June 02, 2017 Practice Points

Texas Court Denies Exxon a La Carte Coverage

The Court of Appeals of Texas held that a party seeking additional insured coverage under an umbrella general liability policy cannot reap the benefits of being an additional insured, and simultaneously avoid the limitations of an arbitration clause contained in the policy

by Richard W. Brown, Celia B. Waters, and Malcolm S. Ranger-Murdock

In April, the Court of Appeals of Texas held that a party seeking additional insured coverage under an umbrella general liability policy issued by Lexington Insurance Company cannot reap the benefits of being an additional insured, and simultaneously avoid the limitations of an arbitration clause contained in the policy.

The Court of Appeals ultimately determined: 1) that the arbitration clause in the policy was enforceable against an additional insured; 2) that disputes regarding a party’s status as an additional insured is within the scope of the arbitration clause; and 3) Lexington did not waive its right to arbitration when it denied coverage.

The decision supports the position that a party cannot seek additional insured coverage under an insurance policy, and simultaneously avoid an arbitration clause present in the policy. As such, it is important to review your contract language to ensure that the necessary and intended risk transfer provisions are included, and to the extent possible, the insurance policies of any contractor or service provider to confirm that the coverage provided satisfies such contractual obligations.

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