The Fifth Circuit U.S. Court of Appeals applying Texas law recently ruled that an “Insured Contract” provision, standing alone, is sufficient to incorporate a master services agreement’s (MSA) limitation on coverage. Ironshore Specialty Ins Co. v. Aspen Underwriting, 788 F.3d 456 (5th Cir. 2015).
An oil well operator contracted with a service provider. The MSA contained an indemnity provision in which each party agreed to cover liability resulting from claims brought by their own employees even if the other party was at fault. The agreement required each company to hold $1 million in general liability insurance and $4 million in excess insurance. The operator’s policies limited coverage to the contractor to $5 million, but the contractor’s policies, providing coverage of $51 million, had no such limitation with respect to additional insureds and the operator was named an additional insured.
A fire at a well killed two of the contractor’s employees. With the total liability for the fatalities likely exceeding $5 million, the operator’s excess insurer sued the contractor’s excess insurers for a declaratory judgment, contending those insurers were obligated to provide coverage up to the full limits of their policies because the policies did not expressly limit the coverage available to an additional insured. In light of the Supreme Court's decision in In re Deepwater Horizon, 2015 WL 674744 (Tex. Feb. 13, 2015), the Fifth Circuit affirmed the district court’s grant of summary judgment in favor of the contractor’s insurers because the contractor was "obliged" to procure only $5 million in insurance. In reaching its decision, the Fifth Circuit concluded thatDeepwater Horizon required it to hold that the "Insured Contract" provision, standing alone, was sufficient to incorporate a separate contract’s limitation on coverage.