Opinion ID: 2831457
Heading Depth: 2
Heading Rank: 1

Heading: Applicable Policy-Construction Principles

Text: Determining whether BP’s additional-insured coverage is coextensive with Transocean’s coverage necessarily begins with the four corners of the policies. See ATOFINA, 256 S.W.3d at 664. As the parties acknowledge, Transocean’s insurance policies contain no language explicitly limiting the scope of additional-insured coverage. However, we have long held insurance policies can incorporate limitations on coverage encompassed in extrinsic documents by reference to those documents. See id. at 667 (addressing a “following form” excess-insurance policy that restricted coverage by reference to scope of underlying liability policy); Urrutia, 992 S.W.2d at 441, 443 (rental agreement was effectively “written into” insurance policy by virtue of endorsement language extending additional-insured status to insured’s customers “to the extent and for the limits of liability agreed to under [the rental agreement]”). We do not require “magic” words to incorporate a restriction from another contract 9 into an insurance policy; rather, it is enough that the policy clearly manifests an intent to include the contract as part of the policy. See Urrutia, 992 S.W.2d at 442-43 (finding insurance policy’s reference to rental agreement “explicit” enough to clearly indicate parties’ intent to include agreement as part of insurance policy); see also Owen v. Hendricks, 433 S.W.2d 164, 166 (Tex. 1968) (for purposes of incorporation by reference “[t]he language used is not important provided the [contract] plainly refers to another writing”). Thus, while our inquiry must begin with the language in an insurance policy, it does not necessarily end there. In other words, we determine the scope of coverage from the language employed in the insurance policy, and if the policy directs us elsewhere, we will refer to an incorporated document to the extent required by the policy. Unless obligated to do so by the terms of the policy, however, we do not consider coverage limitations in underlying transactional documents. Our application of these foundational principles in Urrutia and ATOFINA guides our analysis of the policies and Drilling Contract at issue here. In Urrutia, we construed an insurance policy that referred to another document to identify who was an additional insured and the extent of coverage under the policy. 992 S.W.2d at 441 & n.1. The issue was whether a vehicle rental agreement was effective to limit an additional insured’s liability insurance to $20,000 instead of the $1 million policy limits available under the leasing company’s commercial-business automobile policy. Id. at 441. The policy covered “[b]oth lessees and rentees of covered autos as insureds, but only to the extent and for the limits of liability agreed to under contractual agreement with the named insured.” Id. Given the language in the policy, a customer’s status as an additional insured depended on the existence of a rental agreement, and coverage was expressly limited to the amount specified in 10 such agreement. See id. at 443. We therefore held that the insurance policy incorporated the rental agreement and that the rental agreement, in turn, limited the customer’s liability protection to $20,000. Id. at 443-44 (“An insurer may validly agree to add as an additional insured ‘any person or organization to which the named insured is obligated by virtue of a written contract to provide insurance.’ Such an endorsement also ‘may provide lower coverage limits to the additional insured than to the named insured.’” (quoting 21 DORSANEO , TEXAS LITIGATION GUIDE § 341.07[2][h] at 341–57-58) (July 1998))). As Urrutia demonstrates, an insurance policy may incorporate an external limit on additional-insured coverage. In such cases, the external limit is, in effect, an endorsement to the insurance policy that “suppl[ies] the limits of coverage and extend[s] those benefits to the customer identified therein as accepting the [insured’s] offer of insurance.” Id. at 443. By tying additionalinsured coverage to the terms of an underlying agreement, the parties procure only the coverage the insured is contractually obligated to provide, thereby minimizing the insurer’s exposure under the policy and the named insured’s premiums. See id. (“The endorsement . . . allowed [the insured] to determine in the rental contracts themselves which customers would be insured and the amount of their respective coverage.”). ATOFINA, on the other hand, recognizes that a named insured may gratuitously choose to secure more coverage for an additional insured than it is contractually required to provide. This occurs when the language of an insurance policy does not link coverage to the terms of an agreement to provide additional-insured coverage. In that event, only coverage restrictions embodied in the policy will be given effect. As discussed below, ATOFINA involved one coverage provision that was tied to the terms of another agreement and one coverage provision that was limited only by the 11 terms of the policy itself. In ATOFINA, Triple S Industrial Corp. contracted to perform maintenance and construction work at an ATOFINA refinery under a service contract that contained separate indemnity and insurance provisions. 256 S.W.3d at 662. Triple S agreed to indemnify ATOFINA for personalinjury and property loss that was not due to ATOFINA’s concurrent or sole negligence, misconduct, or strict liability. Id. Triple S also agreed to carry $500,000 of commercial general liability (CGL) insurance, “‘[i]ncluding coverage for contractual liability insuring the indemnity agreement,’” and $500,000 in excess insurance that followed the form of the CGL policy. Id. at 662-63. Triple S was also obligated to furnish certificates of insurance naming ATOFINA as an additional insured. Id. at 663. Triple S complied with its service-contract obligations by securing a $1 million CGL policy and a $9 million excess policy and furnishing the required certificates. Id. When a Triple S employee drowned at the refinery, his survivors sued Triple S and ATOFINA. Id. Triple S’s CGL insurer tendered its $1 million limit to settle the suit, but the excess insurer denied ATOFINA coverage. Id. In determining the existence and extent of coverage, we considered two independent coverage provisions in the excess-insurance policy. Id. The first provision (section III.B.6) extended coverage to “[a] person or organization for whom [the insured has] 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.” Id. at 664. The insurer asserted that the accident did not respect Triple S’s operations because ATOFINA’s sole negligence caused the accident. Id. We disagreed. In doing so, we distinguished between Triple S’s indemnity obligation under the contract and the insurer’s indemnity obligation under the terms 12 of the excess policy because the insurer’s obligation depended on what it contracted to do, not what the insured contracted with another person to do. Although the underlying service contract did not require Triple S to indemnify ATOFINA for ATOFINA’s negligence, we concluded that the insurance policy neither included nor incorporated a similar limitation. Id. at 663, 666-67. Rather, the only restriction on the scope of additional-insured coverage under section III.B.6 was the requirement that the claims involve Triple S’s operations or facilities. Id. Because the accident was related to Triple S’s operations, the claim for which ATOFINA sought coverage was within the scope of the coverage afforded under section III.B.6 of the policy without regard to ATOFINA’s culpability. Id. The existence of a certificate of insurance naming ATOFINA as an additional insured meant that, unlike Urrutia and the present case, there was no need to look to the underlying service contract to ascertain ATOFINA’s status as “[a] person or organization for whom you have agreed to provide insurance as is afforded by this policy.” See id. at 663. Here, at a minimum, the Transocean insurance policies require reference to the underlying Drilling Contract to determine BP’s status as an additional insured. Moreover, section III.B.6 of the policy in ATOFINA made no reference to the service contract in determining the scope of additional-insured coverage, while the Transocean policies refer to an “Insured Contract” that requires Transocean to provide the insurance as a predicate to status as an “Insured.” The significance of these distinctions is supported by our analysis of a second insurance provision at issue in ATOFINA. That provision (section III.B.5) defined an insured as “[a]ny other person or organization who is insured under a policy of ‘underlying insurance’” but stated that “[t]he coverage afforded such insureds under this policy will be no broader than the ‘underlying insurance’ 13 except for this policy’s Limit of Insurance.” Id. at 667. We concluded that III.B.5 encompassed a narrower extension of coverage because it expressly incorporated limits on coverage by reference to the underlying CGL policy. We enforced section III.B.5 as written, and because the underlying CGL policy excluded losses caused by ATOFINA’s sole negligence, we held that limitation also applied to the excess policy. Id. at 667 & n.24. Our analysis of this second provision affirms the principle from Urrutia that an insurance policy may refer to another document to determine the extent to which an additional insured is covered. ATOFINA embodies several principles that are pertinent to the matter at hand. First, it is possible for a named insured to purchase a greater amount of coverage for an additional insured than an underlying service contract requires. Second, the scope of indemnity and insurance clauses in service contracts is not necessarily congruent. Third, and most importantly, we rely on the policy’s language in determining the extent to which, if any, we must look to an underlying service contract to ascertain the existence and scope of additional-insured coverage. In addition to ATOFINA, BP asserts that in form, two other cases impact the relevant analytical framework. The first case on which BP relies is Aubris Resources LP v. St. Paul Fire & Marine Insurance Co., 566 F.3d 483 (5th Cir. 2009). In Aubris, an insurance policy provided that “[a]ny person . . . that you agree in a written contract for insurance to add as an additional protected person under this agreement is also a protected person . . . if that written contract for insurance specifically requires such coverages for that person . . . .” Id. at 487 (emphasis omitted). As directed by the insurance policy, the court turned to the additional-insured obligation in the underlying contract, which provided that the “extension of [additional-insured] coverage shall not apply with respect to any obligations for which [the owner] has specifically agreed to indemnify Contractor.” 14 Id. (bolding omitted, emphasis added). Although the underlying contract included a general indemnity provision, the Aubris court construed the term “specifically agreed” to mean an extracontractual agreement to provide indemnification for the specific claim against the owner. Id. at 489-90. Because the owner and contractor reached no extra-contractual indemnity agreement specifically related to the litigation in question, the court held that the owner was an additional insured whose coverage was not restricted by the indemnity allocation in the contract. Id. at 490. BP presents Aubris for the proposition that when indemnity and insurance agreements in an underlying contract are separate, the contractual-indemnity provision does not limit the additionalinsured obligation or the scope of coverage afforded thereunder. In actuality, Aubris adhered to Urrutia and ATOFINA by looking to the language of the underlying contract (to the extent the insurance policy required) to determine whether there was any limit on additional-insured coverage. See id. at 487 (observing that the court “consider[ed] the relationship between and among the policy, the additional insured provision in the services agreement, and the indemnity provision in the services agreement”). Having done so, it determined that there simply was no limitation in the contract that was applicable to the additional-insured’s coverage demand. Here, the parties disagree about the precise construction of the additional-insured provision in the Drilling Contract, but unlike Aubris, whatever limitation exists is entwined with the “liabilities [Transocean] assumed . . . under the terms of this Contract.” The other case BP cites is Pasadena Refining System, Inc. v. McRaven, Nos. 14-10-00837CV, 14-10-00860-CV, 2012 WL 1693697 (Tex. App.—Houston [14th Dist.] May 15, 2012, pet. dism’d by agr.). There, an additional-insured endorsement extended coverage to “[a]ny person or organization . . . for whom the named insured . . . has specifically agreed by written contract to 15 procure bodily injury . . . insurance,” but restricted such coverage to “liability arising out of the work done by or on behalf of the named insured.” Id. at . Pursuant to a service agreement between the contractor and the refinery premises owner, the contractor was required to add the owner as an additional insured but “only to the extent [the premises owner] is indemnified by CONTRACTOR under the terms of the contract.” Id. In declining to apply the service agreement’s indemnity limitation to the insurance policy, the court held that the policy language was unambiguous and neither contained nor incorporated a restriction on additional-insured coverage tied to the indemnity obligations in the service agreement. Id. at -17.12 Unlike the policy language in Pasadena, the Transocean policies require that the additional-insured obligation arise from a contract involving an indemnity agreement and specify that additional-insured coverage is extended as “obliged” and “where required” therein. Contrary to any suggestion otherwise, the foregoing authority cannot be interpreted as excluding from consideration restrictions on the scope of additional-insured coverage contained in a contract that has been incorporated into the terms of an insurance policy. Rather, this authority affirms the principle that we must consider the terms of an underlying contract to the extent the policy language directs us to do so. See, e.g., Urrutia, 992 S.W.2d at 442. 12 In what appears to be an alternative holding, or dicta, the court concluded that the contractual-indemnity obligation was separate and independent from the contractual obligation to extend additional-insured coverage because the service agreement did not require the contractor to obtain insurance to secure its indemnity obligation. Id. at . In comparison to the service agreement at issue in Pasadena Refining, the Drilling Contract links Transocean’s duty to insure to its duty to indemnify by requiring Transocean to obtain “Comprehensive General Liability Insurance, including contractual liability insuring the indemnity agreement as set forth in the Contract.” Thus, language the court evidently found to be lacking in Pasadena Refining is present here. Somewhat relatedly, BP contends that the Insurers cannot rely on the indemnity allocation in the Drilling Contract because they are not third-party beneficiaries to it. But Transocean is a named party to the Drilling Contract and has intervened in this dispute. Moreover, BP cites no authority requiring that both parties to a contract that incorporates another document by reference be parties to the referenced document. 16