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Cameron International Corporation v. Liberty Insurance Underwriters Incorporated

No. 14-31321, — F.3d — (Nov. 19, 2015)

The Fifth Circuit has certified a question to the Supreme Court of Texas regarding whether an independent injury is required to maintain an action under Chapter 541 of the Texas Insurance Code. In litigation stemming from the Deepwater Horizon oil spill, Cameron, which manufactured the well blowout preventer, attempted to settle with BP. In exchange for a release of Cameron’s liability, Cameron would pay BP $250 million, Cameron would waive its contractual indemnity rights against Transocean, and Cameron’s insurers would agree to waive their subrogation rights. Liberty Mutual, one of Cameron’s insurers, rejected the settlement. Liberty refused to waive its subrogation rights and further argued its policy ($50 million limits excess of $100 million) was not triggered until Cameron had exhausted all “other insurance,” defined in the policy to include indemnity. Liberty argued that it did not have to pay until Cameron obtained indemnity from Transocean, which had rejected Cameron’s indemnity claim. Cameron and BP finalized the settlement. Liberty did not contribute its policy limits, and Cameron contributed $50 million out of pocket.

Cameron sued Liberty for breach of contract and violations of the Texas Insurance Code. The trial court considered cross-motions for summary judgment and awarded Cameron $50 million on its breach of contract claim. The trial court also granted judgment in favor of Liberty on Cameron’s Texas Insurance Code claims and denied Cameron’s request for attorneys’ fees. Both parties appealed.

On the breach of contract, the Fifth Circuit rejected Liberty’s argument based on the particular language of Liberty’s “other insurance” clause, affirming Cameron’s breach of contract judgment against Liberty.

The court then considered Cameron’s claims under Texas Insurance Code Chapter 541, authorizing policyholders to recover actual damages caused by an insurer’s unfair practices and allowing treble damages in some instances. At the trial court, Cameron argued that its claim was governed by Vail v. Texas Farm Bureau Mutual Ins. Co., a 1988 decision from the Supreme Court of Texas holding that the insured who is wrongfully denied policy benefits need not show any independent injury to recover under Chapter 541’s predecessor statute. The trial court denied Cameron’s Chapter 541 claims. While Cameron asserted damages of only the policy benefits and attorneys’ fees, under Fifth Circuit precedent, an insured must assert some independent injury, other than the policy benefits and attorneys’ fees, to recover under Chapter 541.

On appeal, Cameron re-urged that Vail is still good law in Texas, and the contrary Fifth Circuit precedent is an incorrect interpretation and non-binding dicta. The Fifth Circuit noted that subsequent Texas state court cases have cast doubt on whether Vail still controls. The court therefore certified the following question to the Supreme Court of Texas:

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’s determination has the potential to significantly impact insurance litigation in Texas, therefore we expect the court will almost certainly accept this important question. Until such time, policyholder attorneys will continue to argue that a jury charge should include questions regarding Chapter 541 violations, even if the insured seeks only policy benefits. The obvious downside for insurers is that Chapter 541 allows treble damages for “knowing” violations, significantly increasing an insurer’s exposure at trial.

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