Evanston Ins. v. Atofina Petrochemicals

• Citation: 256 S.W.3d 660
• Decision Date: 13 June 2008
• Docket Number: No. 03-0647.,03-0647.
• Parties: EVANSTON INSURANCE COMPANY, Petitioner, v. ATOFINA PETROCHEMICALS, INC., Respondent.
• Court: Supreme Court of Texas

256 S.W.3d 660

EVANSTON INSURANCE COMPANY, Petitioner, v. ATOFINA PETROCHEMICALS, INC., Respondent.

No. 03-0647.

Supreme Court of Texas.

Argued April 13, 2005.

June 13, 2008.

Opinion Concurring in Part and Dissenting in Part February 15, 2008.

Henry S. Platts, Jeffery T. Nobles, Marcy Lynn Rothman, Brit T. Brown, Frank

Anthony Monago, Beirne Maynard & Parsons, L.L.P., John P. Abbey, Spagnoletti & Associates, Houston, TX, for Petitioner.

David M. Bays, Jack G. Carnegie, Tom Bayko, Jones Day, Houston, Wyatt D. Snider, Snider & Byrd, L.L.P., John Stephen Morgan, Lindsay & Morgan, PLLC Beaumont, Allyson Newton Ho, Baker Botts L.L.P., Dallas TX, for Respondent.

R. Kinnon Goleman, Virginia K. Hoelscher, Brown McCarroll, L.L.P., George S. Christian, Texas Civil Justice League, Austin, Robert M. Roach Jr., Cook & Roach, L.L.P., Houston, Thomas D. Caudle, P.C., Waxahachie, TX, for Amicus Curiae.

Justice GREEN delivered the opinion of the Court, in which Chief Justice JEFFERSON, Justice O'NEILL, Justice WAINWRIGHT, Justice BRISTER, Justice MEDINA, and Justice WILLETT joined, and in which Justice HECHT and Justice JOHNSON joined as to Parts I, II.A — II.D, and II.F.

Rehearing is granted. We withdraw the opinion and judgment previously issued in this case and substitute the following opinion.

In this case, we examine the interplay between a contractual indemnity provision and a service contract's requirement to name an additional insured. More particularly, we must decide whether a commercial umbrella insurance policy that was purchased to secure the insured's indemnity obligation in a service contract with a third party also provides direct liability coverage for the third party. In addition, we must decide whether the insurer is bound to pay the amount of an underlying settlement between the additional insured and a plaintiff. Finally, we must determine whether article 21.55 of the Texas Insurance Code, the "Prompt Payment of Claims" statute, authorized the imposition of penalties and attorney's fees for the insurer's failure to pay the claim timely. We conclude that the umbrella policy provides coverage for liabilities arising from the additional insured's sole negligence, that the settlement agreement binds the insurer to the amount recited therein, and that the additional insured is not entitled to penalties for untimely payment of claims. We affirm the judgment of the court of appeals to the extent that it resolves the coverage dispute in favor of the additional insured, and to the extent that it binds the insurer to the amount recited in the settlement agreement, but we reverse the court of appeals' judgment regarding damages and attorney's fees under article 21.55 because the additional insured is not entitled to recovery of such damages and fees.

I

ATOFINA Petrochemicals, Inc.¹ contracted with Triple S Industrial Corporation to perform maintenance and construction work at ATOFINA's Port Arthur refinery. The service contract contained an indemnity provision and a requirement that Triple S carry certain minimum levels of liability insurance coverage. Triple S agreed to indemnify ATOFINA from all personal injuries and property losses sustained during the performance of the contract, "except to the extent that any such loss is attributable to the concurrent or sole negligence, misconduct, or strict liability of [ATOFINA]." Triple S also agreed to carry at least $500,000 of primary comprehensive general liability (CGL) insurance, "[i]ncluding coverage for contractual liability insuring the indemnity agreement," and an excess (or "umbrella") liability policy "following form for [the CGL policy]" of at least $500,000. Finally, the contract required Triple S to furnish certificates of insurance to ATOFINA evidencing the required insurance coverages and showing ATOFINA as an additional insured on the policies. Triple S complied with its contract obligations by purchasing a $1 million CGL policy from Admiral Insurance Company and a $9 million commercial umbrella policy from Evanston Insurance Company, and by furnishing the required certificates of insurance.

Matthew Todd Jones, a Triple S employee working at the ATOFINA facility pursuant to his employer's contract with ATOFINA, drowned after he fell through the corroded roof of a storage tank filled with fuel oil. Jones's survivors sued Triple S and ATOFINA for wrongful death. Admiral tendered its $1 million policy limits. ATOFINA then demanded coverage from Evanston as an additional insured under the umbrella policy. Evanston denied the claim, and ATOFINA brought Evanston into the case as a third-party defendant for a declaration of coverage. ATOFINA then severed its suit against Evanston from the remainder of the Jones litigation. Both ATOFINA and Evanston moved for partial summary judgment in the severed action. While the motions were pending, the Jones case was settled for $6.75 million. ATOFINA seeks to recover from Evanston the $5.75 million not covered by Admiral.

The trial court granted summary judgment in favor of Evanston. The court of appeals reversed the judgment, holding that the Evanston policy covered ATOFINA, and remanded the case to the trial court for determination of statutory penalties and attorney's fees.²

II

Evanston argues it should not have to indemnify ATOFINA for its contribution to the Jones settlement for several reasons. First, it says ATOFINA agreed in its service contract with Triple S that it would not seek indemnification for losses resulting from its own negligence. Evanston says the language of its policy similarly excludes coverage for such losses caused by ATOFINA's negligence. The umbrella policy was a "following form" policy as required by the service contract, meaning that its coverage was no broader than the underlying policy, which identified ATOFINA as an additional insured "only with respect to liability arising out of [Triple S's] ongoing operations performed for [ATOFINA], but in no event for [ATOFINA's] sole negligence." Second, Evanston says this court's decision in Fireman's Fund Insurance Co. v. Commercial Standard Insurance Co.³ precludes ATOFINA from obtaining a judgment for insurance proceeds based on losses arising from its own negligence.⁴ Finally, Evanston says the Jones settlement amount was unreasonable and is thus unenforceable. We address these arguments in turn.

A

In its service contract with Triple S, ATOFINA disclaimed any right of indemnity for losses "attributable to [its] concurrent or sole negligence." Under the terms of the service contract, ATOFINA is not entitled to be indemnified by Triple S if the Jones loss was occasioned in any way by ATOFINA's negligence. But ATOFINA does not seek indemnity from Triple S; it claims instead that it is entitled to indemnification from Evanston by virtue of its status as an additional insured on the umbrella policy Evanston issued to Triple S.⁵ Instead of looking, as the court of appeals did, to the indemnity agreement in the service contract to determine the scope of any coverage, we base our decision on the terms of the umbrella insurance policy itself.

In support of its insured status, ATOFINA points to part III of the Evanston policy, which defines who is an insured. Section III.B.6 states that an insured includes:

A person or organization for whom you have 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.

ATOFINA claims it is fully covered as an insured by virtue of this paragraph because it is a "person or organization for whom [Triple S has] agreed to provide insurance," because the Evanston policy is the kind of insurance that was intended to secure that obligation, and because the loss "respect[ed] ... operations performed by [Triple S]."

But Evanston counters that ATOFINA fails to qualify as an additional insured under section III.B.6 because the language does not cover an additional insured for its own negligence. Although no fact finding has been made regarding who was responsible for Jones's death, Evanston contends that because Jones's death was caused solely by ATOFINA's negligence, the death did not "respect ... operations performed by [Triple S]."

The courts of appeals have confronted these additional insured provisions on several occasions, producing divergent results. Like Triple S's policy, the insured contractor's policy in Granite Construction Co. v. Bituminous Insurance Cos.⁶ provided for additional insurance "only with respect to liability arising out of operations performed for such insured."⁷ Granite adopted a fault-based interpretation of "arising out of operations," recognizing coverage only if an insured's wrongful act during the operation caused the injury.⁸ The Granite court held that the claim did not "aris[e] out of operations performed by" the insured because only the additional insured company was responsible for the injury.⁹

The First and Third Courts of Appeals reached different results under a more liberal causation theory of additional insured provisions. In those cases, the additional insured provisions created coverage only "with respect to liability arising out of" the named insured's operations, and in both cases the claimants alleged that the additional insured companies acted negligently.¹⁰ In Admiral Insurance Co. v. Trident NGL, Inc., the court concluded:

[B]ecause the accident in this case occurred to a[n] [insured's] employee while the employee was on the premises for the purpose of performing preventive maintenance on the compressor that exploded, the alleged liability for the employee's injuries "arose out of [the insured's] operations," and, therefore, was covered by the "additional insured" provision.¹¹

The court in McCarthy Brothers Co. v. Continental Lloyds Insurance Co. applied a similar theory to find that a worker's...