Insurer’s Over Precise Interpretation of Contract Ignores Meaning of Entire Contract
The covenant of good faith and fair dealing requires an insurer to interpret its obligations under a policy of insurance fairly, in good faith, and to interpret it as written as long as the contract is clear and unambiguous. It is improper for an insurer to assert an ambiguity that does not exist in the wording of the contract of insurance or the contract mandating adding additional insureds.
In Jason Dean Mays v. C-DIVE, L.L.C., Catlin Insurance Company; New York Marine & General Insurance Company, et al, No. 19-30106, USDC No. 2:16-CV-13139, USDC No. 2:16-CV-13318, USDC No. 2:16-CV-13951, USDC No. 2:16-CV-13952, USDC No. 2:17-CV-668, United States Court Of Appeals For The Fifth Circuit (February 5, 2020) an explosion injured four divers while they were decommissioning a pipeline in the Gulf of Mexico. The divers worked for C-Dive, L.L.C. Gulf South Pipeline Company, the owner of the pipeline, had hired C-Dive to plug it. The divers sued C-Dive and Gulf South for Jones Act negligence as well as negligence and unseaworthiness under general maritime law.
Gulf South responded with cross-claims against C-Dive and third-party claims against C-Dive’s insurers, Catlin Insurance Company and New York Marine & General Insurance Company. Among other things, Gulf South claimed that its master services agreement (MSA) with C-Dive required that Gulf South would be included as an additional insured under C-Dive’s comprehensive general liability insurance policies. C-Dive, Catlin, and New York Marine countered that the MSA was between C-Dive and Gulf South’s parent company, Boardwalk Pipelines, LP, and that the additional insured provision applied only to the parent company—not its subsidiaries.
The district court granted Gulf South’s motion. It concluded that the MSA’s additional insured provision applied to Boardwalk Pipelines, LP and its subsidiaries, including Gulf South. Because C-Dive’s policies with Catlin and New York Marine cover any entity that C-Dive contractually agrees to include as an additional insured, those policies covered Gulf South too. C-Dive and its insurers appeal.
The interpretation of a maritime contract is a matter of law. Under admiralty law, a contract should be read as a whole and its words given their plain meaning unless the provision is ambiguous.
Whether the MSA required Gulf South to be an additional insured on C-Dive’s insurance policies is the sole issue before the Fifth Circuit. The MSA provided that C-Dive’s insurance policies “shall be endorsed to include Boardwalk Pipelines, LP as [an] additional insured.” C-Dive and its insurers assert that the use of “Boardwalk Pipelines, LP” means the additional insured requirement covers only the parent company.
Reading the MSA as a whole, the Fifth Circuit concluded that the MSA unambiguously uses “Boardwalk Pipelines, LP” and “Boardwalk” interchangeably such that the additional insured provision’s reference to Boardwalk Pipelines, LP encompasses subsidiaries like Gulf South.
In reaching its decision the Fifth Circuit noted that the MSA’s description of Boardwalk Pipelines, LP indicates that the agreement draws no distinction between the parent entity and its affiliates. The MSA opens by stating that Boardwalk Pipelines, LP is “hereinafter referred to as ‘Boardwalk.'” This “hereinafter referred” clause treats Boardwalk Pipelines, LP and Boardwalk as one and the same. The MSA goes on to explain that “[r]eference to Boardwalk shall also include its subsidiaries and . . . affiliates of Boardwalk, including . . . Gulf South.”
By attributing subsidiaries and affiliates to “Boardwalk,” this clause uses the term both to describe the parent company and to clarify that any reference to that parent includes its affiliates. If the MSA meant to distinguish between Boardwalk Pipelines, LP and Boardwalk, it would have omitted the “hereinafter referred” clause and provided that “reference to Boardwalk shall include Boardwalk Pipelines, LP‘s subsidiaries and affiliates.”
The MSA’s Insurance Requirements section further demonstrated that “Boardwalk Pipelines, LP” and “Boardwalk” are interchangeable. Consider first the additional insured provision itself, which states: “All [of C-Dive’s insurance] policies . . . shall be endorsed to include Boardwalk Pipelines, LP as additional insured and these policies will respond as primary to any other insurance available to Boardwalk.” The Fifth Circuit also concluded that it would make no sense to require C-Dive’s policies to include only the Boardwalk parent company as an additional insured but then to make those same policies primary for all of Boardwalk’s subsidiaries.
To the Fifth Circuit the nonsensical implications of a distinction between “Boardwalk Pipelines, LP” and “Boardwalk” illustrate that the two terms must mean the same thing for the MSA to make sense. An appellate court must recognize the definition of a contract term that leads to impractical or commercially absurd result is unreasonable.
In addition, addenda to the MSA contemplate that Boardwalk’s affiliates are included as additional insured. It states: “[A]s respects the operations of [C-Dive] and as respects work performed for Boardwalk Pipelines, LP under an agreement with [C-Dive], the following applies: (1) Boardwalk Pipelines, LP, its parent, subsidiary and affiliated companies, and its and their respective directors, officers, partners, managers, members, employees, representatives and agents named as additional insured under this policy; and (2) This insurance is primary insurance with respect to the interests of the above additional insured . . . .”
The certificate of insurance included as a supplement to the MSA also equates Boardwalk Pipelines, LP with Boardwalk just like the “hereinafter referred” clause. It lists “Boardwalk Pipelines, LP (collectively ‘Boardwalk’)” as the certificate holder. By following “Boardwalk Pipelines, LP” immediately with “(collectively ‘Boardwalk’),” the certificate suggests that the two terms carry the same meaning.
We therefore conclude that the only reasonable reading of the MSA is that it uses “Boardwalk Pipelines, LP” and “Boardwalk” interchangeably. The district court thus correctly concluded that the agreement unambiguously includes affiliates like Gulf South in the additional insured requirement.
It is essential when interpreting insurance contracts to read the entire policy and apply the terms and conditions of the policy as required by the contracts between the parties. Additional insured endorsements add more people as insureds in accordance with the agreements made by the parties and their insurers. The insurers agreed to an additional insured endorsement in accordance with the MSA and then tried, unsuccessfully, to limit who was an additional insured after a major loss. With the obvious impact in the terms of the MSA and its addenda the insurers and their counsel wasted their time, the insurer’s money and the time of the Fifth Circuit.
© 2020 – Barry Zalma
This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States. The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and firstname.lastname@example.org.
Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
Over the last 52 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.