The insurer's argument that a contractual indemnity provision in favor of the insured acted as an "other insurance" provision failed before the Fifth Circuit. Cameron Int'l Corp. v. Liberty Ins. Underwriters, Inc., 2015 U.S. App. LEXIS 20115 (5th Cir. Nov. 19, 2015).
In an insurance dispute arising out of the Deepwater Horizon oil spill in the Gulf of Mexico, Liberty was an excess carrier for Cameron. Liberty covered $50 million in excess of policies covering the first $100 million in losses. Cameron was the manufacturer of the blowout preventer used on the Deepwater Horizon. After the spill, Cameron settled with BP, the well owner, and then sought indemnity from Liberty to help cover the settlement costs.
BP contracted with Transocean, which owned the Deepwater Horizon, to drill the well and to indemnify Transocean for liability associated with drilling. Transocean indemnified Cameron for liability associated with the blowout preventer. Accordingly, Cameron was indemnified by Transocean, which was in turn indemnified by BP.
After the spill, thousands of lawsuits were filed against BP, Transocean, Cameron, and others. When Transocean refused to indemnify, Cameron sued. Transocean sought indemnity from BP and BP refused. BP also sued Cameron, claiming that Cameron was responsible for the losses that BP incurred. Cameron notified Liberty. Liberty neither rejected nor paid the claim.
The parties discussed settlement. BP agreed to indemnify Cameron in exchange for $250 million, but only if Cameron's insurers agreed to waive their subrogation rights and Cameron agreed to waive its indemnification rights against Transocean. Liberty was the lone insurer for Cameron that objected and declined to offer its policy limits. Liberty did not agree to a settlement that waived its subrogation rights and Cameron's indemnification rights against Transcoean, leaving Liberty on the hook for $50 million. Liberty also argued the other insurance provision in its policy meant that its obligation to pay had not yet been triggered. The clause provided that "if other insurance applies to a loss that is also covered b this policy, this policy will apply excess of such other insurance."
Cameron settled nonetheless, putting up $50 million of its own money in addition to the $200 million from its other insurers.
Cameron then sued Liberty. The district court granted Cameron a $50 million judgment on its breach of contract action.
On appeal, Liberty argued Cameron had not exhausted the indemnification agreement with Transocean or obtained a judicial determination that it was not entitled to indemnification. Cameron responded that its indemnity claim against Transocean did not apply to its loss because Transocean refused Cameron's demands for indemnification. Cameron also argued that its indemnity claim against Transocean was not "other insurance" under the policy.
The court agreed with Cameron's interpretation. The policy did not specifically reference Cameron's indemnity agreement with Transocean, nor did it require Cameron to maintain any such agreement. The other insurance provision did not require that Cameron exhaustively litigate other potential sources of coverage before Liberty's payment obligation was triggered.
Liberty further argued Cameron forfeited its right to coverage by breaching the policy's subrogation clause in settling with BP. But because Liberty breached the contract by wrongfully denying coverage, it waived its rights under the subrogation clause before Cameron settled. Liberty's interpretation of the other insurance provision was erroneous. It also violated the policy's requirement to "promptly pay" Cameron's claim.