Texas Supreme Ct.: Exxon Covered by Contractor’s Excess Insurers

April 18, 2023

Two excess insurers may be liable for the more than $20 million that ExxonMobil Corp. paid to settle lawsuits filed by a contractor’s employees who were badly burned while working at an Exxon refinery, the Texas Supreme Court ruled.

The high court on Friday reversed a judgment by the Court of Appeals that held Exxon was not an insured under excess policies that Savage Refinery Services had purchased in addition to a general commercial liability policy.

While the Court of Appeals ruled that a service agreement between Exxon and Savage limited coverage to $2 million, the high court’s 6-0 decision says the agreement stipulated a minimum amount of coverage, not a maximum.

“Whether Savage had to buy as much insurance as it did is beside the point,” the opinion says. “What matters is that it did obtain that insurance.”

Exxon hired Savage to operate its refinery in Baytown, Texas. The agreement required Savage to provide Exxon with at least $2 million in insurance coverage for any injuries, deaths or property damage.

Savage purchased five insurance policies. National Union Fire Insurance Co. underwrote two of them — a primary general commercial liability policy and an umbrella policy that paid losses in excess of the primary. Starr Indemnity & Liability Insurance Co. issued another excess policy.

Two Savage employees were burned when hot water and stream was accidentally released from coker drums at the refinery. One of the workers’ filed a personal injury lawsuit against Exxon and Exxon reached an out-of-court settlement with the other injured employee.

Savage’s primary insurers paid about $5 million toward the settlements, but Exxon paid an additional $20,087.29 out of pocket. The oil company then sued National Union and Starr for breach of contract.

The 125th District Court in Harris County ruled that National Union must pay, but not Starr. A panel of the 1st District Court of Appeals, however, reversed that decision. The three-judge panel found that the service agreement required Savage to provide only commercial general liability coverage, not the excess insurance offered by the National Union and Starr policies.

After Exxon appealed to the Supreme Court, the Texas Oil and Gas Association, the International Association of Drilling Contractors and the Texas Civil Justice League filed amicus briefs in support of its position. The drilling contractors said the Court of Appeals’ ruling “alters previously-clear obligations in drilling contracts that have been accepted and understood in the oil and gas and insurance industries for decades.”

In its opinion, the Supreme Court said the Court of Appeal’s ruling also violates a longstanding principle of Texas insurance law: If outside documents are included in an insurance contract, they must be clear and “leave no doubt of the intention of the parties.”

The opinion says the National Union policy expressly covers any person or organization that is named as an additional insured by the primary policy. The policy specifically disclaims coverage that is “broader” than that offered by the primary policy.

The Supreme Court said the Court of Appeals erred by deciding that Exxon was asking for “broader coverage” because the limits of the primary policy had already been exhausted.

The court said the excess policy makes no mention of payout limits in the primary policy or the “type” of insurance that must be offered. The court said such an interpretation defeats the purpose of excess insurance, which pays out only when the limits of a primary policy are exhausted.

“We could embrace such a result only if the language the parties used clearly required it,” the opinion says.

The Supreme Court held that ExxonMobil is an insured for both the National Union and Starr policies. It reversed the Court of Appeals and remanded the case to the Court of Appeals for further proceedings.

The opinion says the Court of Appeals can consider “district arguments” made by Starr when it reconsiders the case.

About the photo: Flames and smoke rise after a fire started at an Exxon Mobil facility, Wednesday, July 31, 2019, in Baytown, Texas (Jon Shapley/Houston Chronicle via AP)

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