Jones Day Wins Significant Insurance Victory For Total Petrochemicals In The Texas Supreme Court

LAWFUEL – Legal Newswire –
On February 15, 2008, the Texas Supreme Court, reversing itself, handed down a significant decision favoring insureds in coverage disputes and rendered judgment of $5.75 million for Total Petrochemicals USA, Inc. Evanston Insurance Co. v. Atofina Petrochemicals, Inc. (n/k/a Total Petrochemicals USA, Inc.), Case No. 03-0647, 2008 WL 400394 (Tex. 2008).

The Supreme Court’s opinion contains a number of significant rulings for Texas insureds, the foremost of which is that an insurer who wrongly denies coverage cannot later contest the reasonableness of the insured’s settlement.

Atofina sought coverage as an additional insured on a contractor’s primary and excess umbrella policies following litigation resulting from the death of the contractor’s employee. The excess carrier, Evanston, denied coverage. Atofina settled the underlying wrongful death claim and sued Evanston to recover the settlement amount. The Texas Supreme Court initially held that while Atofina was an insured, coverage depended on whether Atofina was solely negligent. The Court later granted Atofina’s Motion for Rehearing, vacated its earlier opinion, and rendered judgment for Atofina for the full amount of the settlement.

The Court’s ruling precluding a breaching insurer from challenging the reasonableness of a settlement entered into by the insured will substantially streamline coverage litigation and facilitate settlements in cases where coverage remains in controversy. The opinion also clarifies the relationship between indemnities and additional insured provisions by holding that the scope of coverage afforded to an additional insured is determined by the language of the policy alone and is not limited by the scope or enforceability of any indemnity agreement entered into by the contractor.

Total was represented by Jack Carnegie of Jones Day’s Issues & Appeals group and John Hagan of the Jones Day Trial Practice group, both in the Houston office.

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