United States District Court, E.D. Louisiana
ORDER & REASONS [As to Cameron's and LIU's Motions for Summary Judgment]
CARL BARBIER, District Judge.
The referenced member case involves an insurance coverage dispute between Plaintiff Cameron International Corporation ("Cameron") and its insurer, Defendant Liberty Insurance Underwriters, Inc. ("LIU"), over $50 million Cameron paid to settle most claims against it arising from the 2010 oil spill in the Gulf of Mexico. Briefly, Cameron's action seeks a judgment holding LIU liable for the amount Cameron paid in settlement and for the attorneys' fees Cameron has incurred defending itself in the underlying multidistrict litigation. Cameron also prays for extra-contractual damages or penalties under the Texas Insurance Code.
Before the Court are multiple motions for summary judgment, all of which are opposed. Cameron moves for partial summary judgment on its claims that LIU breached the policy and must reimburse Cameron for the $50 million and its defense expenses. (Rec. Doc. 12440) LIU filed a cross-motion on the issue of whether it breached the contract. (Rec. Doc. 12580) LIU also moves for partial summary judgment against Cameron's claims under the Texas Insurance Code and for defense expenses. (Rec. Docs. 12050, 12578) For the reasons set forth below, the Court finds that Cameron is entitled to summary judgment on its claims that LIU breached the policy and must indemnify Cameron for the settlement amount. However, the Court finds that LIU is entitled summary judgment against Cameron's claims for defense expenses and under the Texas Insurance Code.
I. FACTUAL BACKGROUND
The genesis of this coverage dispute is the April 20, 2010, blowout, explosion, and subsequent oil spill involving the mobile offshore drilling unit DEEPWATER HORIZON and the Macondo well it had recently drilled in the Gulf of Mexico. BP (a non-party to the instant matter) owned the Macondo well and leased the relevant area of the outer continental shelf. BP contracted with Transocean (also a non-party to the instant matter), owner of the DEEPWATER HORIZON, to drill the Macondo well. Cameron manufactured and sold to Transocean the blowout preventer that connected the DEEPWATER HORIZON to the Macondo well.
The blowout and oil spill spawned hundreds, and eventually thousands of lawsuits, with over one hundred thousand claimants, asserting a variety of claims including economic loss, property and natural resource damage, wrongful death, personal injury, etc. These cases were consolidated before this Court as Multidistrict Litigation 2179 ("MDL 2179"). BP, Transocean, Cameron, and other parties were named as defendants or third-party defendants in most cases or claims. Many defendants sued each other, asserting a variety of claims that included, in some instances, contractual indemnity. As explained further below, Cameron sought contractual indemnity from Transocean, who similarly sought contractual indemnity from BP. Cameron also notified its insurers that it had potentially suffered a loss covered by its insurance policies.
A. Cameron's Insurance Tower and the LIU Policy
Cameron purchased from LIU an excess casualty insurance policy for the July 1, 2009 to July 1, 2010 policy year ("the LIU Policy" or simply "the Policy"). The LIU Policy was an intermediate layer of insurance in a "tower" of insurance that Cameron purchased for the 2009-2010 policy year. All told, Cameron's insurance tower provided it with $500 million in coverage.
Illinois National Insurance Company provided the first $25 million of coverage in Cameron's insurance tower. The LIU Policy expressly refers to this policy as the "First Underlying Insurance Policy;" these Order and Reasons will use the same convention. With certain exceptions, the other policies in Cameron's insurance tower adopted the terms of the First Underlying Insurance Policy. Once a covered "loss" exhausted the First Underlying Insurance Policy's $25 million limit, certain other insurers provided the next $75 million in coverage; i.e., coverage between $25 million and $100 million. The LIU Policy expressly refers to these policies as "Other Underlying Insurance." The LIU Policy was expressly written to be excess of the First Underlying Insurance Policy and the Other Underlying Insurance-which it collectively refers to as "Underlying Insurance" (a convention these Order and Reasons will also use)-and provided the next $50 million worth of coverage; i.e., LIU's coverage layer was between $100 million and $150 million. Six other policies were expressly written to be excess of the LIU Policy and provided coverage between $150 million and $500 million.
The LIU Policy also contained an "Other Insurance Clause" that stated:
If other insurance applies to a "loss" that is also covered by this policy, this policy will apply excess of such other insurance.... However, this provision will not apply if the other insurance is specifically written to be excess of this policy.
Other insurance includes any type of self-insurance, indemnification or other mechanism by which an Insured arranges for funding of legal liabilities.
(LIU Policy, § V.F., Rec. Doc. 12050-2 at 20) The Other Insurance Clause is separate from the Policy's provisions regarding Underlying Insurance, and, unlike those provisions, does not expressly refer to any specific "other insurance" of which it purports to be excess. Instead, the Other Insurance Clause uses generic language.
B. The Contractual Indemnities
As mentioned above, Transocean performed work for BP pursuant to a drilling contract ("the BP-Transocean Contract"). That contract contained the following clauses:
24.2 COMPANY RESPONSIBILITY
Company [BP] shall assume full responsibility for and shall protect, release, defend, indemnify, and hold Contractor [Transocean] harmless from and against any loss, damage, expense, claim, fine, penalty, demand, or liability for pollution or contamination, including control and removal thereof, arising out of or connected with operations under this contract hereunder and not assumed by contractor in Article 24.1 above, without regard for negligence of any party or parties and specifically without regard for whether the pollution or contamination is caused in whole or in part by the negligence or fault of the contractor.
25.1 INDEMNITY OBLIGATION
Except to the extent any such obligation is specifically limited to certain causes elsewhere in this contract, the parties intend and agree that the phrase "shall protect, release, defend, indemnify and hold harmless" means that the indemnifying party shall protect, release, defend, indemnify, and hold harmless the indemnified party or parties from and against any and all claims, demand, causes of action, damages, costs, expenses (including reasonable attorney fees), judgments and awards of any kind or character, without limit and without regard to the cause or causes thereof, including preexisting conditions, whether such conditions be patent or latent, the unseaworthiness of any vessel or vessels (including the drilling unit), breach of representation or warranty, expressed or implied, breach of contract, strict liability, tort, or the negligence of any person or persons, including that of the indemnified party, whether such negligence be sole, joint or concurrent, active, passive or gross or any other theory of legal liability and without regard to whether the claim against the indemnitee is the result of an indemnification agreement with a third party.
(BP-Transocean Contract, Rec. Doc. 12050-4 at 7-8) (emphasis omitted) A contract also existed between Transocean and Cameron regarding the sale of the blowout preventer ("the Transocean-Cameron Contract"). The Transocean-Cameron Contract contained the following clause:
In the event that Purchaser [Transocean] is entitled to indemnity under any contract with its customers or suppliers with respect to pollution, loss of hydrocarbons, damage to reservoirs, loss of hole or other damages associated with blowout or loss of well control, Purchaser will provide Seller Group [Cameron] with the benefit of such indemnity to the fullest extent possible.
(Transocean-Cameron Contract, Rec. Doc. 12050-5 at 6)
C. The MDL 2179 Litigation and the BP-Cameron Settlement
As mentioned above, the DEEPWATER HORIZON/Macondo well incident generated thousands of claims that named Cameron, Transocean, BP, and others as defendants or third-party defendants. On April 23, 2010, three days after the blowout, Cameron notified LIU that it incurred a potential loss under the LIU Policy. Cameron also looked to Transocean for contractual indemnity based on the above-quoted provision in the Transocean-Cameron Contract, and formally requested such in August of 2010. Transocean denied Cameron's request. Cameron sued Transocean for indemnification. Transocean counterclaimed against Cameron for damages and a declaration that it owed no indemnity. Meanwhile, Transocean sought indemnity from BP under the above-quoted clause in the BP-Transocean Contract. BP refused Transocean's demand, and they sued one another.
In October 2011, after over a year of intense pretrial litigation and with billions of dollars at stake, Cameron and BP began to discuss a possible settlement. Cameron kept its insurers, including LIU, apprised of the negotiations and received input from them. BP and Cameron soon developed a draft settlement agreement that contemplated Cameron paying a sum of money (to be negotiated) to BP in exchange for BP agreeing to indemnify Cameron for most third-party pollution claims. BP also required as a condition to settlement that Cameron's insurers waive their subrogation rights and that Cameron waive any contractual indemnification rights it might have against Transocean. BP's concern was that if Cameron, or one of Cameron's insurers subrogated to Cameron's rights, sought indemnity from Transocean for the amount paid in settlement to BP, Transocean would similarly seek contractual indemnification from BP. If both indemnity claims succeeded, then BP would end up receiving nothing in exchange for its agreement to indemnify Cameron; likewise, Cameron (or its subrogated insurer) would have paid nothing in exchange for BP's indemnification.
LIU initially objected to any settlement that would waive LIU's subrogation rights or otherwise impair LIU's ability, as Cameron's subrogee, to pursue contractual indemnification from Transocean. LIU repeated this objection in a letter dated November 7, 2011. There it also raised a new, albeit somewhat related, argument based on the Policy's Other Insurance Clause:
Moreover, LIU declines to offer its policy limits for the following additional reason. The LIU policy has the following Other Insurance provision:
[quotes the Other Insurance Clause]...
As the above language clearly provides, the LIU policy is excess not just of... the underlying policies of Illinois National ($25M limits), ACE American Insurance ($25M excess of $25M), and XLIC ($50M excess of $50M), but it is also excess of the contractual indemnity provided by Transocean to Cameron....
LIU understands that Cameron believes there may be "uncertainties" with respect to its contractual right to be indemnified by Transocean, however, that does not negate the fact that Cameron has a contractual right to be indemnified by Transocean. LIU believes that until a court determines that Cameron is not entitled to contractual indemnity, the LIU policy is excess of Cameron's contractual right to be indemnified by Transocean....
LIU has no obligation to indemnify unless both underlying limits and Transocean's contractual indemnity to Cameron have been exhausted. At the present time, such exhaustion has not happened.
Therefore... LIU would reject Cameron's request that LIU offer its $50M policy limits. LIU is not obligated to contribute its policy limits where Cameron has impaired or will be impairing LIU's subrogation rights and claims against Transocean and/or BP and/or all underlying limits and Other Insurance are not exhausted.
(Rec. Doc. 12588-1) LIU's letter also noted that Transocean had recently filed a motion for summary judgment against BP on the enforceability of the contractual indemnity in the BP-Transocean Contract and urged Cameron to file a brief in support of Transocean's motion.
The next day Cameron filed a motion for summary judgment against Transocean on the issue of Cameron's claim for contractual indemnity under the Transocean-Cameron Contract. Cameron also filed a brief in support of Transocean's motion against BP. Meanwhile, BP filed an opposition and cross motion to Transocean's motion for summary judgment referenced in LIU's letter, and both BP and Transocean filed oppositions Cameron's motion. All of these motions were scheduled for oral argument on the same day, December 16, 2011.
On December 12, BP and Cameron reached a tentative settlement that would resolve nearly all of Cameron's liability in exchange for $250 million. Cameron looked to its insurers to fund the settlement. Over the next three days, all of Cameron's insurers except LIU consented, including insurers that were excess of LIU.
In a letter dated December 13, LIU told Cameron that it "is not in a position to object to the settlement amount of $250M." (Rec. Doc. 12440-42). In a letter dated December 14, LIU stated that it
reiterates its position... regarding its non-objection to the settlement amount. LIU is not seeking to stop or interfere with any business decision that Cameron believes it needs to make regarding settlement. Furthermore, if Cameron chooses to settle, LIU will not assert that Cameron breached the consent requirements of the policy.
(Rec. Doc. 12440-41) Nevertheless, in both letters LIU repeated its objections to the "non-financial terms" of the settlement that it expressed in its letter of November 7. LIU's refusal left a $50 million "hole" in the settlement funding.
Pressure mounted on Cameron as the December 16 oral argument approached. BP threatened to withdraw the settlement offer or increase the amount Cameron would have to pay if the Court ruled from the bench or even indicated that either the indemnity clause in the BP-Transocean Contract or the clause in the Transocean-Cameron Contract was invalid. On December 15, mere hours before oral argument, Cameron confected the settlement by contributing $50 million of its own money to the $200 million provided by its insurers other than LIU. Cameron and BP also agreed to alter certain language in the settlement pertaining to LIU's subrogation rights ("BP-Cameron Settl ement" or "the Settlement"). Cameron orally withdrew its motion for summary judgment at oral ...