There is a conflict among jurisdictions when a policyholder which has purchased both primary and excess insurance coverages, is sued, settles with a claimant for less than the primary limits, and then sues the excess carrier for the amount of the policyholder’s settlement with the claimant which exceeds the primary policy limits. Some jurisdictions frown on validating this approach to protecting primary carriers' underlying policy limits, others do not. Some jurisdictions approve this arrangement in first-party insurance matters, others do not.
Under Texas law, the Court of Appeals headquartered in Eastland, Texas has just ruled that this is a valid arrangement in a case with a liability twist. The policyholder, a pipeline company in the middle of the oil and gas industry, remediated land in North Carolina after the site was inundated by oil flowing from a broken pipe. Years later, the State of North Carolina ordered further remediation after a prospective buyer apparently unassociated with the policyholder reported that "residual gasoline contamination" was still seeping across the property. The policyholder “notified its insurance carriers that the State of North Carolina was requiring it to perform further remedial action under North Carolina pollution control laws and that it faced potential liability to third parties. Plantation requested that the insurers defend and indemnify it.” Plantation Pipe Line Co. v. Highlands Ins. Co., 444 S.W.3d 307, 310 (Tex. Ct. App. 2014)[emphasis added], petition for review filed (unreported) (Tex. November 12, 2014).
The policyholder paid the additional remediation costs and claimed insurance coverage for them. The policyholder settled with its primary carriers for less than the primary limits. It was allowed to sue its “top tier excess liability insurer” to recover the amount of the policyholder’s settlement which was in excess of the limits of the primary policies. Plantation Pipe Line Co. v. Highlands Ins. Co., 444 S.W.3d 307 (Tex. Ct. App. 2014), petition for review filed (unreported) (Tex. November 12, 2014).
As noted in the full citation of this case, a petition for review has been filed in the Supreme Court of Texas. It now remains for that Court to review this arrangement under Texas law.
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