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Texas Appellate Court Upholds Ogea Rule and Requires Exhaustion of Additional Insured Coverage

Case:Hercules Offshore v. Excell Crane & Hydraulics, Inc.
           Tex. App. Houston 1st Dist.
           2014 Tex. App. LEXIS 12557 (11/20/2014)

Lafayette, Louisiana partners Jenny Michel and Tabitha Durbin were successful recently in the Court of Appeals for the First District of Texas in a case involving application of maritime law to contractual indemnity and additional insured coverage issues.

The underlying case involved severe injuries sustained by a longshore employee of the insured, the drilling contractor of a semi-submersible drilling rig off the coast of Louisiana, when the rig elevator in which he was riding went into a free-fall. A co-defendant crane company had inspected and tested the elevator two months earlier, and it performed this work under the terms of a Master Service Agreement (“MSA”) in place with the drilling contractor. Plaintiff sued the drilling contractor for vessel negligence and the crane company for its role in inspecting the rig elevator in Texas state court. The crane company cross-claimed against the drilling contractor for contractual defense and indemnity. The drilling contractor maintained, however, that the additional insured coverage required to be purchased by the crane company for the benefit of the drilling contractor had to be exhausted before any obligation to indemnify the crane company could be triggered.

After the crane company and its carrier denied the additional insured claim, the drilling contractor and its Underwriters settled the underlying claims, obtaining a release for both the drilling contractor and crane company, with an express reservation of rights to pursue the crane company and its insurer for additional insured coverage. The parties agreed federal maritime law applied pursuant to the terms of the MSA. The trial court eventually granted the crane company’s Motion for Summary Judgment on contractual indemnity, ordering the drilling contractor to reimburse the defense costs incurred in the underlying litigation. The court further denied the drilling contractor’s claim for additional insured coverage.

On appeal, the First District Court followed well-settled maritime law and concluded that the drilling contractor was not obligated to indemnify the crane company until the limits of insurance coverage that the crane company was obligated to purchase under the MSA had been exhausted, finding the crane company in breach of contract. The Court of Appeals thus reversed the ruling of the trial judge and entered judgment in favor of the drilling contractor on liability, entitling the drilling contractor’s Underwriters to reimbursement of the underlying settlement. The case was remanded to the trial court to determine the amount.

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