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Exxonmobil Corp. v. Electrical Reliability Services, Inc.

United States Court of Appeals, Fifth Circuit

August 22, 2017

EXXONMOBIL CORPORATION, Plaintiff - Appellee Cross-Appellant
v.
ELECTRICAL RELIABILITY SERVICES, INCORPORATED; OLD REPUBLIC INSURANCE COMPANY, Defendants - Appellants Cross-Appellees

         Appeals from the United States District Court for the Southern District of Texas

          Before DAVIS, DENNIS, and SOUTHWICK, Circuit Judges.

          JAMES L. DENNIS, CIRCUIT JUDGE

         This diversity case under Texas law involves a dispute between ExxonMobil (Exxon), on one hand, and Exxon's contractor, Electrical Reliability Services (ERS), and ERS's insurer, Old Republic Insurance Company (ORIC), on the other. The dispute arises out of a personal injury lawsuit filed by an employee of a subcontractor of ERS against Exxon and ERS. Exxon settled that lawsuit for $2.5 million and sought reimbursement from ERS and ORIC, contending that ERS's contractual obligation to insure Exxon as an additional insured and the insurance policy issued by ORIC required ERS and ORIC to pay for the settlement of the suit and the cost of litigation. In a 2012 judgment, the district court concluded that ORIC breached its obligation to provide coverage and that ERS breached its obligation to pay the policy's $3 million deductible. The court therefore awarded Exxon over $3 million in damages, attorney's fees, costs, and interest. ERS appealed, but a prior panel of this court vacated the district court's judgment and remanded for reconsideration in light of the intervening decision by the Supreme Court of Texas in In re Deepwater Horizon, 470 S.W.3d 452 (Tex. 2015). On remand, the district court determined that the intervening case did not affect its decision and essentially reinstated its 2012 judgment.

         ERS again appealed, challenging the district court's conclusion as to its obligation to pay the deductible. Alternatively, ERS contends that the district court erred in its award of pre-judgment interest through the date of the judgment on remand rather than only through the date of the 2012 judgment. ORIC also appeals, claiming that the district court erred by holding it jointly and severally liable with ERS for the full amount of the judgment. Exxon cross-appeals, challenging the district court's denial of certain attorney's fees.

         I. BACKGROUND

         In 2008, Exxon contracted with ERS for the performance of electrical work and services at Exxon's chemical facility and refinery in Beaumont, Texas. The contract between the parties contained indemnity and insurance provisions. The indemnity provision, contained in § 12 of the contract, required that each party indemnify the other from third party claims resulting from the first party's negligence. It provided, in relevant part:

12. Third Party Indemnity. Purchaser [Exxon] and Supplier [ERS] shall indemnify, defend, and hold each other harmless from all claims, demands, and causes of action asserted against the indemnitee by any third party . . . for personal injury, death, or loss of or damage to property resulting from the indemnitor's negligence.

         The insurance provisions, contained in § 14, required ERS to purchase commercial general liability and other types of insurance and to name Exxon as an additional insured on the policies. Section 14, in pertinent part, provided:

14. Insurance.
(a)Coverages. Supplier [ERS] shall carry and maintain in force at least the following insurances and amounts: . . . (2) its normal and customary commercial general liability insurance coverage and policy limits or at least $1, 000, 000, whichever is greater, providing coverage for injury, death or property damage resulting from each occurrence . . . . Notwithstanding any provision of an Order to the contrary, Supplier's liability insurance policy(ies) described above shall: (i) cover Purchaser [Exxon] and Affiliates as additional insureds in connection with the performance of Services; and (ii) be primary as to all other policies (including any deductibles or self-insured retentions) and self insurance which may provide coverage.
(b) Other Insurance Requirements. The above obligations of Supplier [ERS] and/or its Insurers shall apply to Supplier's [ERS's] self-insured retentions and/or deductibles. The minimum insurance requirements as set forth above shall not limit or waive a party's legal or contractual responsibilities to the other party or others. Supplier's insurance shall apply to Supplier's indemnity and defense obligations under the Order except, with respect to Services subject to the law of the State of Texas, each party agrees to maintain the insurance and limits as specified in this Section or self insurance during the duration of this Agreement in support of the mutual indemnifications, if any, agreed to in Sections 11, 12, and 13 above.

         ERS purchased an insurance policy from ORIC that provided for a $3 million deductible. An endorsement to the policy also provided for additional-insured coverage where ERS had "agreed by any contract" to so provide, but, it qualified, "Any additional insureds are additional insureds only in respect to their interest in the operations of the Named Insured and only for such terms and limits which are the lesser of the policies hereon or the written requirements between the Named Insured and the Certificate Holder."

         ERS subcontracted part of the work and services at the Exxon facility to MMR, Inc. John Burnham, an MMR employee, was severely injured while working at the facility. Burnham brought negligence claims against Exxon in state court and later added ERS as a defendant. Exxon sent ERS a demand for coverage as an additional insured, but ERS subsequently denied coverage. Exxon ultimately settled Burnham's claims against it for $2.5 million, while disclaiming liability. Burnham later voluntarily dismissed his claims against ERS. Exxon then sought insurance coverage for its settlement payment and related defense fees, costs, and interest, but ERS and ORIC denied coverage. Exxon brought suit for declaratory judgment in Texas state court against ERS and ORIC, contending that ERS was required to insure Exxon under the 2008 contract and that ORIC, as ERS's insurer, was obligated to provide coverage to Exxon for the settlement of the Burnham suit and attorney's fees incurred in connection with that suit.

         ERS removed that action to the United States District Court for the Southern District of Texas based on diversity jurisdiction. Exxon and ERS filed cross-motions for summary judgment on the issue of whether ERS was contractually obligated to name Exxon as an additional insured. ERS argued that the relevant contract was a prior 2007 agreement between the parties, which did not require ERS to insure Exxon as an additional insured. Alternatively, ERS contended that under the 2008 contract ERS was obligated to cover Exxon as an additional insured only to the extent of the parties' mutual indemnification obligations. ERS argued that it was therefore not obligated to provide coverage for harms resulting from Exxon's sole negligence, which, according to ERS, included Burnham's injuries. Ruling on the parties' cross-motions, the district court determined that the operative contract was the 2008 contract, that the contract required ERS to provide additional-insured coverage for Exxon, and that this insurance obligation was not limited by the indemnity provision of that contract. However, the district court also ruled that ERS had complied with its obligation through the additional-insured endorsement to its policy with ORIC.

         Despite the district court's partial summary judgment ruling on the issue of coverage, ERS and ORIC continued to refuse to reimburse Exxon in connection with the Burnham settlement. ERS and Exxon disagreed as to which party was responsible for payment of the policy's $3 million deductible. Among other arguments ERS raised in this respect, it reasserted its previously-rejected position that the indemnity provision in the 2008 contract served to limit its obligations under the insurance provision. Following this argument, ERS maintained that the indemnity provision mandated that Exxon pay the deductible because, according to ERS, Burnham's injuries resulted from Exxon's sole negligence. ORIC, for its part, claimed that it was not responsible for any payment because, according to ORIC, the relevant amounts owed were less than the amount of the $3 million deductible and therefore did not trigger ORIC's responsibility to make payments on Exxon's claim. Following a bench trial, the district court held: (1) ERS breached the contract by failing to pay the deductible, and (2) ORIC breached the insurance policy by failing to provide Exxon with a defense in the Burnham lawsuit and failing to cover any amounts above the deductible. The district court made no finding as to the parties' respective negligence, if any, in connection with Burnham's injuries.

         In a 2012 amended final judgment, the district court held ERS and ORIC jointly and severally liable to Exxon for $3, 212, 002.70 for the settlement of Burnham's lawsuit, defense fees and costs in that suit, and interest and attorney's fees in the present suit, and it provided for an additional $40, 000 to be awarded for appellate attorney's fees if ERS or ORIC brought an unsuccessful appeal. ERS and ORIC appealed. Prior to any decision in that appeal, the Supreme Court of Texas decided this court's certified question in In re Deepwater Horizon, 470 S.W.3d 452 (Tex. 2015).[1] A prior panel of this court then vacated the district court's judgment and remanded it "for further consideration in the light of the answer given by the Texas Supreme Court [in Deepwater Horizon], " Exxonmobil Corp. v. Elec. Reliability Servs., 616 F.App'x 137, 138 (5th Cir. 2015), with each party to bear its own costs on appeal.

         On remand, the district court concluded that Deepwater Horizon had no impact on its prior decision and therefore reinstated its 2012 judgment. In January 2016, upon motion by Exxon for additional attorney's fees and pre-judgment interest, the district court entered a second amended final judgment, adding pre-judgment interest up to the date of that judgment and holding ERS and ORIC jointly and severally liable for a total of $3, 670, 359.57. However, the court rejected Exxon's request for attorney's fees incurred in defending the initial appeal and additional attorney's fees that were incurred prior to that appeal.

         The parties now appeal and cross-appeal. ERS challenges the district court's determination, following the bench trial, that ERS was obligated to pay the deductible in connection with Exxon's losses related to the Burnham litigation. Alternatively, ERS claims that the court erred in awarding pre- judgment interest through the date of the judgment on remand and that, instead, the court should have awarded pre-judgment interest up to the date of the 2012 judgment and post-judgment interest from that point on. ORIC challenges the court's decision to hold it jointly and severally liable with ERS for the entire amount of the award rather than only for those amounts in excess of, or not subject to, ORIC's policy's deductible. Notably, neither ERS nor ORIC challenges the district court's partial summary judgment ruling on the issue of coverage. Exxon's cross-appeal challenges the district court's denial of its request for additional attorney's fees.

         II. APPLICABLE LAW

         In reviewing a bench trial, we review findings of fact for clear error and legal determinations de novo. Seal v. Knorpp, 957 F.2d 1230, 1234 (5th Cir. 1992). "When, as in this case, subject matter jurisdiction is based on diversity, federal courts apply the substantive law of the forum state-here, [Texas]." Boyett v. Redland Ins. Co., 741 F.3d 604, 607 (5th Cir. 2014). "To determine the forum state's law, we look first to the final decisions of that state's highest court-here, the [Texas] Supreme Court." Id. "In the absence of a determinative decision by that court on the issue of law before us, we must determine, in our best judgment, how we believe that court would resolve the issue." Id. In making such a determination, we "may look to the decisions of intermediate appellate state courts for guidance." Howe v. Scottsdale Ins. Co., 204 F.3d 624, 627 (5th Cir. 2000).

         III. ...


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