Appeals court rules against insurer in case involving damaged oil platforms

By Anna Aguillard | Nov 29, 2014

NEW ORLEANS – The U.S. Court of Appeals for the Fifth Circuit has reversed and rendered a judgment in favor of a company that owns 150 offshore oil platforms that were allegedly damaged in Hurricane Ike after a district court’s decision in favor of an insurer.

In a dispute brought by policy underwriters of Indemnity Insurance Company of North America, New York Marine and General Insurance Company, Navigators Insurance Company, National Liability and Fire Insurance Company, XL Specialty Insurance Company and Liberty Mutual Insurance Company against W&T Offshore Inc.  the extent of coverage that umbrella policies provide was addressed by the Court of Appeals.

According to the underlying complaint, on Sept. 12, 2008, W&T allegedly sustained significant damage to over 150 of its offshore platforms as a result of Hurricane Ike. Anticipating that W&T would submit all removal of debris (“ROD”) claims under its umbrella/excess insurance policies, the underwriters sought a declaratory judgment stating that the insured would not cover the $50 million in ROD claims. The plaintiffs argued that the policies only take effect if the retained limit of the primary/underlying policy is met first by claims that would be specifically covered in the particular insurance policy. Plaintiffs maintained that the particular insurance policy defined in the contract did not cover property damage or operator’s extra expense, including ROD, thus the retained limit remained unmet, so the the plaintiffs cannot be held liable to compensate for W&T’s damages. The district court ruled in favor of the plaintiffs and issued a judgment stating that umbrella policies only take effect when the primary/underlying policy’s retained limit is depleted first by claims also covered in the umbrella policies themselves. However, the appeals court judges reversed and rendered judgment in favor of W&T, citingGrain Dealers Mut. Ins. Co v. McKee that in cases where the terms of the contract are ambiguous, “the court should adopt the interpretation that is most favorable to the insured.” After examining the precise language of the contract between W&T and the underwriters, the appeals court ruled that the contract does not specify “how the limit of the underlying policies must be reached” or “state that the retained limit refers exclusively to sums covered by the umbrella policy.” Furthermore, the court ruled that the phrases from the coverage provision actually “fit neatly” into the Defendant’s argument, declaring W&T’s interpretation as “consistent” with the contract as a whole. Because the contract remains at best ambiguous regarding the requirements for exhausting the retained limit of underlying/primary policies, the court held the plaintiffs are liable for ROD damages incurred by W&T Offshore Inc. and reverses the district court decision. The appeal was heard by Fifth Circuit Court Judges Patrick Higginbotham, Edith Brown Clement and Stephen A. Higginson. Case no. 13-20512.  

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