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The Texas Supreme Court, overturning a lower state appeals court, ruled Friday that an American International Group Inc. unit and Starr Indemnity & Liability Insurance Co. must compensate ExxonMobil Corp. about $20 million for a workplace accident settlement.
ExxonMobil hired Corpus Christi, Texas-based Savage Refinery Services as an independent contractor at its Baytown, Texas refinery, according to the unanimous ruling by the Texas Supreme Court in ExxonMobil Corp. v. National Union Fire Insurance Co. of Pittsburgh, PA, and Starr Indemnity & Liability Insurance Co.
Under the service agreement, Savage promised to obtain at least a minimum stated amount of liability insurance for its employees and to name Exxon as an additional insured.
Savage ultimately procured five different insurance policies, with AIG unit National Union underwriting a primary policy for general commercial liability and an umbrella policy, and Starr Indemnity underwriting an umbrella policy, according to the ruling.
In 2013, two Savage employees were injured in a workplace accident and sought compensation for their injuries, which Exxon later settled for more than $24 million.
About $5 million of the settlement came from some of Savage’s primary insurance policies under which Exxon was recognized as an additional insured, including the primary policy underwritten by National Union, which was exhausted.
Exxon paid the rest of the settlement out of pocket after National Union and Starr both denied coverage under their umbrella policies.
In the ensuing litigation, a trial court ruled that National Union, but not Starr, was obligated to reimburse Exxon for the roughly $20 million it had paid in the settlement.
A state appeals court reversed the ruling and held in National Union’s favor, and it affirmed the summary judgment ruling in Starr’s favor.
In reversing the ruling, the Texas Supreme Court said, “The question presented in this case is whether an insurance policy incorporates the payout limits in an underlying service agreement.
“Based on ordinary rules of contract interpretation and our precedents applying the incorporation-by-reference doctrine, we hold that it does not,” the state high court said.
“Any venture beyond the four corners of an insurance policy must be carefully limited to the scope of that policy’s clearly authorized reference,” the ruling said.
The umbrella policy “does not say anything at all, even by reference, about the service agreement’s payout limits, much less with the clarity that our cases would require for incorporation,” the ruling said, in reversing the appeals court and remanding the case for further proceedings.
Attorneys in the case did not respond to requests for comment.