Anadarko Petroleum Corp. v. Hous. Cas. Co.

• Decision Date: 25 January 2019
• Docket Number: No. 16-1013,16-1013
• Citation: 573 S.W.3d 187
• Parties: ANADARKO PETROLEUM CORPORATION and Anadarko E & P Company, L.P., Petitioners, v. HOUSTON CASUALTY COMPANY, et al., Respondents
• Court: Texas Supreme Court

573 S.W.3d 187

ANADARKO PETROLEUM CORPORATION and Anadarko E & P Company, L.P., Petitioners,

v.HOUSTON CASUALTY COMPANY, et al., Respondents

No. 16-1013

Supreme Court of Texas.

Argued September 17, 2018

Opinion delivered: January 25, 2019

Rehearing Denied May 31, 2019

Cade Warren White, Westmoreland Hall PC, 2800 Post Oak Boulevard, Suite 6400, Houston, TX 77002, Glenn Richard Legge, Holman Fenwick Willan, USA LLP, 5151 San Felipe, Suite 400, Houston, TX 77056, Karen Ann Conticello, Legge Farrow Kimmitt, McGrath & Brown, L.L.P., 5151 San Felipe, Suite 400, Houston, TX 77057, Adam W. Aston, Sean D. Jordan Jackson Walker LLP, 100 Congress Ave., Suite 1100, Austin, TX 78701, Philip D. Nizialek Carver Darden Koretzky Tessier, Finn Blossman & Areaux LLC, 1100 Poydras Street, Suite 3100, New Orleans, LA 70163-1102, G. Andrew Veazey, Veazey Felder & Renegar, PO Box 80948, 2 Flagg PL., Lafayette, LA 70598, for Amicus Curiae.

Joe Michels Jr. The Michels Firm, PLLC, 250 Ed English Drive, Building 3, Suite A, The Woodlands, TX 77385, John D. Shugrue Kevin B. Dreher Reed Smith, LLP, 10 South Wacker Drive, 40th Floor, Chicago, IL 60606, Marie R. Yeates, Zachary J. Howe, Vinson & Elkins LLP, 1001 Fannin Street, Suite 2500, Houston, TX 77002-6760, Michael A. Heidler Vinson & Elkins L.L.P., 2801 Via Fortuna, Suite 100, Austin TX 78746-7568, for Petitioner.

Robert B. Dubose, Roger D. Townsend, Alexander Dubose, Jefferson & Townsend LLP, 1844 Harvard Street, Houston, TX 77008, Allyson Lind Wilkinson, George H. Lugrin IV, J. Clifton Hall III, Jeffrey T. Bentch, Neil E. Giles, William P. Maines, Hall Maines Lugrin, P.C., Williams Tower, 64th Floor, 2800 Post Oak Boulevard, Houston, TX 77056-6125, Charles T. Frazier Jr, Alexander Dubose, Jefferson & Townsend LLP, One Energy Square, 4925 Greenville Avenue, Suite 510, Dallas, TX 75206-4026, Rachel A. Ekery, Alexander Dubose, Jefferson & Townsend LLP, 515 Congress Avenue, Suite 2350, Austin TX 78701-3562, for Respondent.

Justice Boyd delivered the opinion of the Court.

The Deepwater Horizon drilling-rig incident has been called "the largest accidental marine oil spill in U.S. history."¹ After the initial blow-out and explosions claimed eleven lives, the waves of escaping oil "began a human, economic, and environmental disaster"² that "touched virtually every aspect of life on the Gulf of Mexico coast—and far beyond."³ Predictably, the lingering ripples include legal disputes over the responsible parties' liabilities and the extent to which insurance covers their losses.

A few years ago, we addressed issues affecting insurance covering the BP entities that held the majority interest in the Deepwater Horizon operation.⁴ Today's case involves insurance covering minority-interest owners, Anadarko Petroleum Corporation and Anadarko E & P Company, L.P. (collectively, Anadarko). The parties have resolved most of their disagreements and now focus solely on coverage for the legal fees and related expenses Anadarko incurred defending against liability and enforcement claims. Anadarko argues that the policy covers all of its defense expenses, up to the policy's $150 million excess-coverage limit. The policy's underwriters⁵ contend that a negotiated policy provision caps the excess coverage—including coverage for defense costs—at twenty-five percent of that limit. The trial court agreed with Anadarko, but the court of appeals agreed with the Underwriters. Because we conclude that the provision does not limit the excess coverage for defense expenses, we reverse the court of appeals' judgment, render judgment granting Anadarko's motion for partial summary judgment, and remand the case to the trial court for further proceedings.

I.Background

Pursuant to a joint-venture arrangement with BP entities and MOEX Offshore 2007 LLC, Anadarko held twenty-five percent of the ownership interest in the Macondo Well in the deep waters of the Gulf of Mexico. On April 20, 2010, during drilling operations from the Deepwater Horizon drilling rig, the well blew out. Over the ensuing months and years, numerous third parties filed claims against the BP entities, Anadarko, and MOEX, seeking damages for bodily injury, wrongful death, and property damage. Many of those claims were consolidated into a multi-district litigation (MDL) proceeding in the federal district court for the Eastern District of Louisiana. See In re Oil Spill by the Oil Rig "Deepwater Horizon" in the Gulf of Mexico, on April 20, 2010 , MDL 2179, 2016 WL 1394949 (E.D. La. Apr. 4, 2016). The federal government also pursued civil penalties under the Clean Water Act and a declaratory judgment of liability under the Oil Pollution Act of 1990.

The MDL court granted a declaratory judgment finding BP and Anadarko jointly and severally liable under the Oil Pollution Act. BP and Anadarko then reached a settlement agreement in which Anadarko agreed to transfer its twenty-five percent ownership interest to BP and pay BP $4 billion. In exchange, BP agreed to release any claims it had against Anadarko and to indemnify Anadarko against all other liabilities arising out of the Deepwater Horizon incident. In light of that agreement, the United States agreed not to pursue claims against Anadarko, and the MDL court entered an order approving that agreement. See id. , at *23. BP did not agree, however, to cover Anadarko's legal fees and other defense expenses, which Anadarko now contends total well over $100 million.

Before the incident, Anadarko purchased an "energy package" insurance policy through the Lloyd's London market.⁶ In section III, the policy provides excess-liability coverage limited to $150 million per occurrence.⁷ The Underwriters paid Anadarko $37.5 million under section III (twenty-five percent of the $150 million limit) based on Anadarko's twenty-five percent ownership in the joint venture that operated the Deepwater Horizon. Anadarko contends that the Underwriters must also pay all of Anadarko's defense expenses, up to section III's $150 million limit.

Unlike most general liability insurance policies,⁸ this policy does not require the Underwriters to defend Anadarko against liability claims. But it does require the Underwriters to reimburse Anadarko for expenses it incurs providing its own defense. Specifically, section III requires the Underwriters to "indemnify" Anadarko for its "Ultimate Net Loss," which section III defines as "the amount [Anadarko] is obligated to pay, by judgement or settlement, as damages resulting from an ‘Occurrence’ covered by this Policy, including the service of suit, institution of arbitration proceedings and all ‘Defence Expenses’ in respect of such ‘Occurrence.’ " [Emphases added.]⁹ Because "Ultimate Net Loss" includes "Defence Expenses," the Underwriters agree that section III covers the costs Anadarko incurred defending against third-party and government claims, up to section III's coverage limit.

The Underwriters contend, however, that an endorsement to section III reduces the $150 million limit when—as here—Anadarko's liability arises out of the operations of a joint venture in which Anadarko has an ownership interest. This endorsement—entitled "Joint Venture Provision"—contains three separate clauses. The first clause imposes a coverage limit based on Anadarko's percentage ownership in a joint venture from which its liability arises:

[A]s regards any liability of [Anadarko] which is insured under this Section III and which arises in any manner whatsoever out of the operation or existence of any joint venture ... in which [Anadarko] has an interest, the liability of Underwriters under this Section III shall be limited to the product of (a) the percentage interest of [Anadarko] in said Joint Venture and (b) the total limit afforded [Anadarko] under this Section III.

Based on the product of Anadarko's percentage interest in the Deepwater Horizon joint venture (25%) and the total coverage limit under section III ($150 million), the Underwriters contend that section III caps their excess-coverage liability at $37.5 million, which they have already paid to Anadarko.

The Joint Venture Provision's second clause provides an exception to the first clause's limit, which applies if Anadarko is contractually responsible for all of the joint venture's liability:

The Joint Venture Clause shall not apply to any liability of [Anadarko], when as a result of the circumstances of the Occurrence, the terms of the Joint Venture agreement place the whole of the liability of the Joint Venture on [Anadarko].

The third clause provides another exception, which applies if a court holds Anadarko legally liable for an amount greater than the amount reflecting Anadarko's twenty-five percent interest:

In the event [Anadarko] becomes legally liable in a court of competent jurisdiction for an amount greater than their proportionate ownership interest, Underwriters hereon agree to provide coverage to [Anadarko] to the extent the legal liability increases [Anadarko's] working interest percentage liability. If [Anadarko] becomes legally liable for a greater percentage than their ownership interest, the liability of Underwriters shall be the combination of [Anadarko's] working interest percentage ownership and the additional percentage(s) for which [Anadarko] becomes legally liable.

Anadarko agrees that the Joint Venture Provision reduces the amount the Underwriters must pay to cover Anadarko's joint-venture liabilities to third parties. So, for example, although Anadarko paid $4 billion to settle its third-party liabilities and section III limits excess coverage to $150 million, Anadarko agrees that the provision caps the excess coverage for the $4 billion payment at $37.5 million. Anadarko contends, however, that the Joint Venture Provision caps the excess coverage only for Anadarko's liabilities to third parties, and not for its "defence expenses." So in addition to the $37.5 million already paid, the Underwriters must still pay all of Anadarko's defense costs up to...