IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
April 23, 2009
No. 07-41272 Charles R. Fulbruge III
Clerk
AUBRIS RESOURCES LP, formerly known as
United Resources LP, formerly known as
United Oil and Minerals Limited Partnership
Plaintiff - Appellant
v.
ST. PAUL FIRE AND MARINE
INSURANCE CO
Defendant - Appellee
Appeal from the United States District Court
for the Southern District of Texas
Before JOLLY, DAVIS, and DeMOSS, Circuit Judges.
E. GRADY JOLLY, Circuit Judge:
In this appeal we decide what effect a general indemnity provision in an
oilfield services agreement has on the scope of additional insured coverage
required by the same agreement. United Oil and Minerals filed this action in
federal court, seeking a declaratory judgment that St. Paul Fire and Marine
Insurance Company has a duty to defend United in state court lawsuits arising
from an explosion at an oilfield that was serviced by St. Paul’s insured, J&R
Valley Oil Services. Under its services agreement with J&R Valley, United was
J&R Valley’s additional insured. St. Paul, however, denied additional insured
No. 07-41272
coverage, citing a general indemnity provision in the services agreement
whereby United agreed to indemnify J&R Valley for causes of action arising
from United’s own negligence. St. Paul argued, and the district court agreed,
that the general indemnity provision necessarily limited the scope of United’s
additional insured coverage under the services agreement. We conclude,
however, that Texas case law instructs otherwise and construe the services
agreement in favor of coverage. Accordingly, we vacate summary judgment for
St. Paul and render judgment in favor of United.
I.
We begin with the relevant facts.
United hired J&R Valley to service its oilfield properties in April 2002.
Their services agreement required that J&R Valley carry commercial general
liability insurance and name United an additional insured under that policy.
The agreement also contained a general indemnity provision, whereby United
agreed to indemnify J&R Valley for causes of action arising from United’s own
negligence.
On October 20, 2003, an explosion at one of United’s oilfields severely
injured two J&R Valley employees, Ernesto Garza and Carlos Figueroa. Garza
later died from his injuries. Thereafter Garza’s estate and Figueroa sued both
J&R Valley and United in a Texas state court, alleging negligence. J&R Valley
was dismissed from the lawsuits because under the Texas Workers’
Compensation Act neither employee could recover from J&R Valley under a
theory of simple negligence.1 The lawsuits against United, however, proceeded.
The practical question here is who will pay for United’s expense in the
Garza litigation. J&R Valley purchased its commercial general liability
1
Garza’s estate also asserted a wrongful death claim against J&R Valley, alleging gross
negligence. That claim was not barred by the Texas Workers’ Compensation Act. J&R Valley
ultimately settled that claim with the Garza estate.
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No. 07-41272
insurance policy from St. Paul Fire and Marine Insurance Company. That policy
covers additional insureds, but only where specifically required in a written
agreement. United contends that under its services agreement with J&R Valley
it is an additional insured, and therefore St. Paul had a duty to defend it in the
Garza litigation. St. Paul counters that United is not an additional insured for
causes of action arising from United’s own negligence.
United and St. Paul dispute whether two of the services agreement’s
provisions–the additional insured provision and the general indemnity
provision–interrelate. The additional insured provision states that United is an
additional insured except with respect “to any obligations for which UNITED
has specifically agreed to indemnify” J&R Valley; the general indemnity
provision states that United will indemnify J&R Valley for causes of action
arising from United’s own negligence. St. Paul reads the two provisions
together, such that there is no coverage in causes of action arising from United’s
own negligence. United, on the other hand, argues there is no relationship
between the two provisions, and coverage is determined by reference only to the
additional insured provision. United reads the additional insured provision to
provide that United is an additional insured unless it separately and extra-
contractually agrees to indemnify J&R Valley. Because it has not separately
agreed to indemnify J&R Valley in connection with the Garza litigation, United
insists the Garza litigation is covered under the St. Paul policy.
The district court, in granting summary judgment for St. Paul, rejected
United’s interpretation as unreasonable because it agreed with St. Paul that the
general indemnity provision necessarily limited additional insured coverage. We
conclude, however, that in the light of recent Texas case law United’s
interpretation is at least reasonable and therefore construe the disputed
provisions in favor of coverage.
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No. 07-41272
II.
We review the district court’s grant of summary judgment de novo,
applying the same legal standards as the district court. United States v. Corpus,
491 F.3d 205, 209 (5th Cir. 2007). Summary judgment is appropriate only “if the
pleadings, the discovery and disclosure materials on file, and any affidavits show
that there is no genuine issue as to any material fact and that the movant is
entitled to judgment as a matter of law.” F ED. R. C IV. P. 56(c).
Where federal jurisdiction is based on diversity of citizenship, a federal
court applies the substantive law of the forum state. See Foradori v. Harris, 523
F.3d 477, 486 (5th Cir. 2008) (citing Erie R.R. v. Tompkins, 304 U.S. 64, 78-79
(1938)); see also Empire Fire & Marine Ins. Co. v. Brantley Trucking, Inc., 220
F.3d 679, 680-81 (5th Cir. 2000). The parties agree that the substantive law of
Texas applies in this case.
Under Texas law, the same general rules apply to the interpretation of
contracts and insurance policies. See, e.g., Am. Mfrs. Mut. Ins. Co. v. Schaefer,
124 S.W.3d 154, 157 (Tex. 2003). The contract should be “considered as a whole”
and “each part of the contract should be given effect.” Forbeau v. Aetna Life Ins.
Co., 876 S.W. 2d 132, 133 (Tex. 1994). Our primary concern is to ascertain the
parties’ true intent, as expressed in the language of the policy. Kelley-Coppedge,
Inc. v. Highlands Ins. Co., 980 S.W. 2d 462, 464 (Tex. 1998). “We cannot adopt
a construction that renders any portion of a policy meaningless, useless, or
inexplicable.” Evanston Ins. Co. v. ATOFINA Petrochemicals, Inc., 256 S.W.3d
660, 668 (Tex. 2008).
If a provision has more than one reasonable interpretation, a court must
interpret it in favor of the insured, provided that interpretation is not
unreasonable, and even if the insurer’s interpretation is more reasonable. Nat’l
Union Fire Ins. Co. of Pittsburgh, Pa. v. Hudson Energy Co., 811 S.W.2d 552, 555
(Tex. 1991). “In particular, exceptions or limitations on liability are strictly
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No. 07-41272
construed against the insurer and in favor of the insured.” Id. We therefore
adopt United’s interpretation in this case if in our review we conclude it is at
least reasonable.
III.
A.
Our starting point is the insurance policy itself. The St. Paul insurance
policy is a standard commercial general liability policy that includes the
following additional insured endorsement:
Any person or organization that you agree in a written contract for
insurance to add as an additional protected person under this
agreement is also a protected person for the following if that
written contract for insurance specifically requires such
coverages for that person or organization . . . .
(Emphasis added.)
We then turn to the services agreement with United, i.e., the “written
contract for insurance,” and ask whether it requires coverage in the underlying
Garza litigation. We look to the services agreement’s additional insured
provision, which appears in section 10.2. That provision states, in relevant part:
UNITED and its subsidiaries, affiliated companies, co-owners,
partners and joint venturers (if any), and their respective members,
managers, officers, directors, agents, and employees shall be named
as additional insureds in each of Contractor’s policies, except
Workers’ Compensation; however, such extension of coverage
shall not apply with respect to any obligations for which
UNITED has specifically agreed to indemnify Contractor.
(Emphasis added.)
Section 10.2 plainly requires that J&R Valley name United an additional
insured. The present dispute, however, arises from section 10.2’s stipulation
that there will be no additional insured coverage for “any obligations for which
UNITED has specifically agreed to indemnify [J&R Valley].” St. Paul argues
this exclusionary language in section 10.2 refers to United’s agreement, in
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No. 07-41272
section 11.1, to indemnify J&R Valley for causes of action arising from its own
negligence. Section 11.1, which is titled “GENERAL INDEMNITY,” states, in
relevant part:
UNITED SHALL PROTECT, DEFEND, INDEMNIFY, AND HOLD
HARMLESS J&R AND ITS OFFICERS, DIRECTORS, AGENTS,
AND EMPLOYEES FROM AND AGAINST ALL CLAIMS,
DEMANDS, AND CAUSES OF ACTION ASSERTED BY ANY
PERSON (INCLUDING BUT NOT LIMITED TO EMPLOYEES OF
J&R AND UNITED) THAT ARISE OUT OF OR ARE RELATED TO
WORK AND ARE CAUSED BY OR ARISE OUT OF UNITED’S
NEGLIGENT ACTS OR OMISSIONS . . . .
B.
Thus, to determine the additional insurance coverage question presented
in this appeal, we now turn to consider the relationship between and among the
policy, the additional insured provision in the services agreement, and the
indemnity provision in the services agreement.
St. Paul argues that because in section 11.1 United agreed to indemnify
J&R Valley for causes of action arising out of its own negligence, United is not
an additional insured in the Garza litigation under the terms of section 10.2,
which excepts from such coverage United’s obligations to indemnify J&R Valley.
United, however, disputes any relationship between sections 10.2 and 11.1.
It argues that under Texas case law section 11.1’s indemnity provision does not
operate to limit additional insured coverage under section 10.2. United relies
primarily on Evanston Insurance Company v. ATOFINA Petrochemicals, Inc.,
256 S.W. 3d 660 (Tex. 2008), a recent opinion of the Texas Supreme Court, which
United argues requires us to apply only section 10.2–and not section 11.1–in
determining coverage here. Furthermore, United reads section 10.2 not to apply
because it excludes coverage only in the event United separately and extra-
contractually agrees to indemnify J&R Valley, and it has not agreed to
indemnify J&R Valley in connection with the Garza litigation.
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No. 07-41272
We agree that Evanston Insurance is instructive and that, in the light it
provides, we must look only to section 10.2, the additional insured provision
itself, as to whether there is coverage in this case. We also agree with United
that, relatedly, section 10.2 reasonably can be construed as providing additional
insured coverage, where there is no specific indemnity agreement relating to the
Garza litigation.
Evanston Insurance is instructive because in many respects it is
indistinguishable from the case before us. In particular, its underlying facts
mirror those at hand: ATOFINA Petrochemicals hired Triple S to perform
maintenance at an ATOFINA oil refinery. ATOFINA was made an additional
insured under Triple S’s policy with Evanston Insurance Co. A Triple S
employee drowned while servicing an ATOFINA refinery, and his estate sued
both Triple S and ATOFINA. Triple S was dismissed from the lawsuit,
consistent with the Texas Workers’ Compensation Act. ATOFINA and Triple S’s
insurer, Evanston, then disputed who would pay for the expense of the
remaining litigation. ATOFINA argued that it was an additional insured;
Evanston, citing ATOFINA’s agreement to indemnify Triple S for ATOFINA’s
own negligence, denied that its policy covered ATOFINA for the remaining
litigation.
The issue presented the Texas Supreme Court was virtually the same as
presented us: whether the parties’ indemnity agreement operated to limit the
scope of ATOFINA’s additional insured coverage. As here, in the parties’ service
contract ATOFINA had disclaimed any right of indemnity for losses caused by
its own negligence; in the same contract, Triple S had agreed to name ATOFINA
an additional insured in its policy with Evanston. On the basis of the policy’s
additional insured provision, ATOFINA claimed it was an additional insured for
the purposes of the underlying litigation. The state trial court and court of
appeals, however, agreed with Evanston that, because ATOFINA, in the service
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No. 07-41272
contract, had disclaimed any right of indemnity for losses caused by its own
negligence, ATOFINA was not an additional insured for those losses.
The Texas Supreme Court reversed, holding in favor of coverage for
ATOFINA. It pointed out that ATOFINA had not sought indemnity from Triple
S. Instead, it had sought indemnification from Evanston on the basis that it was
Triple S’s additional insured. The Texas Supreme Court explained that,
“[i]nstead of looking, as the court of appeals did, to the indemnity agreement in
the service contract to determine the scope of any coverage, we base our decision
on the terms of the umbrella insurance policy itself.” Id. at 664. Because by its
own terms that policy covered ATOFINA “with respect to operations performed
by [Triple S],” ATOFINA was an additional insured covered by the Evanston
policy for the purposes of the underlying litigation, notwithstanding any
indemnity agreement with Triple S.
We take from Evanston Insurance that in determining whether there is
coverage, a court looks only to the additional insured provision itself; that
indemnity is a separate, and later arising, question from coverage. It is true
that under the insurance policy in this case, unlike Evanston Insurance,
additional insured coverage must be specifically required by the services
agreement, and there is no question but that the services agreement specifically
states that United be named an additional insured under J&R Valley’s policy.
It also is true that, like Evanston Insurance, this agreement includes, in a
separate section, a general indemnity provision.2 Yet, it is not material to the
Evanston rule whether the additional insured provision is finally determined in
the policy or with the aid of the parties’ service contract. The separate
2
It is also true that the agreement’s additional insured provision in section 10.2
stipulates that there will be no coverage for “any obligations for which UNITED has
specifically agreed to indemnify [J&R Valley].” We address the effect of that language when
we interpret section 10.2 itself.
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No. 07-41272
indemnity provision is not applied to limit the scope of coverage. Indeed, on this
point the Texas Supreme Court could not have been clearer:
We have noted that where an additional insured provision is
separate from and additional to an indemnity provision, the scope
of the insurance requirement is not limited by the indemnity clause.
Id. at 664 (citing Getty Oil Co. v. Ins. Co. of N. Am., 845 S.W.2d 794, 804 (Tex.
1992)).
Here, United is not seeking indemnity from J&R Valley. It instead seeks
to enforce St. Paul’s duty to defend it on the basis that it is J&R Valley’s
additional insured. As in Evanston Insurance, we have an additional insured
provision that is separate from, and additional to, an indemnity provision. As
Evanston Insurance makes clear, the scope of additional insured coverage here
is not limited by the separate general indemnity provision found in section 11.1.
C.
Thus, by excluding section 11.1 as a factor, we have determined that
coverage here depends upon section 10.2, as it stands by itself. We now must
ask whether this section reasonably can be construed as requiring additional
insured coverage.3 United reads section 10.2 to exclude coverage only in the
event United separately and extra-contractually agrees to indemnify J&R
Valley. The question we now must ask is whether that interpretation is at least
reasonable. We conclude that it is.
3
St. Paul points out that we are interpreting a services agreement, not an insurance
policy; we therefore should apply the general rules of contract interpretation, not the special
rules of insurance policy interpretation. Consequently, we should not adopt an interpretation
of section 10.2 in favor of coverage merely because we conclude United’s interpretation is at
least reasonable. However, we see no reason why the special rules of insurance policy
interpretation should not apply where, as here, the insurance policy’s additional insured
endorsement incorporates section 10.2 by reference. The endorsement extends policy coverage
to parties with whom J&R Valley agrees “in a written contract for insurance” to add as an
additional insured. The endorsement thus incorporates a separate “written contract for
insurance”–here, section 10.2 of the services agreement. See, e.g., Tribble & Stephens Co. v.
RGM Constructors, LP, 154 S.W.3d 539, 663 (Tex. App. 2004, pet. denied) (separate
agreements may be incorporated by reference).
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No. 07-41272
In reaching this conclusion, we acknowledge that section 10.2 itself
stipulated that there will be no additional insured coverage for “any obligations
for which UNITED has specifically agreed to indemnify [J&R Valley].” However,
we do not think that this exclusionary language reasonably can be read to
exclude from coverage all incidents for which United could possibly owe J&R
Valley indemnity. We note that section 10.2 excludes obligations for which
United has specifically, not generally, agreed to indemnify J&R Valley. The
qualifier “specifically” reasonably can be read to indicate that United intended
to forego additional insured coverage only in the event United makes a
separately considered and extra-contractual decision, i.e., to specifically agree
to indemnify J&R Valley.
This reading is not inconsistent with the oilfield services agreement as a
whole, an important purpose of which was to secure insurance coverage for
United during the course of the contract’s performance. Section 10.2
unequivocally states that United and its affiliates “shall be named as additional
insureds.” When United bargained to be J&R Valley’s additional insured, it is
reasonable to assume that neither party intended the requirement to be a virtual
cipher, excluding from additional insured coverage all incidents for which it
could possibly owe J&R Valley indemnity under a general indemnity provision.
It is also improbable the parties intended that the general indemnity provision
of the oil services agreement would determine an additional insured obligation.
To hold otherwise arguably would ignore the parties’ true intent in negotiating
insurance coverage for the operations performed under the oilfield services
agreement, Kelley-Coppedge, Inc. v. Highlands Ins. Co., 980 S.W. 2d 462, 464
(Tex. 1998) (court’s primary concern is to ascertain the parties’ true intent), or
would risk rendering the additional insured requirement meaningless. See
Evanston Insurance, 256 S.W.3d at 668 n.27 (“We cannot adopt a construction
that renders any portion of a policy meaningless, useless, or inexplicable.”)
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No. 07-41272
(citing ATOFINA Petrochemicals, Inc. v. Cont’l Cas. Co., 185 S.W.3d 440, 444
(Tex. 2005) (per curiam)).
We conclude, then, that because United’s argument is not unreasonable,
United was an additional insured under the circumstances presented. The
general indemnity provision in United’s services agreement with J&R Valley
does not itself limit the scope of United’s additional insured coverage. The
services agreement’s additional insured provision reasonably can be read to
require coverage unless United separately and extra-contractually agrees to
indemnify J&R Valley. Because United has not separately agreed to indemnify
J&R Valley in connection with the Garza litigation, it is a covered insured under
the St. Paul policy.
IV.
For the reasons we have explained, we vacate the summary judgment for
St. Paul and render judgment for United.
We remand to the district court to enter judgment not inconsistent with
this opinion and for further proceedings, if any, it considers appropriate.
VACATED, RENDERED, and REMANDED.
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