L-Con, Inc. v. CRC Ins. Servs., Inc.

• Decision Date: 10 August 2015
• Docket Number: Civil Action No. 4:13–CV–1526.
• Citation: 122 F.Supp.3d 627
• Parties: L–CON, INC., Plaintiff, v. CRC INSURANCE SERVICES, INC. f/k/a Crump Insurance Services, Inc., et al., Defendants.
• Court: U.S. District Court — Southern District of Texas

122 F.Supp.3d 627

L–CON, INC., Plaintiff,

v.CRC INSURANCE SERVICES, INC. f/k/a Crump Insurance Services, Inc., et al., Defendants.

Civil Action No. 4:13–CV–1526.

United States District Court, S.D. Texas, Houston Division.

Signed Aug. 10, 2015.

As Amended Aug. 24, 2015.

Cynthia Reba Levin–Moulton, Moulton, Wilson & Arney, LLP, Levi James Benton, Levi Benton & Associates PLLC, Houston, TX, for Plaintiff.

Richard Hunt Gateley, Brackett & Ellis, Fort Worth, TX, R. Brent Cooper, Cooper Scully PC, Donald A. Waltz, Kane Russell Coleman & Logan PC, Dallas, TX, Robin K. Johnston, Heath, TX, Robert Patrick Ray, Frilot LLC, New Orleans, LA, for Defendants.

AMENDED MEMORANDUM OPINION AND ORDER

KENNETH M. HOYT, District Judge.

I. INTRODUCTION

In this insurance coverage dispute, L–Con, Inc. ("L–Con") sues its excess/umbrella carrier, Interstate Fire & Casualty Company ("Interstate"), and its insurance brokers, Regions Insurance, Inc. ("Regions") and CRC Insurance Services, Inc. f/k/a Crump Insurance Services, Inc. ("CRC"). In its Second Amended Complaint, L–Con seeks a declaration requiring Interstate to defend, on an additional insured basis, Oiltanking Holding Americas, Inc. and its affiliates (collectively, "Oiltanking") against certain claims brought by L–Con employees in a separate lawsuit (ECF No. 90). By third-party complaint against Oiltanking and its insurers, Certain Underwriters at Lloyds of London ("London Insurers"), Interstate seeks a declaration that additional insured coverage is not available to Oiltanking under its excess policy (ECF No. 98). To the extent that coverage is available, Interstate alternatively claims that the London Insurers must share the responsibility of defending Oiltanking. The injured L–Con employees and/or their families have intervened, aligning themselves with Interstate (ECF No. 30).

The parties have filed cross-motions for summary judgment (ECF Nos. 102, 104, 110) as well as a bevy of responsive briefing. Based on these submissions, the record and the applicable law, the Court determines that summary judgment should be GRANTED in favor of L–Con, Regions and CRC. Summary judgment is GRANTED and DENIED in part with respect to the remaining parties.

II. FACTUAL AND PROCEDURAL BACKGROUND

A. The June 2, 2012 Explosion and the Underlying Lawsuit

L–Con is a Houston-based engineering and construction firm. Oiltanking, a long-time customer of L–Con, owns and operates a tank facility at the Houston Ship Channel. On June 2, 2012, while L–Con employees were welding at the facility, an explosion occurred tragically killing one employee and injuring several others. The injured employees, their families, and the survivors of the deceased employee (collectively, the "state court plaintiffs" or "Intervenors") sued Oiltanking in Texas state court for wrongful death and personal injuries related to the explosion ("Underlying Suit"). On or about November 22, 2013, after a jury trial, a $21 million judgment was entered against Oiltanking and in favor of the state court plaintiffs.¹ L–Con's primary insurer, American Contractors Insurance Company Risk Retention Group ("ACIG"), accepted defense of Oiltanking in that suit. Subsequently, L–Con filed a state court declaratory judgment action seeking coverage for Oiltanking. The action was later removed to this Court based on diversity of citizenship, pursuant to 28 U.S.C. §§ 1332(a), 1441.

B. The L–Con/Oiltanking Master Service Agreement

At the time of the explosion, L–Con was performing terminal maintenance work for Oiltanking under a Master Service Agreement ("MSA").² Section 13(A) of the MSA required L–Con to provide insurance

to cover all loss and liability for damages on account of bodily injury, including death ... caused by or arising from any and all activities carried on or any and all Work performed under any Work Order. [L–Con] shall cause its insurer to name [Oiltanking] as an additional insured on its ... General Liability and Excess Liability insurance policies....

L–Con agreed to carry at least $1 million per occurrence of commercial general liability ("CGL") insurance for bodily injury (or $2 million per occurrence of combined single limit insurance for bodily injury or property damage), and $3 million in excess/umbrella coverage. L–Con and Oiltanking further agreed that the coverages granted to Oiltanking as an additional insured would "apply on a primary basis over all other valid and collectible insurance owned by and or available to the ‘additional insured’ [Oiltanking]."

C. L–Con's Insurance

1. Primary Insurance—ACIG Policy

In an attempt to satisfy its insuring obligations under the MSA, L–Con initially purchased primary CGL insurance from Liberty Mutual Fire Insurance Company ("Liberty Policy").³ Effective June 1, 2012, however, that policy was replaced by a $2 million primary CGL policy issued by ACIG ("ACIG Policy").⁴ The ACIG Policy covers claims or suits for bodily injury and contains an Additional Insured Endorsement that defines who qualifies as an additional insured and establishes the scope and priority of additional insured coverage. The endorsement provides in relevant part:

ADDITIONAL INSURED—OWNERS, LESSEES OR CONTRACTORS

This endorsement modifies insurance provided under the following:

COMMERCIAL GENERAL LIABILITY COVERAGE PART

SCHEDULE

Name of Person or Organization:

Any person or organization that you [L–Con] have agreed to and/or are required by contract to name as an additional insured.

It is hereby understood and agreed WHO IS AN INSURED (Section II) is amended to include as an insured the person or organization shown in the Schedule, but only with respect to liability arising out of "your [L–Con's] work" for that insured by or for you [L–Con].

* * *

WHERE SPECIFICALLY REQUIRED BY CONTRACT ... THE INSURANCE PROVIDED BY THIS ENDORSEMENT IS PRIMARY. OTHER INSURANCE THE ADDITIONAL INSURED PURCHASES ON ITS OWN BEHALF SHALL APPLY AS EXCESS OF, AND DOES NOT CONTRIBUTE, WITH THE INSURANCE PROVIDED BY THIS ENDORSEMENT....

ACIG defended Oiltanking in the Underlying Suit on an additional insured basis.

2. Excess/Umbrella Insurance—Interstate Policy

L–Con also purchased excess/umbrella insurance under a policy issued by Interstate with a $15 million limit per occurrence ("Interstate Policy").⁵ By Interstate's own admission, its policy is a "follow form" policy, incorporating the terms of the underlying insurance—here, the ACIG Policy—to the extent that those terms are consistent with its own terms. Where the terms between it and the underlying policy are inconsistent, the Interstate's policy terms control. Coverage exists for liability and damages covered by the ACIG Policy.

The Interstate Policy contains three provisions that are relevant to the outcome of this suit. First, like the ACIG Policy, it contains a provision defining coverage for an additional insured. The terms appear in § III(G)(1)(c), which gives L–Con the option to designate as an "insured"

persons or organizations included as Additional Insureds in "underlying insurance", but only for their liability arising out of operations of the "Named Insured" [L–Con] under this policy. The limit of Insurance available to that Additional Insured shall be the lesser of

(1) The amount of coverage that the "Named Insured" [L–Con] has contractually agreed to provide to that Additional Insured; or

(2) The Limits of Insurance available under this policy.

According to the Second Amended Complaint, L–Con "opted to make Oiltanking an additional insured under the Interstate Policy."

Second, Interstate's policy contains a Cross Suits Exclusion that excludes coverage for "a claim or ‘suit’ for damages initiated, alleged or caused to be brought about by any ‘insured’ covered by this policy against any other ‘insured’ covered by this policy." Third, the policy includes an "other insurance" provision, found in § VII(H), that provides in pertinent part:

If there is any "other insurance" available to any "insured" the insurance provided by this policy will apply in excess of all "other insurance", and shall not contribute with such "other insurance".

"Other insurance" is defined as "a policy of insurance available to any ‘insured’ affording coverage that this policy also affords."

D. Insurance Oiltanking Purchased on its Own Behalf

Independent of the MSA, Oiltanking carried its own insurance from the London Insurers under a package policy. The policy contains primary and excess coverages with separate limits of liability: Section 1, covering primary liabilities, has a $5 million limit per occurrence ("London $5 Million Primary Policy"); Section 2A, covering umbrella liabilities, applies to "losses excess to Section 1" and has a $46 million limit per occurrence ("London $46 Million Excess Policy") (collectively, the "London Package Policy").⁶ There is no dispute that the policy covered operations at Oiltanking's Houston facility in June 2012.

The disputed terms of the London Package Policy are contained in its Primary Insurance Endorsement, which addresses the priority of coverage in the event that Oiltanking is an additional insured on another policy of insurance. The endorsement states in relevant part:

It is agreed that where the Insured [Oiltanking] is named as an additional insured on the policy(ies) of others, this policy shall only apply in excess of and shall not be contributory with other said policy(ies).

III. CONTENTIONS OF THE PARTIES⁷

The parties raise multiple grounds for summary judgment related to Interstate's defense obligations to Oiltanking. The pertinent arguments are summarized below.⁸

A. Availability of Additional Insured Coverage for Oiltanking

Interstate seeks a declaration that Oiltanking is not an additional insured under its policy because Oiltanking's liability did not "arise out of" L–Con's work/operations, as required by the policy's own terms and the terms of the underlying ACIG Policy. The argument is based on the judgment in the Underlying Suit, where Oiltanking's liability was found to "arise out...