Plantation Pipe Line Co. v. Highlands Ins. Co.
Issue Discussed: Exhaustion of Underlying Policy Limits
Submitted by Cecilia Froelich Moss, Karen C. Baswell
Date Promulgated: August 29, 2014
Plantation Pipe Line Co. v. Highlands Ins. Co., 444 S.W.3d 307 (Tex. App. 2014)
Court: Court of Appeals of Texas, Eastland
Issues Decided:Whether coverage under an excess insurance policy was triggered when the insured settled with underlying insurance carriers for less than full policy limits, but agreed to pay the difference between the settlement amount and those limits.
The insured, an operator of pipelines carrying petroleum products, was ordered to remediate the site of an oil leak, and requested defense and indemnification from its primary and excess insurance carriers for any resulting liability it faced to third parties. The insurers denied coverage, and the insured brought suit against the primary carrier and the first two excess layer carriers. It did not bring suit against Highlands, the third layer excess carrier, at that time, because it did not know whether the loss would be large enough to trigger the Highlands policy. The primary and first two excess layer carriers ultimately settled with the insured for less than their full policy limits, and the insured paid the differences.
When the insured’s total loss reached the attachment point of the Highlands policy, it sought coverage from Highlands. Highlands denied the claim, stating that the underlying insurance policies had not been fully exhausted as required by its policy. The insured then brought suit against Highlands. Highlands moved for summary judgment, arguing that because the underlying insurers had not paid their full policy limits, those policies were not exhausted, and the Highlands policy was not triggered. The court granted Highlands motion, and the insured appealed.
Highlands argued that its excess policy only attached after the underlying insurers “have paid or have been held liable to pay their full policy limits.” However, the appellate court noted that the term “full policy limits” was not actually used in the Highlands policy. Instead, the policy stated it would attach after the underlying insurers “have paid or have been held liable to pay the full amount of their respective ultimate net loss liability . . . .” The policy then defined “ultimate net loss liability” (through a follow form clause to an underlying policy) as “all sums which the insured or any organization as his insurer, or both, become legally obligated to pay as damages, whether by reason of adjudication or settlement . . . .” The appellate court held this language was unambiguous, and that it did not require “payment of losses solely by the insurers.” 444 S.W.3d 307, 313 (Tex. App. 2014). Thus, the court held that excess policy was triggered, as the insured and the other carriers “altogether [had] paid a sum in excess of the attachment point [ ] of the Highlands policy.” Id. (emphasis in original)
In its analysis, the appellate court distinguished the language of the Highlands policy from the policies at issue in Citigroup, Inc. v. Federal Insurance Co., 649 F.3d 367, 370-73 (5th Cir. 2011), which were found by the Fifth Circuit to unambiguously require the underlying insurers to pay the full amount of their policy limits in order to exhaust the underlying policies.
- The language of the excess policy at issue will control whether and how an underlying policy may be exhausted in triggering the excess policy. If the excess policy does not specifically require the underlying policy limits to be paid solely by the underlying insurer, the underlying limit can be exhausted by a below-limits settlement when the insured pays the difference.
* Cecilia Froelich Moss is a founding partner of Chaffetz Lindsey LLP, where her practice focuses on representing major insurance companies in reinsurance disputes and in coverage litigation. Ms. Moss also handles large scale commercial disputes in court and in international arbitration.
* Karen C. Baswell is an associate of Chaffetz Lindsey LLP, focusing on insurance and reinsurance dispute resolution.