The Fifth Circuit determined that the Umbrella policies took effect once the primary insurance was exhausted by claims not covered by the Umbrella policies. Indem. Ins. Co. of N. Am. v. W&T Offshore, 2014 U.S. App. LEXIS 11775 (5th Cir. June 23, 2014).
W&T had primary and Umbrella/Excess coverage to protect its offshore oil rigs from hurricane damage. The primary policies covered property damage and third party claims. The Umbrella policies only covered third-party claims. All policies covered Removal of Debris (ROD).
In September 2008, Hurricane Ike caused damage to 150 offshore platforms in which W&T had an interest. W&T submitted over $150 million in claims for property damage to the primary carriers. The primary policies had a $10 million self-insured retention (SIR). The primary policies covered $150 million in coverage over the $10 million SIR. Anticipating that W&T would submit all of its ROD claims, which were estimated to exceed $50 million, the Umbrella carriers filed suit for a declaratory judgment.
The Umbrella policies argued the SIR for the primary policies had not been exhausted. Instead, W&T exhausted its underlying policies, using claims that were not covered by the Umbrella policies (i.e., the $150 million of property damage claims).
The district court granted summary judgment to the Umbrella policies, finding that the underlying insurance could only be exhausted by claims that were also covered by the Umbrella policies. Because W&T exhausted the underlying policies with property damage claims, coverage under the Umbrella policies had not been triggered and there was no coverage for the ROD claims.
The Fifth Circuit reversed. The insuring agreement in the Umbrella policies provided, "We will pay on behalf of the Insured those sums in excess of the Retained Limit . . ." Under this provision the Umbrella policies were obligated to pay "sums in excess of" the "total of the applicable limits of the underlying policies listed," i.e., sums in excess of the $161 million of the underlying coverage.
Elsewhere, the Umbrella policies provided that "when the underlying policies were exhausted by payment of claim to which this policy applies, we shall have the right and duty to defend any claim or suit covered by the policy." On the other hand, there was no explanation as to how the Retained Limit must be paid or that it must be met with claims covered under the Umbrella policies. The Umbrella policies simply stated that the Retained Limit must be met. There was no explanation about what would happen if the Retained Limit was exhausted by non-covered claims.
