Insurance Law Hawaii

Broker for Homeowners Policy Has No Duty to Advise Insureds on Excess Flood Coverage

    A broker who assisted the insureds in procuring a homeowners policy had no duty to advise the insureds to secure additional flood coverage. Ring v. Meeker Sharkey Assocs., LLC, 2017 N.J. Super. Unpub. LEXIS 3458 (N.J. Super Ct. App. Div. Sept.26, 2017).

    The insureds owned two beachfront properties that were located in a designated flood zone. They secured homeowners and flood insurance through Meeker's predecessor. Subsequently, Meeker became the insureds' homeowners insurance broker while Willis, N.A. was their flood insurance broker.  

    As part of the insureds' transfer of their homeowners policy, Meeker reviewed their insurance coverage. Meeker did not make any recommendation to the insureds about their need for excess flood insurance even though the difference between the coverage provided by their homeowners and flood policies combined left the insureds with a substantial gap in the event of a flood.The gap could have been covered by an excess flood policy. The insureds never asked Meeker about the availability of or need for flood insurance or excess flood insurance.

    The insureds experienced a catastrophic loss in 2012 caused by Hurricane Sandy. Afterward, the insureds learned that their existing coverage would not cover the entire loss.

    The insureds sued Meeker and Willis. The trial court determined that Meeker did not owe a duty to the insureds to determine their excess flood insurance needs and properly advise them, but a question of fact remained as to whether Willis had such a duty. The insureds settled their claim against Willis while the case was on appeal. 

    The insureds argued on appeal that Willis' role as broker for their flood insurance did not diminish Meeker's "fiduciary duty" to the insureds. The appellate court disagreed. The trial judge did not abuse his discretion when entering summary judgment in favor of Meeker. 

Coverage, Bad Faith Upheld In Construction Defect Case

    The California Court of Appeal affirmed the trial court's finding of coverage for faulty workmanship allegations and bad faith by the insurer. Pulte Home Corp. v. Am Safety Indem. Co., 2017 Cal. App. LEXIS 748 (Cal. Ct. App. Aug. 30, 2017). 

    Pulte Home Corporation was the general contractor and developer of two residential projects. American Safety issued several sequential comprehensive general liability policies to three of Pulte's subcontractors which named Pulte as an additional insured. The projects were completed by 2006.

    In 2011 and 2013, two groups of residents sued Pulte for faulty workmanship in separate lawsuits. American Safety denied tenders for a defense of both lawsuits. 

    The policies stated that the aggregate limit for "products-completed operations" was $1 million. "Products-completed operations" was defined to include all property damage occurring away from the insured's premises, arising out of 'your product' or 'your work.'" The policies defined additional insureds in an Additional Insured Endorsement (AIE) as "WHO IS AN INSURED" as "the person or organization shown in the Schedule, but only with respect to liability arising out of 'your work' which is ongoing and which is performed by the Named Insured for the Additional Insured on or after the effective date of this Endorsement." 

    In denying coverage, American Safety relied upon separate "faulty workmanship" or "work product" exclusions. In exclusion j (5), the subcontractors' policies stated that no coverage was afforded for "property damage" to "[t]hat particular part of real property on which you . . . are performing operations, if the 'property damage' arises out of those operations[.]" Exclusion j (6) precluded coverage for "]t]hat particular part of any property that must be restored, repaired or replaced because 'your work' was incorrectly performed on it." 

    Pulte sued American Safety. The trial court granted Pulte's motion for summary judgment, determining that American Safety had a duty to defend. The court also determined that contract damages were owed on each policy for the failure to defend. The trial court further ruled that American Safety had breached its implied covenant duties through its bad faith conduct in claims handling that denied a defense. Finally, the court awarded Pulte punitive damages.

    The appellate court affirmed the decision that American Safety had breached its duty to defend. American Safety argued that the underlying complaints failed to allege any ongoing operations at the time the homeowners bought the homes, and therefore there was no potential for coverage. Once the defective homes were sold, only completed operations coverage could have applied, but it was excluded by including the ongoing operations language in the AIEs. To the extent that a subcontractor caused damage to the project during its ongoing operations, American Safety argued that the faulty workmanship exclusions j (5) and j (6) applied to preclude any duty to defend. Pulte responded that if the American Safety AIEs expressly stated there would be no completed operations coverage, then the subcontractors would have been told to go back to the insurer to obtain more complete additional insured coverage.

    The appellate court stated that the AIEs seemed to allow completed operations coverage based on potential liability that might yet arise from the subcontractors' completed work. The policies also added another form of coverage for "ongoing operations . . . on or after the effective date of this Endorsement." The purported "ongoing" limitation did not undo a grant of coverage against liability arising from work completed during the effective dates of the AIEs. If the "ongoing operations" language was meant by American Safety to preclude coverage for completed operations losses, it had to expressly state "that coverage was limited to claims arising from work performed during the policy period."

    Moreover, the record did not show that all of the damage the homeowners were claiming was limited to the particular location where one or another of the subcontractors was performing their work, such that the exclusions relied upon by American Safety would apply. The complaints alleged potentially overlapping forms of damage among the different locations of concrete, electrical and other types of work, all of which had permitted some kind of moisture damage to occur over time. It was factually unclear under exclusion j (5) that no coverage was possible for property damage located at the site of each named insured's operations, or if the alleged damage arose solely out of those particular operations.

    Regarding exclusion j (6), coverage would be precluded for damage to portions of property " that must be restored, repaired or replaced because 'your work' was incorrectly performed on it." The complaints broadly alleged that both work and materials were defective, and American Safety did not show that each of the named insureds' work was incorrectly performed such that no possible basis for coverage could have existed, on a vicarious liability basis. Therefore, the faulty workmanship exclusions did not clearly apply to preclude a duty to defend.

    On the bad faith issue, American Safety had disregarded the only available case law in evaluating its duties in claims handling and denials of defenses. There were several instances of conduct by American Safety representatives that constituted bad faith. American Safety was aware of trial court decisions against its position on the interpretation of ongoing operations. American Safety had been a defendant in some of these cases. There was evidence that hundreds of additional insureds' claims were routinely denied  based on the restrictive policy interpretations. Letters denying a defense were form letters, rather than the product of a case-by-case analysis. This demonstrated that the claims were not reviewed carefully, if at all. It was clear American Safety was looking out for its own interests in refusing to defend its additional insureds. 

    Further, punitive damages were properly awarded. The company's upper management and general counsel did not need to be consulted on denials of tenders because the denials were routine. American Safety inflicted economic harm on Pulte as a result of intentional malice, trickery or deceit. 

    

General Contractor Entitled to Defense against Claims of Faulty Workmanship

    The South Dakota Supreme Court found that the general contractor was entitled to a defense against the homeowners' claims of defective workmanship. Lowery Constr. & Concrete, LLC v. Owners Ins. Co., 2017 S.D. LEXIS 107 (S.D. Aug. 30, 2017). 

    After the homeowners moved into the home built by the insured, they sued for breach of contract, breach of implied warranty, and negligent construction. They alleged there were cracks forming in the walls, ceilings, and windows; several doors and windows would not open, and their frames were cracked; and the basement floor heaved near the walkout entrance. The homeowners alleged that a drain should have been installed in one corner of the foundation. Without the drain, water reached the expanding soil beneath the house, which caused the heaving and resulting damage.

    Owners initially defended the general contractor, but withdrew its defense after determining several exclusions in the CGL policy applied. The general contractor filed an action for declaratory judgment seeking a declaration that Owners had a duty to defend. The trial court granted summary judgment to Owners, finding that, as a matter of law, Owners had no duty to defend Lowery.

    The two exclusions relied upon by Owners for 2 (j) (6) and 2 (j) (7). Those provisions excluded coverage for:

"property damage" to:

 . . .

(6) That particular part of real property on which an insured or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the "property damage" arises out of those operations; or

(7) That particular part of any property that must be restored, repaired or replaced because "your work" was incorrectly performed on it.

The general contractor argued that the phrase "that particular part" limited the application of the exclusions to work that was itself performed in a defective manner. The exclusions did not apply to otherwise nondefective work that was nevertheless damaged by another defective component of a larger construction project. Owners argued the general contractor was contractually obligated to deliver a completed house and failure to do so was a breach of contract, not a coverage issue under the CGL policy.

    The court agreed with the general contractor that exclusion 2 (j) (6) applied only to the immediate area involved in the operations actively being performed at the time of property damage. The exclusion did not apply to property damage to other, non-defective parts of the insured's work.

    The language of exclusion 2 (j) (7) meant that the exclusion applied to property damage only to parts of the property that were themselves the subjects of the defective work.

    The homeowners did not allege that the concrete, walls, ceilings, or windows were defective themselves (exclusion 2 (j) (7)) or that the general contractor was presently working on those areas when the damage occurred (exclusion 2 (j) (6)). Therefore, Owners had not met its burden of establishing that the damage to the home clearly fell outside policy coverage. Thus, Owners had a duty to defend. 

 

Presentation on Environmental Claims at HSBA Bar Convention

    Yesterday, I had the pleasure of speaking to the Energy, Environment and Resources section of the Hawaii State Bar Association at the HSBA's annual convention. My colleague, Peter Mintzer, and I addressed environmental insurance claims. Power point presentation available upon request.

 

Hawaii Federal District Court Denies Brokers' MSJ on Duties Owed In Construction Defect Case

    The federal district court for the District of Hawaii denied the brokers' motion for summary judgment seeking dismissal from claims that they inadequately advised the insured of the law regarding construction defects in Hawaii. Am Auto. Ins. Co. v. Haw. Nut & Bolt, Inc., 2017 U.S. Dist. LEXIS 148571.

    Safeway sued Hawaii Nut & Bolt (HNB) and others for construction defects in a newly constructed store. The underlying complaint alleged products liability claims against HNB as the distributor of the "VersaFlex Coating System." HSB had represented that the coating system was adequate for its intended use. The underlying complaint alleged failure of the VersaFlex Coating System in waterproofing the roof deck of the store. After the store opened, water leaks from the roof deck appeared. Safeway alleged they were caused by the cracks and failures in the waterproof membrane in the roof deck.

    HNB notified its insurers of the claims. The insurers defended HNB during the litigation subject to reservation of rights letters.

    Safeway and HNB settled the underlying complaint and entered a stipulated judgment by which Safeway was assigned all of HNB's claims against its brokers, Monarch Insurance Services, Inc. and Insurance Associates, Inc., for selling to HNB policies with inadequate coverage. 

    The insurers filed a complaint for declaratory judgment against HNB  seeking a declaration that under the policies HNB had purchased, the insurers had no duty to further defend and/or indemnify. The insurers had issued to HNB three CGL policies and three umbrella and excess policies. HNB had purchased the policies through Douglas Moore who was associated with Monarch and later Insurance Associates (brokers).

    HNB filed a counterclaim against the insurers and later amended the counterclaim to add the brokers as counterclaim defendants. The insurers settled their declaratory judgment action and the counterclaims against them. The breach of contract and breach of fiduciary duty claims against the brokers remained. 

    Monarch and Mr. Moore filed a motion for summary judgment, to which Insurance Associates substantively joined. 

    Under Hawaii law, "an insurance agent owes a duty to the insured to exercise reasonable care, skill, and diligence in carrying out the agent's duties in procuring insurance." Quality Furniture, Inc. v. Hay, 61 Haw. 89, 93, 595 P.2d 1066, 1068 (1979). The brokers contended, however, that these duties did not include anticipating the Intermediate Court of Appeals' decision in Group Builders, Inc. v. Admiral Ins. Co., 123 Haw. 142, 231 P.3d 67 (Haw. Ct. App. 2010), a duty on which HNB and Safeway's claims depended. Group Builders found that "construction defect claims do not constitute an 'occurrence' under a CGL policy," and thus contract and contract-based tort claims arising from shoddy performance were not covered under CGL policies. See 123 Haw. at 148-49, 231 P.3d at 73-74. In 2011, the Hawaii legislature passed Act 83, under which "the meaning of the term 'occurrence' shall be construed in accordance with the law as it existed at the time that the insurance policy was issued." 

    The district court had previously held that policies issued before Group Builders and after the Ninth Circuit's decision in Burlington Ins. Co. v. United Ins. Co. v. Oceanic Design & Construction, Inc., 383 F.3d 940 (9th Cir. 2004) (holding that under Hawaii law, construction defects did not arise from an occurrence and were not covered) continued to fall within the Ninth Circuit's Burlington analysis. The policies here pre-dated Group Builders, so Act 83 required that the policies be interpreted according to the then-existing law, i.e., based on Burlington. 

    The brokers argued that Hawaii law regarding construction defect claims was unsettled during the time that the policies were issued. Further, the brokers did not owe duties to HNB to advise it of the risk it was not covered for the types of claims in the underlying action. Monarch, however, held itself out as having a "focus" in construction insurance. Mr. Moore began working with HNB in 2000 and knew of HNB's need for product liability insurance. HNB representatives testified that they relied on Mr. Moore to procure appropriate insurance for the business. The court noted that a reasonable jury could find that Mr. Moore was informed about HNB's business needs and that HNB's continued reliance on Mr. Moore led to a duty to advise HNB regarding its product liability coverage and any risks to coverage.

    There was also evidence which would allow a reasonable jury to find Mr. Moore breached his duties to HNB. The policies were renewed each year after Burlington in 2004 and subsequent relevant cases from the district court. Mr. Moore testified that even after Group Builders, he did not understand the definition of an "occurrence" under a CGL policy for a construction-related business because he did not work with the construction industry "very much." A reasonable jury could determine that while Mr. Moore represented to HNB that there was some product liability coverage, he was unaware of and did not advise HNB of any risk that the policies might exclude product liability coverage.

    Therefore, the broker's motion on the duties owed to HNB was denied. 

    

    

Connecticut Federal District Court Keeps Busy With Collapse Cases

    The federal district court for the district of Connecticut has faced a slew of collapse cases, recently dismissing several such cases.

    The policies under consideration in each case cover the "entire collapse of a covered building structure" or "the entire collapse of part of a covered building structure." The collapse must be "a sudden and accidental physical loss caused by one of a list of specific causes such as defective methods or materials. In most of the recent cases, the insured alleged that the concrete in basement walls or foundations was cracking due to a chemical reaction. It was further alleged that the chemical reaction would continue to progressively deteriorate, rendering the building structurally unstable. 

    Unfortunately for the policy holder, these allegations did not constitute a "sudden and accidental" collapse of a building. Therefore, motions to dismiss were granted to the insurer in the following cases:

     Agosti v. Merrimack Mut. Fire Ins. Co., 2017 U.S. DIst. LEXIS 137411 (D. Conn. Aug. 28, 2017). The motion to dismiss was granted to insurer because the facts did not establish a "collapse" had occurred. The court did find that the term "collapse" standing alone was ambiguous, but that the policy at issue required that the entire structure collapse, which did not occur here.

    Adams v. Allstate Ins. Co., 2017 U.S. Dist. LEXIS 139998 (D. Conn. Aug. 29, 2017). Allstate's motion to dismiss was granted because the crumbling foundation was not the result of a "sudden and accidental" physical loss. Instead, the underlying allegations suggested that the chemical reaction was occurring progressively. The court noted, however, that the chemical reaction that caused the foundation to deteriorate would likely eventually cause the collapse, at which time the insureds could seek coverage. 

    Miller v. Allstate Ins. Co., 2017 U.S. Dist. LEXIS 140023 (D. Conn. Aug. 29, 2017). Again, the insured's expert determined that the basement walls were cracking due to a chemical reaction which would continue to progressively deteriorate the walls, rendering the building structurally unstable. The complaint described the process as proceeding over time. Allstate's motion to dismiss was granted because there was no sudden collapse alleged. 

    Clough v. Allstate Ins. Co., 2017 U.S. Dist. LEXIS 140009 (D. Conn. Aug. 29, 2017). Cracking in the walls of the home was caused by a chemical compound that, when mixed with water, began to rust and expand, breaking the bonds of the concrete internally and would eventually reduce the structure to rubble. Allstate's motion to dismiss was granted because the plaintiffs alleged a progressive process of deterioration, not a sudden collapse. If the building eventually collapsed, plaintiffs could seek coverage. 

     England v. Amica Mut. Ins. Co., 2017 U.S. Dist. LEXIS 146347 (D. Conn. Sept. 11, 2017). The insureds noticed cracking patterns in the basement walls. The insureds' expert concluded that the concrete deterioration and cracking was caused by a chemical reaction occurring in the concrete and recommended that the basement walls be replaced. The insurer denied coverage. When sued, the insurer successfully moved to dismiss. The policy unambiguously required an abrupt event for collapse coverage to apply. 

    More positive results for the insured were reflected in the following cases:

    Roberts v. Liberty Mutual Fire Ins. Co., 2017 U.S. DIst. LEXIS 137412 (D. Conn. Aug. 2, 2017). The insurer's motion for summary judgment was granted as to the unfair practices claims, but there were issues of fact regarding whether a "collapse" had occurred. There were questions regarding whether the property had suffered "substantial impairment of structural integrity."

    Sirois v. USAA Cas. Ins. Co., 2017 U.S. DIst. LEXIS 138346 (D. Conn. Aug. 29, 2017). USAA's motion to dismiss was denied because the "sudden" requirement for a collapse was ambiguous where the term was used on its own and not in conjunction with "accident" as was the case with the pollution exclusion.

 

Hawaii Court Tackles Amount Due Under Stacking Provision for UIM Coverage

    The Hawaii Intermediate Court of Appeals (ICA) ruled in favor of the insurer in deciphering the policy's UIM coverage. Kohatsu v. State Farm Mut. Auto. Ins. Co., 2017 Haw. App. LEXIS 388 (Sept. 29, 2017).

    The insureds were in an automobile accident, which resulted in a $300,000 settlement with the other driver's insurance company. The insureds requested UIM coverage from their insurer, State Farm, for the remaining damages from the accident. The parties entered arbitration and an Arbitration Award of $2,304,652.12 was granted in the insureds' favor.

    The parties disputed the amount of coverage available under the policy and the insureds sued State Farm. In cross motions for summary judgment, the insureds argued that each policy for their four vehicles provided stacked UIM coverage of $400,000. Thus, the four policies together provided stacked UIM coverage totaling $1.6 million. State Farm argued that each policy for the four vehicles provided $100,000 in UIM coverage and the four policies together provided stacked UIM coverage totaling $400,000. The circuit court granted partial summary judgment in favor of State Farm. Judgment was entered on the UIM coverage issue and an appeal was filed.

    The Declarations Page for the Mercury Tracer, the car involved in the accident, provided a stacking option for UIM coverage with limits of $100,000 per person and $300,000 per accident. Renewal documents for the other three vehicles owned by the insureds also provided stacked UIM coverage for each vehicle in the amount of $100,000 per person and $300,000 per accident.

    The policy offered Non-Stacking Coverage or Stacking Coverage. Non-Stacking Coverage was defined as the limits carried on one vehicle. The Stacking Coverage, which was a more expensive option, consisted of the total of the limits on all the vehicles insured. The parties agreed that the insureds had four vehicles under four separate policies, and that they elected the UIM stacking option for each offer of UIM coverage. 

    An example of stacking was given in the policy. When two vehicles were insured under two separate policies, a UIM limit of $50,000/$100,000 would result in double limits, i.e., $100,000/$200,000 of stacked UIM benefits. Therefore, the per person UIM coverage limit of $100,000 multiplies by four vehicles resulted in a total of $400,000 of stacked UIM coverage for the claim at issue. The circuit court's judgment was affirmed. 

    Thanks to my Damon Key colleague, Mark Murakami [www.hawaiioceanlaw.com], for flagging this case. 

Coverage for Faulty Workmanship Found In South Dakota

    The South Dakota Supreme Court found coverage in favor of the general contractor who was sued for alleged faulty workmanship. Owners Ins. Co. v. Tibke Constr., Inc., 2017 S.D. LEXIS 106 (S.D. Aug. 23, 2017). 

    The homeowners hired Tibke Construction Inc. as general contractor to build a new house. Tibke hired Jerry's Excavating Inc. as a subcontractor to prepare the soil and perform excavation work. After the project was completed, the homeowners sued Tibke and Jerry's Excavating for negligent construction and breach of contract. The homeowners alleged that Jerry's Excavating failed to conduct soil-compaction testing before construction. They alleged that the home was built upon highly expansive soils, resulting in damage to the home by "excessive settlement, cracking, structural unsoundness and other damages." The complaint further alleged that damages existed only on portions of the home not worked on by Jerry's Excavating. 

    Owners Insurance Company, Tibke's insurer, disputed coverage but agreed to defend under a reservation of rights. Owners filed an action for declaratory relief against Tibke, Jerry's Excavating and the homeowners. Owners alleged that it had no duty to defend or indemnify Tibke for property damage because "faulty workmanship" was not an occurrence under the CGL policy. Further, exclulsions j (7) and l precluded coverage. 

    The trial court denied cross motions for summary judgment, finding there were disputed questions of material fact regarding whether there was expansive soil under the home and, if so, whether it was foreseeable. 

    On appeal, the court noted it was undisputed that the homeowners suffered property damage. The key question was whether the alleged failure to test soil was an occurrence. The court ruled that the alleged failure to test soil was an accident and thus an occurrence under the policy. The failure to test the soil was not an intentional or deliberate action but an unplanned omission, which caused an unexpected result. Therefore, Tibke established that coverage existed under the insuring agreement of the policy. 

    The court turned to the exclusions. Exclusion j (7) barred coverage for,    

"Property damage" to:

. . . 

(7) That particular part of any property that must be restored, repaired or replaced because "your work" was incorrectly performed on it.

. . .

    Exclusion j(7) only applied to property damage affected by your work. The definitions of "your work" in the policy included "work or operations performed by [Tibke] or on [Tibke's] behalf." Jerry's Excavating was a subcontractor working on Tibke's behalf.

    However, j (7) only excluded property to "that particular part of any property that must be restored, repaired or replaced because 'your work' was incorrectly performed on it." The plain language of j (7) was concerned with the repair, restoration, or replacement of a specific part of the property, not the damage to a property as a whole. The house that was not that particular part of the property on which Jerry's Excavating's failure to test the soil was incorrectly performed. Therefore, j (7) did not exclude coverage for the alleged property damage to the home. 

    Next, the court looked at exclusion (l), which precluded coverage for:

"Property damage" to "your work" arising out of it or any part of it and included in the "products-completed operations hazard."

 "Products-completed operations hazard" was defined to:

includes all . . . "property damage" occurring away from premises you own or rent and arising out of "your product" or "your work" except:

. . . 

(2) Work that has not yet been completed or abandoned.

    Tibke argued that exclusion l was inapplicable because it only barred coverage for property damage arising after the insured's work was completed. Tibke claimed that the failure to test to soil occurred at the start of the project, so the foundation for the home would have been exposed to the expansive soil immediately upon being poured.

    The court determined that exclusion l did not apply. The property damage did not meet the definition of products-completed operations hazard because the construction of the house had not yet been completed or abandoned. In other words, exclusion l did not apply to property damage which first began before the insured's work was completed. Tibke asserted the house suffered damage throughout construction from ongoing soil expansion and contraction before the work was finished. Accordingly, the alleged damage to the house was not included in the products-completed operations hazard and exclusion l did not exclude coverage. 

    The court affirmed the judgment denying Owners' motion for summary judgment, but reversed the judgment denying Tibke's motion, and remanded for further proceedings. 

Obligations Under Indemnity Provision and Providing Insurance Coverage Separate

   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.