Texas Supreme Court says excess insurer need not cover defense costs

The Supreme Court of Texas on Friday unanimously overturned an appeals court’s ruling that a Liberty Mutual Holding Co. Inc. unit’s excess policy must cover defense costs related to a January 2018 drilling rig explosion.

The state high court said in The Ohio Casualty Insurance Co. v. Patterson-UTI Energy Inc. et al. that a panel of the Court of Appeals for the 14th District of Texas erred when it first looked at the language of the primary umbrella policy issued by Liberty Mutual Insurance Europe Ltd. rather than the excess policy issued by subsidiary Ohio Casualty.

After applying that approach, the Supreme Court found that settlement amounts constituted damages and were thus a covered loss under the excess policy, while legal defense costs were not damages.

Houston-based Patterson UTI and two of its subsidiaries purchased a tower of coverage effective from 2017 to 2018 for its oil and natural gas drilling operations through brokerage Marsh USA Inc. Patterson sought coverage from Ohio Casualty to help cover settlement and defense costs from lawsuits stemming from a January 2018 drilling rig explosion in Oklahoma after the primary umbrella policy’s limits were exhausted, court records show.

Ohio Casualty agreed to cover a portion of the settlement costs but said the defense costs were not a loss under its excess policy. Patterson sued Ohio Casualty and Marsh for breach of contract and violation of Texas’ Insurance Code.

The trial judge ruled in favor of Patterson, saying the excess policy covered defense costs because it followed the language of the primary umbrella policy. The appeals court upheld the ruling, and Ohio Casualty sought review from the state high court.

The Supreme Court revived the dispute between Patterson and Marsh and sent the case back to state court.

Representatives for the parties did not respond to requests for comment.