The Texas Supreme Court responded to certified questions from the U.S. Fifth Circuit Court of Appeals and held that the scope of additional insured status of one not named in a policy may be determined from the terms of an insured contract and not the policy alone if the terms of the policy direct the inquiry there. In re Deepwater Horizon, Cause No. 13-0670 (Tex. Feb. 13, 2015).
A drilling contract required a drilling contractor to name an oil company as an additional insured for liabilities the contractor assumed under the drilling contract, but the contractor's policies did not identify the company as an additional insured. There was a blanket additional insured endorsement in the policy, however. The company contended that since it was an additional insured and that there was nothing in the policy to limit that status, it had unlimited additional insured status. The contractor and its insurers contended that the drilling contract required the contractor to assume liability only for above-surface pollution and provided that the contractor was to name the company as an additional insured on its policies only for liabilities it assumed under the terms of the drilling contract, which did not include the sub-surface pollution for which coverage was sought.
The issue was whether Evanston Insurance Co. v. ATOFINA Petrochemicals, Inc., 256 S.W.3d 660 (Tex. 2008) compelled one to look no further than the policies in deciding additional insured status. The Supreme Court held that Texas law allows a separate contract to be incorporated into an insurance policy by reference indicating the parties’ intent, and that such agreement can limit the scope of additional insured status and found that the policies necessarily required examination of the drilling contract to determine the scope of additional insured status. The focus of that inquiry was on a provision in the drilling contract that required the contractor to name the company and its affiliates:
as additional insureds in each of Contractor’s policies, except Workers’ Compensation for liabilities assumed by Contractor under the terms of [the Drilling] Contract.
The Supreme Court concluded that the company’s focus on the absence of a comma after the word “Compensation” (that the company said resulted in unlimited additional insured status excepting only workers’ compensation liability) was an unreasonable reading because it would change the clear meaning and conflict with other provisions of the drilling contract. The Supreme Court held that the contractor’s reading that additional insured status was limited to only those liabilities it assumed under the drilling contract was reasonable and that there was no ambiguity. Thus, and because the drilling contractor did not assume liability for sub-surface pollution, the company was not entitled to coverage as an additional insured under the policies for sub-surface pollution.