Patterson was a provider of oil and gas services. It purchased an insurance tower
consisting of an umbrella policy and several excess policies including that issued by Ohio
Casualty Insurance Company. Patterson was involved in litigation arising from a drilling
rig incident and entered into settlements. Ohio Casualty agreed that it owed for its
portion of the settlements but disagreed that it owed defense costs under its policies. The
trial court and court of appeals held that the Ohio Casualty excess policy covered defense
costs. The Texas Supreme Court reversed finding that the lower courts had placed too
much emphasis on the language of the umbrella policy while ignoring key language
defining “loss” in the Ohio Casualty policy.
The court laid the groundwork for its analysis:
“As early as 1886, this Court recognized as ‘a cardinal principle
of ... insurance law’ that ‘[t]he policy is the contract; and if
outside papers are to be imported into it, this must be done in
so clear a manner as to leave no doubt of the intention of the
parties.’ ” ExxonMobil Corp. v. Nat'l Union Fire Ins. Co. of
Pittsburgh, 672 S.W.3d 415, 418 (Tex. 2023)
(quoting Goddard v. E. Tex. Fire Ins. Co., 67 Tex. 69, 1 S.W. 906,
907 (1886)). In other words, “we begin with the text of the
policy at issue; we refer to extrinsic documents only if that
policy clearly requires doing so; and we refer to such extrinsic
documents only to the extent of the incorporation and no
further.” Id. at 418–19.”
In reversing the lower courts, the Supreme Court explained that:
“At all times, the excess policy itself remains the contract that governs a dispute about its
coverage. The court of appeals should have first “look[ed] to the excess policy to
determine coverage” rather than “first examining the terms of the [underlying] policy.”
The court then observed that “The excess policy defines “loss” as those sums actually
paid in the settlement or satisfaction of a claim which [Patterson is] legally obligated to
pay as damages after making proper deductions for all recoveries and salvage.”
And then explained that:
We agree with Ohio Casualty that the excess policy does not cover attorney's fees as
“loss.” …[A]s we have repeatedly held, a party's own attorney's fees “are not, and have never been, damages.”
The court rejected arguments that the underlying policy altered this definition of loss.
Notably, the court rejected the notion that the underlying policy’s definition of “ultimate net
loss” rendered the definition of loss in the excess policy ambiguous. The court also
rejected the argument that certain exclusions, including a pollution exclusion, mentioned
attorney fees and would be redundant if attorneys fees were not covered in the first
place. The court noted that the attorney fees in the exclusion might refer to fees awarded
to an opposing party and that these would not be duplicative. The court also observed
that the surplusage canon must be taken in context and that drafters often include
surplus language to “illustrate or emphasize their intent.”
This case stands for the proposition that a Texas court should look to the language of the
excess policy first before examining the language of the underlying policy. In addition, the
fact that an excess policy “follows” or adopts a portion of the underlying coverage will not
give primacy to the underlying coverage over the surplus policy.