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Liberty Mutual unit loses court fight over defense costs coverage

Posted On: Nov. 23, 2022 12:51 PM CST

defense costs

An excess liability insurance policy that follows the form of a primary policy can’t exclude defense costs unless it clearly states its divergence from the primary policy, a Texas appeals court ruled.

In Ohio Casualty Insurance Co. v. Patterson-Uti Energy Inc., the Court of Appeals of Texas for the 14th district in Houston ruled that Ohio Casualty, a unit of Liberty Mutual Insurance Co., “did not clearly and unambiguously exclude defense costs.”

Houston-based drilling company Patterson-Uti had bought primary and excess coverage through Marsh USA Inc. for the 2017-2018 policy year, and communications between the policyholder and broker show that Patterson-Uti wanted defense costs coverage included in all the policies, court papers say.

Patterson-Uti was sued for personal injury claims that resulted in a large settlement. The primary policy, which was issued by another Liberty Mutual unit, and two other excess policies were exhausted, and Patterson-Uti made a claim for damages and defense costs on the Ohio Casualty policy. The insurer said its policy excluded the defense costs portion of the claim.

In affirming a trial court ruling, the appeals court ruled Tuesday that the excess policy does not define “damages” but the primary policy’s definition of “ultimate net loss” explains that damages covered by the policy include defense expenses.

Ohio Casualty argued that “damages” should be construed under its ordinary meaning and does not include attorney’s fees of litigation expenses.

“Ohio Casualty offers little explanation of why this court should look to the ordinary meaning of ‘damages’ when the primary policy, which the excess policy follows, already defines the scope and meaning of damages,” the court ruling states.

In addition, in its denial of the claim Ohio Casualty conflated the duty to defend with the duty to indemnify, the court ruled.

“While the language in the excess policy makes clear that Ohio Casualty is not required to provide a defense for the Patterson Companies, this language tells us nothing about whether the excess policy requires Ohio Casualty to reimburse Patterson for defense expenses it incurred as part of a covered claim,” the court said.

A spokesman for Liberty Mutual said the insurer does not comment on matters of litigation.