Key Provision Does Not Limit Coverage for Defense Costs
In the aftermath of the Deepwater Horizon disaster, one of the insureds, a joint venturer in the oil drilling operations, sued excess insurers to recover under the energy package policy for defense, investigation, and adjustment costs and expenses paid. The Texas Supreme Court held the joint venture provision did not limit the insurers' obligation to reimburse the insured for defense costs. In making its ruling, the court narrowly interpreted the term “liability” in the context of an excess insurance contract. The sole issue before the Court was whether an endorsement in the policy that limited coverage for liabilities arising out of the operation of a joint venture also limited coverage for defense costs. The Court found the Joint Venture Provision limits coverage only for the insured’s obligation to pay damages to third parties and not for the expenses it incurred in defense of the third party claims. Consequently, the excess insurer must indemnify the insured for its defense costs up to the $150 million policy limit.