SOUTHERN DISTRICT OF TEXAS CONSTRUES CONTRACT UNDER ENGLISH LAW, CONSIDERS EXTRINSIC EVIDENCE

The federal district court for the Southern District of Texas recently had occasion to look to English law to construe a contract and a duty-to-defend dispute arising under it.  Pride Internat’l, Inc. v. Tesco Corporation, No. H-12-2889, --- F.Supp. ---, 2013 WL 2431980 (S.D. Tex. June 4, 2013), involved a coverage dispute arising from an injury on an oil platform, a vague purchase order, and two commercial general liability policies issued to Tesco. 

The purchase order was printed on Pride’s forms bearing Pride’s name and logo, but did not explicitly name Pride as the “Buyer.” Instead, it named Pride’s individual purchasing agent.  The purchase order’s terms and conditions required “Seller” to obtain insurance and name “Buyer Group” as an additional insured (AI).  It also provided it was governed by the law of England. 

Tesco’s CGL carriers moved for summary judgment, contending that because only the individual purchasing agent was listed as the Buyer, their policies did not provide AI coverage to Pride, and they had no duty to defend Pride.   The court observed that under English law, contracts are construed from the perspective of a reasonable person having all the background knowledge which would have been available to the parties.  In other words, unlike Texas law, English law allows free consideration of extrinsic evidence which was available to the parties at the time of contracting.  There was ample evidence to show that the parties understood Tesco to be the seller and Pride to be the buyer, and therefore the court denied the carriers’ motion for summary judgment. 

Lesson Learned:  Always examine the choice-of-law issues carefully; including reviewing all policies and contracts for express choice-of-law clauses, before assuming the law of the forum state governs your dispute.