In Evanston Ins. Co. v. ATOFINA Petrochem. Inc., 2008 WL 400394, (Tex. 2008), the Supreme Court of Texas held that excess insurance policies provide coverage for liabilities arising from an additional insured's sole negligence, and that in cases where an insurance company wrongfully denies coverage to an additional insured policyholder the insurer is barred from challenging a settlement when its insured agrees to settle with a plaintiff.
The trial court granted summary judgment to Evanston , but the intermediate court of appeals reversed in favor of Atofina. The Texas Supreme Court initially held that while Atofina was an insured, coverage depended on whether Atofina was solely negligent. The Court later granted Atofina's Motion for Rehearing, vacated its earlier opinion, and rendered judgment for Atofina for the full amount of the settlement.
Atofina had hired a contractor to perform some construction at Atofina's refinery, with the contract requiring the contractor to indemnify and hold Atofina harmless from claims “except to the extent any loss is attributable to the concurrent or sole negligence . . . of [Atofina].” The contractor also agreed to procure a primary liability insurance policy with certain minimum limits and an excess policy “following form” to the primary policy. The contractor procured the insurance, and the primary policy contained an additional-insured endorsement that excluded the sole negligence of the additional insured.
When the contractor's employee fell through a rusted tank and drowned in the fuel oil below, the decedent's family sued the contractor and Atofina for wrongful death but soon dismissed the contractor leaving Atofina as the sole defendant. The primary insurer tendered its limits, but Evanston , the excess insurer, denied coverage to Atofina primarily on the basis that the policy did not cover additional insureds for their own negligence. Atofina answered the suit, alleging that the decedent was contributorily negligent. Atofina also sued Evanston for coverage and settled the underlying suit for $6.75 million.
In the Texas Supreme Court's review of the decision, Evanston argued that the underlying policy covered Atofina “only for liability arising out of [the contractor's] ongoing operations [for Atofina] . . .”Evanston argued that because the contractor was not hired to work on the storage tanks, the liability was not sufficiently connected to the insured operations.
The court recognized a split among Texas cases on the issue. One case, Granite Contr. Co. v. Bituminous Ins. Co. imposed a “fault-based” interpretation that bars coverage for an additional insured unless the named insured's conduct caused the accident. Two other appellate cases, Admiral Ins. Co. v. Trident NGL, Inc., and McCarthy Bro. Co. v. Continental Lloyds Ins Co., applied a broader theory of causation that allowed coverage for the additional insured as long as the accident occurred more or less within the contract works. The Atofina Court stated that it did not require proximate cause or legal causation.
Evanston also argued that the underlying policy excluded the sole negligence of the additional insured, and that the Evanston policy, following form, contained the same exclusion. The Court disagreed, stating that the catch-all provision of the excess liability policy defining “insured” to include any person or organization insured under the underlying insurance policy could extend coverage beyond what the underlying policy provided. Because the exclusion pertaining to Atofina in the underlying policy could not be read into the coverage for the additional insured in the excess policy, the agreement, therefore, did not relieve Evanston of the obligation to indemnify Atofina against liability for its own negligence.
Finally, the court determined that the Evanston's wrongful denial of coverage for Atofina as an additional insured under the contractor's excess liability policy barred Evanston from challenging the reasonableness of Atofina's settlement of the tort claim. The court explained that applying this rule in situations such as this would encourage early intervention by the insurers who are best positioned to evaluate the worth of claims during settlement discussions.