COURT ENFORCES ARBITRATION PROVISION IN COVERAGE DISPUTE WITH ADDITIONAL INSURED

Last Thursday, the Beaumont Court of Appeals reversed a trial court ruling denying an insurer’s motion to compel arbitration and remanded the case with instructions to order the parties to arbitrate their coverage disagreement. In Lexington Insurance Company v. Exxon Mobil Corporation, No. 09-16-00357-CV, 2017 WL 1532271 (Tex. App.—Beaumont, Apr. 27, 2017), Lexington sought to compel arbitration in a coverage dispute with Exxon involving an umbrella policy.

The claim arose from a fire at an Exxon refinery in April of 2013 that resulted in injuries to at least ten persons and the death of two. Three of the persons injured in the fire were employees of Brock Services, who was performing work at the refinery under a written agreement. Under the agreement, Brock was required to name Exxon as an additional insured on all of the liability policies required of Brock to obtain the work. Exxon sought coverage as an additional insured under Brock’s Lexington umbrella policy. When Lexington failed to respond to Exxon’s demand, Exxon sued Lexington alleging that they had wrongfully denied Exxon’s claim. Lexington filed a motion to compel arbitration based on a clause in the umbrella policy. The trial court conducted a hearing on Lexington’s motion for arbitration, and eventually denied it. Lexington filed an interlocutory appeal of that ruling.

On appeal, Exxon argued that it is not bound by the arbitration clause in the umbrella policy because Brock acquired the policy, it did not negotiate to have a policy that contained an arbitration clause and, it is an additional insured under the agreement. Exxon argued that enforcement of the arbitration clause under circumstances where it did not directly acquire the policy from the carrier would be unconscionable.

The appellate court disagreed.  The court found that Exxon cannot both seek recovery under the terms of Lexington’s policy and at the same time avoid its other provisions. Under the doctrine of direct benefits estoppel, non-signatories to arbitration agreements may be bound to the arbitration clause of a contract when the plaintiff is suing to enforce all of the other terms of a written agreement. The court also found that Exxon had failed to provide support for their claim that enforcement would be unconscionable. And, that Texas public policy favors arbitration of disputes.

In sum, the appellate court found that “Exxon is not entitled to enforce some of the umbrella policy’s terms but to defeat others.” Consistent with that reasoning, the court reversed the trial court’s order denying the motion to compel arbitration. The court further remanded the matter to the trial court with instructions to render an order compelling Lexington and Exxon to arbitrate their disagreements over Exxon’s contract rights under Lexington’s umbrella policy.