StarNet Insurance Company et al v. Federal Insurance Company
ORDER DENYING Plaintiffs' 25 Motion for Summary Judgment; GRANTING Defendant's 26 Motion for Summary Judgment. Signed by Judge Sam Sparks. (klw)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
STARNET INSURANCE COMPANY, LLOYD'S
SYNDICATE CVS 1919, LLOYD'S SYNDICATE
NO. 780 ADV, and LLOYD'S SYNDICATE NO.
4020 ARK, each for his own and not one for the
other, severally subscribing to Contract of
Insurance No. BD-CJP-555,
LOOT OF TEXAS
Case No. A-16-CA-664-SS
FEDERAL INSURANCE COMPANY,
BE IT REMEMBERED on this day the Court reviewed the file in the above-styled cause, and
specifically Plaintiffs' Motion for Summary Judgment [#25], Defendant's Motion for Summary
Judgment [#26], the parties' Responses [##27, 29] in opposition, and the parties' Replies [##28, 30]
in support. Having reviewed the documents, the governing law, and the file as a whole, the Court
now enters the following opinion and orders.
Plaintiffs Starnet Insurance Company, Lloyd's Syndicate CVS 1919, Lloyd's Syndicate No.
780 ADV, and Lloyd's Syndicate No. 4020 (Plaintiffs) bring this suit against Defendant Federal
Insurance Company (Federal), claiming Federal breached its contract with non-party Border to Border
Exploration, LLC (BBX). Compl. [#1] ¶ 17-19. Plaintiffs allege they are subrogated to BBX's breach
of contract claim against Federal.
The parties in this case do not dispute any facts and agree the only issue before this Court is
the interpretation of three insurance policies to determine the priority of the policies and
consequently if Plaintiffs are entitled to recover from Federal. Pls.' Mot. [#251 at 10; Def.'s Mot.
[#26] at 1-2. Nevertheless, the Court provides a brief recitation of the facts for context.
While this suit features dueling insurance companies, the underlying event centers on an oil
Compl. [#1] ¶ 8. On September 1, 2014, an oil well was being drilled for BBX,
the insured, when the well experienced a blowout, resulting in surface pollution to adjacent creeks
and tributaries and to surrounding property owned by a third party. Id. Approximately $4.056 million
of the clean-up expense was allocated to BBX's working interest in the well. Id. ¶ 12.
At the time of the blowout, BBX had multiple insurance policies. Id. ¶J 9-11. Relevant here,
BBX had Cost of Well Control and Extra Expense Coverage from Plaintiffs for up to $25 million
(Burke-Daniels Policy). Id. ¶ 11. BBX was also covered by Energy Industries Liability Insurance
from Vigilant Insurance Company (Vigilant) with an incident limit of $1 million (Vigilant Policy).
Id. ¶ 9. Finally, BBX had Commercial Excess and Umbrella Insurance from Federal (Federal Policy).
Id. ¶ 10.
Following the blowout, Plaintiffs paid BBX $2,028,274.49, 50% of the cleanup expenses.
Pls.' Mot. [#25] at 7. Vigilant then paid BBX $1 million, the cap for a single incident under the
Vigilant Policy. Id. Federal, however, refused to pay BBX the remaining $1,028,274.49, asserting
its policy was excess over all other policies, including Plaintiffs' Policy. Id.
After Federal refused to pay, Plaintiffs paid the remainder of BBX's claim in exchange for
a release and subrogation agreement. Id. Thus, Plaintiffs paid a total
Plaintiffs now seek reimbursement from Federal. Compl. [#1] ¶ 8.
Plaintiffs' Burke-Daniels Policy provided BBX with up to $25 million in coverage for control
ofwell events, subject to a $200,000 self-insured retention, and for a variety of operator's expenses.
Pis.' Mot. [#25] at 5. The operator's expense coverage included pollution expenses, such as "[t]he
cost of removing, nullifying, or cleaning up seeping, polluting or contaminating substances, which
[are] above the surface
of the ground or water bottom, emanating from well insured under the
CONTROL OF WELL INSURANCE.
." Pls.' Mot. [#25-3] Ex. 3 (Burke-Daniels Policy) at 4.'
The Burke-Daniels policy also contained the following "other insurance" clause: "In the event
there is other insurance, which insures to the Assured's benefit covering any loss, damage, liability
or expense covered hereunder, this insurance shall not pay until such other insurance is exhausted."
As mentioned above, BBX also had insurance from Vigilant, a Chubb Insurance Company,
which provided pollution liability insurance. Pls.' Mot. [#25-1] Ex.
(Vigilant Policy) at 4. The
Vigilant Policy included the following "other insurance" provision:
This insurance is primary, except to the extent that the Excess Insurance provision
described below applies. If this insurance is primary, then our obligations are not
affected unless any of the other insurance is also primary. Then, we will share with
all that other insurance by the method described in the Method of Sharing provision
The first three exhibits attached to Plaintiffs' motion appear to be excerpts of the three insurance policies at
issue in this case. See Pis.' Mot. [#251 Exs. 1-3. Federal has not objected to any of the excerpts or provided any
additional parts of the policies. See Def.'s Mot. [#26]. The Court therefore assumes there is no dispute concerning the
other portions of the policies. In order to reference Plaintiffs' exhibits, the Court refers to the ECF page numbers.
In relevant part, the method of sharing provision stated, "If all of the other insurance permits
contribution by equal shares, then we will follow this method also. Under this method, each insurer
contributes equal amounts until it has paid its applicable limits of insurance or none of the loss
remains, whichever comes first." Id. at 8. However, if the other insurance did not permit contribution
by equal shares, the Vigilant Policy mandated each insurer's share be determined by "the ratio of its
applicable limits of insurance to the total applicable limits of the insurance of all insurers." Id.
Federal is also a Chubb Insurance Company. Pls.' Mot. [#25-2] Ex. 2 (Federal Policy) at
The Federal Policy was composed of two insuring agreements: Excess Follow-Form Coverage A
(Coverage A) and Umbrella Coverage B (Coverage B). The Federal Policy specified a limit of $5
million per occurrence, with separate $5 million limits under each of the two insuring agreements.
Federal Policy at
Coverage A included a promise to pay "on behalf of the insured, that part of loss to which
this coverage applies, which exceeds the applicable underlying limits." Id. at 4. Coverage A also
explained that it "follow[ed] the terms and conditions of underlying insurance described in the
Schedule ofUnderlying Insurance" but did "not apply to any part of loss within the underlying limits,
or any related costs or expenses." Id. The Schedule of Underlying Insurance listed six insurance
policies meeting the definition of underlying insurance. Id. at 2-3. The Vigilant Policy was listed on
the Schedule of Underlying Insurance but the Burke-Daniels Policy was not.
With respect to Coverage B, the Federal Policy specified Federal would pay, "on behalf of
the insured, loss by reason of liability.
[i]mposed by law or [a]ssumed in an insured contract
for bodily injury or property damage caused by an occurrence to which this coverage applies. Id. at
4-5. Coverage B explicitly excluded a "loss to which underlying insurance would apply.
." Id. at 5.
Applicable to both Coverage A and B, the Federal Policy also included an "other insurance"
clause, providing in relevant part:
If other valid and collectible insurance is available to the insured for loss we would
otherwise cover under this insurance, our obligations are limited to as follows.
This insurance is excess over any other insurance, whether primary, excess,
contingent or on any other basis.
We will pay only our share of the amount of loss, if any, that exceeds the sum of the
amount that all other insurance would pay for loss in the absence of this
of all deductible and self-insured amounts under all other insurance.
Id. at 6 (emphasis omitted).
The Federal Policy defined "other insurance" as meaning any insurance affording coverage
the Federal Policy would also afford, including self-insurance or other mechanisms arranged to fund
a loss, but not including underlying insurance or insurance specifically negotiated to apply in excess.
Id. at 8.
Cross-Motions for Summary Judgment
In moving for summary judgment, Plaintiffs claim Vigilant, Federal, and Plaintiffs all had a
duty to reimburse BBX for its loss. Pls.' Mot. [#25] at 7-8. Plaintiffs allege BBX's total claim of
$4,056,274.49 should have been divided in half, with Plaintiffs contributing $2,028,274.49 under
the Burke-Daniels Policy and the Chubb Insurance Companies contributing the other $2,028,274.49
under the combination of the Vigilant and Federal Policies. Id. at 7-8. In support of their position,
Plaintiffs argue the Burke-Daniels and the Federal Policies are competing policies with conflicting
"other insurance" clauses. Id. at 11-18. According to Plaintiffs, because the "other insurance"
clauses in both policies conflict, Texas law mandates the "other insurance" clauses should be
disregarded by the Court. Id. at 11-12. Plaintiffs argue, as a result, the Burke-Daniels Policy and the
Federal Policy share BBX's loss on a dollar for dollar or equal share
arguing they were forced to pay $1,028,274.49 more than their share of BBX's claim, Plaintiffs now
seek $771,205.87 plus interest and attorney's fees from
Id. at 8.
By contrast, in its cross-motion for summary judgment, Federal argues its policy is an excess
policy over both the primary policies, the Vigilant and the Burke-Daniels Policies. Def. 'S Mot. [#261
at 8-9. Thus, according to Federal, its duty to BBX could only be triggered if both the Vigilant and
Burke-Daniels Policies were exhausted. Id. As both policies were not exhausted here, Federal claims
it had no duty to contribute to BBX's loss. Id.
Summary judgment is appropriate if no genuine issue of material fact exists and the moving
party is entitled to judgment as a matter of law. FED. R. Civ. P. 56(a). "The movant bears the burden
of identifying those portions of the record it believes demonstrate the absence of a genuine issue of
material fact." Triple Tee Golf Inc.
Nike, Inc., 485 F.3d 253, 261 (5th Cir. 2007) (citing Celotex
Catrett, 477 U.S. 317, 322-25 (1986)).
Plaintiffs claim they agreed to contribute to BBX's loss in equal shares as specified under the terms of the
Vigilant Policy's "other insurance"clause. Pis.' Mot. [#25J at 6.
While Plaintiffs claim Federal was obligated to pay $1,028,274.49, one of the underwriters affiliated with the
Burke-Daniels Policy declined to participate in this lawsuit. Pis.' Mot. I#25] at 8 n. 18. Plaintiffs therefore reduced the
amount sought from Federal by his share, resulting in a claim for $771,205.87. Id.
Ifthe burden of proof at trial lies with the nonmoving party, the movant may satisfy its initial
'showing'that is, pointing out to the district courtthat there is an absence of evidence
to support the nonmoving party's case." Celotex, 477 U.s. at 325. Although the party moving for
summary judgment must demonstrate the absence of a genuine issue of material fact, it does not need
to negate the elements of the nonmovant's case. Boudreaux v. Swift Transp. Co., 402 F.3d 536, 540
(5th Cir. 2005). "A fact is 'material' if its resolution in favor of one party might affect the outcome
of the lawsuit under governing law." Sossamon v. Lone Star State of Tex., 560 F .3d 316, 326 (5th
Cir. 2009) (internal quotation marks omitted).
"If the moving party fails to meet [its] initial burden,
the motion [for summary judgment] must be denied, regardless of the nonmovant's response."
$92,203.00 in US. Currency, 537 F.3d 504, 507 (5th Cir. 2008) (quoting Little
LiquidAir Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (en banc) (per curiam)).
When the parties cross-move for summary judgment, the court must review "each motion
independently, viewing the evidence and inferences in the light most favorable to the nonmoving
party." MidContinent Cas. Co.
Bay Rock Operating Co., 614 F.3d 105, 110 (5th Cir. 2010)
(alteration omitted) (internal quotation marks omitted). When the moving party has met its Rule
56(a) burden, the nonmoving party cannot survive a summary judgment motion by resting on the
mere allegations of its pleadings. Baranowski
Hart, 486 F.3d 112, 119 (5th Cir. 2007) (requiring
the nonmovant to identify specific evidence in the record and explain how that evidence supports that
party's claim). "This burden will not be satisfied by 'some metaphysical doubt as to the material
facts, by conclusory allegations, by unsubstantiated assertions, or by only a scintilla of evidence."
Boudreaux, 402 F.3d at 540 (quoting Little, 37 F.3d at 1075). In deciding a summary judgment
motion, the court draws all reasonable inferences in the light most favorable to the nonmoving party.
Connors v. Graves, 538 F.3d 373, 376 (5th Cir. 2008). Nevertheless, "[i]f a party fails to properly
support an assertion of fact or fails to properly address another party's assertion of fact as required
by Rule 5 6(c), the court may:
consider the fact undisputed for purposes of the motion." FED. R.
Texas Insurance Law
In a diversity case involving the interpretation of a contract, courts apply the substantive law
of the forum state. McLane Foodservice, Inc.
Table Rock Rests., L.L.C., 736 F.3d 375, 377 (5th
Cir. 2013). Consequently, Texas rules of contract interpretation control this case.
Texas courts interpret insurance contracts under the same rules that apply to contracts
generally. Potomac Ins. Co.
of Ill. v. Jayhawk Med. Acceptance Corp.,
198 F.3d 548, 550 (5th Cir.
2000) (citing Barnett v. Aetna Life Ins. Co., 723 S.W.2d 663, 665 (Tex. 1987)). Under Texas law,
the interpretation of an insurance policy is a question of law for the court to determine. Lawyers Title
Doubletree Partners, L.P., 739 F.3d 848, 858 (5th Cir. 2014) (citations omitted). The
primary objective is to ascertain the parties' intent as expressed in the written instrument.
MidContinent Cas. Co.
Swift Energy Co., 206 F.3d 487, 491 (5th Cir. 2000) (citing Nat '1 Union
Fire Ins. Co. of Pittsburgh, Pa.
CBIIndus., Inc., 907 S.W.2d 517, 520 (Tex. 1995)).
With respect to the priority of multiple insurance policies, Texas law mandates that primary
policies' limits must be exhausted before excess insurers become liable. St. Paul Mercury Ins. Co.
Lexington Ins. Co., 78 F.3d 202, 209 & n.23 (5th Cir. 1996) (citing Emscor Mfg., Inc.
Group, 879 S.W.2d 894, 903 (Tex.
App.Houston [14th Dist.]
1994, writ denied)). In particular,
primary insurance is insurance coverage where an insurer's liability attaches immediately upon the
happening of the occurrence that gives rise to the liability. Id. By contrast, an excess policy is one
where the insurer is only liable for the excess above and beyond what might be collected from
primary insurance. Id. Where both a primary and excess insurance policy apply, the two policies do
not cover the same risk. Id. Rather, the policies cover "separate and clearly defined layers of risk."
Id. (emphasis omitted).
Conflicts involving the priority ofinsurance policies arise when "more than one policy covers
the same insured and each policy has an 'other insurance' clause which restricts its liability by reason
of the existence of other coverage." Hardware Dealers Mu,'. Fire Ins. Co.
Farmers Ins. Exch., 444
S.W.2d 583, 586 (Tex. 1969). Emphasizing that "dominant consideration" should be given to the
rights of the insured, Texas applies the following rule to reconcile such conflicts:
When, from the point of view ofthe insured, she has coverage from either one of two
policies but for the other, and each contains a provision which is reasonably subject
to a construction that it conflicts with a provision in the concurrent insurance, there
is a conflict in the provisions . . . . [This conflict is] solved by ignoring the two
Id. at 589.
If both policies provide coverage in the absence of the conflicting clauses, liability is
equally prorated between the two companies. Id. at 590.
The Fifth Circuit "has interpreted Hardware Dealers broadly, holding that even when a
plausible interpretation of opposing 'other insurance' clauses would render one policy's coverage
primary and the other's excess, if a 'reasonable construction' of the two policies from the insured's
perspective would result in full coverage under each policy but for the existence of the other, the
policies conflict and liability should be apportioned pro rata." Am. States Ins. Co.
547 F. App'x 550, 553 (5th Cir. 2013) (per curiam).
Ace Am. Ins. Co.,
The key issue in this case concerns the priority of BBX's three insurance policies and how
BBX's loss should be apportioned between them. In order to decide this issue, the Court evaluates
the policies based on parties' intent as expressed in the written instruments and looks to the overall
pattern of coverage. Where there is concurrent coverage and the concurrent policies both have "other
insurance" clauses, the Court employs the Hardware Dealers test. Here, the Court finds the BurkeDaniels and Vigilant Policies shared primary responsibility while the Federal provided excess
coverage. Under Hardware Dealers, the "other insurance" clauses of the Burke-Daniels Policy and
the Vigilant Policy are knocked out. While ordinarily pro rata division of BBX's loss would apply,
Plaintiffs have agreed to contribution by equal shares as described in the Vigilant Policy. Because
Federal's duty as an excess insurer is not triggered by this allocation of liability, Federal has no
liability to BBX and therefore no liability to Plaintiffs via subrogration. Thus, the Federal is entitled
to judgment as a matter of law. Correspondingly, the Court GRANTS Federal's motion for summary
judgment and DENIES Plaintiffs'.
First, the Court finds the both the Burke-Daniels and Vigilant Policies provided BBX with
primary insurance coverage for a pollution event while the Federal Policy provided BBX with excess
coverage. In the light ofthe parties' intent as expressed in the written instruments, the Burke-Daniels
Policy protected BBX from risk associated with well control events, including pollution events, and
the Vigilant Policy protected BBX from the risk of pollution liability. Burke-Daniels Policy at 4
(covering pollution expenses such as "[t]he cost of removing, nullifying, or cleaning up seeping,
polluting or contaminating substances,
. . .
emanating from the] well insured"); Vigilant Policy at
4-6 (covering damages and costs from both offsite and onsite pollution liability). By contrast, the
Federal Policy protected BBX against the risk a loss exceeded underlying insurance or was not
covered by underlying insurance. Federal Policy at 4-5. With such a structure, the Court finds the
parties intended for Vigilant and Plaintiffs provide to primary coverage for BBX's pollution costs
with no contribution from Federal unless the limits of both primary policies were exhausted.
Plaintiffs argue, however, BBX's loss should be apportioned between the Burke-Daniels,
Vigilant, and Federal Policies for two main reasons: (1) Vigilant and Federal are both Chubb
Insurance Companies; and (2) the Federal Policy should not be treated as excess over the Burke-
Daniels Policy. The Court disagrees. Plaintiffs's first argument incorrectly allocates insurance
liability based on a shared parent company rather than via the insurance policies for which the parties
contracted. See Swift Energy Co., 206 F .3 d at 491 ("In interpreting an insurance] policy, the court's
primary focus is to ascertain the true intent of the parties as expressed in the written document.")
In full, Plaintiffs's second argument alleges the Federal Policy was not excess over the Burke-
Daniels Policy because the Federal Policy listed the Vigilant Policy, but not the Burke-Daniels
Policy, as underlying insurance for Coverage A and Coverage B does not apply to BBX's loss. This
argument ignores the role its own policy played in protecting BBX. The Burke-Daniels Policy
afforded primary coverage and oniy became excess if another primary policy applied, provided the
other primary policy did not have a conflicting "other insurance" clause. Burke-Daniels Policy at 7.
Comparatively, the Federal Policy provided either excess or umbrella coverage for all the events to
which it applied. Federal Policy at
see also Nutmeg Ins. Co.
Emp 'rs Ins. Co. of Wausau, No.
CIV.A. 3:04-CV-1762B, 2006 WL 453235, at *13 (N.D. Tex. Feb. 24, 2006) (Finding an excess
carrier liable only "when the limits ofthe primary coverages are exhausted"). As primary and excess
insurance policies cover "separate and clearly defined layers of risk[,]" the Federal Policy protected
BBX against a second layer of risk while both the Burke-Daniels and Vigilant Policies were
responsible for the first layer. See St. Paul Mercury Ins. Co., 78 F.3d at 209 & n.23 (citing Emscor
Mfg., Inc., 879 S.W.2d at 903). Plaintiffs should not be able to shirk responsibility for the first layer
of risk merely because BBX also protected itself against additional risks.
Therefore, just as the Texas appellate court remarked in Liberty Mutual, Plaintiffs' reliance
on the Hardware Dealers to divide liability between the all three insurance policies is misplaced. See
590 S.W.2d at 785. In Hardware Dealers, the Court examined two primary insurance policies. Id.
At issue here are two primary policies, the Burke-Daniels and the Vigilant Policies, and an excess
and umbrella policy, the Federal Policy. See Carrabba
App.Houston [14th Dist.]
Emp 'rs Cas. Co., 742 S.W.2d 709, 715
1987, no writ) (holding that all other collectible insurance must
be exhausted before liability attaches under an umbrella policy). The Hardware Dealers rule is
triggered only where concurrent coverage, coverage protecting against the same layer ofrisk, exists.
Scottsdale Ins. Co.
Steadfast Ins. Co., No. CV H- 16-0273,2017 WL 661520, at *4 (S.D. Tex. Feb.
17, 2017) (quoting Hardware Dealers, 444 S.W.2d at 589).
Concurrent coverage does exist in this case where the Burke-Daniels and Vigilant Policies
overlap. Significantly, both ofthese policies contain "other insurance" clauses. Ifthe clauses conflict,
then they drop out, requiring Plaintiffs and Vigilant to contribute pro rata to BBX's loss. See Id. If
the clauses do not conflict, then they are enforced. See Id.
The Hardware Dealers test, as applied by the Fifth Circuit, requires this Court to analyze
each policy "but for" the other from the insured's perspective. See id. (citing Royal Ins. Co. of Am.
Hartford Underwriters Ins. Co., 391 F.3d 639, 644 (5th Cir. 2004) and St. Paul Mercury Ins. Co.,
78 F.3d at 210). But for the Burke-Daniels Policy, BBX had a primary policy from Vigilant. If BBX
had not purchased the Burke-Daniels Policy, the Vigilant Policy would have expended its policy
limits and BBX would have turned to Federal to recover the remainder of its loss. Likewise, but for
the Vigilant Policy, BBX had a primary policy from Plaintiffs via the Burke-Daniels Policy. Without
the Vigilant Policy, the Burke-Daniels Policy would covered all of BBX's loss.
Consequently, the Court turns to the "other insurance" clauses of Burke-Daniels Policy and
the Vigilant Policy. Under the terms of its "other insurance" clause, the Burke-Daniels Policy only
became an excess insurer in the presence of the Vigilant Policy. Burke-Daniels Policy at 7. On the
other hand, the Vigilant Policy's "other insurance" clause (1) required each insurer to "contribute
by equal amounts until it has paid its applicable limits" if permitted by the other insurance policy or
(2) mandated contribution by limits if the other insurance policy did not permit equal contribution.
Vigilant Policy at 7-8.
Because a reasonable construction of these two policies and their "other insurance" clauses
from the insured's perspective could result in full coverage under each policy but for the existence
of the other, the policies conflict. See Hardware Dealers, 444 S.W.2d at 586 (classifying where one
policy contains an excess clause and the other contains a pro rata apportionment clause as a conflict).
As result, the Court ignores the two conflicting provisions. While such a finding would typically
merit pro rata division of liability, here Plaintiffs agreed to contribute equal shares as provided in the
Vigilant Policy. BBX's loss was therefore appropriately divided with Vigilant paying its applicable
limit and Plaintiffs paying the remaining $3,056,548.98, significantly less than the Burke-Daniels
For these reasons, the Court finds Federal has no liability to BBX and therefore Plaintiffs via
subrogration. As Federal is entitled to judgment as a matter of law, the Court GRANTS Federal's
motion for summary judgment and DENIES Plaintiffs' motion for summary judgment.
IT IS ORDERED that Defendant Federal Insurance Company's Motion for Summary
Judgment [#261 is GRANTED; and
IT IS FINALLY ORDERED that Plaintiffs' Motion for Summary Judgment [#25] is
SIGNED this the ,.5- day of April 2017.
UNITED STATES DISTRICT JUDGE
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