The plaintiff in Al Copeland Investments LLC v. First Specialty Ins. Corp. sued on an insurance policy about a claim for property damage to its business. It argued that this forum selection clause in the policy:

“The parties irrevocably submit to the exclusive jurisdiction of the Courts of the State of New York and to the extent permitted by law the parties expressly waive all rights to challenge or otherwise limit such jurisdiction.”

was trumped by this Louisiana statute:

“No insurance contract delivered or issued . . . in [Louisiana] . . . shall contain any condition, stipulation, or agreement . . . [d]epriving the courts of [Louisiana] of the jurisdiction of action against the insurer.”

The Fifth Circuit disagreed and affirmed dismissal based on forum non conveniens: “[The statute] prohibits provisions in an insurance contract that would deprive Louisiana courts of jurisdiction. ‘A forum-selection clause is a provision . . . that mandates a particular state, county, parish, or court as the proper venue in which the parties to an action must litigate . . . .’ As the district court recognized, venue and jurisdiction are ‘separate and distinct.'” No. 17-30557 (March 9, 2018) (emphasis in original).

Three tugboats towed a barge; one of the tugboats served as the “lead” while the other two assisted. One of the assisting tugboats had an accident and sank. The question for the Fifth Circuit in Continental Insurance v. L&L Marine Transportation was whether the sunken boat was a “tow” of the lead boat, and thus came within the coverage of the insurance policy for the lead. (As distinct from a TOW missile, right.) Reviewing dictionaries and court precedent, the Court concluded that “tow” describes a situation where “some ship or boat is being provided extra motive power from another ship or boat by being pushed or pulled,” which was not the case here. The Court rejected an argument based on the maritime “dominant mind” doctrine – a concept derived from the duty of a lead boat in a flotilla to navigate resonably – as bearing only on potential tort liability and not the issue of interpreting the terms of this insurance policy. No. 17-30424 (Feb. 15, 2018).

The question of timely notice to a carrier can give rise to close questions about insurance coverage. Nautilus Ins. Co. v. Miranda-Mondragon, however, presented a straightforward issue: “The first notice Nautilus received of the lawsuit came from Miranda-Mondragon’s counsel 41 days after the state court entered default judgment . . . . The delayed notice prejudiced Nautilus as a matter of law and relieved Nautilus of liability under the policy.” No. 17-20261 (Oct. 20, 2017, unpublished).

Ramirez, on work trips to West Texas, contracted a fungal infection that led to the loss of an eye. His employee insurance plan would pay benefits “if an employee is injured as a result of an Accident, and that Injury is independent of Sickness and all other causes.” Based on the definitions of “Accident and “Sickness” in the policy, the Fifth Circuit affirmed summary judgment for the insurer. Ramirez tried to come within a “carve-back” provision at the end of the “Accident” definition, which extended coverage to “bacterial infection that is the natural and foreseeable result of an accidental external bodily Injury or accidental food poisoning, but the Court concluded that “neither the policy’s language nor its structure indicates that this provision applies beyond those two specific occurrences.” Ramirez v. United of Omaha Life Ins. Co., No. 16-11660 (Oct. 6, 2017).

In Mainali v. Covington Specialty Ins. Co., the Fifth Circuit addressed “whether a payment made to comply with an appraisal award, which in most if not all cases is going to be paid after the 60-day window [set by the Texas Prompt Payment statute], is subject to [a statutory] penalty.” In an Erie analysis, the Court followed intermediate Texas authority that held such a payment was not subject to those statutory penalties, observing: “Covington was not trying to avoid payment of the claim; it was invoking a contractually agreed to mechanism for assessing the amount it owed.” No. 17-10350 (revised Sept. 27, 2017).

Sterling Homes, the general contractor on a residential construction project, successfully sued Espinoza, a painting subcontractor, for a fire loss over $1 million. Espinoza’s insurer denied coverage because Sterling Homes was an “additional insured” on Espinoza’s policy, which the insurer said brought the Sterling-Espinoza dispute within the policy’s “cross suits” (or “insured v. insured”) exclusion.. The Fifth Circuit concluded that the plain terms of the exclusion would cover parties that were named as “additional insureds,” in addition to the actualy purchasers of a policy. But as to the specific claims at issue, the Court further held that the exclusion was only intended to apply to Sterling Homes’s liability arising rom Espinoza’s operations, as “nothing in the plain language of the subcontracting agreement obligating Espinoza to name Sterling Homes as an additional insured suggests the parties intended for Espinoza to lose insurance overage in the event Sterling Homes needed to sue him.” Certain Underwriters at Lloyd’s v. Sterling Custom Homes

The issue in Longhorn Gasket & Supply Co. v. U.S. Fire Ins. Co. was whether asbestos was within the scope of a pollution exclusion that applied to  “irritants, contaminants or pollutants.” Acknowledging a dearth of Texas case law on the subject, and lack of a clear trend in opinions nationally, the Fifth Circuit concluded that asbestos was an “irritant” under the commonly-accepted meaning of that term, and the underlying claims thus fell within the scope of the exclusion. The Court then held that because “[w]e have concluded that the pollution exclusion applies . . . the burden shifts to [the insured] to attempt to apply an exception to the exclusion”; in this case whether “such discharge, dispersal, release or escape is sudden and accidental.” No. 15-41625 (Aug. 18, 2017).

The Fifth Circuit reversed a summary judgment for the insured in a dispute about “advertising injury” coverage, finding that the underlying pleading “alleged misrepresentations . . . directed at a particular potential customer in reference to a particular project that a competitor was undertaking. It thus impugned a particular competitor and its services by necessary implication” (thus distinguishing KLN Steel Prods. Co. v. CNA Ins. Cos., 278 S.W.3d 429 (Tex. App.–San Antonio 2008, pet. denied)). This brought the claim within the policy, which covered “injury . . . arising out of the oral or written publication, in any manner, or material that disparages a person’s or organization’s goods, products or services.” Uretek (USA), Inc. v. Continental Casualty Co., No. 15-20104 (July 28, 2017).

Laney Chiropractic v. Nationwide Mutual Ins. Co. presented a dispute about whether “advertising injury,” covered by insurance, was raised by a complaint about a competitor’s statements about a chiropractic massage technique. The Fifth Circuit affirmed summary judgment for the insurer, finding, inter alia: “[W]hen an insured is accused of using another’s product, they are generally not using another’s ‘advertising idea.’ . . . And that is precisely what the Underlying Complaint alleges. It alleges that Laney unlawfully used a patented product . . . and then advertised the product on its website.” Arguments based on alleged trade dress and slogan infringement failed for similar reasons. No. 16-1183 (July 28, 2017)

Servisair bought a workers’ compensation policy from Liberty Mutual, “There is no dispute that Servisair significantly over-allocated payroll to clerical employees, which is a considerably less expensive classification.” Thus, after the payroll period ended and an audit concluded, Liberty Mutual billed Servisair for $3.6 million in additional premium. Servisair alleged a mistake in the “underlying factual basis” relied upon “in negotiating and agreeing to the policy,” but the Fifth Circuit sided with Liberty Mutual, noting that the policy expressly stated: “If the final premium is more than the premium [Servisair] paid to [Liberty Mutual], [Servisair] must pay [Liberty Mutual the balance.” In other words, “[t]his is an open-ended obligation with no limit on the amount of additional premium Servisair might ultimately owe.” In sum: “Servisair made a deal that, in retrospect, it did not like. That does not allow it to rewrite or avoid its obligations.” Liberty Mutual Ins. Co. v. Servisair, LLC, No. 16-20472 (June 27, 2017, unpublished).

In Richard v. Anadarko Petroleum Corp., the Fifth Circuit required reformation of a contract on the grounds of mutual mistake, to the detriment of non-party Liberty Mutual, acknowledging that “[c]ourts must guard against parties’ ‘attempts to make an end-run around the parol-evidence rule,’ which forecloses the use of parol evidence to interpret unambiguous terms, ‘by framing [their] argument[s] as a request for reformation.” Here, reformation was appropriate even considering the effect on Liberty Mutual, given (1) its lack of reliance on the contract, (2) the general consistency of the terms in the reformed contract with industry practice, and (3) course of performance. No. 16-30216 (March 2, 2017).

Federal Insurance agreed to pay defense costs in ongoing commercial litigation against its insureds, subject to its position that under the policy, payment of defense costs deplete the policy limits. The relevant clause said: “[T]he Limit of Liability under the Fiduciary Coverage Section is $1 million, subject to a $1 million aggregate limit, and a $10,000.00 Retention, with Defnse Costs eroding or depleting those limits.” The Fifth Circuit agreed with Federal, rejecting arguments based on the limit potentially implicating conflict-of-interest concerns for counsel, and policy issues raised by applicable state statutes in the health care area. In sum: “Under Mississippi law, insurance policies are to be enforced according to their provisions.” Federal Ins. Co. v. Singing River Health System, Ni. 15-60774 (March 1, 2017).

A church in Hattiesburg, Mississippi proved that its insurer did not properly handle its claim resulting from tornado damage (right), resulting in a damages award of over $1,000,000. The Fifth Circuit affirmed against challenges by both sides; as to the church’s request for punitive damages, it held: “Taking the facts in the light most favorable to Mount Carmel, GuideOne’s alleged conduct did not rise to the necessary level of an independent tort that would warrant punitive damages. Mount Carmel merely alleges that GuideOne had ‘knowledge of the financial harm that would result’ from its cancellation of the policy. But this type of knowledge is likely present for many cancellations and alone is not sufficient to rise to the level of an independent tort. Accordingly, it does not warrant punitive damages.” GuideOne Elite Ins. Co. v. Mount Carmel Ministries, No. 15-60915 (Jan. 23, 2017, unpublished).

OneBeacon Ins. Co. v. Welch & Assocs. involved insurance coverage for an attorney malpractice claim, arising for an exclusion for knowledge about “any actual or alleged act, error, omission or breach of duty arising out of the rendering or the failure to render professional legal services.” Since even the carrier agreed that “[o]n its face, this covers every single thing an attorney does or does not do, wrongful or not,” the Fifth Circuit found that the exclusion could not be applied literally without making the contract illusory. Focusing on the alleged “wrongful act,” the Court found that the relevant lawyer’s awareness of a discovery order and potential dispute was not equivalent to knowledge that a rare death-penalty sanction award would result. The Court also sustained an award of additional violations for an intentional violation of the Insurance Code with respect to the handling of the claim. No. 15-20402 (Nov. 14, 2016).

Color Star Growers (a wholesale distributor of flowers) went into bankruptcy; their lenders sued the Verbeeks in Texas state court, alleging that they fraudulently induced the loans to Color Star. The Verbeeks sought a defense from the D&O carrier for their company. The insurer successfully obtained summary judgment based on the policy’s “Creditor Exclusion” and the Fifth Circuit affirmed. The exclusion said: “The Insurer shall not be liable to pay any Loss on account of, and shall not be obligated to defend, any Claim brought or maintained by or on behalf of . . . [a]ny creditor of a company or organization in the creditor’s capacity as such, whether or not a bankruptcy or insolvency proceeding involving the company or organization has been commenced.” Rejecting the Verbeeks’ arguments that the state court plaintiffs were suing as “administrative agents” or “investors” rather than creditors, the Court observed that “the alleged facts giving rise to the underlying litigation relate entirely to the state court plaintiffs’ loan agreements with Color Star . . . .” The Court went on to affirm as to the duty to indemnify as well. Marke Am. Ins. Co. v. Verbeek, No. 15-51099 (Sept. 27, 2016, unpublished).

Cal Dive International sued Schmidt (a commercial diver), and Edwards (Schmidt’s attorney in a previous personal injury suit against Cal Dive), alleging that Schmidt had misrepresented his injuries, and seeking restitution of contingent fees paid to Edwards. Cal Dive specifically alleged that it did not believe Edwards knew of the purported fraud. Edwards sought coverage for defense costs, and the Fifth Circuit reversed a judgment in his favor: “Cal Dive’s complaint, for which Edwards seeks defense from Continental, contains no allegations against Edwards, save for his receipt of settlement funds in the nature of attorney’s fees as a result of his client’s alleged fraud. Acts or omissions in the rendering of legal services by Edwards to his client, Schmidt, are simply not at issue.” Edwards v. Continental Casualty Co., No. 15-30827 (Nov. 2, 2016).

Apache Corporation had an insurance policy for computer fraud, which said: “We will pay for loss of, and loss from damage to, money, securities and other property resulting directly from the use of any computer to fraudulently cause a transfer of that property from inside the premises or banking premises: (a) to a person (other than a messenger) outside those premises; or (b) to a place outside those premises.” (emphasis added) The Fifth Circuit, after a “detailed — albeit numbing — analysis of the cited authorities,” concluded that the weight of the case law did not create coverage under this policy for the following events:

1. Apache received a call from a vendor (actually, a criminal posing as the vendor) asking that Apache change its payments to a new bank account.
2. Apache asked for a formal request on the vendor’s letterhead; one arrived about a week later by email with an attachment on letterhead (from a domain used by the criminals to further pose as the vendor);
3. Apache called the number on the letterhead to verify the request, and after thinking it had confirmed the authenticity of the request, began sending payments to a new bank account.

While computer use obviously played a role in the deception, the Court noted: “To interpret the computer-fraud provision as reaching any fraudulent scheme in which an email communication was part of the process would . . . convert the computer-fraud provision to one for general fraud.” Apache Corp. v. Great Am. Ins. Co., No. 15-20499 (Oct. 18, 2016, unpublished).

The parties in AIG Specialty Ins. Co. v. Tesoro Corp. disputed whether limitations had run on an insurance coverage claim involving the identity of the named insured (and in turn, whether that entity owned a refinery subject to difficult environmental remediation orders). As a matter of contract law, the Court agreed that mere receipt of an insurance policy does not necessarily bar a reformation claim. But under Texas limitations principles, the insured could not establish that the insurer had “specialized knowledge” about the subject of refinery ownership, or that the mistake in the policy was inherently undiscoverable — especially then “the mistake is evident from the face of the document.” No. 15-50953 (Oct. 17, 2016).

The unfortuante Noreen Johnson sought to recover from her insurer after her home suffered wind damage from Hurricane Isaac, and then caught fire roughly two years later. The insurer successfully defended against her claim based on her failure to cooperate as required by the policy. In addition to showing her failure to provide required information, the insurer was able to establish prejudice, in that (1) “by significantly altering the state of the house before GeoVera’s agent could appraise it, Johnson effectively negated GeoVera’s appraisal right, as GeoVera could no longer inspect the extent of the smoke damage,” and (2) “by refusing to sit for an examination under oath until over a year after the fire . . . [t]he delay caused Johnson to forget information vital to protect GeoVera from fraud during the claims process.” Johnson v. GeoVera Specialty Ins. Co., No. 15-30803 (Sept. 27, 2016, unpublished).

Insurance coverage litigation provided another example of the tension between the “Scylla” of pleading — the “plead more detail” command from Twombly and Iqbal — and its “Charybids” — the principle of insurance law that “[a]ll doubts regarding the duty to defend are resolved in favor of the insured.” Fed Ins. Co. v. Northfield Ins. Co., No. 14-20633 (Sept. 16, 2016). Here, ltigation about pollution liability led to a dispute about whether a “pollution exclusion” eliminated the duty to defend. The Fifth Circuit reversed a summary judgment in favor of the insurer, noting: “ExxonMobil’s petition does not attach any of the petitions in the Louisiana Litigation. ExxonMobil’s petition provides very little information about the nature of the claims made in the Louisiana Litigation, for which ExxonMobil seeks indemnity and defense costs from [the insured].” As a result, “because of the breadth and generality of the allegations in ExxonMobil’s state court petition, we cannot say that all of the claims fall clearly within the exclusion.”

Tesoro, an oil refiner and marketer, submitted a claim to National Union under its commercial crime insurance policy, involving the forgery of key documents by a Tesoro employee about the account of Enmex, a substantial Tesoro customer. The Fifth Circuit reasoned that the “Employee Theft” provision of the policy required a showing of an unlawful taking, and that Tesoro failed to show had “the forged letters of credit and security agreement induced Tesoro to continue selling fuel to Enmex or what evidence supports this assertion . . . In sum, Tesoro failed to offer any evidence that it would have acted differently had it known the Enmex account was actually not secured.” Tesoro Refining v. National Union, No. 15-50405 (July 29, 2016).

Litigation about the failed drilling of an oil well led to insurance litigation under Louisiana’s Direct Action Statute. The district court granted summary judgment to the insured as to its insurers’ duty to indemnify, and the Fifth Circuit reversed, finding that the indemnity issue was not yet justiciable: “[I]t is readily apparent that ‘facts can be developed’ at trial that would support a finding that at least some of [the insured’s] conduct related to the failed directional drilling project triggered coverage under the relevant policies. Beyond the already existing testimony . . . [the insured] points to a number of witnesses who were not deposed but who could testify at trial on relevant issues such as subcontractors, surveyors, and consultants.” Solstice Oil & Gas LLC v. Seneca Ins. Co., No. 15-30874 (July 21, 2016).

Extensive tornado damage to a building at the University of Southern Mississippi led to a hard-fought dispute among insurers. The Fifth Circuit’s detailed affirmance of the district court’s opinion turned on this observation about the losing insurer’s postition: “Were this construction adopted, insurers who covered the same risk would be incentivized to enter into a stare-down, each waiting for the other to blink first in order to seize the opportunity to deny coverage. Such an outcome is neither reasonable nor commercially practicable.” Southern Ins. Co. v. Affiliated FM Ins. Co., No. 15060742 (July 21, 2016). (The opinion also features a rare appellate shout-out to T.S. Eliot’s The Hollow Men.)

Individuals injured in an industrial accident sued DP Engineering; the resulting insurance coverage litigation turned on whether the policies’ “professional services” exclusion applies. As to the duty to defend, after careful review of the underlying pleadings, the Fifth Circuit found that “[t]he facts alleged do not include administrative, non-professional activities,” but rather all involved “injuries that ‘arise out of’ DP Engineering’s . . . allegedly negligent engineering services.” However, the Court found error in resolving the duty to indemnify on the pleadings, as “[t]he allegations in the underlying lawsuits . . . do not conclusively foreclose that facts adduced a trial may show DP Engineering also provided non-professional services, which would be covered under the policy.” Hartford Casualty Ins. Co. v. DP Engineering LLC, No. 15-10443 (June 29, 2016).

Ronald Crose, an overly enthusiastic raver, took ecstasy and suffered a stroke not long after. A suit on his health insurance policy followed; at issue was an exclusion for “[l]oss due to being . . . under the influence of any narcotic.” The Fifth Circuit agreed that ecstasy was a “narcotic” within the meaning of the exclusion, rejecting as overly technical the argument that “narcotic” refers only to “drugs derived from a plant” (as opposed to a “hallucinogen” such as ectasy). The Court went on to find that under applicable Texas law, “due to” required more than “but for” causation, but did not require proof that the narcotic was the sole cause of injury. Crose v. Humana Ins. Co., No. 15-50559 (May 23, 2016).

In July 2009, hail damaged the then-dormant Dallas Plaza Hotel (right), owned by Hamilton Properties. Hamilton inspected the property in November 2010, emailed an insurance agent in February 2011, and filed a claim in October 2011.  The Fifth Circuit agreed that Hamilton had failed to give reasonably prompt notice, noting that it had no explanation for the long delay, and that while the insurer had been able to investigate the claim: “It is undisputed that because of Hamilton’s delay, AIC lost access to critical evidence, including the condition of the twelfth floor before and after the July hailstorm and up until the end of the coverage period.” Hamilton Properties, Inc v. American Ins. Co., No. 15-10382 (April 14, 2016, unpublished).

Lalo sued for injuries he suffered while riding in an 18-wheeler driven by Estrada.  Castle Point Insurance sought a declaration about its coverage obligations.  The Fifth Circuit, applying Texas’s “eight corners rule,” found that the district court erred in applying a “work-related injuries” exclusion to Lalo because his “state-court complaint contains no allegation that Lalo was an employee of [the trucking company]; nor does it contain sufficient factual allegations to classify Lalo as an employee.”  As to Estrada — again, not specifically alleged to be an employee — the insurer had a duty to defend (and potentially, to indemnify) because the evidence might establish him to be an employee.  (This is Lalo’s Petition — notably, while he never directly claims to be an employee, he does allege the defendants’ “[f]ailure to furnish Plaintiff with a safe place to work” and their hiring of “[n]egligent co-workers like Defendant ESTRADA — vividly illustrating the importance of the specific words used in pleading allegations that bear on insurance coverage.)  Castle Point Nat’l Ins. Co. v. Lalo, No. 15-10224 (March 17, 2016, unpublished).

Ayoub v. Chubb Lloyds Ins. Co. of Texas confronted a “scattershot and somewhat redundant” endorsement to a homeowner’s policy, “unlike any policy language addressed in Texas case law that we have seen.”  The endorsement dealt with personal property. The district court granted summary judgment for the insured, concluding that the “actual cash value” described in the endorsement could not be proved with the insured’s affidavit about replacement cost.  The Fifth Circuit disagreed and reversed, noting that the Texas Supreme Court has acknowledged that “personal effects have ‘no market value in the ordinary meaning of that term,'” meaning that “[t]he trier of facts may consider original cost and cost of replacement,” among other evidence.  No. 14-51301 (Jan. 28, 2016, unpublished).

A highly technical dispute about the applicable law for an offshore salvage operation produced an insurance holding of general applicability in Tetra Technologies, Inc v. Continental Ins. Co., No. 15-30446 (Feb. 24, 2016).  The policy exclusion applied to “[a]ny obligation of the insured under a workers compensation, United States Longshoreman’s and Harbor Workers’ Compensation Act, Jones Act, Death on the High Seas Act, General Maritime Law, Federal Employers’ Liability Act, disability benefits or unemployment compensation law or any similar law . . . ”  The Fifth Circuit concluded that the “any similar law,” while referring generally to employers’ liability (since all the laws specifically named deal with that issue), was still ambiguous and meant that the exclusion would be construed against the insurer.

Health Care Service Corporation (known in Texas as Blue Cross and Blue Shield of Texas), serves as the administrator of various insurance plans.  It had a dispute with Methodist Hospitals of Dallas about its potential liability under the Texas Prompt Pay Act, which sets penalties for insurance claims that are not processed within the deadlines set out by the Act.  The Fifth Circuit agreed with the district court that the Act did not apply when Blue Cross “did not provide benefits through its administrator and preferred provider agremeents, but instead merely distributes claim payments from plans to providers[.]”  The Court also found federal preemption of claims under the Act related to claims under the Federal Employees Health Benefits Program.  Health Care Service Corp. v. Methodist Hospitals of Dallas, No. 15-10154 (Feb. 10, 2016).

National Casualty sued its insured in federal court for a declaratory judgment that there was no coverage.  The insured sued National Casualty and the insured’s insurance brokers in state court for misleading it about coverage.  The district court found that those additional parties were indispensable for the federal action (and would destroy diversity if joined), and abstained under Colorado River from proceeding further.  Reminding “that it is not necessary for all joint tortfeasors to be named as defendants in a single lawsuit,” the Fifth Circuit reversed as to the joinder analysis, and also as to abstention, noting in particular that “the federal action has proceeded to summary judgment . . . [and] the state court action has involved little more than an original petition, answers, and a stay of proceedings.”  National Casualty Co. v. Gonzalez, No. 15-10478 (Feb. 4, 2016, unpublished).

Construction Funding filed a timely, sworn, proof of loss that “itemized the claim into general categories” such as “building structures” and “personal property.”  Unfortunately, the relevant policy (incorporating a background federal law), required a “complete” inventory with attached documents.  In this context “substantial compliance . . . is not enough,” and Construction Funding had no coverage for its loss.  Construction Funding, LLC v. Fidelity Nat’l Indem. Ins. Co., No. 15-30040 (Jan. 8, 2016, unpublished).

Plaintiffs sued about insulation installed in their home by the defendants, alleging that they “failed to seal off completely areas in which vapors could be transported from the areas under renovation and construction to the existing area[] of the house[,] in which the Commarotos, their three minor children, and their houseguest, Schlegel, were living and sleeping during the construction process.” The district court found that these allegations unambigously fell within the pollution exclusion of the relevant insurance policy and the Fifth Circuit affirmed.  The Court declined to consider “deposition testimony by two of the plaintiffs stating that they physically touched and examined the spray foam insulation.”  While an exception to the “eight corners rule” could allow consideration of such evidence if “it is initially impossible to discern whether coverage is potentially implicated” (among other matters), the clarity of this pleading precluded its application here.  Evanston Ins. Co. v. Lapolla Indus, Inc., No. 15-20213 (Dec. 23, 2015, unpublished) (applying Star-Tex Resources, LLC v. Granite State Ins. Co., 553 F. App’x 366 (5th Cir. 2014)).

Greenwich Insurance Company made a number of errors in its internal accounting about crop insurance premiums.  When those mistakes ultimately led to a substantial assessment against it by a state authority, Greenwich argued that the state standards were preempted by regulations associated with the Federal Crop Insurance Act.  The Fifth Circuit agreed with the district court that they were not, as the true source of Greenwich’s problems was not the state rules but its own “acts of unjustifiable incompetence”:  “The FCIC did not intend to hamstring . . . the operations of state programs . . . simply to protect inattentive insurers from their own mistakes.”  Greenwich Ins. Co. v. Mississippi Windstorm Underwrting Ass’n, No. 15-60405 (Dec. 15, 2015).

Cameron International, a main defendant in the Deepwater Horizon cases, successfully sued Liberty Insurance to help cover its substantial settlement costs. After affirming on the merits, the Fifth Circuit certified this question to the Texas Supreme Court: “Whether, to maintain a cause of action under Chapter 541 of the Texas Insurance Code against an insurer that wrongfully withheld policy benefits, an insured must allege and prove an injury independent from the denied policy benefits?” Cameron International Corp. v. Liberty Ins. Underwriters, Inc., No. 14-31321 (Nov. 19, 2015).

The Pyes’ home, valued at $195,000 before Hurricane Ike, was destroyed by that storm.  After they recovered under various insurance policies, the Fifth Circuit found that further recovery under a flood insurance policy would be an impermissible double recovery. Noting that federal common law applied in this area rather than Texas law, the Court nevertheless found that Texas’s emphasis on fair market value was persuasive, and set the $195,000 valuation as the cap on recovery.  While reaching this result, the Court reminded that “the question of the proper measure of recovery under a policy, which is controlled by policy language when defined in the contract as it is here, as distinct from the question of how the bar on double recovery is applied.”  Pye v. Fidelity Nat’l Prop. & Cas. Ins. Co., No. 14-40315 (Nov. 6, 2015).

After losing a state court lawsuit, Martin Resource Management settled with its primary insurer (Zurich) for less than policy limits.  Axis, the excess carrier, won summary judgment with the argument that this settlement did not trigger coverage, and the Fifth Circuit affirmed.  The Axis policy said: “The Insurance afforded under this Policy shall apply only after all applicable Underlying Insurance . . . has been exhausted by actual payment under such Underlying Insurance[.]”  Martin Resource Management Corp. v. Axis Ins. Co., No. 14-40512 (Oct. 21, 2015) (applying Citigroup, Inc. v. Federal Ins. Co., 649 F.3d 367, 371-73 (5th Cir. 2011)).

McGowan successfully sued his employer, Tractor Supply Co., for over $8 million in damages after a severe workplace injury.  In the meantime, TSC’s umbrella carrier sued TSC and another carrier for a declaration about coverage obligations.  The district court dismissed for lack of standing, and pursuant to its discretion under the Declaratory Judgment Act.  The Fifth Circuit reversed; its principal holdings were: (1) under Texas insurance law, this sort of suit is justiciable after a liability determination at trial, and does not require exhaustion of appellate remedies; (2) the issues and parties were different in the two actions; and (3) the declaratory judgment suit was filed after the state case and otherwise showed “no indication of procedural fencing.”  Ironshore Specialty Ins. Co. v. Tractor Supply Co. 14-51164 (Aug. 25, 2015, unpublished)

In a dispute about insurance coverage for a False Claims Act case involving the repair of Coast Guard cutters, the relevant exclusion reached: “[t]he failure of your products to meet any
predetermined level of fitness or performance and/or guarantee of such fitness or level of performance and/or any consequential loss arising therefrom.”  The insured argued that “predetermination” implied a bilateral agreement, while a “requirement” was unilateral and did not implicate the exclusion.  The Fifth Circuit disagreed for several reasons: “But ‘predetermined’ means only ‘established, decided upon, or
decreed beforehand.’ It implies nothing about how a determination comes about, or who has the authority to determine. A single party can ‘determine’ something, and can do so in advance: there is nothing inherently bilateral about predetermination. And even if there were, the complaint lays out straightforwardly that [the insured] failed to meet a requirement that the parties together determined in advance. (citation omitted)”  XL Specialty Ins. Co. v. Bollinger Shipyards, Inc., No. 14-31283 (Aug. 27, 2015).

A contractor who undertakes to build a house does not have insurance coverage, because of the “your work” exception, if soil movement causes an unacceptable foundation failure.  This exception does not apply to a contractor with a specified and limited scope of work — for example, wall damage is not “your work” for a contractor hired only to repair a foundation.  Feaster v. Mid-Continent Casualty Co., No. 15-20074 (Aug. 27, 2015, unpublished).

Plaintiff claimed that he was not given proper medications by a private corrections company while incarcerated.  The ensuing coverage litigation turned on a “medical services” exclusion, which said in relevant part:

“a) medical, surgical, dental or nursing treatment to such person or the person inflicting the injury including the furnishing of food or beverages in connection therewith;
b) furnishing or dispensing of drugs or medical, dental or surgical supplies or appliances if the injury occurs after the Named Insured has relinquished possession thereof to others;”

The Fifth Circuit agreed with the insurer that (a) and (b) dealt with different, distinct, situations and had to be harmonized – noting that an “or” between two later subparts supported this reading.  Accordingly, the exclusion in (a) could apply even if (b) was not triggered.  LCS Corrections Services v. Lexington Ins. Co., No. 14-40494 (Sept. 4, 2015).

Employees of the Stanford Financial Group sought coverage for attorneys fees incurred in defending federal criminal charges.  The district court held the policy ambiguous and found coverage under the contra proferentem doctrine.  The insurer sought reversal based on the “sophisticated insured” exception to that doctrine under Texas law.  (A previous panel certified the question whether this exception existed in Texas to the Texas Supreme Court, who declined to answer it by resolving that case on other grounds.) Concluding that if Texas were to recognize the exception, it would apply a “middle-ground approach,” the majority affirmed: “Absent any information about the content of the negotiations, how the contracts were prepared, or other indicators of relative bargaining power, [the insurer] did not present evidence that the insured did or could have influenced the terms of the exclusion.”  A dissent would have sidestepped saying anything about the exception, preferring to affirm on the ground that the policy unambiguously provided coverage. Certain Underwriters at Lloyds v. Perraud, No. 14-10849 (Aug. 12, 2015, unpublished).

Cox Operating incurred significant expenses in cleaning up pollution and debris at its oil-and-gas facilities after Hurricane Katrina.  Its insurer disputed coverage.  After a lengthy trial, the district court awarded $9,465,103.22 in damages and $13,064,948.28 in penalty interest under the Texas Prompt Payment Act.  The Fifth Circuit affirmed in Cox Operating LLC v. St. Paul Surplus Lines Ins. Co., No. 13-20529 (July 30, 2015).

After finding that the one-year reporting requirement in Cox’s policy was not an unwaivable limitation on coverage, the Court confronted a “disturbing inconsistency” about the Act. On the one hand, the penalty-interest provision applies generally “[i]f an insurer that is liable for a claim under an insurance policy is not in compliance with this subchapter.”  On the other hand, of the Act’s variously deadlines, only one expressly ties its violation to the penalty provision.  The Fifth Circuit found for the insured, finding “the construction urged by St. Paul . . . would seem to transform all but one of the Act’s deadlines from commands backed by the threat of penalty interest to suggestions backed by nothing at all.”

H&E Equipment sued Advanced Services after a fire at a plywood plant.  Advanced brought a third-party claim against Georgia-Pacific for indemnity, who in turn sought coverage from Kinsale Insurance.  Kinsale denied coverage on the ground that Advanced was also insured under the relevant policy, triggering this “insured v. insured” exclusion:  “This insurance does not apply to claims or ‘suits’ for ‘bodily injury,’ ‘property damage’ or ‘personal and advertising injury’ brought by one insured against any other insured.”  The Fifth Circuit reversed summary judgment for the insurer, reasoning: “Advanced did not, in turn, seek damages from Georgia-Pacific due to a property loss; it sought indemnity based on general tort principles for the property damage that occurred to another party. Advanced had no property damage, but it seeks protection from a potential duty to pay for someone else’s property damages.”  Kinsale Ins. Co. v. Georgia-Pacific, LLC, No. 14-60770 (July 27, 2015) (distinguishing Fidelity & Deposit Co. of Maryland v. Conner, 973 F.2d 1236 (5th Cir. 1992).

Two test preparation services sued each other.  The plaintiff sought coverage for a counterclaim under a policy that covered “injury arising out of . . . infringing upon another’s copyright, trade dress or slogan in your advertisement” (in other words, “trade dress” but not “trademark” claims).  .” (emphasis added). Even under the generous standards for determining the duty to defend, the counterclaim’s allegations did not trigger coverage: “The central focus in this coverage dispute, however, is not on the confusion, but on what allegedly is causing the confusion. The alleged confusion in this case stems from the use of a similar service mark (“Testmasters”), and the false
representation that TES offers a similar service (live LSAT courses offered nationwide). None of the allegations possibly states a claim for confusingly similar trade dress.”  Test Masters Educational Services, Inc. v. State Farm Lloyds, No. 14-20473 (June 29, 2015).

Building on In re Deepwater Horizon, ___ S.W.3d ___, 2015 WL 674744 (Tex. Feb. 13, 2015), in Ironshore Specialty Ins. Co. v. Aspen Underwriting, the Fifth Circuit addressed whether the following insurance policy provision limited the excess insurer’s obligations to a $5 million that the insured was obliged to provide under another contract: “The word ‘Insured,’ wherever used in this Policy, shall mean . . . any person or entity to whom [Insured] is obliged by a written ‘Insurance Contract’ entered into before any relevant ‘Occurrence’ and/or ‘Claim’ to provide insurance such as is afforded by this Policy.”  The Court found that it did, even though the contract at issue in Deepwater Horizon had additional provisions that bore on this question.  No. 13-51027 (June 10, 2015).

Withdrawing an earlier panel opinion, the Fifth Circuit certified two insurance questions to the Louisiana Supreme Court in 2014, which have now been answered:

1.  Whether an insurer can be liable for a bad-faith failure-to-settle claim when it never received a firm settlement offer.  (The Fifth Circuit noted that a revised statute imposed “an affirmative duty . . . to make a reasonable effort to settle claims,” drawing into question prior case law in the area.)  The Louisiana Supreme Court said: “Having determined that the plain language supports the existence of a cause of action in favor of the insured under [the revised statute], we answer this question affirmatively.”

2.  Whether an insurer can be liable for “misrepresenting or failing to disclose facts that are not related to the insurance policy’s coverage” — namely, the status of a claim and related settlement negotiations.  The answer: ” An insurer can be found liable under [the statute] for misrepresenting or failing to disclose facts that are not related to the insurance policy’s coverage; the statute prohibits the misrepresentation of ‘pertinent facts,’ without restriction to facts ‘relating to any coverages.'”

Accordingly, the Fifth Circuit remanded for further proceedings in Kelly v. State Farm, No. 12-31064 (May 29, 2015, unpublished).

Amerisure and Arch disputed whether Arch exhausted its policy limits.  The Arch policy had an endorsement that said the coverage section “is amended as follows: The provision: ‘These payments will not reduce the limits of insurance. is deleted in its entirety and is replaced with the following provision: ‘These payments will reduce the limits of insurance.’”

Amerisure argued that the “expenses” referred to by the endorsement could not be read as including attorneys fees without contradicting another, more specific portions of the policy: ” Our right and duty to defend end[s] when we have used up the applicable limit of insurance in the payment of judgments or settlements under Coverages A or B or medical expenses under Coverage C.”

The Fifth Circuit disagreed, reasoning: “This construction reads the endorsement out of the policy as, logically, there can never be an end to the duty to defend unless the insurer
pays the policy limits in indemnity payments.”  Accordingly, Arch had an “eroding” policy with the insured, and its payments of attorneys fees had exhausted the policy limits.  Amerisure Mutual Ins. Co. v. Arch Specialty Ins. Co., No. 14-20239 (April 21, 2015).

At issue in North Cypress Medical Center Operating Co. v. Cigna Healthcare was a basic aspect of the structure of a “preferred provider” insurance program.  Under the many policies at issue, “in-network” providers receive more reimbursement than “out-of-network” ones, as an incentive to seek treatment in-network.  With respect to the portion of the bill as to which patients had responsibility, certain providers provided “prompt pay” discounts.  Insurers disputed whether they were then still responsible for the entire billed amount, or should have their responsibility reduced by a corresponding discount.  The Fifth Circuit found that the patients, and thus the providers to whom they assigned their claims, had standing to litigate about this situation (reversing a district court ruling to the contrary).  It also found that ERISA preempted state law claims about these issues, that limitations applied (without tolling) to compulsory counterclaims by insurers that sought affirmative relief rather than recoupment, and affirmed the dismissal of RICO claims by the provider.  The litigation seems likely to continue, and to produce more issues about complicated and significant ERISA and procedural points.  No. 12-20695 (March 10, 2015).

An insurer settled with its insured; the settlement “did not contain an admission of liability under the Policy and both parties dispute whether the Policy covered the four claims at issue.”  Accordingly, the insured had no claim under the Texas Prompt Payment Act for an alleged breach of the settlement.  Tremago, L.P. v. Euler-Hermes American Credit Indemnity Co., No. 13-41179 (Feb. 25, 2015, unpublished).  The Court also found that a trio of statements such as “[Plainitff] has not alleged, let alone proffered any evidence of any act on [Defendant’s] part that fairly can be characterized as ‘so extreme’ that it would cause ‘injury independent of the policy claim’ was sufficient to place the plaintiff on notice that its extra-contractual claims were within the scope of the defendant’s summary judgment motion.