(Article from Insurance Law Alert, January 2019)
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The Texas Supreme Court ruled that a Joint Venture Provision that limited coverage to twenty-five percent of excess policy limits did not encompass defense expenses, and Underwriters were obligated to pay defense expenses up to the full policy limits. Anadarko Petroleum Corp. v. Houston Casualty Co., 2019 WL 321921 (Tex. Jan. 25, 2019).
Anadarko, a minority-interest owner in the Deepwater Horizon operation, sued the Underwriters, seeking payment for defense costs that Anadarko incurred in civil and government actions. The operative policy included a Joint Venture Provision that provided:
[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 . . . 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 this provision, the Underwriters paid Anadarko $37.5 million, representing twenty-five percent of the $150 million excess-coverage limit. Anadarko sought additional payments, up to $150 million, for defense expenses. The Underwriters refused to pay, arguing that the Joint Venture Provision capped all excess coverage—including coverage for defense costs—at twenty-five percent.
A Texas trial court granted Anadarko’s summary judgment motion, finding that the endorsement applied to both liability and defense obligations, but that a policy exception, which increases coverage to full policy limits when Anadarko is legally liable for more than its proportionate share in the joint venture, applied. An appellate court reversed and rendered judgment for the Underwriters. The appellate court held that the Joint Venture Provision limited both defense and indemnity to twenty-five percent of policy limits and that no exceptions applied. The Texas Supreme Court reversed.
The Texas Supreme Court held that the Joint Venture Provision limited the Underwriters’ liability only for amounts Anadarko was required to pay in response to third-party claims and did not encompass sums that Anadarko paid as defense expenses. The court emphasized that the policy “consistently distinguishes between Anadarko’s ‘liabilities’ and ‘expenses’” and that in other insurance and legal contexts, the two categories of payments are substantively distinct. The court acknowledged that Anadarko’s liabilities and defense expenses were both included in the “Ultimate Net Loss” definition, but concluded that the term “liability” in the Joint Venture Provision referred only to liability for damages imposed upon Anadarko by law, and did not include defense expenses.