Anadarko Petroleum Corporation and Anadarko E&P Company, L.P. v. Houston Casualty Company

IN THE SUPREME COURT OF TEXAS
══════════
No. 16-1013
══════════
ANADARKO PETROLEUM CORPORATION AND ANADARKO E&P COMPANY, L.P.,
PETITIONERS,
v.
HOUSTON CASUALTY COMPANY, ET AL., RESPONDENTS
══════════════════════════════════════════
ON PETITION FOR REVIEW FROM THE
COURT OF APPEALS FOR THE NINTH DISTRICT OF TEXAS
══════════════════════════════════════════
Argued September 17, 2018
JUSTICE BOYD delivered the opinion of the Court.
The Deepwater Horizon drilling-rig incident has been called “the largest accidental
marine oil spill in U.S. history.” 1 After the initial blow-out and explosions claimed eleven
lives, the waves of escaping oil “began a human, economic, and environmental disaster” 2
that “touched virtually every aspect of life on the Gulf of Mexico coast—and far beyond.” 3
1
NAT’L COMM’N ON THE BP DEEPWATER HORIZON OIL SPILL & OFFSHORE DRILLING, REPORT TO THE
PRESIDENT 173 (2011), https://www.gpo.gov/fdsys/pkg/GPO-OILCOMMISSION/pdf/GPO-OILCOMMISSION.pdf.
2
Id. at vi.
3
Id. at 197.
Predictably, the lingering ripples include legal disputes over the responsible parties’
liabilities and the extent to which insurance covers their losses.
A few years ago, we addressed issues affecting insurance covering the BP entities
that held the majority interest in the Deepwater Horizon operation. 4 Today’s case involves
insurance covering minority-interest owners, Anadarko Petroleum Corporation and
Anadarko E&P Company, L.P. (collectively, Anadarko). The parties have resolved most
of their disagreements and now focus solely on coverage for the legal fees and related
expenses Anadarko incurred defending against liability and enforcement claims. Anadarko
argues that the policy covers all of its defense expenses, up to the policy’s $150 million
excess-coverage limit. The policy’s underwriters 5 contend that a negotiated policy
provision caps the excess coverage—including coverage for defense costs—at twenty-five
percent of that limit. The trial court agreed with Anadarko, but the court of appeals agreed
with the Underwriters. Because we conclude that the provision does not limit the excess
coverage for defense expenses, we reverse the court of appeals’ judgment, render judgment
granting Anadarko’s motion for partial summary judgment, and remand the case to the trial
court for further proceedings.
4
See In re Deepwater Horizon, 470 S.W.3d 452 (Tex. 2015).
5
Houston Casualty Company, Allianz Global Corporate & Specialty AG, Clearwater Insurance Company,
Hudson Insurance Company, Lancashire Insurance Company (UK) Limited, Navigators Insurance Company and
Underwriters at Lloyd’s Syndicate Nos. 33, 457, 510, 609, 623, 958, 1036, 1084, 1183, 1919, 1209, 1221, 1225, 2003,
2007, 2121, 2623, 3000, 4020, 5000 (collectively, the Underwriters).
2
I.
Background
Pursuant to a joint-venture arrangement with BP entities and MOEX Offshore 2007
LLC, Anadarko held twenty-five percent of the ownership interest in the Macondo Well in
the deep waters of the Gulf of Mexico. On April 20, 2010, during drilling operations from
the Deepwater Horizon drilling rig, the well blew out. Over the ensuing months and years,
numerous third parties filed claims against the BP entities, Anadarko, and MOEX, seeking
damages for bodily injury, wrongful death, and property damage. Many of those claims
were consolidated into a multi-district litigation (MDL) proceeding in the federal district
court for the Eastern District of Louisiana. See In re Oil Spill by the Oil Rig “Deepwater
Horizon” in the Gulf of Mexico, on April 20, 2010, MDL 2179, 2016 WL 1394949 (E.D.
La. Apr. 4, 2016). The federal government also pursued civil penalties under the Clean
Water Act and a declaratory judgment of liability under the Oil Pollution Act of 1990.
The MDL court granted a declaratory judgment finding BP and Anadarko jointly
and severally liable under the Oil Pollution Act. BP and Anadarko then reached a
settlement agreement in which Anadarko agreed to transfer its twenty-five percent
ownership interest to BP and pay BP $4 billion. In exchange, BP agreed to release any
claims it had against Anadarko and to indemnify Anadarko against all other liabilities
arising out of the Deepwater Horizon incident. In light of that agreement, the United States
agreed not to pursue claims against Anadarko, and the MDL court entered an order
approving that agreement. See id., at *23. BP did not agree, however, to cover Anadarko’s
3
legal fees and other defense expenses, which Anadarko now contends total well over $100
million.
Before the incident, Anadarko purchased an “energy package” insurance policy
through the Lloyd’s London market. 6 In section III, the policy provides excess-liability
coverage limited to $150 million per occurrence. 7 The Underwriters paid Anadarko $37.5
million under section III (twenty-five percent of the $150 million limit) based on
Anadarko’s twenty-five percent ownership in the joint venture that operated the Deepwater
Horizon. Anadarko contends that the Underwriters must also pay all of Anadarko’s defense
expenses, up to section III’s $150 million limit.
Unlike most general liability insurance policies, 8 this policy does not require the
Underwriters to defend Anadarko against liability claims. But it does require the
Underwriters to reimburse Anadarko for expenses it incurs providing its own defense.
Specifically, section III requires the Underwriters to “indemnify” Anadarko for its
“Ultimate Net Loss,” which section III defines as “the amount [Anadarko] is obligated to
pay, by judgement or settlement, as damages resulting from an ‘Occurrence’ covered by
this Policy, including the service of suit, institution of arbitration proceedings and all
6
See Houston Expl. Co. v. Wellington Underwriting Agencies, Ltd., 352 S.W.3d 462, 464–66 (Tex. 2011)
(describing the unique Lloyd’s London insurance market).
7
The policy’s primary coverage under section II is not at issue in this case.
8
See, e.g., D.R. Horton-Texas, Ltd. v. Markel Int’l Ins. Co., 300 S.W.3d 740, 743–45 (Tex. 2009) (discussing
the duties to defend and indemnify under commercial general liability policies).
4
‘Defence Expenses’ in respect of such ‘Occurrence.’” [Emphases added.] 9 Because
“Ultimate Net Loss” includes “Defence Expenses,” the Underwriters agree that section III
covers the costs Anadarko incurred defending against third-party and government claims,
up to section III’s coverage limit.
The Underwriters contend, however, that an endorsement to section III reduces the
$150 million limit when—as here—Anadarko’s liability arises out of the operations of a
joint venture in which Anadarko has an ownership interest. This endorsement—entitled
“Joint Venture Provision”—contains three separate clauses. The first clause imposes a
coverage limit based on Anadarko’s percentage ownership in a joint venture from which
its liability arises:
[A]s regards any liability of [Anadarko] which is insured under
this Section III and which arises in any manner whatsoever out
of the operation or existence of any joint venture . . . in which
[Anadarko] has an interest, the liability of Underwriters under
this Section III shall be limited to the product of (a) the
percentage interest of [Anadarko] in said Joint Venture and (b)
the total limit afforded [Anadarko] under this Section III.
Based on the product of Anadarko’s percentage interest in the Deepwater Horizon joint
venture (25%) and the total coverage limit under section III ($150 million), the
Underwriters contend that section III caps their excess-coverage liability at $37.5 million,
which they have already paid to Anadarko.
9
Section III defines “Defence Expenses” to mean “investigation, adjustment, appraisal, defence and appeal
costs and expenses and pre and post judgement interest, paid or incurred by or on behalf of the ‘Insured.’”
5
The Joint Venture Provision’s second clause provides an exception to the first
clause’s limit, which applies if Anadarko is contractually responsible for all of the joint
venture’s liability:
The Joint Venture Clause shall not apply to any liability of
[Anadarko], when as a result of the circumstances of the
Occurrence, the terms of the Joint Venture agreement place the
whole of the liability of the Joint Venture on [Anadarko].
The third clause provides another exception, which applies if a court holds
Anadarko legally liable for an amount greater than the amount reflecting Anadarko’s
twenty-five percent interest:
In the event [Anadarko] becomes legally liable in a court of
competent jurisdiction for an amount greater than their
proportionate ownership interest, Underwriters hereon agree to
provide coverage to [Anadarko] to the extent the legal liability
increases [Anadarko’s] working interest percentage liability. If
[Anadarko] becomes legally liable for a greater percentage
than their ownership interest, the liability of Underwriters shall
be the combination of [Anadarko’s] working interest
percentage ownership and the additional percentage(s) for
which [Anadarko] becomes legally liable.
Anadarko agrees that the Joint Venture Provision reduces the amount the
Underwriters must pay to cover Anadarko’s joint-venture liabilities to third parties. So, for
example, although Anadarko paid $4 billion to settle its third-party liabilities and section
III limits excess coverage to $150 million, Anadarko agrees that the provision caps the
excess coverage for the $4 billion payment at $37.5 million. Anadarko contends, however,
that the Joint Venture Provision caps the excess coverage only for Anadarko’s liabilities to
6
third parties, and not for its “defence expenses.” So in addition to the $37.5 million already
paid, the Underwriters must still pay all of Anadarko’s defense costs up to the total $150
million limit.
When the parties could not resolve their dispute, Anadarko filed this suit seeking
payment of its defense expenses up to $112.5 million ($150 million minus the $37.5 million
already paid). The trial court denied the Underwriters’ summary-judgment motion and
granted Anadarko’s summary-judgment motion in part. Finding the Joint Venture
Provision unambiguous, the trial court concluded that the first clause applies to and limits
coverage for Anadarko’s defense expenses, but the third clause’s exception also applies
and increases the Underwriters’ liability to “the combination of Anadarko’s working
interest percentage ownership and the additional percentage for which Anadarko becomes
legally liable, . . . subject only to the limits of the policy after subtracting monies that
Underwriters have already paid.”
The court of appeals granted the parties’ cross-petitions for permissive appeal,
reversed the trial court’s judgment, and rendered judgment for the Underwriters. Hous.
Cas. Co. v. Anadarko Petroleum Corp., 552 S.W.3d 268, 271 (Tex. App.—Beaumont
2016). The appellate court agreed with the trial court that the first clause applies to defense
expenses but concluded that neither of the two exceptions applies. Id. at 278, 282. We
granted Anadarko’s petition for review and now hold that the Joint Venture Provision’s
first clause does not limit coverage for Anadarko’s defense expenses.
7
II.
The First Clause
The primary issue is whether the Joint Venture Provision’s first clause limits section
III’s excess-liability coverage only for amounts Anadarko was required to pay in response
to third-party claims or also for amounts Anadarko paid as defense expenses. Because we
conclude that the first clause does not limit the coverage for defense expenses, we need not
address the second and third clauses’ exceptions.
The first clause states that “the liability of Underwriters under this Section III shall
be limited to” $37.5 million. 10 But that phrase immediately follows an introductory phrase:
“as regards any liability of [Anadarko] which is insured under this Section III . . . .”
[Emphasis added.] Focusing on this language, Anadarko contends that the first clause only
limits the Underwriters’ liability for Anadarko’s “liability . . . insured,” which does not
include its defense expenses. In response, the Underwriters argue that the reference to
Anadarko’s “liability . . . insured” includes defense expenses. And even if the term
“liability” does not include defense expenses, they argue, the first clause limits or “scales”
their liability for all of Anadarko’s Ultimate Net Loss, which includes defense expenses.
We agree with Anadarko.
10
The parties agree that $37.5 million is the product of 25% (Anadarko’ percentage interest in the joint
venture) and $150 million (the total limit under section III).
8
A. “Liability . . . insured”
When construing an insurance policy, “our primary concern is to ascertain the
intentions of the parties as expressed in the document.” RSUI Indem. Co. v. The Lynd Co.,
466 S.W.3d 113, 118 (Tex. 2015). We look to the policy’s language because it best
represents what the parties actually intended. Id. Here, the parties focus first on the first
clause’s reference to “any liability” of Anadarko “which is insured” under section III and
“which arises” out of Anadarko’s joint venture with BP and MOEX. Anadarko argues that
this clause limits section III’s excess coverage to $37.5 million only “as regards” those
liabilities. So we must first determine whether Anadarko’s defense expenses constitute an
insured liability arising out of the joint venture.
Because the policy does not define the term “liability,” 11 we must give the term its
common, ordinary meaning, while reading the term “in context and in light of the rules of
grammar and common usage.” Id. To determine a term’s common, ordinary meaning, we
typically look first to dictionary definitions and then consider the term’s usage in other
authorities. Tex. State Bd. of Exam’rs of Marriage & Family Therapists v. Tex. Med. Ass’n,
511 S.W.3d 28, 35 (Tex. 2017). Like the court of appeals, 12 the Underwriters note that
dictionaries generally define the term “liability” broadly to include any kind of debt,
obligation, or responsibility. See Liability, BLACK’S LAW DICTIONARY (10th ed. 2014)
11
“When an insurance policy defines its terms, those definitions control.” Evanston Ins. Co. v. Legacy of
Life, Inc., 370 S.W.3d 377, 381 (Tex. 2012).
12
See 552 S.W.3d at 277.
9
(defining “liability” as the “quality, state, or condition of being legally obligated or
accountable”); Liability, THE AMERICAN HERITAGE DICTIONARY (5th ed. 2014) (defining
“liability” as “an obligation, responsibility or debt”). 13
The Underwriters argue that Anadarko’s obligation to pay the lawyers,
investigators, and others who helped with Anadarko’s defense constitutes Anadarko’s
liability, particularly because the policy did not require the Underwriters to defend
Anadarko against any claims. Noting that the clause refers to “any” insured liability arising
in “any manner whatsoever” from the joint venture, the Underwriters argue that the term
carries its broadest possible meaning and encompasses all of Anadarko’s debts or
obligations arising from the joint venture. To construe the clause as applying only to
Anadarko’s obligation to pay in response to third parties’ claims, they assert, would
impermissibly add words the policy does not include.
As the dictionaries confirm, the term “liability” can refer broadly to any debt or
obligation. But we cannot simply stop at the dictionary definitions. Whether we are
13
The court of appeals relied on Black’s ninth edition, noting that it defines “liability” as “[t]he quality or
state of being legally obligated or accountable; legal responsibility to another or to society, enforceable by civil remedy
or criminal punishment,” or “[a] financial or pecuniary obligation.” Id. (quoting Liability, BLACK’S LAW DICTIONARY
(9th ed. 2009)).
10
construing insurance policies, statutes, 14 pleadings, 15 or simply “language itself,” 16 context
matters. As we have repeatedly explained, we must give an insurance policy’s undefined
words their common, ordinary meaning unless the policy itself demonstrates that the parties
intended a “different” or more “technical” meaning. In re Deepwater Horizon, 470 S.W.3d
at 464. 17 Because we must “give effect to all of the words and provisions so that none is
rendered meaningless,” RSUI, 466 S.W.3d at 118, we cannot isolate any word, phrase,
sentence, or section from its setting and construe it without considering its context, Forbau
v. Aetna Life Ins. Co., 876 S.W.2d 132, 134 (Tex. 1994).
Instead, we must consider how the policy uses the term at issue and apply that usage
unless the provision at issue clearly requires a contrary meaning. See Gonzalez v. Mission
Am. Ins. Co., 795 S.W.2d 734, 736 (Tex. 1990) (“Words used in one sense in one part of a
contract are, as a general rule, deemed to have been used in the same sense in another part
of the instrument, where there is nothing in the context to indicate otherwise.”). Here,
14
See City of Houston v. Bates, 406 S.W.3d 539, 545 n.2 (Tex. 2013) (“[A]s our statutory construction cases
make clear, context matters.”).
15
See ETC Mktg., Ltd. v. Harris Cty. Appraisal Dist., 528 S.W.3d 70, 75 (Tex. 2017) (“Context matters. And
in the context of this motion there is no question that ETC failed to present the temporary-period ground at all, let
alone specifically.”).
16
Deal v. United States, 508 U.S. 129, 132 (1993).
17
See also U.S. Metals, Inc. v. Liberty Mut. Grp., Inc., 490 S.W.3d 20, 23 (Tex. 2015) (“The interpretation
of an insurance policy, like other contracts, begins with the text, and requires that undefined words be given their
plain, ordinary, and generally accepted meanings absent some indication of a different intent.”); Gilbert Tex. Const.,
L.P. v. Underwriters at Lloyd’s London, 327 S.W.3d 118, 126 (Tex. 2010) (“The policy’s terms are given their
ordinary and generally-accepted meaning unless the policy shows the words were meant in a technical or different
sense.”).
11
although the policy does not define the term “liability,” it consistently distinguishes
between Anadarko’s “liabilities” and “expenses.” Based on the policy’s usage of the term
“liability” and its distinguishing references to “expenses,” we conclude that, consistent
with the term’s common meaning within insurance and other legal contexts, “liability”
refers in this policy to an obligation imposed on Anadarko by law to pay for damages
sustained by a third party who submits a written claim.
1. “Liability” as used in the Coverage Provision
In section III’s coverage provision, the Underwriters agreed to indemnify Anadarko
only for “Ultimate Net Loss” sustained
by reason of liability
(a) imposed upon [Anadarko] by law, or
(b) assumed by [Anadarko] under an “Insured Contract”,
for damages in respect of:
(i) “Bodily Injury”
(ii) “Personal Injury”
(iii) “Property Damage”
(iv) “Advertising Injury”,
caused by or arising out of an “Occurrence” . . . for which a
“Claim” is first made in writing against [Anadarko] during the
Policy Period . . . .
Although section III defines “Ultimate Net Loss” to include (and thus covers)
“defence expenses,” it only covers an Ultimate Net Loss that Anadarko sustains “by reason
of” liability for damages that is “imposed upon [Anadarko] by law” 18 for which a written
18
The coverage provision describes liability for damages imposed on Anadarko by law or “assumed by
[Anadarko] under an ‘Insured Contract.’” But section III defines an “Insured Contract” to mean a written contract in
which Anadarko assumes another party’s “tort liability” to pay for a third party’s “Bodily Injury,” “Property Damage,”
“Personal Injury,” or “Advertising Injury.” The definition further defines “tort liability” to mean a liability that “would
be imposed by law” in the absence of that written contract. So whether the “liability” to which the coverage provision
12
“Claim” 19 is made during the policy period. So the “liability . . . insured” to which the
coverage provision refers is Anadarko’s legally imposed obligation to pay for a third
party’s damages in response to a written claim. Such a liability triggers the Underwriters’
obligation to indemnify Anadarko not only for that liability, but for all of its Ultimate Net
Loss sustained “by reason of” that liability. The Ultimate Net Loss that section III insures
includes defense expenses, but the legally imposed liability that triggers the Underwriters’
duty to indemnify the Ultimate Net Loss does not. Instead, the liability insured and defense
expenses are two separate components of the Ultimate Net Loss. As used in the coverage
provision, the term liability does not include Anadarko’s voluntarily assumed obligation to
pay lawyers, investigators, or others for services provided to defend against the liability.
2. Liabilities and defense expenses as “Ultimate Net Loss”
As explained, section III defines “Ultimate Net Loss” to mean
the amount [Anadarko] is obligated to pay, by judgement or
settlement, as damages resulting from an “‘Occurrence”
covered by this Policy, including the service of suit, institution
of arbitration proceedings and all “Defence Expenses” in
respect of such “Occurrence.”
refers is imposed on Anadarko or contractually assumed by Anadarko, it is a liability imposed on Anadarko by law to
pay for a third party’s damages.
19
Section III defines “Claim” to mean “that part of each written demand received by [Anadarko] for damages,
including the service of suit or institution of arbitration proceedings.”
13
The Underwriters argue that Anadarko’s “liability” includes its defense expenses because,
under this definition, the amount Anadarko is obligated to pay as damages “includ[es]” all
defense expenses. This construction, however, misreads the definition.
The meaning of the first phrase of this definition—“the amount [Anadarko] is
obligated to pay”—is clear: “Ultimate Net Loss” is a quantifiable monetary obligation of
Anadarko. The second phrase—“by judgement or settlement”—is an adjectival phrase
describing the obligation to pay. So reading the first two phrases together, “Ultimate Net
Loss” means the amount of money that a judgment or settlement obligates Anadarko to
pay. The third phrase—“as damages resulting from an ‘Occurrence’ covered by this
Policy”—further describes the payment obligation, so that “Ultimate Net Loss” means the
amount of money that a judgment or settlement obligates Anadarko to pay as damages
resulting from a covered occurrence.
The fourth phrase—“including the service of suit, institution of arbitration
proceedings and all ‘Defence Expenses’ in respect of such ‘Occurrence’”—confirms that
defense expenses are part of the Ultimate Net Loss, but it also makes the definition itself
less clear. Theoretically, at least, this phrase could further describe all of what precedes it:
the amount a judgment or settlement obligates Anadarko to pay as damages resulting from
a covered occurrence. Read that way, the fourth phrase would suggest that section III treats
defense expenses as “damages,” and thus (as the Underwriters argue) a liability. But the
14
definition refers only to damages that a judgment or settlement obligates Anadarko to pay.
Judgments and settlements typically do not order a party to pay its own defense expenses.
Reasonably construed, the fourth phrase further describes only the first phrase—
“the amount [Anadarko] is obligated to pay.” Under this reading, the provision defines
“Ultimate Net Loss” to mean an amount of money Anadarko is obligated to pay (1) as
damages resulting from a covered occurrence as awarded in a judgment or settlement and
(2) as defense expenses resulting from that covered occurrence. Thus, “Ultimate Net Loss”
is comprised of two categories of obligations: damages awarded to third parties and defense
expenses. Consistent with the coverage provision’s language and the rest of the policy’s
usages of the terms, the definition of Ultimate Net Loss confirms that Anadarko’s
“liabilities” consist of its obligations imposed by law to pay for damages sustained by a
third party who submits a written claim. Anadarko’s “liabilities” do not include its defense
expenses, although section III insures against both as part of the Ultimate Net Loss.
3. “Liability” as used in other provisions
Other section III provisions use the term liability to refer to a legally imposed
obligation to pay for a third party’s damages in response to a written claim. A condition
addressing “Cross Liability,” for example, provides that if an “Occurrence” results in
bodily injury or property damage to “one ‘Insured’ hereunder for which another ‘Insured’
is, or may be, liable then this Policy shall cover such ‘Insured’ against whom a ‘Claim’ for
damages has been made or may be made in the same manner as if separate policies had
been issued to each ‘Insured’ hereunder.” [Emphases added.] Similarly, section III defines
15
“Completed Operations Liability” to mean “liability for ‘Bodily Injury’ and/or ‘Property
Damage’ arising out of the ‘Insured’s’ operations or reliance upon a representation or
warranty made at any time with respect thereto, but only if the ‘Bodily Injury’ and/or
‘Property Damage’ happens after such Operations have been completed or abandoned.”
[Emphasis added.] And the Joint Venture Provision itself supports this meaning, referring
in the third clause to amounts for which Anadarko may become “legally liable in a court
of competent jurisdiction.”
4. “Liability” distinguished from other references
We have found no policy provision that implies, indicates, or suggests that a
reference to a “liability . . . insured” includes expenses Anadarko itself incurs responding
to or defending a “Claim.” To the contrary, the policy repeatedly refers separately to
“liability” and “expenses.” The policy refers, for example, to “liabilities or expenses
incurred as a result of a peril insured under this Policy,” to “claims, liabilities, costs and
expenses,” to a “loss, damage or expense,” and to a “loss damage liability or expense.”
[Emphases added.] By consistently referring separately to liabilities and expenses, the
policy indicates that although it covers both, they are not the same.
5. “Liability” as commonly used in legal and insurance contexts
We have explained that, in the insurance context, “liability insurance” generally
covers “damage the insured does to others.” Members Mut. Ins. Co. v. Hermann Hosp.,
664 S.W.2d 325, 327–28 (Tex. 1984) (holding that uninsured-motorist coverage did not
protect the insured from liability for damages caused to others). We have also held that an
16
insured’s defense expenses are not “damages” a third party sustains and “claims.” Lamar
Homes, Inc. v. Mid-Continent Cas. Co., 242 S.W.3d 1, 17 (Tex. 2007). Even in the broader
common, ordinary sense, “damages” are “[m]oney claimed by, or ordered to be paid to, a
person as compensation for loss or injury,” In re Xerox Corp., 555 S.W.3d 518, 529 (Tex.
2018) (quoting Damages, BLACK’S LAW DICTIONARY (10th ed. 2014)), and thus
“attorney’s fees are generally not damages, even if compensatory,” id. (citing In re Nalle
Plastics Family Ltd. P’ship, 406 S.W.3d 168, 173 (Tex. 2013)). The policy at issue here
consistently uses the terms liability, damages, and defense expenses consistent with these
common legal meanings.
For these reasons, we conclude that the Joint Venture Provision’s reference to “any
liability of [Anadarko] which is insured” under section III does not refer to Anadarko’s
defense expenses. Although Anadarko’s liabilities and defense expenses are both included
in its “Ultimate Net Loss,” and thus both are “insured” under section III, the policy
distinguishes between the two, and the Joint Venture Provision applies only to liabilities,
not to defense expenses.
B. Scaling the limit
The Underwriters argue that, even if the term “liability” does not refer to defense
expenses, the Joint Venture Provision nevertheless reduces or scales section III’s coverage
of those expenses. Specifically, they reason that because (1) the Joint Venture Provision
reduces or scales their liability under section III, (2) their liability under section III is for
17
Ultimate Net Loss, and (3) Ultimate Net Loss includes defense expenses, the Joint Venture
Provision reduces or scales their liability for defense expenses. Again, we disagree.
As explained, the Joint Venture Provision does in fact limit the Underwriters’
liability “under this Section III” to $37.5 million. But the introductory phrase states that
the limit applies only “as regards” Anadarko’s liabilities that section III insures and that
arise out of the joint venture. The Underwriters argue that the introductory phrase merely
creates a “condition” that governs “when” the Joint Venture Provision applies: whenever
Anadarko’s liability is insured and arises out of a joint venture. Whenever that condition is
satisfied, they argue, the next phrase describes “how” the first clause limits the
Underwriters’ liability under section III: it is scaled based on Anadarko’s percentage
interest in the joint venture. So, they assert, when the first clause applies, it reduces or
scales the Underwriters’ section III obligation to pay for Anadarko’s Ultimate Net Loss,
which includes defense expenses.
This argument misreads the Joint Venture Provision. The first clause does not say
that the Underwriters’ liability under section III is limited “when,” “if,” “in the event that,”
or “upon the condition that” Anadarko’s liability is insured and arises out of a joint venture.
Instead, it says the Underwriters’ liability under section III is limited “as regards any
liability” of Anadarko that is insured and arises out of a joint venture. As the Underwriters
themselves concede, “as regards” means “concerning” or “with respect to.” See Regard,
NEW OXFORD AMERICAN DICTIONARY, (3d ed. 2010) (defining “as regards” as
18
“concerning, with respect to”); Regard, WEBSTER’S NEW COLLEGIATE DICTIONARY (9th
ed. 1981) (defining “as regards” as “with respect to : CONCERNING”). 20 By using the
phrase “as regards,” the first clause limits the Underwriters’ liability “with respect to” or
“concerning” Anadarko’s “liability” that is insured and arises out of a joint venture.
Because Anadarko’s defense expenses are not liabilities, the clause does not limit the
Underwriters’ liability “as regards” those expenses.
The Underwriters argue that this construction renders the Joint Venture Provision’s
first clause absurd because it results in two separate liability limits under section III—one
for Anadarko’s defense expenses ($150 million) and one for Anadarko’s third-party
liabilities ($37.5 million). We disagree. Section III has only one excess-liability limit: $150
million is the maximum the Underwriters will ever have to pay to indemnify Anadarko for
its Ultimate Net Loss, which includes both liabilities and defense costs. But when the Joint
Venture Provision applies, the most the Underwriters must pay for Anadarko’s joint-
venture liabilities is $37.5 million.
So if, for example, Anadarko’s liability arising out of the joint venture were $50
million and it incurred defense expenses of $50 million, for a total loss of $100 million, the
Joint Venture Provision would limit the Underwriters’ total liability under section III to
$87.5 million ($37.5 million for liabilities plus $50 million for defense expenses), even
20
See also Edelstein v. Brown, 100 S.W. 129, 129 (Tex. 1907) (noting the phrase “as to” is defined to mean
“[s]o far as it concerns; as regards; as respects; in regard to; in respect to”).
19
though section III’s single liability limit is $150 million. The result would be the same if
Anadarko’s joint-venture liability were $100 million and its defense expenses were $50
million, for a total loss of $150 million. But if the liability were $50 million and the defense
expenses were $100 million, the Joint Venture Provision would limit the Underwriters’
total liability to $137.5 million ($37.5 million for liabilities and $100 million for defense
expenses). And if, as alleged here, Anadarko’s joint-venture liability were $4 billion and
its defense expenses were some amount greater than $100 million, 21 the Joint Venture
Provision and the section III liability limit would work together to limit the Underwriters’
total liability to $37.5 million plus the amount of Anadarko’s insured defense expenses, up
to a combined total of $150 million. Without regard to the wisdom or desirability of that
arrangement, we cannot agree that it is absurd. See Combs v. Health Care Servs. Corp.,
401 S.W.3d 623, 630 (Tex. 2013) (“The absurdity safety valve is reserved for truly
exceptional cases, and mere oddity does not equal absurdity.”).
III.
Conclusion
For the reasons explained, 22 we hold that the Joint Venture Provision does not limit
the Underwriters’ liability for Anadarko’s defense expenses insured under section III. We
21
Anadarko asserts that its covered defense expenses exceed $100 million. The Underwriters dispute the
amount, but the trial court has not yet resolved that dispute pending this interlocutory permissive appeal. We hold only
that the Joint Venture Provision does not limit the Underwriters’ liability for Anadarko’s insured defense expenses
and reach no conclusions as to the actual amount of those expenses, if any.
22
Anadarko and its supporting amici alternatively urge us to construe the Joint Venture Provision in
Anadarko’s favor because (1) the parties agreed to delete certain policy provisions, including one that expressly
reduced coverage for defense expenses whenever Anadarko paid a demand for damages that were “only covered in
20
reverse the court of appeals’ judgment, render judgment granting Anadarko’s motion for
partial summary judgment, and remand the case to the trial court for further proceedings
consistent with this opinion.
_____________________
Jeffrey S. Boyd
Justice
Opinion delivered: January 25, 2019
part by this Policy,” see Hous. Expl. Co., 352 S.W.3d at 471–72, (2) we must construe insurance-policy provisions
that purport to limit coverage strictly in favor of coverage, see Evanston Ins. Co. v. ATOFINA Petrochemicals, Inc.,
256 S.W.3d 660, 668 (Tex. 2008), and (3) to the extent the Joint Venture Provision is ambiguous, we must resolve
that ambiguity in the insured’s favor, see RSUI, 466 S.W.3d at 119. Because we conclude that the Joint Venture
Provision’s plain language favors Anadarko’s proposed result, we do not reach these alternative arguments.
21