Cameron Int'l Corp. v. Liberty Ins. Underwriters, Inc. (In re Deepwater Horizon)

• Decision Date: 19 November 2015
• Docket Number: No. 14–31321.,14–31321.
• Citation: 807 F.3d 689
• Parties: In re DEEPWATER HORIZON Cameron International Corporation, Plaintiff–Appellant–Cross–Appellee v. Liberty Insurance Underwriters, Incorporated, also known as Liberty International Underwriters, Defendant–Appellee–Cross–Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

807 F.3d 689

In re DEEPWATER HORIZON

Cameron International Corporation, Plaintiff–Appellant–Cross–Appellee

v.Liberty Insurance Underwriters, Incorporated, also known as Liberty International Underwriters, Defendant–Appellee–Cross–Appellant.

No. 14–31321.

United States Court of Appeals, Fifth Circuit.

Nov. 19, 2015.

Mitchell J. Auslander (argued), Jeffrey B. Korn, Willkie Farr & Gallagher, L.L.P., New York, N.Y., Carmelite M. Bertaut, Abigayle Clary McDowell Farris, Phillip A. Wittmann, Stone Pigman Walther Wittmann, L.L.C., New Orleans, LA, for Plaintiff–Appellant–Cross–Appellee.

Christopher Weldon Martin (argued), Kevin Graham Cain, Esq., Robert G. Dees, Esq., Levon G. Hovnatanian, Martin, Disiere, Jefferson & Wisdom, L.L.P., Houston, TX, Judy Y. Barrasso, Catherine Fomias Giarrusso, Esq., Celeste Ruth Coco–Ewing, Esq., Barrasso, Usdin, Kupperman, Freeman & Sarver, L.L.C., New Orleans, LA, for Defendant–Appellee–Cross–Appellant.

Appeals from the United States District Court for the Eastern District of Louisiana.

Before STEWART, Chief Judge, and CLEMENT and ELROD, Circuit Judges.

EDITH BROWN CLEMENT, Circuit Judge:

This is an insurance dispute arising out of the Deepwater Horizon oil spill. Liberty Insurance Underwriters, Inc. ("Liberty"), appellee-cross-appellant here, insured Cameron International Corporation ("Cameron"), appellant-cross-appellee here and the manufacturer of the blowout preventer used on Deepwater Horizon , for potential losses associated with the blowout preventer. After the spill, Cameron settled with BP, the well owner, and sought the policy benefits from Liberty to help cover the settlement costs. For a number of reasons, Liberty refused to pay, so Cameron sued. The district court granted summary judgment for Cameron on its breach of contract action, granted summary judgment for Liberty on Cameron's claim under the Texas Insurance Code, and denied Cameron's motion for attorney's fees. Both parties appealed.

CERTIFICATION FROM THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT TO THE SUPREME COURT OF TEXAS, PURSUANT TO ART. 5, § 3–C OF THE TEXAS CONSTITUTION AND RULE 58.1 OF THE TEXAS RULES OF APPELLATE PROCEDURE TO THE SUPREME COURT OF TEXAS AND THE HONORABLE JUSTICES THEREOF:

I.

This case turns, in part, on a complicated arrangement of indemnification between some of the parties involved in the spill. BP (a nonparty here) owned the Macondo oil well and the lease on the continental shelf. BP contracted with Transocean (also a nonparty here), which owned Deepwater Horizon , to drill the well, and to indemnify¹ Transocean for liability associated with drilling. Cameron manufactured and sold Transocean the blowout preventer connecting the rig to the well, and Transocean indemnified Cameron for liability associated with the blowout preventer. In short, Cameron was indemnified by Transocean, which was in turn indemnified by BP.

Cameron did not rely solely on indemnification to protect itself. It created an insurance "tower" of $500 million in coverage by purchasing insurance from various insurers. Those insurance policies covered the risk that Cameron would incur liability as the blowout preventer's manufacturer. The first $25 million in losses would be covered by one insurer, the next $25 million in losses would be covered by another, and so forth.² Liberty sold Cameron a policy covering the $50 million in losses between the first $100 million and $150 million in losses. In other words, Liberty's $50 million policy was excess of the policies covering the first $100 million in losses, and Cameron obtained other policies that were excess of Liberty's policy.

Like many insurance policies, Liberty's policy incorporated a subrogation clause. That clause provided that if Cameron could recover from a third party some or all of the losses paid under the policy, Cameron would transfer the rights to recover to Liberty, "do nothing after loss to impair these rights," and "help [Liberty] enforce them." For example, if Liberty paid Cameron $50 million for a covered loss, and a third party was potentially liable to Cameron for that same loss, Liberty would assert Cameron's rights against that third party and receive any recovery up to the amount Liberty paid Cameron.

After the spill, thousands of lawsuits were filed against BP, Transocean, Cameron, and others. Cameron sought indemnity (for its potential liability for pollution) from Transocean under the sales contract, and Transocean refused; Cameron thus sued Transocean, and Transocean counterclaimed. Transocean, in turn, sought indemnity from BP under its drilling contract, and BP refused; Transocean and BP thus also sued each other. And BP sued Cameron, claiming that, as the manufacturer of the blowout preventer, Cameron was responsible for the losses that BP incurred.

As well as seeking indemnification from Transocean, Cameron notified Liberty after the spill of a potential loss covered by the policy. Initially, Liberty neither rejected nor paid Cameron's claim.

Following extensive litigation, BP and Cameron began to discuss settlement. The parties soon developed a framework for that settlement: BP would indemnify Cameron in exchange for $250 million,³ but only if Cameron's insurers agreed to waive their subrogation rights and Cameron agreed to waive its indemnification rights against Transocean. Otherwise, BP feared, Cameron's insurers would cover Cameron's settlement costs, then step into Cameron's shoes and sue Transocean for indemnification, which would in turn sue BP for indemnification—for the very $250 million that BP just received. Why, in other words, would BP settle for a payment from Cameron that Cameron would ultimately recoup—albeit in a circuitous fashion—from BP?

Alone among Cameron's insurers, Liberty objected to the settlement and declined to offer its policy limits of $50 million. Liberty did not agree to a settlement that waived its subrogation rights and Cameron's indemnification rights against Transocean, leaving Liberty on the hook for $50 million. Liberty also pointed out another clause in its policy that, in its view, meant that its obligation to pay had not yet been triggered: the Other Insurance Clause. That clause provided that "[i]f other insurance applies to a ‘loss' that is also covered by this policy, this policy will apply excess of such other insurance." In turn, the policy defined "other insurance" as "any type of self-insurance, indemnification or other mechanism by which an Insured arranges for funding of legal liabilities." Liberty argued that because Cameron had not yet exhausted its legal remedies against Transocean, "other insurance"—namely, Transocean's indemnification—"applie[d]" to the loss, so Liberty's policy was excess of that other insurance. Cameron disputed this interpretation.

Seeking to assuage Liberty's concerns about subrogation, Cameron and BP inserted additional language into the settlement purportedly preserving Liberty's subrogation rights. Then—despite Liberty's refusal to contribute its policy limits—Cameron went ahead with the settlement, putting up $50 million of its own money in addition to the $200 million its other insurers contributed.

Because Liberty continued to refuse to offer its policy limits, Cameron filed this suit, asserting claims for breach of contract and for violations of the Texas Insurance Code. Liberty moved under Rule 12(c) for judgment on the pleadings, but the district court denied most of that motion. On cross-motions for summary judgment, the district court granted Cameron a $50 million judgment on its breach of contract action. But the district court granted judgment in favor of Liberty on Cameron's Texas Insurance Code claims and, in a later order, denied Cameron's request for attorney's fees incurred in this action.

Cameron appealed the district court's judgment against it on its claim under Chapter 541 of the Texas Insurance Code and on its claim for attorney's fees. Liberty cross-appealed the district court's judgment in favor of Cameron on its breach of contract claim.

II.

This court reviews de novo the district court's grants of summary judgment. Morris v. Equifax Info. Servs., LLC, 457 F.3d 460, 464 (5th Cir.2006). Summary judgment is proper if "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). The parties do not dispute that Texas law applies to this diversity case. See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938).

III.

Liberty contends that the district court erred in granting Cameron's motion for partial summary judgment (and in denying Liberty's cross-motion for partial summary judgment) on its breach of contract claim. First, Liberty argues that Cameron is not entitled to recover under the policy because the Other Insurance Clause makes the policy apply only in excess of Cameron's (unexhausted) indemnity claim against Transocean. Second, Liberty argues that Cameron, not Liberty, breached the policy by impairing Liberty's subrogation rights in the BP settlement. We address each argument in turn.

a.

To begin with, it is undisputed that the policy covers the loss that Cameron suffered. But Liberty, pointing to the Other Insurance Clause, contends that because Cameron has an indemnification agreement with Transocean, "other insurance" "applies" to that loss. Thus, argues Liberty, Cameron is not yet entitled to coverage because Cameron has not exhausted that indemnification or obtained a judicial determination that it is not entitled to indemnification. Cameron responds that its disputed indemnity claim against Transocean does not "appl[y]" to its loss because Transocean refused Cameron's demands for indemnification. Cameron also argues that its disputed indemnity claim against Transocean does not constitute "other insurance" at all.

To refresh, the Other Insurance Clause provides that "[i]f other insurance applies to a ‘loss' that is also covered by this policy,...