
Opinion issued May 21, 2003



 
 








In The
Court of Appeals
For The
First District of Texas



NO. 01-01-00462-CV
____________

PHILLIPS PETROLEUM COMPANY, Appellant

V.

ST. PAUL FIRE & MARINE INSURANCE COMPANY AND
ST. PAUL INSURANCE COMPANY, Appellees



On Appeal from the 149th District Court
Brazoria County, Texas
Trial Court Cause No. 10804-RM-00-A



O P I N I O N
	In this insurance-coverage dispute, appellant, Phillips Petroleum Company
(Phillips), challenges the trial court's rendition of summary judgment in favor of
appellees, St. Paul Fire & Marine Insurance Company and St. Paul Insurance
Company (together, St. Paul). (1)  In two issues, Phillips contends that the trial court
erred in granting summary judgment in favor of St. Paul and in denying Phillips's
motion for reconsideration.
 We affirm.
Facts and Procedural Background

	In July 1997, representatives of Phillips and H.B. Zachry Company (Zachry)
executed a Preferred Service Provider Alliance and Master Service Agreement
(MSA), under which Phillips contracted to hire Zachry to perform maintenance and
construction work at several Phillips facilities in Texas, Oklahoma, Utah, and Puerto
Rico.  As part of the terms of the MSA, Zachry agreed to obtain and maintain certain
types of insurance coverage and to name Phillips as an additional insured on such
policies.  Zachry also agreed that any insurance policies that it obtained as required
by the MSA would be written or endorsed to be primary to any other coverage
available to Phillips.  Zachry subsequently purchased a policy of insurance from St.
Paul (the policy), (2) which provided several types of coverage and carried a bodily-injury liability limit of $1 million per event.
	Following a June 1999 explosion at Phillips's Houston facility, injured Zachry
employees and the estates of deceased Zachry employees sued Phillips, seeking,
among other things, recovery of damages for injuries sustained in and deaths resulting
from the explosion.  Phillips subsequently demanded that Zachry's insurer, St. Paul,
provide Phillips with a defense to these underlying lawsuits.  St. Paul did so, subject
to a reservation of its rights under the policy. (3)  Phillips then sued St. Paul for breach
of contract and sought a declaratory judgment that St. Paul owed Phillips an unlimited
defense to the underlying lawsuits and indemnity up to the liability limits of the
policy. (4)
	St. Paul answered Phillips's suit with a general denial and filed a motion for
summary judgment.  St. Paul argued that, because the policy purchased by Zachry
was a "fronting" policy (i.e., the amount of the deductible payable by the insured
equaled the amount of the liability limits), and because Zachry was obligated to
reimburse St. Paul for all claim expenses, including attorneys' fees, incurred in the
defense of a claim under the policy, St. Paul owed no further obligation to Phillips
once St. Paul expended $1 million in defending Phillips in the underlying lawsuits. (5)
	The trial court granted an interlocutory summary judgment in favor of St. Paul
and subsequently denied Phillips's motion for reconsideration.  The court then
severed its summary judgment into a separate cause, making its judgment final.
Standard of Review

	A party moving for summary judgment has the burden of proving that there is
no genuine issue of material fact and that the movant is entitled to judgment as a
matter of law.  Tex. R. Civ. P. 166a(c); Nixon v. Mr. Prop. Mgmt., 690 S.W.2d 546,
548 (Tex. 1985); Farah v. Mafrige & Kormanik, 927 S.W.2d 663, 670 (Tex.
App.--Houston [1st Dist.] 1996, no writ).  When a motion for summary judgment
raises multiple grounds, we may affirm to the extent that any ground is meritorious. 
Cincinnati Life Ins. Co. v. Cates, 927 S.W.2d 623, 625 (Tex. 1996).  These standards
apply in insurance-coverage cases.  See e.g., State Farm Fire & Cas. Co. v. Vaughan,
968 S.W.2d 931, 933 (Tex. 1998); Hanson v. Republic Ins. Co., 5 S.W.3d 324, 327
(Tex. App.--Houston [1st Dist.] 1999, pet. denied).

Contract Interpretation

 In its two issues, Phillips argues that the trial court erred in granting summary
judgment for St. Paul and in denying Phillips's motion for reconsideration because
Phillips, as an additional insured under the policy purchased by Zachry, was owed an
unlimited defense by St. Paul against the underlying lawsuits until St. Paul
"exhausted its policy's liability limits by indemnifying Phillips for damage
payments."  Phillips argues that the plain language of the policy is subject to this one,
and only, reasonable interpretation.  Alternatively, Phillips argues that any ambiguity
in the policy with respect to the scope of St. Paul's defense obligations must be
construed in Phillips's favor.
	Insurance contracts are subject to the same rules of construction as ordinary
contracts.  Trinity Universal Ins. Co. v. Cowan, 945 S.W.2d 819, 823 (Tex. 1997);
Hanson, 5 S.W.3d at 328.  Accordingly, when a contract permits only one
interpretation, we construe it as a matter of law and enforce it as written.  Upshaw v.
Trinity Cos., 842 S.W.2d 631, 633 (Tex. 1992); Hanson, 5 S.W.3d at 328.   We must
strive to effectuate the contract as the written expression of the parties' intent and
must attempt to give effect to all contract provisions, so that none will be rendered
meaningless.  Kelley-Coppedge, Inc. v. Highlands Ins. Co., 980 S.W.2d 462, 464
(Tex. 1998); State Farm Life Ins. Co. v. Beaston, 907 S.W.2d 430, 433 (Tex. 1995). 
To this end, we construe the terms of the contract as a whole and consider all of its
terms, not in isolation, but within the context of the contract.  Beaston, 907 S.W.2d
at 433; Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 133-34 (Tex. 1994); Hartrick
v. Great Am. Lloyds Ins. Co., 62 S.W.3d 270, 274 (Tex. App.--Houston [1st Dist.]
2001, no pet.).
	Whether a contract is ambiguous is a question of law for the court to decide by
looking at the contract as a whole in light of the circumstances present when the
contract was entered.  Kelley-Coppedge, 980 S.W.2d at 464 (citing Nat'l Union Fire
Ins. Co. v. CBI Indus., Inc., 907 S.W.2d 517, 520 (Tex. 1995)).  An ambiguity does
not arise merely because the parties advance conflicting contract interpretations. 
Kelley-Coppedge, 980 S.W.2d at 465.  Only when, after applying the applicable rules
of construction, a contract term is susceptible of two or more reasonable
interpretations will the term be considered ambiguous.  Id.
	Our review of the terms of an insurance policy may also, under certain
circumstances, require review of the terms of a contract between the insured and a
third party.  As the Texas Supreme Court noted in Urrutia v. Decker, "Texas law has
long provided that a separate contract can be incorporated into an insurance policy
by an explicit reference clearly indicating the parties' intention to include that
contract as part of their agreement." 992 S.W.2d 440, 442 (Tex. 1999) (citing
Goddard v. East Tex. Fire Ins. Co., 1 S.W. 906, 907 (1886)).
	A thorough review of the relevant provisions of the MSA and the policy is
necessary to determine whether the trial court erred in deciding the coverage dispute
in favor of St. Paul.
MSA Provisions
	As noted above, under the MSA, Zachry was required to purchase insurance
coverage naming Phillips as an additional insured.  Exhibit "M" of the MSA, entitled
"Insurance Requirements," provides, in part, as follows:
	Zachry shall, at a minimum, maintain the following types and amounts
of insurance and shall keep such insurance in force during the term of
this Agreement.

	. . . .

	3.	Commercial General Liability Insurance on an occurrence form
with a combined single limit of $1,000,000 per occurrence . . . .

	. . . .

	As a separate and additional obligation independent of the indemnities
contained in the Agreement, all of the required insurance policies named
above, shall be written or endorsed to name [Phillips], its subsidiaries
and affiliates as additional insureds to the extent of Zachry's indemnity
and other obligations under this Agreement.

	. . . .

	All of the required insurance policies named above shall be written or
endorsed to be primary, with respect to Zachry's obligations, to any
other coverage available to cover the loss.

	The parties do not dispute that, as a result of the foregoing provisions, Zachry
was contractually obligated to obtain a commercial general liability insurance policy
that (1) named Phillips as an additional insured and (2) was written to be primary to
any other coverage available to Phillips to cover the losses concerned in the
underlying lawsuit.
Policy Provisions
	In its introductory section, the commercial general liability policy purchased
by Zachry from St. Paul defines "you, your and yours" as the named insured, Zachry. 
In a section entitled "Who Is Protected Under This Agreement," the policy explains
that, "[i]f you are named in the Introduction as a corporation or other organization,
you are a protected person."  In a section entitled "What This Agreement Covers," the
policy provides that St. Paul agrees to "pay amounts any protected person is legally
required to pay as damages for covered bodily injury, property damage or premises
damage" caused by an "event" (6) during the term of the policy.
	The policy sets forth St. Paul's duty to defend its insureds as follows:
 Right and duty to defend.  We'll have the right and duty to defend any
claim or suit for covered injury or damage . . . made against any
protected person. . . . [O]ur duty to defend claims or suits ends when we
have used up the limits of coverage that apply with the payment of
judgments, settlements or medical expenses.

	The policy also contains numerous endorsements modifying the coverage
provisions of the policy, including an Additional Protected Person Endorsement
("additional insured endorsement"), which reads, in part, as follows:
	This Endorsement changes your Contractors General Liability
Protection.

	How Coverage Is Changed

	There are two changes which are explained below.

	1.	The following is added to the Who Is Protected Under this
Agreement section.  This change adds certain protected persons
and limits their protection.

	Additional Protected Person.  The person or organization shown below
is an additional protected person as required by contract with you.  But
only for covered injury or damage arising out of: . . . your work for that
person or organization . . . .

	ADDITIONAL PROTECTED PERSON(S): Any Person or Organization
required to be made an additional protected person in a written contract
executed prior to a loss.

	. . . .

	2.	The following is added to the Other primary insurance section. 
This change broadens coverage.

	. . . .

	[W]e will consider this insurance to be primary to and non-contributory
with the insurance issued directly to the additional protected person
listed above if . . . your contract specifically requires that we consider
this insurance to be primary . . . .

(Emphasis added.)

	The parties do not dispute that the effect of the foregoing provisions of the
policy was to make Phillips an additional insured under the policy and to make the
coverage available under the policy primary to any other insurance coverage available
to Phillips.  Rather, their dispute focuses on the type of insurance coverage that St.
Paul was obligated to provide Phillips as an additional insured.
	As noted above, the policy issued by St. Paul carried a bodily-injury liability
limit of $1 million per event.  The policy also contains a Contractors Commercial
General Liability Deductible Endorsement ("deductible endorsement"), which reads,
in part, as follows:
	Deductibles Apply To Damages And Claims Expenses - Limits Are
Reduced By The Deductible Amounts

	This endorsement changes your Contractors Commercial General
Liability Protection.

	IMPORTANT NOTE: This endorsement makes you responsible for
paying damages and claims expenses within the deductibles that apply.

	. . . .

	Bodily injury and property damage each event deductible - other than
products and completed work.	                                           $1,000,000.

	. . . .

	There are two changes which are explained below.

	1.	The following section is added.  This change adds deductibles to
be paid by you.

	DEDUCTIBLES

	The deductibles shown in the Deductible Table and the information
contained in this section fix the amount of damage and claim expenses
that you'll be responsible fo[r] paying.  Only those deductibles for which
amounts are shown in the Deductible Table apply.

	We will pay all or part of the deductible for you, unless we agree to do
otherwise.  WHEN WE DO MAKE PAYMENT, YOU AGREE TO
REPAY THAT AMOUNT TO US PROMPTLY AFTER WE NOTIFY
YOU OF THE PAYMENT.

	Also, if we pay claim expenses that's [sic] subject to the applicable
deductible, YOU AGREE TO REPAY THAT AMOUNT TO US
PROMPTLY AFTER WE NOTIFY YOU OF THE PAYMENT.

 Claim expenses includes [sic] the following fees, costs and expenses that
result directly from the investigation, defense, or settlement of a specific
claim or suit:

	*	fees, costs or expenses of attorneys.

	. . . .

	Bodily injury and property damage each event deductible - other than
products and completed work.  You'll be responsible for the amount of
damage and claim expenses within this deductible . . . .

	. . . .

	2.	The following is added to the Limits of Coverage section.  This
section explains how the limits of coverage apply when a deductible
applies.

 The limits shown in the Coverage Summary, other than the General
Total Limit and the Products and Completed Work total limit, are
reduced by the deductible amount that applies.

(Emphasis added.)

Application

	Phillips notes that the "plain language" of the policy expressly states that St.
Paul's duty to defend continues until St. Paul has "used up the limits of coverage that
apply with the payment of judgments, settlements or medical expresses."  Thus,
Phillips argues that, because St. Paul did not indemnify Phillips for any "judgments,
settlements, or medical expenses," the policy's duty to defend language obligates St.
Paul to continue to pay Phillips's defense costs.  However, we may not construe this
term of the policy in isolation; rather, we must consider all of the terms of the policy
within the context of the entire policy.  Forbau, 876 S.W.2d at 133-34; Hartrick, 62
S.W.3d at 274.
	St. Paul contends that the effect of the policy's deductible endorsement, which
sets Zachry's deductible at an amount equal to the bodily-injury liability limit, is to
reduce St. Paul's net liability under the policy to zero.  Further, St. Paul contends that,
because the deductible endorsement specifies that "claim expenses," including
attorney's fees, are subject to the deductible, St. Paul's contractual obligation to
defend Phillips in the underlying lawsuits ceased once St. Paul had expended $1
million in attorney's fees on behalf of Phillips, regardless of whether a settlement or
judgment had been paid.
	Phillips argues that the effect of the policy's deductible endorsement to make
the policy a "fronting" policy is relevant only to St. Paul's contractual obligations to
Zachry.  Phillips asserts that, regardless of the terms of the policy actually obtained
by Zachry, Zachry was contractually obligated by a "plain reading" of the terms of
the MSA to obtain "traditional" commercial general liability coverage, i.e., a policy
whose limits of liability were not eroded by an insurer's "fronting" of "claim
expenses" on behalf of its insured, but whose limits were exhausted only upon the
payment of settlements or judgments equal to the liability limits.  Phillips also argues
that, because the policy's additional insured endorsement provided that Phillips was
an additional insured under the policy "as required by contract with [Zachry]," the
terms of the MSA requiring Zachry to purchase "traditional" commercial general
liability insurance coverage govern and are to be read into or along with the coverage
provisions of the policy.  Finally, Phillips argues that, because the deductible
endorsement uses the term "you," which is defined by the policy as "Zachry," instead
of the term "protected persons," the provisions of that endorsement apply only to St.
Paul's obligations to its insured, Zachry, and do not apply to the coverage that St.
Paul was obligated to provide Phillips as Zachry's additional insured.
	However, other than the limits of coverage required, the MSA does not
expressly specify the type of commercial general liability coverage that Zachry was
required to purchase.  Phillips's argument that the terms of the MSA obligated Zachry
to purchase a "traditional" commercial general liability policy--one with an unlimited
duty to defend until liability limits are exhausted by settlements or
judgments--requires the insertion of terms into the policy which are not contained
in the MSA itself.  This we may not do.  See Kelley-Coppedge, 980 S.W.2d at 464
(citing CBI, 907 S.W.2d at 520) (noting that parol evidence may not be relied on for
purpose of creating ambiguity in contract).
	Moreover, the policy's additional insured endorsement language, set out above,
naming Phillips as an additional insured under the policy "as required by contract
with you [Zachry]," is not, as argued by Phillips, "an explicit reference clearly
indicating the parties' intention" to include the terms and provisions of the MSA as
part of the policy.  See Urrutia, 992 S.W.2d at 442.  This language merely clarifies
which persons or entities are to be additional insureds under the policy, namely, those
persons "required to be made an additional protected person in a written contract
executed prior to a loss."
	Finally, the policy's deductible endorsement is not applicable only to St. Paul's
obligations to its insured, Zachry.  The terms of the endorsement do not limit its
application only to named insureds.  We are bound to construe the terms of the policy
as a whole, considering all of its terms in context, and to give effect to all provisions
of the policy, so that none will be rendered meaningless.  Kelley-Coppedge, 980
S.W.2d at 464; Beaston, 907 S.W.2d at 433; Hartrick, 62 S.W.3d at 274.  To apply
the construction of the terms of the policy as urged by Phillips would have the effect
of rendering the terms of the deductible endorsement meaningless with regard to St.
Paul's obligations to Zachry's named insured, Phillips, while simultaneously leaving
them valid and enforceable with regard to St. Paul's obligations to its named insured,
Zachry.
	As noted above, an ambiguity does not arise in a contract merely because the
parties advance conflicting contractual interpretations.  Kelley-Coppedge, 980 S.W.2d
at 465.  We find no ambiguity in the policy with respect to the scope of St. Paul's
defense obligation to Phillips.  Additionally, a contract, to be legally binding, must
be sufficiently definite in its terms so that a court can understand the parties'
obligations.  T.O. Stanley Boot Co., Inc. v. Bank of El Paso, 847 S.W.2d 218, 221
(Tex. 1992).  Here, the policy in question does not demonstrate that Phillips, as an
additional insured, was owed an unlimited defense by St. Paul against the underlying
lawsuits until St. Paul, in the words of Phillips, "exhausted its policy liability limits
by indemnifying Phillips for damage payments."  On the contrary, because the policy
purchased by Zachary was, in fact, a "fronting" policy and Zachary was obligated to
reimburse St. Paul for all claims expenses, including attorney's fees, incurred in
defense of the underlying lawsuits, St. Paul owed no further obligation to Phillips
once St. Paul expended $1 million in defending Phillips.
	Accordingly, we hold that the trial court did not err in granting summary
judgment in favor of St. Paul and in denying Phillips's motion for reconsideration. 
We overrule both of Phillips's issues.
Conclusion

	We affirm the judgment of the trial court.


							Terry Jennings
							Justice

Panel consists of Chief Justice Radack and Justices Nuchia and Jennings.
1. 			Appellees contend that St. Paul Insurance Company was incorrectly named as
a defendant below and is not a proper party to this lawsuit.  We do not address
this contention because it is not relevant to the disposition of this appeal.
2. 			We will refer to St. Paul's policy, numbered KK09100847, as "the policy." 
For purposes of this appeal, the parties do not dispute that Phillips is an
additional insured under this policy and that the coverage provided by the
policy is primary to other coverage available to Phillips.
3. 			The parties do not dispute that the policy was in effect at the time of the
explosion.
4. 			Phillips also asserted separate claims against Zachry's excess insurance
carriers, who are not parties to this appeal.
5. 			St. Paul presented summary judgment evidence to show, and the parties do not
dispute, that St. Paul expended $1 million in its defense of Phillips in the
underlying lawsuits.
6. 	"Event" is defined to mean an accident.
