(Article from Insurance Law Alert, September 2025)
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Holding
A reinsurer’s motion to dismiss was denied because the complaint alleged a course of conduct and other facts that provided a potential basis for a direct right of action by the original insured against the reinsurer. Indorama Ventures Holdings L.P. v. Factory Mutual Ins. Co., No. 1:24-cv-00404 (E.D. Tex. Aug. 7, 2025).
Background
The coverage dispute arose out of an explosion at a facility originally owned by Huntsman. However, Indorama later acquired the facility and other property. The explosion occurred between the execution of the initial purchase agreement and the closing date.
According to the complaint, Factual Mutual “issued and/or reinsures” property and business interruption policy no. Prop 19-20, issued to Huntsman and various affiliates as insureds. The complaint further alleges that Factual Mutual is responsible for adjusting claims and paying loss under the policy.
After the explosion, Huntsman and Indorama entered into an Insurance Assignment Agreement in which Huntsman assigned all its rights, duties and obligations with respect to any claims under the policy to Indorama, including property damage and/or business interruption claims arising out of the explosion. Factory Mutual consented to this assignment and agreed that all loss payable under the policy would be paid directly to Indorama.
Factory Mutual made a payment of $50 million for losses arising from the explosion but denied coverage for an additional $50 million. Indorama argued that Factory Mutual strategically covered the loss under the policy’s Contingent Time Element Extension (“CTTE”), which had the lowest applicable submit of $50 million.
Factory Mutual moved to dismiss, arguing that it was a reinsurer (rather than an insurer) and therefore that Indorama could not bring a direct action against it. The court denied the motion.
Decision
As a preliminary matter, the court addressed attachments to the complaint. The court easily concluded that it would consider the original insurance policy (no. Prop. 19-20), as well as the Insurance Assignment Agreement and two “Adjustment Emails” sent from Factual Mutual to Indorama. However, the court declined to consider a reinsurance agreement between Factual Mutual and International Risk Insurance Company (“IRIC”) or a subrogation agreement between Indorama and Factory Mutual. The court reasoned that the subrogation agreement was never referenced in the complaint and “arguably peripheral” to Indorama’s claims, and that the reinsurance agreement, while significant to Factory Mutual’s grounds for dismissal, was “clearly not central to Indorama’s claims” for coverage.
Turning to the substantive issue of Indorama’s right to sue Factory Mutual directly, the court rejected Factory Mutual’s assertion that Texas statutory law precludes such a suit. Texas Insurance Code § 493.055, entitled “Limitation on the Rights Against Reinsurer,” states that “[a] person does not have a right against a reinsurer that is not specifically stated in: (1) the reinsurance contract, or (2) a specific agreement between the reinsurer and the person.”
While the court declined to officially “consider” the reinsurance agreement, it noted that the reinsurance agreement clearly forecloses Indorama’s right to directly sue Factual Mutual. The central issue was therefore whether a “specific agreement” existed between Indorama and Factory Mutual. The court ruled that a course of conduct could establish a “specific agreement” even without a written document, noting that such reasoning was supported by common law related to agreements formed by a course of dealing and by analogous caselaw in Texas and courts in other jurisdictions. While the Texas Supreme Court has not yet ruled on this precise issue, the court predicted that it would hold that insureds can directly sue reinsurers under § 493.055(2) based on a course of dealing, even absent an express written agreement.
Applying this framework, the court found that the complaint sufficiently alleged an implied agreement through a course of dealing. In particular, the court noted Factual Mutual’s involvement in adjusting insurance claims and paying loss under the policy and its communication with Indorama in the two Adjustment Emails.
Comments
The decision is murky in several respects. While the court refused to consider the reinsurance agreement between Factory Mutual and IRIC, it acknowledged a provision in the reinsurance agreement that precluded direct suits against Factory Mutual by any entity other than IRIC.
Additionally, while the court only considered the two Adjustment Emails in its decision, in a footnote, it “candidly” mentioned that “there might be some fact issues,” including another email in which Factory Mutual refers to itself as a reinsurer and to IRIC as the reinsured. In that same footnote, the court notes that “the Policy does list IRIC as the owner of the Policy.” However, the court then stated: “since the Court must read all attachments in the light most favorable to Indorama, these fine details do not justify dismissal given the preceding discussion.”
Finally, the court rejected Factory Mutual’s assertion that Indorama was subject to the forum selection clause requiring disputes to be brought in Rhode Island state court. The court stated: “Indorama is not seeking benefits under the Reinsurance Agreement, does not seek to enforce its terms, and is not asserting a claim that must be determined by reference to it: Indorama’s claim operates on a different plane entirely. For this reason, the forum selection clause falls to the wayside.”