Waltz Law Group | FIFTH CIRCUIT DECISION POTENTIALLY BROADENS LIABILITY OF UMBRELLA INSURERS

A recent ruling by the U.S. 5^th Circuit Court of Appeals, in Indemnity Insurance Co. of North America et al. v. W&T Offshore Inc., has found that an energy exploration and development company is entitled to more than $50 million in coverage under its umbrella and excess insurance policies in connection with damage sustained during 2008’s Hurricane Ike, even though its underlying insurance was exhausted by claims not covered by those policies.

On Sept. 12, 2008, Hurricane Ike struck more than 150 offshore platforms in which W&T Offshore Inc. had an interest. W&T had purchased a commercial general liability policy, five energy package policies and four umbrella/excess liability policies intending to provide coverage in the event of a hurricane.

While both the umbrella and primary liability policies had been endorsed to cover removal of debris claims, the difference between them was that the umbrella policies did not cover property damage or operators’ extra expenses that were incurred by W&T itself. They only covered claims against W&T by a third party, according to the ruling.

W&T submitted more than $150 million in claims for operators’ extra expenses and property damage under the primary energy packages. Because submitted expenses for operators’ extra expense and property damage exceeded $150 million, W&T’s adjuster assumed that W&T would submit all of its removal of debris claims, which were estimated to exceed $50 million, to the umbrella policies.

As a result, several declaratory judgment suits were filed. The umbrella insurers argued that because W&T’s underlying insurance was admittedly exhausted by claims not covered by the umbrella policies, they had no liability.

The basis of W&T’s argument was that the umbrella policies took effect once all underlying insurance was exhausted, regardless of how the exhaustion occurred.

The District Court granted summary judgment in favor of the underwriters; however, the 5th Circuit overturned this ruling, stating that under the policies’ language, the umbrella insurers were obligated to provide coverage. Summary Judgment was entered for the insured, W&T.