Westchester Fire Ins. v. Heddington Ins. Ltd.

• Decision Date: 17 April 1995
• Docket Number: Civ. A. No. 94-1742.
• Parties: WESTCHESTER FIRE INSURANCE, Plaintiff, v. HEDDINGTON INSURANCE LTD., et al., Defendants.
• Court: U.S. District Court — Southern District of Texas

883 F. Supp. 158

WESTCHESTER FIRE INSURANCE, Plaintiff, v. HEDDINGTON INSURANCE LTD., et al., Defendants.

Civ. A. No. 94-1742.

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

April 17, 1995.

COPYRIGHT MATERIAL OMITTED

Robert C. Floyd, Floyd Taylor & Riley, Houston, TX, for plaintiff.

Joe G. Roady, Sheinfeld Maley & Kay, Houston, TX, for defendants.

ORDER

HITTNER, District Judge.

Pending before the Court is the motion for summary judgment filed by plaintiff Westchester Fire Insurance Company ("Westchester"), and the motions for partial summary judgment filed by defendants Heddington Insurance Limited ("Heddington"), Texaco, Inc. ("Texaco") and Texaco Refining and Marketing Inc. ("TRMI"). Having considered the motions, the submissions on file, and the applicable law, the Court determines that the defendants' motions for summary judgment should be granted¹ and Westchester's motion should be denied.

This case requires the Court to determine the order, or priority, of liability among insurance carriers with respect to a $19,000,000 settlement of a products liability claim. Texaco contracted with Saturn to supply antifreeze for use in Saturn Corporation ("Saturn") automobiles. Saturn anti-freeze orders were filled with anti-freeze manufactured by Lubripac — a general partnership engaged in the manufacture of lubricants, in which Texaco Refining and Marketing Inc. ("TRMI") is a two-thirds partner, and Rosewood Lubricants Inc. ("Rosewood") is a one-third partner. Saturn brought a claim against Lubripac, alleging that anti-freeze shipped to Saturn on March 25, 1991 and incorporated into new Saturn automobiles did not meet Saturn's specifications, and as a result, damaged the automobiles. After investigations and negotiations, the various insurers settled Saturn's claim for $19,000,000. Lubripac, TRMI, and Rosewood executed a Mutual Release Agreement which released one another, as well as their insurers, from any and all claims attributable to the Saturn claim. In addition, Saturn, General Motors, Lubripac, TRMI, and Rosewood executed a Release and Indemnification Agreement containing a clause whereby the parties agreed that any net salvage value received from the disposition of the allegedly damaged automobiles would be shared between Saturn and TRMI/Lubripac.

The relevant insurance policies at issue are:

Primary Insurance: $1,000,000 policy with Travelers.²

Umbrella Insurance: $10,000,000 policy with International Insurance Company ("International"), excess of the Travelers policy and specifying the Travelers policy as an underlying limit.³

Excess Insurance: (1) $20,000,000 products liability policy (policy number L-189) with Heddington Insurance Ltd. ("Heddington"), specifying a $10,000,000 underlying limit.⁴

(2) $20,000,000 combined coverage policy (policy number L-185) with Heddington, specifying a $10,000,000 underlying limit.⁵

(3) $50,000,000 policy with J.H. Blades and others, excess of an underlying limit of $11,000,000.⁶

The insurers paid the $19,000,000 settlement in the following order:

                      Travellers               $ 1,000,000
                      International            $10,000,000
                      Blades, et al            $ 1,950,000
                      Heddington               $ 6,050,000
                

A $968,763.00 salvage value was realized from the damaged autos, and the proceeds were split evenly. Half went to Saturn, and half went to Heddington and Blades. International received none of the salvage value proceeds.

Westchester, succeeding to the rights of International, filed suit against Heddington, Texaco, and TRMI, arguing that International's umbrella coverage should have been applied in excess of all other policies and self-insurance. Consequently, Westchester seeks: (1) reimbursement for the $10,000,000 International paid toward the Saturn settlement; and (2) reimbursement for a proportionate share of the recovered salvage value.

Westchester claims the Heddington policies should apply to the $1,000,000 to $10,000,000 layer of risk before the $10,000,000 International umbrella policy because the Heddington products liability policy was intended to be primary, rather than excess coverage. In the alternative, Westchester claims that TRMI and Texaco failed to maintain $10,000,000 underlying insurance required under the Heddington policies, and thus, Texaco and TRMI's $10,000,000 layer of self-insurance should apply before International's umbrella coverage.

Defendants Heddington, Texaco and TRMI argue that the Mutual Release Agreement executed between TRMI, Lubripac and Rosewood cuts off Westchester's claims to reapportionment of the Saturn settlement.⁷ Moreover, the defendants contend Westchester is not entitled to reimbursement for settlement monies or salvage values because the respective policies were applied in the correct order. The defendants argue International's $10,000,000 umbrella policy was properly applied prior to Heddington's policies because the Heddington policies were pure excess policies which did not apply to losses below $10,000,000. Texaco and TRMI further claim their $1,000,000 to $10,000,000 self-insured layer of coverage could not have been called upon to apply to the Saturn claim because International's umbrella policy insured that layer of risk, and because the Heddington policies did not require Texaco or TRMI to provide underlying insurance.

Thus, the Court is first asked to determine whether the Mutual Release Agreement cut off Westchester's claims. Additionally, the Court must determine the order of liability among the policies and self-insuring agreements.

Summary judgment is mandated "against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). Initially, the movant bears the burden of demonstrating to the court that there is an absence of a genuine issue as to any material fact. Id. at 323, 106 S.Ct. at 2552-53. The burden then shifts to the party who bears the burden of proof on the claim on which summary judgment is sought, to present evidence beyond the pleadings to show that there is a genuine issue for trial. Id. See also Washington v. Armstrong World Industries, Inc., 839 F.2d 1121, 1122-23 (5th Cir.1988).

In the instant case, the parties agree there are no genuine issues as to any material fact with respect to the order of liability among the insurance policies and self-insuring agreements. Additionally, the defendants have demonstrated that there is an absence of a genuine issue as to any material fact concerning the effect of the Mutual Release Agreement. The defendants offer summary judgment evidence of the Mutual Release Agreement executed by and among TRMI, Lubripac, and Rosewood. The plaintiff argues the effects of the Mutual Release Agreement raise fact issues because the existing circumstances, exhibits, documents and affidavits show an intent to fund part of the Saturn settlement without prejudicing its equitable rights against the parties. The plaintiff, however, has not suggested the release is ambiguous. Under Texas law, interpretation of an unambiguous contract is a question of law for the court. REO Indus., Inc. v. Natural Gas Pipeline Co., 932 F.2d 447, 453 (5th Cir.1991); Coker v. Coker, 650 S.W.2d 391, 393 (Tex.1983). Thus, the effect of the terms of the agreement is a question of law, and the defendants have met their burden of showing summary judgment is proper.

A. The Effect of the Mutual Release Agreement

As a preliminary matter, the Court determines that the Mutual Release Agreement does not cut off the plaintiff's claim for reapportionment of the Saturn settlement. Westchester seeks reimbursement based on a theory of equitable subrogation. Upon payment of a loss covered by indemnity insurance, the insurer is subrogated to any rights the insured may have against persons allegedly responsible for causing the loss. International Ins. Co. v. Medical-Professional Bldg. of Corpus Christi, 405 S.W.2d 867, 869 (Tex.Civ.App. — Corpus Christi 1966, writ ref'd n.r.e.). See also American Centennial Ins. Co. v. Canal Ins. Co., 843 S.W.2d 480, 482 (Tex.1992) (citing International with favor). The insurer's right of subrogation is derived from and limited by the rights of the insured. Id. When an insured acts to cut off the insurer's claim, such as by releasing a joint tortfeasor, the insurer's right of subrogation is destroyed. Id. However, the insured cannot, after the loss has occurred and after payment to the insured by the insurer, prejudice the right to subrogation by settling with or releasing the offending party who had knowledge⁸ of the insurer's right of subrogation. Id. at 870. Although the insurers participated in the settlement negotiations, the insurers did not execute the Mutual Release Agreement. Thus, the Mutual Release Agreement executed solely by the insureds did not destroy International's subrogation rights.

B. The Pattern of Insurance is Determined On the Date of the Occurrence Giving Rise to Coverage Under the Policy

Where there is apparent conflict between clauses of applicable insurance policies, courts should resolve disputes among the carriers by looking to the overall pattern of insurance coverage. Carrabba v. Employers Cas. Co., 742 S.W.2d 709, 714 (Tex.App.— Houston 14th Dist. 1987, no writ). Westchester argues the overall pattern of insurance should be determined as of the date the policies were written, rather than on the date of the incident giving rise to coverage under the policies — the date of the Saturn incident. Under this construction, any gap in coverage existing when Heddington's policies were issued could not be filled by insurance subsequently provided by International. The defendants, on the other hand, argue the insuring pattern should be determined on the date of the Saturn incident because policy...