SUPREME COURT OF TEXAS NARROWLY INTERPRETS UMBRELLA POLICY “NOT FOR BROADER COVERAGE” CLAUSE

The Supreme Court of Texas closed out the work week of April 14, 2023, by siding with Exxon to require an umbrella insurance provider to reimburse Exxon for payments made to a burn victim.  In Exxonmobile Corporation v. National Fire Union Insurance Company of Pittsburgh, 2023 WL 2939596, Exxon hired Savage Refinery Services to work at its refinery in Baytown, Texas.  Exxon and Savage had a Services Agreement in which Savage agreed to obtain general liability insurance and to name Exxon as an additional insured.  Savage obtained primary and umbrella insurance policies from National Fire, among other policies.  The primary policy covered any person or organization that Savage was contractually obligated to provide insurance—as the Services Agreement did.  The umbrella policy covered any additional insured under the primary policy, but “not for broader coverage” than the primary policy.

Two Savage employees were involved in an accident at the refinery and were severely burned.  They settled with Exxon for over twenty-four million dollars.  National Fire (and another insurer, Starr) denied umbrella policy coverage.  National Fire argued that the “not for broader coverage” clause of the umbrella policy meant that Exxon was limited to the Service Agreement’s payout limits.  The trial court sided with Exxon; the First district Court of Appeals in Houston sided with National Fire; and in the final say, the Texas Supreme court sided with Exxon.

The Court began by noting that insurance contracts may incorporate extrinsic documents in limited circumstances: only if the policy explicitly requires viewing extrinsic documents, and only to the extent absolutely necessary and no further.  In this case, the Court said that the umbrella policy explicitly incorporated the Services Agreement, but only for the purpose of determining who was an insured.  While the umbrella policy excluded “broader coverage” than what was in the primary policy, the Court interpreted “broader coverage” not to refer to limits and instead to losses that the primary policy would not reach.  The Court reversed in Exxon’s favor and remanded the case.