The Fifth Circuit construed a contract requiring indemnity and an obligation to provide insurance coverage as creating separate duties. ExxonMobil Corp. v. Elec. Reliability Services, 2017 U.S. App. LEXIS 16031 (5th Cir. Aug. 22, 2017).
Exxon contracted with Electrical Reliability Services (ERS) to perform electrical work and services at Exxon's chemical facility in Beaumont, Texas. The contract included indemnity and insurance provisions. The indemnity provision required that each party indemnify the other from third party claims resulting from the first party's negligence. The insurance provisions required ERS to purchase CGL and other types of insurance, and to name Exxon as an additional insured.
ERS purchased a policy from Old Republic Insurance Company that provided for a $3 million deductible. An endorsement also granted additional insured coverage where ERS had "agreed by any contract" to so provide. The endorsement was qualified as follows, however: "Any additional insureds are additional insureds only in respect to their interest in the operations of the Named Insured and only for such terms and limits which are the lesser of the policies hereon or the written requirements between the Named Insured and the Certificate Holder."
ERS subcontracted part of he work at the Exxon facility to MMR, Inc. John Burnham, an MMR employee, was severely injured while working at the facility. Burnham brought negligence claims against Exxon in state court and later added ERS as a defendant. ERS refused to defend Exxon under the indemnity. Exxon settled with Burnham for $2.5 million. Burnham later dismissed his claims against ERS. Exxon then sought insurance coverage for the settlement payment and defense costs, but ERS and Old Republic denied the requests.
Exxon then brought suit for declaratory judgment against ERS and Old Republic. On cross motions for summary judgment, the district court ruled that ERS's obligation to provide insurance was not limited by the indemnity provision. The court further ruled, however, that ERS complied with its obligation through the additional insured endorsement in the policy.
Despite the district court's partial summary judgment ruling on the issue of coverage, ERS and Old Republic continued to refuse to reimburse Exxon. ERS and Exxon disagreed as to which party was responsible for the payment of the policy's $3 million deductible. Following a bench trial, the district court held: (1) ERS breached the contract by failing to pay the deductible: and (2) Old Republic breached the insurance policy by failing to provide Exxon with a defense in the Burnham lawsuit and failing to cover any amounts above the deductible. In the final judgment, ERS and Old Republic were held jointly and severally liable to Exxon for $3,212,002.70 for the settlement of the Burnham lawsuit, the costs of the suit, and fees in the present suit. ERS and Old Republic appealed.
On appeal, ERS argued that Exxon had the duty to pay the deductible because the indemnity provision required Exxon to indemnify ERS for claims arising from Exxon's sole negligence. Exxon argued that the district court correctly ruled that the insurance requirements were separate and independent of the indemnity requirements of the contract. The Fifth Circuit agreed with Exxon. The insurance provision provided that ERS's obligation to afford coverage to Exxon "shall apply to ERS's self-insured retentions and/or deductibles."
ERS also argued that Exxon's duty to maintain its own insurance in support of Exxon's indemnity obligation established that ERS was not required to insure Exxon for losses caused by Exxon's sole negligence. But a requirement that one party maintain insurance in support of its duties related to a particular contingency did not preclude a requirement that the other party also maintain insurance to cover the same contingency.
Therefore, ERS's obligation to insure Exxon and to pay any applicable deductibles was not limited by the indemnity provision of the contract.
The court also ruled that Old Republic was not jointly and severally liable with ERS for the entire award to Exxon because it was under no obligation to pay amounts that were subject to and did not exceed the deductible. Therefore, the court vacated the district court's judgment on this issue and remanded for modification of the judgment to hold Old Republic jointly and severally liable with ERS only for any amounts either above or not subject to the policy's $2 million deductible.