Opinion issued August 28, 2014

In The

Court of Appeals 

For The 

First District of Texas 

————————————

NO. 01-13-00091-CV

———————————

TESCO CORPORATION (US), Appellant

V.

STEADFAST INSURANCE COMPANY, Appellee

On Appeal from the 127th District Court

Harris County, Texas

Trial Court Case No. 2012-36774

O P I N I O N

Appellant, Tesco Corporation (US) (“Tesco”), challenges the trial court’s 

rendition of summary judgment in favor of appellee, Steadfast Insurance Company
2

(“Steadfast”), in Tesco’s declaratory-judgment action1 against Steadfast. In three 

issues, Tesco contends that the trial court erred in denying it summary judgment 

and granting Steadfast summary judgment.

We reverse and remand.

Background

In the underlying lawsuit,

2 Von Phathong3 sued Tesco in a United States 

District Court in Colorado for negligence after he sustained personal injuries while 

working on a Tesco drilling rig in Rifle, Colorado. Tesco was insured under 

general commercial liability and commercial umbrella (excess) liability policies

(collectively, the “Policies”) issued by Steadfast, and Steadfast provided Tesco 

with a defense in the underlying lawsuit. After a jury awarded Phathong

$1,500,000 in punitive damages against Tesco, Steadfast notified Tesco by letter 

that the Policies did not afford coverage for the punitive damages award because

Colorado law “does not allow,” as a matter of public policy, “punitive damages to 

be afforded coverage under a policy of insurance.” 

Subsequently, Tesco filed the instant lawsuit, seeking a judgment declaring 

that Texas law governs the scope of the Policies and Steadfast is “obligated” 

 1 See TEX. CIV. PRAC. & REM. CODE ANN. § 37.001–.011 (Vernon 2008 & Supp. 

2013).

2 Styled Phathong v. Tesco Corp. (US), No. 10-CV-00780-WJM-MJW, 2012 WL 

5187751, at *1 (D. Colo. Oct. 19, 2012). 

3 Phathong is not a party to this appeal. 
3

thereunder “to pay for any punitive damages awarded against [Tesco]” in the 

underlying lawsuit. Steadfast filed an answer, generally denying Tesco’s 

allegations.

Tesco then filed a motion for partial summary judgment, asserting the 

following:

[1.] Texas law applies to the construction of the Policies and to the 

issue of whether punitive damages are covered by the Policies;

[2.] Under Texas law, punitive damages are covered by liability 

policies unless otherwise excluded;

[3.] Steadfast waived its right to assert non-coverage of the punitive 

damages by failing to issue a reservation of rights on that point 

until after the Phathong verdict was entered; and

[4.] Steadfast is estopped from asserting that the punitive damages 

are not covered since Steadfast failed to issue any reservation of 

rights letter on that point until after the Phathong verdict was 

entered.

Tesco attached to its summary-judgment motion copies of the Policies; its original 

petition in the instant suit; Steadfast’s letters regarding denial of coverage; and, 

from the underlying lawsuit, copies of Phathong’s petition, a pretrial order, the jury 

verdict, and the final judgment. 

In its cross-motion for summary judgment and response to Tesco’s motion, 

Steadfast argued that it is entitled to judgment as a matter of law because Colorado 

law applies and prohibits insurance coverage for punitive damages in this case. It 

further argues that waiver and estoppel “do not apply” because “Steadfast cannot 

waive or be estopped from the application of Colorado public policy.” Steadfast 
4

directed the trial court to evidence that Tesco had previously filed with its 

summary-judgment motion. In its response to Steadfast’s cross-motion for 

summary judgment, Tesco asked the trial court to take judicial notice of its original 

summary-judgment motion and evidence.

After a hearing, the trial court granted Steadfast’s cross-motion for summary 

judgment and denied Tesco’s motion for partial summary judgment. It entered a 

judgment, declaring that “Colorado law applies in this case and that no coverage is 

available for the punitive damage award assessed against [Tesco].” And it ordered 

that Tesco “take nothing on its claims against [Steadfast] and that all [Tesco’s] 

claims against [Steadfast] are hereby dismissed.”

Standard of Review

Declaratory judgments rendered by summary judgment are reviewed under 

the same standards that govern summary judgments generally. Bowers v. Taylor, 

263 S.W.3d 260, 264 (Tex. App.—Houston [1st Dist.] 2007, no pet.). To prevail 

on a summary-judgment motion, a movant has the burden of establishing that it is 

entitled to judgment as a matter of law and there is no genuine issue of material 

fact. TEX. R. CIV. P. 166a(c); Cathey v. Booth, 900 S.W.2d 339, 341 (Tex. 1995). 

When a plaintiff moves for summary judgment on its own claim, it must 

conclusively prove all essential elements of its cause of action. Rhone–Poulenc, 

Inc. v. Steel, 997 S.W.2d 217, 223 (Tex. 1999). When a defendant moves for 
5

summary judgment, it must either (1) disprove at least one essential element of the 

plaintiff’s cause of action or (2) plead and conclusively establish each essential 

element of its affirmative defense, thereby defeating the plaintiff’s cause of action. 

Cathey, 900 S.W.2d at 341; Yazdchi v. Bank One, Tex., N.A., 177 S.W.3d 399, 404

(Tex. App.—Houston [1st Dist.] 2005, pet. denied). When deciding whether there 

is a disputed, material fact issue precluding summary judgment, evidence favorable 

to the non-movant will be taken as true. Nixon v. Mr. Prop. Mgmt. Co., 690 

S.W.2d 546, 548–49 (Tex. 1985). Every reasonable inference must be indulged in 

favor of the non-movant and any doubts must be resolved in its favor. Id. at 549.

When, as here, both sides move for summary judgment and the trial court 

grants one motion and denies the other, we review the summary judgment proof 

presented by both sides and determine all questions presented. See Centerpoint 

Energy Hous. Elec., L.L.P. v. Old TJC Co., 177 S.W.3d 425, 430 (Tex. App.—

Houston [1st Dist.] 2005, pet. denied).

Conflict of Laws

In its first issue, Tesco argues that the trial court erred in granting Steadfast 

summary judgment because Texas law, and not Colorado law, “applie[s] to the 

question of coverage under a liability policy issued in Texas to an insured having 

its principal place of business in Texas.” 
6

A determination of which state’s law applies in a case is a question of law. 

Citizens Ins. Co. of Am. v. Daccach, 217 S.W.3d 430, 440 (Tex. 2007). 

Accordingly, we review de novo the trial court’s decision to apply Colorado law in 

this case. See Minn. Mining & Mfg. Co. v. Nishika Ltd., 955 S.W.2d 853, 856 

(Tex. 1996). 

When, as here, an insurance contract does not contain an express choice-oflaw provision, we consider whether a relevant statute directs us to apply the laws 

of a particular state. Reddy Ice Corp. v. Travelers Lloyds Ins. Co., 145 S.W.3d 

337, 340 (Tex. App.—Houston [14th Dist.] 2004, pet. denied); see Daccach, 217 

S.W.3d at 443. Texas law governs an insurance contract “when (1) the insurance 

proceeds are payable to a Texas citizen or inhabitant; (2) the policy is issued by an 

insurer doing business in Texas; and (3) the policy is issued in the course of the 

insurer’s business in Texas.” TEX. INS. CODE ANN. art. 21.42 (Vernon 2009); 

Reddy Ice Corp., 145 S.W.3d at 341. Here, however, the parties do not dispute

that article 21.42 does not apply because Tesco, as a Delaware corporation, is not a 

“citizen or inhabitant” of Texas for purposes of this provision, despite its primary 

place of business being located in Texas. See Reddy Ice Corp., 145 S.W.3d at 

341–42, 344 (holding “unambiguous language of article 21.42 restricts a 

corporation’s inhabitancy to its place of incorporation,” notwithstanding its 
7

principal place of business being in Texas, and terms “inhabitant” and “citizen” 

contemplate same condition). 

When, as here, no statutory directive governs the dispute, the law of the state 

with the “most significant relationship” to the particular substantive issue is 

applied. See id. at 344; see also Daccach, 217 S.W.3d at 443. The relevant 

contacts are those the state has with the insurance dispute, and not with the 

underlying lawsuit. Reddy Ice Corp., 145 S.W.3d at 345; see also Ingalls 

Shipbuilding v. Fed. Ins. Co., 410 F.3d 214, 232–33 (5th Cir. 2005).

Generally, a court resolves choice-of-law questions by considering, under 

Restatement (Second) Conflict of Laws section 6: (1) the needs of the interstate 

and international systems; (2) the relevant policies of the forum; (3) the relevant 

policies of other interested states and the relative interests of those states in the 

determination of the particular issue; (4) the protection of justified expectations;

(5) the basic policies underlying the particular field of law; (6) certainty, 

predictability, and uniformity of result; and (7) ease in the determination and 

application of the law to be applied. See Duncan v. Cessna Aircraft Co., 665 

S.W.2d 414, 420–21 (Tex. 1984) (abandoning traditional lex loci rule for resolving 

choice-of-law questions and adopting RESTATEMENT (SECOND) OF CONFLICT OF 

LAWS §.6 (1971)). 
8

“When evaluating choice-of-law issues in contractual disputes, we consider 

the facts of the case under the ‘most significant relationship’ test set forth in 

section 188 of the Restatement (Second) of Conflicts of Laws.” Minn. Mining & 

Mfg. Co. v. Nishika, Ltd., 953 S.W.2d 733, 735 (Tex. 1997). “[W]e determine 

contractual rights and duties by the law of the state with the most significant 

relationship to the transaction and the parties.” Id. We consider: (1) the place of 

contracting; (2) the place of negotiation; (3) the place of performance; (4) the 

location of the contract’s subject matter; and (5) the domicile, residence, 

nationality, place of incorporation, and place of business of the parties. Id. at 735–

36 (applying RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 188 (1971)); see

also DeSantis v. Wackenhut Corp., 793 S.W.2d 670, 678 (Tex. 1990) (“Section 

188 of the Restatement provides that a contract is to be governed by the law of the 

state that has the most significant relationship to the transaction and the parties,

taking into account various contacts in light of the basic conflict of laws principles 

of section 6 of the Restatement.”).

When an insurance policy provides coverage across multiple jurisdictions,4

the place of contracting, place of negotiation, and the domicile, place of 

incorporation, and place of business of the parties become “the primary factors to 

 4 Here, the Policies define “coverage territory” as including the United States, its 

territories and possessions, Puerto Rico, Canada, “[i]nternational waters or 

airspace,” and, under certain conditions, “[a]ll parts of the world.”
9

determine which law applies.” Reddy Ice Corp., 145 S.W.3d at 346. Here, Tesco 

is a Delaware corporation, with its principal place of business in Texas. And 

Steadfast has its principal place of business in Illinois, but does business in Texas. 

The insurance contracts were negotiated and executed in Texas, and the Policies 

were issued from Steadfast’s underwriters in Texas, through a Texas broker, to 

Tesco. Colorado does not have any relation to the insurance contract between 

Tesco and Steadfast. Thus, applying the section 188 factors, we conclude that

Texas law governs the scope of coverage afforded under Tesco’s insurance 

contracts with Steadfast. See Minn. Mining & Mfg. Co., 953 S.W.2d at 735; 

Scottsdale Ins. Co. v. Nat. Emergency Servs., Inc., 175 S.W.3d 284, 293–94 (Tex. 

App.—Houston [1st Dist.] 2004, pet. denied) (applying Restatement section 188 

factors and then section 6 factors to insurance contract analysis).

In Reddy Ice, several individuals sued Reddy Ice in Louisiana for personal 

injuries that they sustained when a refrigeration unit at a Reddy Ice facility in 

Baton Rouge allegedly leaked ammonia. 145 S.W.3d at 339. Reddy Ice, a Nevada 

corporation with its principal place of business in Texas, was insured by Travelers, 

a Texas corporation. Id. at 341, 346. The issue presented was whether Texas or 

Louisiana law governed a pollution exclusion clause contained in the insurance 

contract between Reddy Ice and Travelers. Id. at 339. Under Texas law, a total 

pollution exclusion clause is unambiguous and bars coverage for claims similar to 
10

those at issue. Id. at 340 n.2. Under Louisiana law, a total pollution exclusion 

clause is ambiguous and presents a fact issue in each case. Id. 340 n.3. After 

applying the section 188 factors, the court held that “Texas has a strong interest in 

the outcome of an insurance coverage dispute that involves a Texas insurer, an 

insurer doing business in Texas, and their contractual relationship with their 

insured, a company principally operating in Texas.” Id. at 346. The court noted 

that Louisiana had little interest in whether the judgment was paid by Reddy Ice or 

its insurer, or in regulating an insurance policy issued in Texas. Id.

Steadfast argues that Reddy Ice is distinguishable because it did not concern 

the question presented here “regarding the public policies of the states,” which is 

controlled by the general Restatement section 6 factors. In support of its argument, 

Steadfast relies on American Home Assurance Co. v. Safway Steel Products Co., 

743 S.W.2d 693, 696 (Tex. App.—Austin 1987, writ denied). In American Home, 

the insurers appealed a declaratory judgment in favor of the insured regarding 

coverage for exemplary damages, and the court considered whether to apply the 

laws of Texas, New York, Wisconsin, or Missouri. 743 S.W.2d at 698. After the 

court concluded that Insurance Code section 21.42 required it to apply Texas law,

it nevertheless went on to consider the most significant relationship tests under the 

Restatement. Id. at 697–98; but see Daccach, 217 S.W.3d at 443 (“[T]he factors in 
11

section 6(2) of the Restatement do not come into play if there is statutory guidance 

that the law is intended to govern the transaction.”). 

The court in American Home concluded that the needs of the interstate 

system were best served by imposing the law of the state in which the underlying 

torts occurred that gave rise to the imposition of punitive damages. 743 S.W.2d at 

699 (applying Restatement (Second) on Conflicts of Law § 6). Otherwise, it 

reasoned, insurers could, “after paying the primary personal injury action under the 

reservation of rights, seek a declaratory judgment in a state in which they were 

doing business and whose public policy precludes insuring against punitive 

damages.” Id. Steadfast asserts that, similarly here, the more general “significant 

relationship” test under Restatement section 6 militates in favor of applying 

Colorado law because the underlying tort that gave rise to the punitive damages 

occurred in Colorado.

We note again, however, that the relevant contacts are those each state has 

with this insurance dispute, and not with the underlying lawsuit. See Reddy Ice 

Corp., 145 S.W.3d at 345. Moreover, the more general Restatement section 6 

factors weigh in favor of applying Texas law to this insurance dispute. Regarding 

the needs of the interstate system and the relevant policies of the forum, we 

recognize that the public policy of Colorado prohibits an insurance carrier from 

providing insurance coverage for punitive damages and Colorado has an 
12

identifiable interest in upholding its public policies. See Duncan, 665 S.W.2d at 

420–21; see also Lira v. Shelter Ins. Co., 913 P.2d 514, 517 (Colo. 1996). 

However, that the underlying lawsuit arose in Colorado does not, in itself, mean 

that Colorado has an interest that is superior to the interests of Texas. Regarding 

the protection of justified expectations, Texas has a strong interest in protecting the 

freedom of contract, the value of certainty of enforcement, and a Texas insured’s 

expectations in entering an insurance contract in Texas with a Texas insurer. See 

Duncan, 665 S.W.2d at 420–21; see Reddy Ice Corp., 145 S.W.3d at 345 (noting 

that Texas has strong interest in outcome of insurance coverage dispute involving 

insurer doing business in Texas with company principally operating in Texas). 

Applying Colorado law in this case would invalidate a portion of Tesco’s 

contract with Steadfast, and applying Texas law would uphold it. “[W]hen the law 

of one state would invalidate the contract, but the law of another would uphold it, 

the Restatement . . . favors applying the law of the state which would uphold the 

validity of the contract.” Am. Home Assurance Co., 743 S.W.2d at 700–01.

Moreover, Steadfast has not established that, given the language of the 

Policies, it has any reasonable expectation that Colorado law would govern their 

scope. Texas courts have declined to treat multi-risk policies as separate policies, 

each insuring an individual risk, “because giving such weight to the location of the 

insured risk would potentially subject an insurer, through one contract, to the laws 
13

of numerous states on issues that are more appropriately determined by the state’s 

law that promulgated the policy.” Reddy Ice Corp., 145 S.W.3d at 345–46 (“By 

analogy, the owner of a fleet of ships would potentially be liable throughout every 

port city. . . .”). 

We conclude that Texas law governs the scope of coverage afforded under 

Tesco’s insurance contracts with Steadfast. Accordingly, we hold that the trial 

court erred in concluding that Colorado law governs this dispute and granting 

Steadfast summary judgment. Accordingly, we sustain Tesco’s first issue.

Punitive Damages

In its second issue, Tesco argues that the trial court erred in denying it 

summary judgment because the punitive damages awarded against Tesco in the 

underlying lawsuit are covered under the Policies issued by Steadfast and are 

insurable under Texas law. 

To determine whether punitive damages for gross negligence are insurable, 

we consider whether (1) the plain language of the Policies covers the punitive 

damages awarded in the underlying lawsuit and (2) Texas public policy allows or 

prohibits coverage under the circumstances of the case. See Fairfield Ins. Co. v. 

Stephens Martin Paving, LP, 246 S.W.3d 653, 655 (Tex. 2008).

The plain language of an insurance policy, like any other contract, must be 

given effect when the parties’ intent may be discerned from that plain language. 
14

See Utica Nat’l Ins. Co. of Tex. v. Am. Indem. Co., 141 S.W.3d 198, 202 (Tex.

2004). If the policy language has only one reasonable interpretation, then it is not 

ambiguous, and we construe it as a matter of law. Fiess v. State Farm Lloyds, 202 

S.W.3d 744, 746 (Tex. 2006). If the contract is susceptible to two or more 

reasonable interpretations, then it is ambiguous, and we must resolve the 

uncertainty by adopting any reasonable construction that favors the insured. Id. 

An intent to exclude coverage must be expressed in clear and unambiguous 

language. Nat’l Union Fire Ins. Co. v. Hudson Energy, Co., 811 S.W.2d 552, 555

(Tex. 1991).

Here, under the general commercial liability policy issued to Tesco, 

Steadfast agreed to pay “those sums that [Tesco] becomes legally obligated to pay 

as damages because of ‘bodily injury’ or ‘property damage’ to which this 

insurance applies.” The coverage applies to “bodily injury” caused by an 

“occurrence” that takes place within the “coverage territory,” during the “policy 

period.” And the umbrella (excess) liability policy issued to Tesco provides that 

Steadfast “will pay on behalf of [Tesco], those damages covered by this insurance 

in excess of the total applicable limits of the underlying insurance.” Thus, the 

Policies obligate Steadfast to pay “those sums” and “those damages” that Tesco

“becomes legally obligated to pay as damages” arising out of bodily-injury claims.
15

Generally, language in a standard form liability policy providing for 

coverage for “sums” or “all sums” an insured becomes liable to pay as a result of 

bodily injury encompasses punitive damages, if not otherwise excluded. 

Westchester Fire Ins. Co. v. Admiral Ins. Co., 152 S.W.3d 172, 183 (Tex. App.—

Fort Worth 2004, pet. denied); Am. Home Assurance Co., 743 S.W.2d at 702. 

There is no language in the Policies making any distinction as to the types of 

damages covered or expressly excluding coverage for punitive damages. Steadfast 

could have included an express exclusion from liability for punitive damages, but it 

did not. Am. Home Assurance Co., 743 S.W.2d at 702. Thus, we conclude that the 

plain language of the policies covers the punitive damages awarded against Tesco

in the underlying lawsuit. See Fairfield Ins. Co., 246 S.W.3d at 655.

Next, we consider whether Texas public policy prohibits the enforcement of 

an insurance contract covering punitive damages. See id. In Fairfield, the Texas 

Supreme Court concluded that “the public policy of Texas does not prohibit 

insurance coverage of exemplary damages[5] for gross negligence in the workers’

compensation context.” Id. at 670. Because the Texas Legislature has not 

demonstrated an intent to generally prohibit or allow the insurance of exemplary 

damages arising from gross negligence, however, the court declined to make a 

“broad proclamation” of public policy outside the workers’ compensation context. 

 5 The term “exemplary damages” includes punitive damages. TEX. CIV. PRAC. &

REM. CODE ANN. § 41.001(5) (Vernon 2008).
16

Id. Instead, it offered “some considerations applicable to the analysis in other 

cases.” Id. It also noted that “[t]he majority of states that have considered whether 

public policy prohibits insurance coverage of exemplary damages for gross 

negligence . . . have decided that it does not.” Id. at 660–61. 

We note that the court, in rendering its decision in Fairfield, explained that 

Texas has a “strong public policy in favor of preserving the freedom of contract.” 

Id. at 664 (citing TEX. CONST. art. I, § 16 (“No . . . law impairing the obligation of 

contracts[] shall be made.”)). The preservation of contractual freedom and 

enforcement applies to the relationship between an insurer and insured. See 

Fairfield Ins. Co., 246 S.W.3d at 655; see also Am. Int’l Specialty Lines Ins. Co. v. 

Triton Energy Ltd., 52 S.W.3d 337, 341–42 (Tex. App.—Dallas 2001, pet. dism’d 

w.o.j.) (“Texas has a strong public policy of enforcing its insurance policies . . . .”).

“Courts weighing this interest should consider the reasonable expectations of the 

parties and the value of certainty in enforcement of contracts generally.” Fairfield 

Ins. Co., 246 S.W.3d at 663.

Tesco explains that it is a Texas-based company conducting oil and gas 

services throughout the United States and maintains the Policies to cover its 

operations throughout the United States. The Policies obligate Steadfast to pay 

“those sums” and “those damages” that Tesco “becomes legally obligated to pay as

damages” arising out of bodily-injury claims, and they make no distinction as to 
17

the types of damages covered, nor do they expressly exclude coverage for punitive 

damages. In the absence of an express policy exclusion from liability for punitive 

damages, the “average insured . . . would assume that the term damages would 

include punitive damages, since they would become by judgment a sum that the 

insured would be legally obligated to pay.” Am. Home Assurance Co., 743 S.W.2d 

at 702. Further, Tesco’s reasonable expectation was that, at the time Steadfast 

determined the premiums for the policies at issue, it “included within its 

underwriting process the fact that it was issuing a liability policy to a Texas 

company and that punitive damages are insurable under Texas law.” 

Moreover, the court in Fairfield instructed that “a court should consider the 

purpose” of exemplary, or punitive, damages. See Fairfield Ins. Co., 246 S.W.3d 

at 655. In Texas, the punishment imposed through an award of exemplary

damages is to be directed at the wrongdoer.6

 TEX. CIV. PRAC. & REM. CODE ANN.

 6 Exemplary damages can be awarded for gross negligence. TEX. CIV. PRAC. &

REM. CODE ANN. § 41.003(a) (Vernon Supp. 2013). In determining the amount of 

exemplary damages, the trier of fact shall consider evidence, if any, relating to:

(1) the nature of the wrong;

(2) the character of the conduct involved;

(3) the degree of culpability of the wrongdoer;

(4) the situation and sensibilities of the parties concerned;

(5) the extent to which such conduct offends a public sense of justice 

and propriety; and

(6) the net worth of the defendant.

Id. § 41.011(a) (Vernon 2008).
18

ch. 41 (Vernon 2008 & Supp. 2013). “Courts holding that insurance coverage for 

punitive damages violates public policy generally do so on the theory that

wrongdoers should not be shielded from the consequences of their acts.” 

Westchester Fire Ins. Co., 152 S.W.3d at 185. If the wrongdoer is permitted to 

shift the burden to an insurance company, “punitive damages would serve no 

useful purpose.” Id. at 186. For instance, Texas courts have “uniformly rejected 

as against public policy” coverage under uninsured/underinsured motorist policies 

when an insured seeks to recover from his own insurer punitive damages awarded 

to the insured against a third-party tortfeasor. Fairfield Ins. Co., 246 S.W.3d at 

668. The concern is that insurance coverage for punitive damages could encourage 

reckless conduct. Id. at 670. 

However, “[t]he considerations may weigh differently when the insured is a 

corporation or business that must pay exemplary damages for the conduct of one or 

more of its employees.” Id. The Austin Court of Appeals observed that while 

allowing exemplary-damages coverage shifts the burden of the punishment to the 

“innocent members of society who purchase insurance,” which is contrary to the 

purpose of such damages, disallowing such coverage for a large corporation means 

that exemplary damages for the misconduct of one or a few employees will 

“inevitably be passed on to the consumers of its products,” which is also contrary 

to the purpose of punitive damages. Id. at 669 (discussing Am. Home Assurance 
19

Co., 743 S.W.2d at 704). And when punitive damages are assessed against an 

entire business based on the conduct of one employee, “it will often be the case 

that stockholders, other employees, and even management as a larger group have 

done little to deserve punishment.” Id. at 689 (Hecht, J., concurring). In cases 

where the corporation is “less well-established or affluent, its inability to insure 

against such liability may well cause a permanent financial collapse.” Am. Home 

Assurance Co., 743 S.W.2d at 704.

When the insured is a corporation, courts applying Texas law have rejected,

on public policy grounds, allowing insurance coverage for punitive damages where 

the facts of the case demonstrate “extreme circumstances” where “avoidable 

conduct” by one or more employees causes injury. Am. Int’l Specialty Lines Ins. 

Co. v. Res-Care, Inc., 529 F.3d 649, 663 (5th Cir. 2008) (considering actions of 

nursing home staff who allowed resident to lie for prolonged period in pool of 

bleach and then failed to provide medical care for chemical burns, resulting in 

death of resident).7

 In Res-Care, however, there were “documented systemic 

problems of care” and a “course of conduct” by the corporation that was “so 

extreme that the purposes of punishment and deterrence of conscious indifference 

outweigh[ed] the normally strong public policy of permitting the right to contract 

 7 Although not binding precedent on Texas state courts, federal cases discussing 

Texas law may be instructive on state law issues, and Texas state courts are not 

prohibited from considering the reasoning of the federal courts in determining 

matters of Texas law. Davenport v. Garcia, 834 S.W.2d 4, 20 (Tex. 1992).
20

between insurer and insured.” Id. at 664. The court held that “[t]his case 

demonstrate[d] the kind of ‘avoidable conduct that causes injury’ where public 

policy is best served by requiring the insured to bear the costs of punitive 

damages.” Id.

However, “when the insured is a corporation or business that must pay 

exemplary damages for the conduct of one or more of its employees,” and “other 

employees and management are not involved in or aware of an employee’s 

wrongful act, the purpose of exemplary damages may be achieved by permitting 

coverage so as not to penalize the many for the wrongful act of one.” Fairfield Ins. 

Co., 246 S.W.3d at 670. When a party seeks damages under these circumstances, 

“courts should consider valid arguments that businesses be permitted to insure 

against them.” Id. 

Here, Tesco’s summary-judgment evidence includes copies of Phathong’s

petition and the judgment he obtained against Tesco in the underlying lawsuit, as 

well as a pretrial order from the United States District Court, containing the 

parties’ stipulated facts in that dispute. And Tesco recites in its brief some of the 

facts from the underlying lawsuit, which include allegations that “the person 

supervising the drill operations used an incorrect crossover sub and tried to force it 

on the drill collar by directing and allowing [Phathong] to hold the crossover sub 

with tongs.” Phathong asserted that Tesco “knew or should have known” of the 
21

improper and dangerous use of the equipment on the rig. However, Tesco’s 

evidence does not conclusively establish the extent to which other Tesco 

employees and management were involved in or aware of the supervisor’s

wrongful conduct or the pervasiveness of the complained-of practice. See ResCare, 529 F.3d at 664; see also Fairfield Ins. Co., 246 S.W.3d at 670. Thus, as 

Steadfast asserts, fact issues preclude summary judgment in favor of Tesco. 

We hold that Tesco conclusively established that insurance coverage for the 

punitive damages awarded against it is not excluded under the language of the 

Policies. However, Tesco has not conclusively established that the punitive 

damages awarded against it are insurable as a matter of Texas public policy. 

Accordingly, we hold that the trial court did not err in denying Tesco summary 

judgment.

We overrule Tesco’s second issue.

Reservation of Rights

In its third issue, Tesco argues that “Steadfast is estopped, or has waived, its 

asserted coverage defenses” because it “defended Tesco unconditionally and 

without a reservation of rights until after the trial.” See State Farm Lloyds, Inc. v. 

Williams, 791 S.W.2d 542, 550 (Tex. App.—Dallas 1990, no writ) (applying 

Farmers Texas Cnty. Mut. Ins. Co. v. Wilkinson, 601 S.W.2d 520, 521–22 (Tex. 
22

Civ. App.—Austin 1980), abrogated by Ulico Cas. Co. v. Allied Pilots Ass’n, 262 

S.W.3d 773 (Tex. 2008)). 

An insurer “does not bear the burden of showing that it does not have a 

policy in place to cover a particular risk; the insured bears the burden to show that 

a policy is in force and that the risk comes within the policy’s coverage.” Ulico 

Cas. Co., 262 S.W.3d at 781–82. Whether punitive damages for gross negligence 

are insurable depends on whether (1) the plain language of the policy covers the 

damages and (2) Texas public policy allows or prohibits coverage under the 

circumstances of the case. See Fairfield Ins. Co., 246 S.W.3d at 655. Thus, it is 

Tesco’s burden to show that Texas public policy allows coverage for the punitive 

damages awarded against it under the circumstances of this case.

Further, an insurance contract that contravenes public policy is not 

enforceable as a matter of law. See Fairfield, 246 S.W.3d at 663–65, 671 n.5 

(citing James v. Fulcrod, 5 Tex. 512, 520 (1851) (“[C]ontracts against public 

policy are void and will not be carried into effect by courts of justice. . . .”)). And 

there is “no right of noncoverage that is subject to being waived by the insurer, 

even by assumption of the insured’s defense with knowledge of facts indicating 

noncoverage and without obtaining a valid reservation of rights or non-waiver 

agreement.” Ulico Cas. Co., 262 S.W.3d at 781–82 (abrogating Wilkinson, 601 
23

S.W.2d at 521–22). Thus, Steadfast did not waive its public policy issue by not 

reserving its rights.

We overrule Tesco’s third issue.

Conclusion

We reverse the judgment of the trial court and remand for further 

proceedings consistent with this opinion. 

Terry Jennings

Justice 

Panel consists of Justices Jennings, Higley, and Sharp.