judgment that the damage resulted from an occurrence on
August 6, 1980 is binding and conclusive against [the insurer] in the present
suit. [58]
In this case, the plaintiffs sued ATOFINA, ATOFINA requested coverage
from Evanston, and Evanston wrongfully denied coverage, citing the
policy terms. ATOFINA brought Evanston into the
case as a third-party defendant for a declaration of coverage, and Evanston continued to deny
coverage in its pleadings. ATOFINA then settled with the underlying plaintiffs
and litigated the remaining coverage issues against Evanston. Though this case
differs from Block in several respects, none of the differences justify
departing from Block .
First, the forms of settlement and policy claims differ. Block ’s
insurer violated the policy’s duty to defend, [59] and while no duty to defend is
implicated in this case, Evanston wrongfully denied all coverage under
the policy. [60] In addition, Block ’s plaintiff
and defendant entered into an agreed judgment, [61] while ATOFINA and the wrongful death
plaintiffs used a contractual settlement agreement and nonsuit . But neither the difference in policy claims nor the
absence of a judgment memorializing the parties’ settlement disrupts the
Block principles here because Block ’s rule is not derived from the
nature of the violated policy term or the formality of agreed judgments. The
cases barring insurers’ challenges rest on principles of estoppel and waiver; what is most important in this context
is notice to the insurer and an opportunity to participate in the settlement
discussions. [62]
Some cases in this area bar an insurer’s invocation of policy provisions
as a defense, not what we have here—an insurer’s invocation of the common law
reasonableness requirement. However, the principles of notice to the insurer and
an intentional choice to forego participation in settlement discussions operate
the same no matter how the insurer chooses to attack the settlement. That is,
the particular source of the insurer’s later-raised attack on the settlement
amount—be it a policy provision or a common law rule—does not control our
inquiry. One case cited by Block noted that, “[h]ad [the insurer]
accepted the defense, it would have had, of course, the
opportunity to conduct the defense in the manner most likely to have defeated
the plaintiffs’ claim or at least to have reduced the amount of the damages.” [63] Had Evanston not unconditionally denied coverage,
it too would have been able to influence the amount of the settlement. [64] For these reasons, the difference in
policy claims and the absence of a formal judgment do not persuade us to abandon
Block here. [65]
In addition, this case’s posture is different than Block ’s. In
Block , the underlying plaintiff sued the insurer as a judgment creditor,
leading to some disapproval from this Court in State Farm Fire & Casualty
Co. v. Gandy . [66] In Gandy , the Court said:
In no
event, however, is a judgment for plaintiff against defendant, rendered without
a fully adversarial trial, binding on defendant's insurer or admissible as
evidence of damages in an action against defendant’s insurer by plaintiff as
defendant’s assignee. We disapprove the contrary suggestion in dicta in
Employers Casualty Company v. Block , 744 S.W.2d 940, 943 (Tex. 1988), and
United States Aviation Underwriters, Inc. v. Olympia Wings, Inc. , 896
F.2d 949, 954 (5th Cir. 1990). [67]
Gandy does not disrupt the
application of Block to this case for two reasons. First, this
case does not fall within Gandy ’s holding. Gandy ’s holding
was explicit and narrow, applying only to a specific set of assignments with
special attributes. [68] By its own terms, Gandy ’s
invalidation applies only to cases that present its five unique elements. [69] Here, Gandy ’s key factual
predicate is missing: ATOFINA made no assignment of its claim against Evanston; ATOFINA sued Evanston directly. [70] That removes this case from the formal
bounds of Gandy . Second, Gandy ’s rationale does not require
disapproving Block in this setting. Gandy ’s reason for
invalidating assignments was simple: Those assignments made evaluating the
merits of a plaintiff’s claim difficult by prolonging disputes and distorting
trial litigation motives. [71] But not all cases implicate
Gandy ’s concerns. “We should not invalidate a settlement that is free
from this difficulty [of fairly evaluating a plaintiff’s claims] simply because
it is structured like one that is not.” [72]
Barring Evanston’s challenge here does not implicate
Gandy ’s concerns. Preventing insurers from litigating the reasonableness
of a settlement does not extend disputes; by definition, it shortens them. Nor
is there a risk of distorting litigation or settlement motives here. ATOFINA
settled without knowing whether or not it would be covered by the policy,
leaving in place its motive to minimize the settlement amount in case it became
solely responsible for payment. [73] To accomplish Gandy ’s goal of
“fairly determin [ ing ]” the
value of plaintiffs’ claims, we apply the Block rule to this
circumstance, which will encourage early intervention by the insurers who are
best positioned to evaluate the worth of claims during settlement discussions.
Thus, without relevant factual differences or Gandy concerns to dissuade
us from following Block , we hold that Evanston’s denial of coverage barred it from
challenging the reasonableness of ATOFINA’s
settlement. [74] Evanston is, therefore, bound to pay the $5.75
million that remains of the settlement.
F
Finally, Evanston argues that the court of
appeals erroneously awarded ATOFINA 18% per annum of the claim amount and
attorney’s fees for Evanston’s failure to promptly pay claims under
article 21.55 of the Texas Insurance Code. [75] Under article 21.55, a court may impose
damages “[ i ]n all cases where a claim is made pursuant
to a policy of insurance and the insurer liable therefore is not in compliance
with this article.” [76] “Claim” is defined as “a first party
claim . . . that must be paid by the insurer directly to the insured or
beneficiary.” [77] Evanston relies on the definition of “claim” in
arguing that the statute does not apply to claims for reimbursement of
settlement costs in the context of a liability insurer’s denial of indemnity for
a third-party claim against its insured.
Though the statute does not define first-party claims, we distinguish
first-party and third-party claims based on the claimant’s relationship to the
loss. [78] “[A] first-party claim is stated when
‘an insured seeks recovery for the insured’s own loss,’ whereas a third-party
claim is stated when ‘an insured seeks coverage for injuries to a third
party.’” [79] A loss incurred in satisfaction of a
settlement belongs to the third party and is not suffered directly by the
insured. [80] This case in which ATOFINA seeks
coverage for injuries sustained by a third party presents a classic third-party
claim. Because the Legislature intended that article 21.55 apply to claims
personal to the insured, [81] ATOFINA is not entitled to the article
21.55 damages or attorney’s fees. We therefore reverse the portion of the court
of appeals’ judgment pertaining to article 21.55 damages and attorney’s fees and
render judgment that ATOFINA recovers no attorney’s fees or damages under
article 21.55.
III
We affirm the court of appeals’ holding that ATOFINA is an insured under
the Evanston insurance policy and is thus
entitled to coverage for the Jones litigation settlement, and we affirm the
court of appeals’ holding that Evanston is bound to pay the $5.75 million
settlement amount. We reverse the court of appeals’ judgment permitting ATOFINA
to recover attorney’s fees and damages under article 21.55 of the Texas
Insurance Code and render judgment that ATOFINA is entitled to no such damages
or fees.
_____________________________
PAUL W. GREEN
JUSTICE
OPINION DELIVERED: February 15,
2008
[1]
ATOFINA is the successor company to FINA Oil and Chemical Company, which
originally executed the independent contractor agreement with Triple S. For
purposes of this opinion, we shall refer to FINA and ATOFINA, without
distinction, as ATOFINA.
[2]
104 S.W.3d 247 , 251–52 (Tex. App.—Beaumont 2003) (per curiam ).
[3]
490 S.W.2d 818 (Tex. 1972).
[4]
See id.
[5]
We have held that an indemnity agreement will not be construed to cover an indemnitee’s sole negligence absent express language to that
effect. Id.
at 822. Evanston urges us to take this rule and apply
it to additional insured provisions as well. However, we have also noted that
where an additional insured provision is separate from and additional to an
indemnity provision, the scope of the insurance requirement is not limited by
the indemnity clause. See Getty Oil Co. v. Ins. Co. of N.
Am. , 845 S.W.2d 794, 804 (Tex. 1992). In fact, we specifically
declined to extend the rule in Fireman’s Fund to contractual provisions
other than indemnity agreements. Id. at
806.
[6]
832 S.W.2d 427, 428 (Tex. App.—Amarillo 1992, no writ).
[7]
Id.
Several courts recognize no material difference between the common term
“arising out of operations” and the Evanston policy term “with respect to
operations.” See McCarthy Bros. Co. v. Cont'l Lloyds Ins. Co. , 7 S.W.3d 725 , 730 n.8 (Tex.
App.—Austin 1999, no pet.); Miller v. Superior Shipyard & Fabrication,
Inc. , 2001-2907, p. 5–6 (La. App. 1 Cir. 8/20/03); 859 So. 2d 159 , 162–64;
Acceptance Ins. Co. v. Syufy Enters. , 81 Cal.
Rptr . 2d 557, 561–62 (Cal. Ct. App. 1999); Lim v.
Atlas-Gem Erectors Co. , 638 N.Y.S.2d 946 , 946–48 (N.Y. App. Div. 1996);
Fla. Power & Light Co. v. Penn Am. Ins. Co. , 654 So. 2d 276, 279 (Fla. Dist. Ct. App. 1995). We cite cases
addressing both terms because, even if there is a difference, whatever qualifies
as “arising out of operations” also qualifies under “with respect to
operations,” the broader term.
[8]
Granite , 832 S.W.2d at 430 .
[9]
Id.
According to the court:
Under the Granite-Brown contract, the loading operation
was the sole obligation of Granite, and Brown was not responsible for that
operation. Measuring the policy coverage provided Granite by the allegations in
Valchar’s petition, it is at once obvious that Valchar’s claim of Granite’s liability arose out of the
loading operations performed by Granite; it was not a claim “arising out of
operations performed for [Granite] by or on behalf of [Brown],” the only
operations for which Granite was insured.
Id. ; see also N. Ins. Co. of N.Y. v. Austin Commercial,
Inc. , 908 F. Supp. 436, 437 (N.D. Tex. 1994) (applying Granite to
slip-and-fall cases).
[10] Admiral Ins. Co. v. Trident NGL,
Inc. , 988 S.W.2d 451 , 453–54 (Tex. App.—Houston [1st Dist.] 1999, pet.
denied) (emphasis omitted); McCarthy , 7 S.W.3d at 727 & n.4 (emphasis
omitted).
[11] 988 S.W.2d at
455 .
[12] 7 S.W.3d at
730–31.
[13] 832 S.W.2d at
430 .
[14] GuideOne Elite Ins. Co. v. Fielder Rd. Baptist
Church , 197 S.W.3d 305 , 307–08 (Tex. 2006) (citing King v. Dallas Fire
Ins. Co. , 85 S.W.3d 185, 187 (Tex. 2002), and Nat’l Union Fire Ins. Co.
of Pittsburgh, Pa. v. Merchants Fast Motor Lines, Inc. , 939 S.W.2d 139, 141
(Tex. 1997)). In this case, the principles triggering the insurer’s duty to
defend apply equally to the insurer’s duty to indemnify.
[15] See Admiral , 988 S.W.2d at
454–56; McCarthy , 7 S.W.3d at 729–31 & n.9; Mid-Continent Cas . Co. v. Swift Energy Co. , 206 F.3d
487 , 496–500 (5th Cir. 2000) .
[16] Mid-Century Ins. Co. of Tex. v.
Lindsey , 997 S.W.2d 153 , 155–56 (Tex. 1999) (determining whether “injuries
were caused by an accident arising out of the use of [a] truck”); accord
Admiral , 988 S.W.2d at 454–56; McCarthy , 7 S.W.3d at 729–31;
see also Utica Nat. Ins. Co. of Tex. v. Am. Indem . Co. , 141 S.W.3d 198 , 201–03 (Tex. 2004)
(contrasting “arising out of” with “‘due to,’ [which] requires a more direct
type of causation that could tie the insured's liability to the manner in which
the services were performed.”).
[17] Admiral , 988 S.W.2d at 454–56 (“[I]t
is sufficient that the named insured’s employee was injured while present at the
scene in connection with performing the named insured's business, even if the
cause of the injury was the negligence of the additional insured.”);
McCarthy , 7 S.W.3d at 729–31; Highland Park Shopping Vill . v. Trinity Universal Ins.
Co. , 36 S.W.3d 916, 918 (Tex. App.—Dallas 2001, no pet.). Our causation
analysis is limited to these facts. Because the premises itself caused
the injury in this case, we do not decide what level of causation, but-for or
otherwise, would be required in a case where the additional insured’s premises
is merely the situs of the injury.
[18] Admiral , 988
S.W.2d at 454–56 ; McCarthy , 7 S.W.3d at 729–31; Highland Park , 36
S.W.3d at 917–18.
[19] See The Random House Dictionary of the English
Language 1640 (Stuart Berg Flexner ed., 2d ed. unabr . 1987) (With respect to: “with respect to: referring
to: concerning”); 2 The Compact Edition
of the Oxford English Dictionary 2512 (1971) (With respect: “with
reference or regard to something.”).
[20] McIntosh v. Scottsdale Ins. Co. ,
992 F.2d 251, 255 (10th Cir. 1993) (quoting Philadelphia Elec. Co. v.
Nationwide Mut . Ins. Co. , 721 F. Supp. 740, 742
(E.D. Pa. 1989)); accord Mid-Continent Cas . Co. v. Chevron Pipe Line Co. , 205 F.3d 222 ,
228–29 (5th Cir. 2000) (“[The insurer] easily could have limited coverage by
including in the endorsement terms such as ‘vicarious liability’ or ‘negligence
of the named insured.’”).
[21] See Mid-Continent , 206 F.3d
at 497–99 (observing that “ Admiral and McCarthy . . . are
consistent with the majority view in other jurisdictions”); Steven D. Caley , et al., The Scope of Additional Insured Coverage –
A State Survey , in Insurance
Law 2006: Understanding the ABC’s , at 149 (PLI Litig . & Admin. Practice, Course Handbook Series No.
741, 2006) (collecting cases); Douglas R. Richmond, The Additional Problems
of Additional Insureds , 33 Tort & Ins. L.J. 945 , 956–65 (1998)
(collecting cases and finding that the “liberal interpretation of the additional
insured endorsement is fast becoming the majority rule”).
[22] See Nat. Union Fire Ins. Co. of
Pittsburgh, Pa. , 939 S.W.2d at 141 (“[T]he general rule is that the insurer
is obligated to defend if there is, potentially, a case under the complaint
within the coverage of the policy.”).
[23] ATOFINA contends Evanston waived any
argument regarding the impact of “following form” language in the insurance
purchasing agreement by failing to raise this point in its cross-motion for
summary judgment. While Evanston did not
articulate this argument in precisely the same form as it is enunciated here, we
note that Evanston did, in fact, argue before the trial
court that the scope of its policy was bounded by the sole-negligence exclusion
contained in the Admiral CGL policy. Furthermore, as the party that prevailed in
the trial court, Evanston was not required to raise this issue
before the court of appeals, as we do not normally require a party defending a
judgment to raise every alternative theory on which the trial court could base
its action. See Williams v. Khalaf , 802 S.W.2d 651, 658 (Tex. 1990).
[24] Endorsement 20 to the Admiral CGL policy,
which has the same effective date as the Admiral policy itself, supports this
interpretation. It states:
WHO IS AN INSURED (Section II) is amended to include as
an Insured [ATOFINA] but only with respect to liability arising out of [Triple
S’s] ongoing operations performed for [ATOFINA], but in no event for [ ATOFINA’s ] sole negligence.
[25] Nat’l Union Fire Ins. Co. of Pittsburgh,
Pa. v. Hudson Energy Co. , 811 S.W.2d 552, 555 (Tex. 1991).
[26] Id.
[27] Evanston argues that section III.B.5’s use of
“under this policy ” rather than “under this provision ” expressly
limits coverage regardless of the scope of coverage that may apply under another
provision within paragraph III.B. We disagree. Such a reading would render any
broader coverage provided by the Evanston policy illusory by always limiting
coverage to the scope of the Admiral policy. We cannot adopt a construction that
renders any portion of a policy meaningless, useless, or inexplicable.
ATOFINA Petrochemicals, Inc. v. Cont’l Cas . Co. , 185 S.W.3d 440, 444
(Tex. 2005) (per curiam ) (rejecting policy construction that would render
coverage illusory); Kelley- Coppedge , Inc. v.
Highlands Ins. Co. , 980 S.W.2d 462, 464 (Tex. 1998); Balandran
v. Safeco Ins. Co. of Am. , 972 S.W.2d 738, 741 (Tex. 1998).
[28] 490 S.W.2d 818 (Tex. 1972).
[29] Id. at 822–23.
[30] Id. at 820.
[31] Id.
[32] Id.
[33] Id.
[34] Id. at 822 .
[35] Id. at 823.
[36] Id. at 822–23.
[37] Id. at 821 .
[38] Id.
[39] Id.
[40] Id. at 823.
[41] Id.
[42] 845 S.W.2d 794 (Tex. 1992).
[43] Id. at 796.
[44] Id. at 804.
[45] Tex. Civ. Prac. & Rem.
Code §§
127.001–.007.
[46] Getty Oil , 845
S.W.2d at 804 .
[47] Id. (“[T]he additional insured
provision of the contract does not support the indemnity agreement, but rather
is a separate obligation.”).
[48] See Granite Const. Co. v. Bituminous
Ins. Cos. ,
832 S.W.2d 427, 429 (Tex. App.—Amarillo 1992, no writ).
[49] See id.
[50] See Emery Air Freight Corp. v. Gen.
Transp. Sys., Inc. , 933 S.W.2d 312, 315 (Tex. App.—Houston [14th Dist.]
1996, no writ).
[51] 744 S.W.2d 940 (Tex. 1988).
[52] Id. at 943 .
[53] Id. at 942 .
[54] Id.
[55] Id. at 943 .
[56] Id.
[57] Id. The dispute between ATOFINA and
Evanston
concerns only the reasonableness of the settlement amount, and not any factual
assertions within the settlement agreement text.
[58] Id. (emphasis added) (citations
omitted); see also W. Alliance Ins. Co. v. N. Ins. Co. of N.Y. , 176 F.3d
825, 830 (5th Cir. 1999) (citing Block , 744 S.W.2d at 943 ) (“If an
insurer breaches the duty to defend, it may not contest a determination that its
insured was liable in the underlying settlement or verdict (or the amount of
either).”); Enserch Corp. v. Shand Morahan & Co. , 952 F.2d 1485 , 1495–96 (5th Cir.
1992) (“Texas law denies insurers like these a collateral attack on the
settlement itself. . . . Recent opinions of both this Court and the Texas
Supreme Court have confirmed that, unlike a request for allocation, an attempt
to contest the reasonableness of a consent judgment entered into between the
insured and an injured third party is unavailable to an insurer who has
wrongfully breached its duty to defend.”).
[59] 744 S.W.2d at
942 .
[60] The dissent suggests that Evanston never breached
any duty owed to ATOFINA. ___ S.W.3d at ___. Yet on
multiple occasions before the settlement , Evanston explicitly rejected ATOFINA’s claim for coverage under the policy. Evanston first denied
ATOFINA’s request for coverage by letter, and then
consistently asserted the same in its pleadings throughout the coverage suit.
Even if this conduct does not amount to an anticipatory breach of the contract,
which it very well might, see Murray v. Crest Constr., Inc. , 900
S.W.2d 342, 344 (Tex. 1995); Johnson & Higgins of Tex., Inc. v. Kenneco Energy, Inc. , 962 S.W.2d 507, 515 (Tex. 1998),
this kind of explicit, unqualified rejection of coverage surely operates to
trigger the equitable principles in Block .
[61] 744 S.W.2d at
942 .
[62] See Gulf Ins. Co. v. Parker Prods.,
Inc. , 498 S.W.2d 676, 679 (Tex. 1973);
Womack v. Allstate Ins. Co. , 296 S.W.2d 233, 237 (Tex. 1956); see also St. Louis Dressed Beef &
Provision Co. v. Md. Cas . Co. , 201 U.S. 173, 181 (1906) (“Moreover, the
[insurer], by its refusal [to defend], cut at the very root of the mutual
obligation, and put an end to its right to demand further compliance with the
supposed term of the contract on the other side.”); Benjamin v. Amica Mut . Ins. Co. , 2006 UT
37, ¶ 29 , 140 P.3d 1210 , 1216 ; Liberty Mut . Ins. Co. v. Wheelwright Trucking
Co. , 851
So. 2d 466, 476–78 (Ala. 2002); D.E.M. v. Allickson , 555 N.W.2d 596 , 599–601 (N.D. 1996); Red
Giant Oil Co. v. Lawlor , 528 N.W.2d 524 , 531–32
(Iowa 1995); Fireman’s Fund Ins. Co. v. Sec. Ins. Co. of Hartford , 367
A.2d 864 , 867–73 (N.J. 1976); Theodore v. Zurich Gen. Accident & Liab . Ins. Co. , 364 P.2d 51, 55 (Alaska 1961); Albert v. Me. Bonding & Cas . Co. , 64 A.2d 27 , 29–30
(Me.
1949) . We cite these additional cases for their use of the equitable
waiver and estoppel decision frameworks generally, but
not for their opinions of how the equitable balance should be struck.
[63] Ranger Ins. Co. v. Rogers , 530 S.W.2d
162, 167 (Tex. Civ. App.—Austin 1975, writ ref’d n.r.e .).
[64] Admiral tendered its $1 million before the
settlement, invoking Evanston’s duties as an excess insurer. The
Evanston policy gave Evanston the right to
“associate with the insured in the defense and control of any ‘claim’ or ‘suit’
that we think may involve this policy.” Cf. Keck, Mahin & Cate v. Nat. Union
Fire Ins. Co. of Pittsburgh, Pa. , 20 S.W.3d 692, 701 (Tex. 2000) (supporting
an excess insurer’s right to “interject itself into settlement negotiations
before tender by the primary insurer”).
[65] The dissent cites United States Aviation
Underwriters, Inc. v. Olympia Wings, Inc. , 896 F.2d 949 (5th Cir. 1990), for
the proposition that “an insurer that does have a duty to defend is not
estopped to contest the reasonableness of a
settlement.” ___ S.W.3d at ___. Though the Fifth Circuit did so hold, the
dissent misapplies that case. Unlike Evanston, the insurer in that case offered
to supply the policy benefit (in that case, the duty to defend) under a
reservation of rights. U.S. Aviation
Underwriters , 896 F.2d at 952 . More importantly,
unlike ATOFINA, the insured in that case rejected the insurer’s offer .
Id. As
a result of those two facts, the Fifth Circuit explicitly distinguished its case
from Block and other cases where a defense is neither tendered nor
rejected. Id. at
954–55. For those latter situations, the Fifth Circuit concluded that
“under Texas
law an insurer which is obliged to defend its insured but flatly refuses to do
so . . . cannot contest the reasonableness of a consent judgment agreed to
between the insured and the injured party.” Id. at 955. Thus, United States Aviation Underwriters
supports our holding today, not the opposite.
[66] 925 S.W.2d 696 (Tex. 1996).
[67] Id. at 714 .
[68]
We hold that a defendant’s assignment of his claims against his insurer
to a plaintiff is invalid if (1) it is made prior to an adjudication of
plaintiff’s claim against defendant in a fully adversarial trial, (2)
defendant’s insurer has tendered a defense, and (3) either (a) defendant’s
insurer has accepted coverage, or (b) defendant’s insurer has made a good faith
effort to adjudicate coverage issues prior to the adjudication of plaintiff’s
claim.
Id. “We do not address whether an assignment is invalid
when any element of the rule is lacking, such as when an insurer has not
tendered a defense of its insured.” Id. at 719.
[69] Id. at 715 (“In the present case we
have focused on the validity of the assignment.”).
[70] In addition, Evanston never tendered a defense, a fact
Gandy purported to rely upon. See id. at 714 .
[71] Id. at 707–19.
[72] Id. at 714 . Even when it addressed
assignments, Gandy did not present an absolute rule: “Not every
settlement involving an assignment of rights in exchange for a covenant to limit
the assignor’s liability has the problems we have described.” Id.
[73] Cf. Guillen ex rel. Guillen v.
Potomac Ins. Co. of Ill. , 785 N.E.2d 1, 14 (Ill. 2003) (“[T]he risk of
collusion and fraud can be lessened . . . , if not avoided altogether, by
placing a requirement upon the plaintiff to prove that the settlement it reached
with the insured was reasonable before that settlement can have any binding
effect upon the insurer.”).
[74] The denial does not bar Evanston from challenging
coverage. See Utica Nat’l Ins.
Co. of Tex. v.
Am. Indem . Co. , 141 S.W.3d 198, 203 (Tex. 2004)
(“Even if a liability insurer breaches its duty to defend, the party seeking
indemnity still bears the burden to prove coverage if the insurer contests
it.”); Block , 744 S.W.2d at 943–44.
[75] The “Prompt Payment of Claims” statute has
been recodified without substantial change. See
Tex. Ins. Code §§ 542.051–.061;
Lamar Homes, Inc. v. Mid-Continent Cas . Co. , 242 S.W.3d 1 , ___
(Tex.
2007) . For purposes of this opinion, we refer to article 21.55.
[76] Tex. Ins. Code art. 21.55
§ 6.
[77] Id. § 1.
[78] Lamar Homes , 242 S.W.3d at
___ .
[79] Id.
(quoting Universe Life Ins. Co. v. Giles , 950 S.W.2d 48 , 54 n.2 (Tex. 1997) ).
[80] Id.
[81] Id. at
___.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/2834385. Public record. Not legal advice.