The Texas Supreme Court found that Lloyd's endorsement imposing a cap on liability for a joint venture did not exclude coverage for defense costs. Anadarko Petroleum Corp. v. Houston Cas. Co. et al., 2019 Texas LEXIS 53 (Texas Jan. 25 2019j.
Pursuant to a joint venture agreement, Anadarko held a 25% ownership interest in the Macondo Well in the Gulf of Mexico. When the well blew out, numerous third parties filed claims against BP entities and Anadarko. Many of the claims were consolidated into a multi-district litigation (MDL). The MDL court granted a declaratory judgment finding BP and Anadarko jointly and severally liable. BP and Anadarko reached a settlement in which Anadarko agreed to transfer its 25% ownership interest to BP and pay BP $4 billion. In exchange, BP agreed to release any claims it had against Anadarko and to indemnify Anadarko against all other liabilities arising out of the Deepwater Horizon incident. BP did not agree, however, to cover Anadarko's defense costs.
Anadarko had a policy through Lloyd's. The policy provided excess-liability coverage limited to $150 million per occurrence. Lloyd's paid Anadarko $37.5 million (25% of the $150 million limit) based upon Anadarko 25% ownership in the joint venture. Anadarko argued that Lloyd's still owed all of Anadarko's defense expenses, up to the $150 million limit.
The policy did not obligate Lloyd's to defend Anadarko, but only to reimburse for defense costs. Lloyd's contended that an endorsement, The "Joint Venture Provision" reduced the $150 limit when Anadarko's liability arose out of the operations of a joint venture in which Anadarko had an ownership interest. The endorsement provided that Lloyd's liability was "limited to the product of (a) the percentage interest of Anadarko in the Joint Venture and (b) the total limit afforded Anadarko under the policy." Based on the product of Anadarko's percent interest in the Deepwater Horizon joint venture (25%) and the total coverage limit under the policy ($150 million), Lloyd's argued that the cap on excess liability coverage was $37.5 million, which had already been paid to Anadarko.
The trial court granted summary judgment to Anadarko, but the court of appeals reversed.
Before, the Texas Supreme Court, Anadarko argued that the phrase "as regards any liability of Anadarko which is insured under the policy" limited Lloyd's liability for Anadarko "liability . . . insured," which did not include its defense expenses. Lloyd's, on the other hand, submitted that the reference to Anadarko's "liability . . . insured" included defense expenses. The Texas Supreme Court concluded that "liability" referred in the policy to an obligation imposed on Anadarko by law to pay for damages sustained by a third party who submitted a written claim. The Joint Venture Provision's reference to "any liability of Anadarko which is insured" under the policy did not refer to Anadarko's defense expenses. Although both Anadarko's liabilities and defense expenses were insured, the policy distinguished between the two and the Joint Venture Provision applied only to liabilities, not to defense expenses.
Accordingly, the court of appeal's judgment was reversed, Anadarko's motion for partial summary judgment was granted, and the case was remanded to the trial court for further proceedings.
