Opinion ID: 6104644
Heading Depth: 3
Heading Rank: 2

Heading: Contractual Minimum Coverage

Text: The next question is how much coverage BP is entitled to as an additional assured on the bumbershoot policies. BP contends it is entitled to the full $100,000,000 under these policies notwithstanding that Section 12.01.03 required O’Brien’s to purchase CGL with “minimum limits” of $2 million per occurrence. In re Deepwater Horizon provides the analytical framework, and previous decisions of this court supply a key to the outcome. The In re Deepwater Horizon court looked first at the insurance policy, whose language, substantially similar to that before us, defined an additional insured as any entity to whom the named insured was “obliged by oral or written Insured Contract . . . to provide insurance such as afforded by [the] Policy.” 470 S.W.3d at 457 (internal quotations omitted and alterations in original). The court then inspected the parties’ contract to determine the extent of coverage. Because the Primary Bumbershoot policy creates an “obligation” that mirrors the obligation in In re Deepwater Horizon, we move to the terms of the BP-O’Brien’s Contract referenced by the Primary Bumbershoot policy. BP focuses on language in Section 12.02, which states that “[e]xcept for Workers’ Compensation Insurance set forth in Section 12.01.01, all policies shall name [the BP entities] as additional insureds.” “All policies,” it contends, means all policies procured by O’Brien’s. But the very next sentence in Section 12.02 references “all of the policies listed above” when dealing with waiver of subrogation. And the logical inference from both sentences together is that in excluding Workers’ Compensation Insurance, however, concludes that excess coverage mirroring a primary CGL policy does not constitute CGL coverage. And we see no need to draw that conclusion today. 10 Case: 20-30364 Document: 00516171755 Page: 11 Date Filed: 01/19/2022 No. 20-30364 Section 12.02 cross-references “all” of the policies in Section 12.01.01 and nothing more. BP itself concedes that “all policies” does not literally mean “all,” because in context, the phrase “plainly refers to all insurance policies providing the types of ‘insurance coverage’ listed in the previous section, except for Workers’ Compensation Insurance.” BP fails to explain how the CGL’s minimum coverage limits are not included in the “all policies” language of Section 12.02. The BP-O’Brien’s Contract contraindicates extending BP’s additional assured status to the maximum coverage voluntarily purchased by O’Brien’s. Our precedent strongly reinforces that conclusion. In the wake of In re Deepwater Horizon, this court made an Erie guess in Ironshore Specialty Ins. Co. v. Aspen Underwriting, Ltd. that an additional assured was covered only to the minimum obliged by the parties’ contract and not the maximum obtained by the named insured. 10 788 F.3d 456, 461-63 (5th Cir. 2015). To be sure, the BP-O’Brien’s Contract specifies CGL coverage with $2 million “minimum limits,” whereas the policy in Ironshore referenced only “$5 million.” Id. at 458. But that is still a limit, and the parties agreed in Ironshore that $5 million was the maximum required by the master service agreement there. Id. at 459. 11 10 The policy in Ironshore covered “any person or entity to whom [the insured was] obliged by a written ‘Insured Contract . . . .’” 788 F.3d at 458. The court reasoned that because a similar provision was sufficient “in Deepwater Horizon to incorporate the Drilling Contract’s limitation on coverage[,] . . . . [t]he nearly identical language in [the contractor’s] policies . . . compel[led] the same result.” Id. at 463. 11 The parties also dispute the commercial context of the BP-O’Brien’s Contract. But their arguments amount to a draw. BP claims the “all policies” clause was intended to “hitch[]” BP’s wagon to O’Brien’s full coverage because O’Brien’s managed the cleanup work and “had every incentive to obtain adequate CGL insurance for itself.” But Navigators points out that BP did not take this approach with its NRC contract, and argues that it was equally reasonable for BP to require certain minimum coverage from O’Brien’s. In short, the commercial context is not decisive here. Cf. Kachina Pipeline Co., Inc. v. Lillis, 11 Case: 20-30364 Document: 00516171755 Page: 12 Date Filed: 01/19/2022 No. 20-30364 This court’s decision in Musgrove v. Southland Corp. also rejects BP’s proffered interpretation. 12 898 F.2d 1041 (5th Cir. 1990). A key issue in Musgrove was whether a party was an additional insured on an excess policy covering losses greater than $1,000,000. Id. at 1043-44. Like the bumbershoot policies here, an excess policy in Musgrove limited coverage for additional insureds to those whom the named insured was “obligated by virtue of a written contract.” Id. at 1043. The relevant contract required primary CGL insurance “of not less than $1 million per occurrence.” Id. The court rejected drop-down coverage by the excess policy, however, because of its express limitation to losses exceeding $1 million. It also disregarded an additional assured provision that would have required “[a]ll insurance coverages carried by Contractor, whether or not required hereby, . . .” to also “extend to and protect Company . . . to the full amount of such coverage, but not less than” $1,000,000 in CGL insurance. Id. (emphasis and alterations in original). The panel rejected application of this language, inter alia, 13 because the insured “was not contractually obligated to 471 S.W.3d 445, 450 (Tex. 2015) (permitting consideration of “facts and circumstances surrounding a contract, . . .” but recognizing that “extrinsic evidence can be considered only to interpret an ambiguous writing, not to create ambiguity.” (citations omitted)). 12 Although Musgrove arose under Louisiana law, a panel of this court favorably cited the decision while applying Texas law. See Forest Oil Corp. v. Strata Energy, Inc., 929 F.2d 1039, 1045 (5th Cir. 1991) (citing Musgrove v. Southland Corp., 898 F.2d 1041, 1043 (5th Cir. 1990)). Forest Oil construed one policy to the “full extent of its . . . coverage[]” because it lacked language that would provide coverage “only to the extent that [the insured] was contractually required to provide such insurance[,]” but construed another policy, which did express such language, as limited to the amount required by an underlying contract. Id. at 1044-45. 13 Principally, this language appeared in a contractor’s manual attached to the contract, and the manual stated that the parties’ contract “prevails in any conflict.” Musgrove, 898 F.2d at 1043-44. Alternatively, the panel held, the manual’s language gave the insured the prerogative, but not a duty, to purchase excess insurance on the other party’s behalf. Id. at 1044. 12 Case: 20-30364 Document: 00516171755 Page: 13 Date Filed: 01/19/2022 No. 20-30364 obtain excess liability coverage for [the other party.]” Id. at 1044 (citation omitted). As in this case, the insurance policy in Musgrove only covered additional insureds as “obligated” by an insured’s written contract. Id. at 1043. Further, the contract required CGL coverage “of not less than” a certain amount. Id. And this court enforced the policy as a limit on excess coverage notwithstanding additional insured language that, if applicable, would have required the company to be named “on all of the above insurance[.]” Id. at 1043-44. 14 BP relies heavily on a Georgia state court’s interpretation of a similar additional insured clause, which it describes as the only authority that construed the “all policies” language at issue in this appeal. See Ins. Co. of Pa. v. APAC-Se., Inc., 677 S.E.2d 734 (Ga. Ct. App. 2009). APAC is unpersuasive for several reasons. First, as we have explained, this court favors requiring insurance companies to cover only the minimum amount obliged by an underlying referenced contract when the policy contains similar language to the bumbershoot policies at issue here. That legal context influences our interpretation. Cf. 8 Couch on Insurance § 112:31 (2021) (recognizing that “[t]he phrase ‘additional insured’ is affected by 14 We recognize that, under Texas law, when two reasonable interpretations of an insurance policy exist the one favoring coverage should be preferred. Evanston Ins. Co. v. Legacy of Life, Inc., 370 S.W.3d 377, 380 (Tex. 2012) (citation omitted). This rule applies even where a policy incorporates another agreement by reference. Aubris Res. LP v. St. Paul Fire & Marine Ins. Co., 566 F.3d 483, 489 n.3 (5th Cir. 2009) (seeing “no reason why the special rules of insurance policy interpretation should not apply where, as here, the insurance policy’s additional insured endorsement incorporates section 10.2 by reference[]”). Nevertheless, in light of Ironshore, Forest Oil, and Musgrove, and the BP- O’Brien’s Contract itself, we find just one reasonable interpretation. See In re Deepwater Horizon, 470 S.W.3d 452, 464 (Tex. 2015) (“Disagreement about a policy’s meaning does not create an ambiguity if there is only one reasonable interpretation.”). 13 Case: 20-30364 Document: 00516171755 Page: 14 Date Filed: 01/19/2022 No. 20-30364 many sources: (1) definitions contained in the policy, (2) statutory definitions, and (3) case law that has applied the phrase to various fact patterns[]”). Second, the additional insured clause in APAC distinguished between “all policies” and “required insurance,” and the court characterized the latter term as “setting forth other duties placed upon [the named insured] relating to insurance procurement.” 677 S.E.2d at 739. No such distinction exists in the additional insured clause here. BP nonetheless emphasizes the phrase “required insurance coverage” in Section 11.07 of the BP-O’Brien’s Contract, a separate provision requiring insurance coverage of the parties’ mutual indemnity duties. BP would compare that language with the “all policies” language in Section 12.02. The comparison does not work; in APAC, the court’s interpretation relied on the fact that “all policies” and “required insurance” were “two different terms in short sequence within the same paragraph.” 15 Id. Finally, the APAC court held a narrow interpretation of “all policies” unlikely because it “would undermine [the named insured’s] ability to ensure that it meets its contractual obligation . . . .” to provide indemnification. Id. But, as just noted, that same concern is not present in the BP-O’Brien’s Contract, which separately requires coverage for the parties’ indemnity obligations and states that indemnity and insurance provisions are independent of each other. 15 Additionally, Articles 11 and 12 are completely different from the APAC provision. Section 11.07 used “required insurance coverage” to emphasize that the parties’ Article 11 “indemnity obligations” are “independent of” the Article 12 “insurance requirements.” Thus, the “all policies” language in Section 12.02 was intended to ensure BP was named an additional insured on the policies procured by O’Brien’s to satisfy its coverage obligations set forth in Section 12.01.03. 14 Case: 20-30364 Document: 00516171755 Page: 15 Date Filed: 01/19/2022 No. 20-30364 We conclude that the BP-O’Brien’s Contract, read in full, adopts the $2 million minimum CGL coverage as the maximum required to be furnished by each party for the benefit of the other and that Navigators’ bumbershoot policies incorporated the limit of the contractual obligation. 3. The Starr and COPS Policies Do Not Satisfy the Minimum Although the district court correctly concluded that BP was only an additional insured with respect to the $2,000,000 obligated by the BP- O’Brien’s Contract, it erred in concluding that amount was fully satisfied by the Starr and COPS policies (each bearing $1,000,000 coverage limits per occurrence). 16 BP is entitled to $2 million of coverage. The facts speak for themselves. The Starr policy provides CGL-type coverage but excludes pollution and professional liability coverage. The COPS policy fills that gap by covering pollution and professional liability. The two policies cover different sets of risks and each affords a single $1,000,000 layer of complementary CGL-type coverage per occurrence. Allowing Navigators, as it urges, to count the policies together would create an absurd result. A party could obtain primary CGL coverage, subject it to numerous exclusions, obtain separate policies covering only those exclusions, add the total together, and thus circumvent contractual minimum amount requirements. 17 We conclude, instead, that the Starr and COPS policies cannot be combined to meet the minimum CGL coverage 16 According to Navigators, the fact that the Starr and COPS policies are exhausted has no bearing on whether they count toward the minimum CGL coverage required by the BP-O’Brien’s Contract. BP does not dispute this point and thus concedes it. 17 The parties also dispute whether the COPS policy’s claims-made coverage for professional liability conflicts with the BP-O’Brien’s Contract’s requirement that minimum coverage limits be “per occurrence.” While this may provide another reason not to consider the COPS policy a separate CGL policy for purposes of complying with the minimum $2,000,000 coverage requirement, we need not reach it. 15 Case: 20-30364 Document: 00516171755 Page: 16 Date Filed: 01/19/2022 No. 20-30364 requirement. Together, they only constitute $1,000,000 of the $2,000,000 required by the BP-O’Brien’s Contract because they are mutually reinforcing policies designed to satisfy the same obligation by filling in each other’s gaps.