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Click here for the full text of this decision FACTS:Frank’s Casing Crew & Rental Tool Inc. fabricated a drilling platform for ARCO/Vastar. When the platform collapsed, ARCO sued Frank’s Casing and several others. Frank’s Casing had a $1 million primary liability policy and excess coverage up to $10 million with Excess Underwriters at Lloyd’s, London, and certain companies subscribing severally but not jointly to policy No. 548/TA4011F01 (collectively, “excess underwriters”). The excess policy did not require the underwriters to assume control of the defense or the settlement of any claims but did give them the right to associate with defense counsel retained by Frank’s Casing or the primary insurer if it was reasonably likely that the excess coverage layer would be reached. After Frank’s Casing notified the excess underwriters of ARCO’s claims, the underwriters issued reservation-of-rights letters asserting that coverage for ARCO’s claims was “limited or negated” under the policy’s terms. The primary carrier retained defense counsel for Frank’s Casing. As trial approached, ARCO offered to settle its claims against Frank’s Casing for $9.9 million, an amount within the excess policy limits. Frank’s Casing rejected the offer without passing it on to the excess underwriters. Two weeks before trial, the excess underwriters contacted ARCO directly, without Frank’s Casing’s knowledge, and attempted to settle claims the underwriters conceded were covered. No agreement was reached. ARCO later made an $8.8 million global settlement offer to all of the defendants, about $7.55 million of which was allocated to Frank’s Casing. The excess underwriters offered to pay two-thirds of this amount if Frank’s Casing and its primary carrier would pay the balance, and further agreed to waive all coverage defenses if Frank’s Casing accepted that proposal. Alternatively, the excess underwriters offered to pay $5 million and defer all coverage issues to be resolved in arbitration. Frank’s Casing rejected both proposals, insisting that it was covered under the excess policy and therefore the underwriters were obligated to fund the entire settlement. Shortly before trial, the excess underwriters retained counsel to associate with Frank’s Casing and its primary carrier in defending against ARCO’s claims. As trial began, it quickly became clear that Frank’s Casing was ARCO’s primary target, prompting Frank’s Casing’s in-house counsel to contact ARCO and solicit a settlement demand within the excess coverage limits. Frank’s Casing’s counsel suggested that something in the $7 million range would be reasonable. ARCO responded with a $7.5 million demand. Frank’s Casing forwarded ARCO’s demand to the excess underwriters with a letter suggesting that the settlement offer was a reasonable one that the underwriters should accept. The letter reiterated Frank’s Casing’s disagreement with the underwriters’ coverage position and stated that Frank’s Casing was looking to the underwriters to fund the settlement. In their response two days later, the underwriters agreed that the case should be settled but noted that coverage issues remained. The underwriters offered to fund the entire settlement if Frank’s Casing would agree to reserve those issues for resolution later. Frank’s Casing rejected the underwriters’ proposal, contending that the excess insurance policies obligated the underwriters to fund the settlement. In response, the excess underwriters advised Frank’s Casing that they would pay $7.5 million to settle the claim, less any contribution from the primary carrier, and then seek reimbursement from Frank’s Casing. Within hours, the underwriters contacted ARCO and orally accepted its settlement offer, and the primary carrier tendered its remaining policy limits of approximately $500,000. A written settlement agreement among ARCO, Frank’s Casing and the excess underwriters preserved “any claims that exist presently” between Frank’s Casing and the underwriters. Before that agreement was executed, the excess underwriters filed suit against Frank’s Casing. Both Frank’s Casing and the excess underwriters filed a series of cross motions for partial summary judgment. The trial court initially granted the underwriters’ motions on their right to reimbursement. It also granted their motions for partial summary judgment on coverage and granted another motion on liability, finding that the excess underwriters were entitled to $7,013,612 in damages on their reimbursement claim. Before the trial court entered a final judgment, the Texas Supreme Court in 2000 issued Texas Association of Counties County Government Risk Management Pool v. Matagorda County, declining to recognize an implied-in-fact, an implied-in-law or an equitable reimbursement right outside of the insurance policy’s provisions. In light of that decision, the trial court ordered Frank’s Casing to file a motion for new trial only on the reimbursement issue. Frank’s Casing filed the motion. The trial court granted it, withdrew its previous order and signed a take-nothing judgment in Frank’s Casing’s favor. The 14th Court of Appeals affirmed. The Texas Supreme Court granted the excess underwriters’ petition for review to decide whether its decision in Matagorda County allows the underwriters to assert a reimbursement right under the circumstances presented. The court issued an opinion in the case on May 27, 2005, but it granted Frank’s Casing’s motion for rehearing on Jan. 6, 2006. On Feb. 1, it withdrew its previous opinion and substituted a new opinion, affirming the judgment of the 14th Court. HOLDING:Affirmed. The excess underwriters argued that Frank’s Casing impliedly agreed to reimbursement by taking an active role in procuring the settlement offer and in demanding that the excess underwriters settle the claim. They also point to Frank’s Casing’s participation in the drafting and negotiation of the settlement agreement. Undoubtedly, the court stated, “these actions demonstrate that Frank’s Casing believed the claims should be settled, but they say nothing about Frank’s Casing’s agreement to a reimbursement obligation that does not appear in its policy.” To the contrary, the court stated, Frank’s Casing’s letters to the excess underwriters expressed continuing disagreement with the insurers’ coverage position, indicated that Frank’s Casing was looking to the excess underwriters to fund the entire settlement, and made clear that Frank’s Casing would seek recourse against the underwriters if the case was not settled and a judgment in excess of policy limits resulted. In settling the ARCO suit, the court stated, both Frank’s Casing and the excess carriers expressly sought to preserve their positions in the coverage dispute; in effect, they agreed to disagree on the reimbursement question and let the trial court decide the legal effect. This is a far cry, the court stated, from impliedly consenting to reimbursement. The excess underwriters benefited from the settlement by eliminating potential Stowers liability in the event ARCO’s claims were later determined to be covered, just as Frank’s Casing benefited by eliminating the possibility of a large verdict that might turn out not to be covered. The excess underwriters, the court stated, also claimed a reimbursement right under the equitable theories of quantum meruit and assumpsit. But the court rejected this theory, stating that to recognize an equitable right to reimbursement would require the court to rewrite the parties’ contract or add to its language. Finally, the court noted that the excess underwriters argued in the alternative that Louisiana law recognizes a reimbursement right and that Louisiana law should apply to this case, because Frank’s Casing’s principal place of business was in Louisiana, the policy was issued through a Louisiana insurance agency and the underlying incident arose from work Frank’s Casing performed in Louisiana. But the court found that the excess underwriters never requested that the trial court apply Louisiana law to the reimbursement issue or clearly asserted that Louisiana law applies. OPINION:O’Neill, J., delivered the opinion of the court, joined by Jefferson, C.J., and Medina, Johnson and Willett, JJ. Brister, J., did not participate in the decision. DISSENTS:Hecht, J., delivered a dissenting opinion, joined by Green, J. “The Court encourages insurers, as it has in the past, to obtain prompt resolution of coverage disputes, but today’s decision leaves them no alternative. Now an insurer must litigate coverage before a liability claim is resolved, even if that means putting an insured in the undesirable position of having to fight liability and coverage at the same time, even if it means litigating the liability claim in a declaratory judgment action to determine coverage, and even if it means delaying resolution of the liability claim until coverage has been determined. Otherwise, an insurer will be denied the right to litigate coverage altogether, which the Court surely cannot intend. I suspect that this consequence of the today’s decision, forcing more coverage litigation, will cause far more problems than the hypothetical concerns expressed in the Court’s opinion. . . . I respectfully dissent.” Wainwright, J., delivered a dissenting opinion. “In the heat of trial, an insured and its excess insurer reached an agreement to address a situation not covered by the insurance policy. The insured accepted a $7.5 million payment from the insurers (including $500,000 from the primary insurance carrier) to settle the case against it, but later objected to enforcement of an express condition in the agreement to settle the case on its behalf. A deal is a deal, whether the insurer or the insured likes it after the fact. Because the Court’s holding contradicts this principle, I respectfully dissent.”

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