The U.S. Fifth Circuit Court of Appeals certified to the Texas Supreme Court the question of whether an insurer that wrongfully denies coverage may be liable for Texas Insurance Code penalties where an insured has not shown independent harm. In re Deepwater Horizon, 807 F.3d 689 (5th Cir. 2015), certified question accepted (Dec. 4, 2015).

The insured manufactured a blowout preventer on a well and sought coverage from its insurers to help cover costs related to its settlement with the well owner after a spill. One excess insurer objected to the settlement and refused to offer its policy limits on the basis that the settlement waived its subrogation rights against the owner. The excess insurer also argued its obligation to pay had not yet been triggered based on the policy’s “other insurance” clause. The insured sued the excess insurer for breach of contract and for violations of the Texas Insurance Code. On cross-motions for summary judgment, the district court granted summary judgment to the insured on its breach of contract action, but granted judgment in favor of the excess insurer on the Texas Insurance Code claims and later denied the insured’s request for attorneys’ fees on the basis that the insured had not established independent harm to entitle it to penalties. The insured appealed the district court’s judgment against it on its claim under the Texas Insurance Code and on its claim for attorneys’ fees. The excess insurer cross-appealed the district court’s judgment in favor of the insured on its breach of contract claim.

The Fifth Circuit affirmed the district court’s grant of summary judgment to the insured on its breach of contract claims. The Fifth Circuit found that the “other insurance” clause did not permit the excess insurer to withhold policy benefits. The Fifth Circuit did not reach whether the insured’s settlement violated the subrogation clause because it found the excess insurer breached the contract by wrongfully denying coverage, thereby waiving its rights under the subrogation clause before the insured settled. The Fifth Circuit reversed the district court’s denial of the insured’s motion for attorneys’ fees and remanded for a determination of the proper amount of those fees, but certified the following question to the Texas Supreme Court: “Whether, to maintain a cause of action under Chapter 541 of the Texas Insurance Code against an insurer that wrongfully withheld policy benefits, an insured must allege and prove an injury independent from the denied policy benefits?” The Texas Supreme Court has accepted the certified question.