     Case: 13-51027    Document: 00513074445      Page: 1   Date Filed: 06/10/2015




        IN THE UNITED STATES COURT OF APPEALS
                 FOR THE FIFTH CIRCUIT
                                                              United States Court of Appeals
                                                                       Fifth Circuit
                                  No. 13-51027                       FILED
                                                                 June 10, 2015

IRONSHORE SPECIALTY INSURANCE COMPANY,                          Lyle W. Cayce
                                                                     Clerk
             Plaintiff - Appellant

v.

ASPEN UNDERWRITING, LIMITED; DORNOCH, LIMITED,

             Defendants - Appellees


                 Appeal from the United States District Court
                      for the Western District of Texas


Before STEWART, Chief Judge, and WIENER and COSTA, Circuit Judges.
GREGG COSTA, Circuit Judge:
      Despite the steady march of technological progress in the oil and gas
industry, drilling remains dangerous. When tragic accidents happen—such as
the fire at a Texas oil well owned by Endeavor Energy Resources that killed
two men employed by Basic Energy Services and set this case in motion—the
resulting litigation often turns into a coverage dispute between the insurers of
the entities involved in the drilling activity.
      That is the case here. Endeavor and Basic entered into a master services
agreement (MSA) containing an indemnity provision in which they agreed to
cover any liability resulting from claims brought by their own employees, even
if the other party was at fault. They separately agreed to obtain at least $5
million of insurance that would cover claims asserted by their own employees
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against the other party. The policies Basic obtained do not expressly limit the
coverage for additional insureds like Endeavor to this $5 million.
       With the total liability for the two fatalities likely exceeding $5 million,
Endeavor’s excess insurer, Ironshore Specialty Insurance Corporation,
brought this case against Basic’s excess insurers for a declaratory judgment.
Ironshore contends that Basic’s insurers are obligated to provide coverage up
to the full limits of their policies because the policies do not expressly limit the
coverage available to an additional insured like Endeavor.
       In response, Defendants contend that the insurance policies incorporate
a $5 million limit because the policies refer to the MSA. We agree, and affirm
the district court’s ruling in favor of Defendants. We reach this decision based
in large part on In re Deepwater Horizon, --- S.W.3d ----, 2015 WL 674744 (Tex.
Feb. 13, 2015), which issued after oral argument in this case. 1

                                             I.
       Endeavor owned and operated an oil well in Martin County, Texas. Basic
contracted with Endeavor to perform services, including pumping brine into
the well. 2 The MSA between Endeavor and Basic contained mutual indemnity
provisions stating that each party would release the other from any liability
for “all claims, demands, and causes of action of every kind and character,
without limit,” brought on behalf of each party’s respective employees. ROA
1048. In other words, regardless of which party is sued or at fault, Basic would
be liable for claims brought by Basic employees and Endeavor would be liable


       1 The parties in Deepwater Horizon reached a settlement after the Supreme Court of
Texas’s decision. Pursuant to that settlement, the court granted BP’s motion to withdraw its
petition for rehearing. In re Deepwater Horizon, No. 13-0670 (Tex. petition for rehearing
withdrawn Mar. 29, 2015).
       2  Endeavor’s affiliate, Exxcel Well Service, was also a party to the contract. For
simplicity, this opinion refers to Endeavor Energy Resources and Exxcel Well Service
collectively as “Endeavor.”
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for claims brought by Endeavor employees.
      Another section of the MSA specified that the parties were required to
obtain insurance:
      To support the indemnification provisions in this Contract but as
      a separate and independent obligation, each party shall . . .
      maintain, with an insurance company or companies . . .
              (b)   Commercial (or Comprehensive) General Liability
                    Insurance, including contractual obligations covered
                    in this Contract and proper coverage for all other
                    obligations assumed in this Contract., [sic] in the
                    amount of $1,000,000 combined single limit per
                    occurrence for Bodily Injury and Property Damage. . . .
              (d)   Excess Liability Insurance over that required in
                    Paragraph . . . (b) . . . in the amount of $4,000,000,
                    specifically including Contractual Liability.
ROA 1047–48.
      Basic maintained insurance policies that provided this $5 million in
coverage, but also a lot more. It had the following three policies providing total
coverage of $51 million: $1 million per occurrence in primary commercial
general liability coverage issued by National Union Fire Insurance Company
and other subscribing underwriters; $10 million in first-layer excess liability
insurance coverage issued by Aspen Underwriting Ltd. and other subscribing
underwriters; and $40 million in second-layer excess liability insurance
coverage issued by Dornoch, Ltd., and other subscribing underwriters. Besides
naming Basic itself, Basic’s excess policies define additional “Insured” parties
as follows:
      The word “Insured”, wherever used in this Policy, shall mean . . .
              (c)   any person or entity to whom [Basic] is obliged by a
                    written “Insured Contract” entered into before any
                    relevant “Occurrence” and/or “Claim” to provide
                    insurance such as is afforded by this Policy but only
                    with respect to:

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                       i)     liability arising out of operations conducted by
                              [Basic] or on its behalf . . . .

ROA 3828, 3890–91. The policies define “Insured Contract” as
       any written contract or agreement entered into by [Basic] and
       pertaining to business under which [Basic] assumes the tort
       liability of another party to pay for “Bodily Injury”, “Property
       Damage”, “Personal Injury” or “Advertising Injury” to a “Third
       Party” or organisation.
ROA 3769, 3890–91. Endeavor also obtained insurance in three layers of
coverage, but those policies provided only $21 million in total coverage.
       In August 2010, a fire at the well killed two Basic employees. The
families of the men brought wrongful death suits in state court against
Endeavor and made settlement demands in excess of $11 million. 3 Ironshore
then brought this diversity action in federal court seeking a declaration that
Basic’s excess insurers, Defendants Aspen and Dornoch, 4 must cover any
Endeavor liability up to the limits of those policies. 5 The parties filed cross


       3   The underlying state case later settled for an undisclosed amount.
       4Basic’s primary insurance provider, National Union, was not sued as it
acknowledged its obligation to provide coverage up to the $1 million limit of its policy with
Basic.
       5  One may wonder why Endeavor’s insurer, Ironshore, could be on the hook for this
liability if Basic agreed to indemnify Endeavor for all liability arising out of claims brought
by Basic employees. Although not discussed by the parties, the answer appears to be that
the Texas Oilfield Anti-Indemnity Act imposes statutory limits on indemnity obligations in
the oilfield context—in this case, “the indemnity obligation is limited to the extent of the
coverage and dollar limits of insurance or qualified self-insurance each party as indemnitor
has agreed to obtain for the benefit of the other party as indemnitee.” TEX. CIV. PRAC. & REM.
CODE § 127.005(b). The extent of Defendants’ coverage obligations thus determines the
extent of Basic’s duty to indemnify.
        Defendant insurers relied on the Anti-Indemnity Act in a different context, as an
alternative ground for affirmance in this coverage dispute. Although, as just noted, that
statute does provide a defense to an indemnity suit, we have previously held that it does not
limit insurance coverage obligations that are separate and independent from indemnity
obligations. See Certain Underwriters at Lloyd’s London v. Oryx Energy Co., 142 F.3d 255,
258 (5th Cir. 1998) (“There is no justification for an argument that Texas courts would engraft
a limit on coverage . . . as if the suit were only to enforce the indemnity itself.”). Deepwater
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motions for summary judgment. Defendants argued that Endeavor is owed
only $5 million in coverage based on the insurance requirement in the MSA.
The district court ruled in favor of Defendants, holding that the insurance
policies incorporate the terms of the MSA, and therefore that the insurance
available to Endeavor is limited to $5 million. Ironshore Specialty Ins. Co. v.
Aspen Underwriting Ltd., 2014 WL 4186530, at *7–9 (W.D. Tex. Apr. 29, 2014).
Ironshore appealed.

                                            II.
       Our analysis, like the district court’s, focuses on Defendants’ argument
that Basic’s insurance policies limit Endeavor’s coverage to the $5 million in
insurance that Basic was contractually obligated to procure by the MSA’s
minimum insurance provision. We review de novo the district court’s grant of
summary judgment on this question of contract interpretation. See Wisznia
Co. v. Gen. Star Indem. Co., 759 F.3d 446, 448 (5th Cir. 2014); see also Nat’l
Union Fire Ins. Co. of Pittsburgh v. Kasler, 906 F.2d 196, 198 (5th Cir. 1990)
(“The interpretation of an insurance contract . . . is a legal determination
meriting de novo review.”). The parties agree that Texas law applies. We
therefore must apply that law “as interpreted by the state’s highest court.” Am.
Int’l Specialty Lines Ins. Co. v. Rentech Steel, LLC, 620 F.3d 558, 564 (5th Cir.
2010). When there is no case directly on point, we are required to make an
“Erie guess”; that is, to “follow the rule we believe the Texas Supreme Court
would adopt.” Am. Indem. Lloyds v. Travelers Prop. & Cas. Ins. Co., 335 F.3d
429, 435 (5th Cir. 2003).
       Because Basic was “obliged by a written ‘Insured Contract’ . . . to provide


Horizon confirms that view. See 2015 WL 674744, at *12 (“We have long recognized that the
contractual duties to indemnify and to maintain insurance may be separate and independent.
Consequently, a statute invalidating an indemnification clause does not relieve a party of a
separate duty to obtain insurance.” (citations omitted)).
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insurance” to Endeavor, there is no dispute that the company meets the
definition of “Insured” under Basic’s excess policies and is therefore covered by
those policies. And there is no disagreement that under the MSA, Basic was
only required to provide $5 million in insurance coverage to Endeavor. The
dispute is limited to whether that provision in the MSA is incorporated into
Basic’s insurance policies as a limit on Endeavor’s coverage.           Ironshore
contends that the policies do not limit Defendants’ coverage obligations, either
expressly or through the incorporation of the MSA’s limitations. Defendants
argue that their policies must be read “in conjunction” with the MSA, including
its insurance provision, and therefore that Endeavor’s coverage is limited to $5
million.
      As is the case here, it is common for a service contract to require an
oilfield company to obtain insurance to cover another company’s liabilities. But
our analysis of Endeavor’s coverage “necessarily begins with the four corners
of the policies,” not the service contract. See Deepwater Horizon, 2015 WL
674744, at *5 (citing Evanston Ins. Co. v. ATOFINA Petrochems., Inc., 256
S.W.3d 660, 664 (Tex. 2008)). Texas courts will not hesitate to award coverage
beyond that contemplated by a service contract when the “terms of the . . .
policy itself” do not impose the same limits as the service contract. See, e.g.,
ATOFINA, 256 S.W.3d at 664. Thus, if nothing within the four corners of
Basic’s policies limits Endeavor’s coverage, it is irrelevant that the MSA only
required Basic to purchase $5 million of insurance to cover its indemnity
obligations.
      However, as with other contracts, “insurance policies can incorporate
limitations on coverage encompassed in extrinsic documents by reference to
those documents.” Deepwater Horizon, 2015 WL 674744, at *5. In order to
“incorporate a restriction from another contract into an insurance policy,” the
policy must “clearly manifest[] an intent” to do so. Id. (citing Urrutia v. Decker,
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992 S.W.2d 440, 442–43 (Tex. 1999)). Endeavor’s insurance policy provides an
example: it explicitly limits coverage to “the minimum Limits of Insurance
[Endeavor] agreed to procure in [a] written Insured Contract.” ROA 1917. By
incorporating some of the MSA’s terms, Endeavor’s policy thus makes it clear
beyond dispute that Basic was covered only up to $5 million, not up to the
policy limits.
      Although Basic’s policies do not contain similar language, Defendants
argue that they also incorporate the $5 million minimum obligation as a limit
on Endeavor’s coverage. This, they argue, is because the insurance policy
makes Endeavor an insured only by virtue of the existence of its obligations
under the MSA. The policies state:
      The word “Insured”, wherever used in this Policy, shall mean . . .
             (c)   any person or entity to whom [Basic] is obliged by a
                   written “Insured Contract” entered into before any
                   relevant “Occurrence” and/or “Claim” to provide
                   insurance such as is afforded by this Policy . . .
We must decide if this reference is sufficient to limit Defendants’ obligations
to the $5 million Basic was “obliged” to provide.
      We initially had doubts that the “Insured Contract” clause alone
incorporates the $5 million insurance obligation as a limit on Endeavor’s
coverage. A mere reference to an outside contract for the purpose of defining
a term in an insurance policy is not necessarily sufficient to incorporate that
contract’s terms. See Bob Montgomery Chevrolet, Inc. v. Dent Zone Cos., 409
S.W.3d 181, 189 (Tex. App.—Dallas 2013, no pet.) (“Plainly referring to a
document [in order to incorporate it by reference] requires more than merely
mentioning the document. The language in the signed document must show
the parties intended for the other document to become part of the agreement.”
(internal citation omitted)).   And the contrast with the Endeavor policy’s
unambiguous incorporation of insurance limits in the MSA is stark.
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         Our analysis on this state law question, however, must be guided by a
recent decision of the Supreme Court of Texas. That case, In re Deepwater
Horizon, involved a coverage dispute arising out of BP’s 2010 offshore oil spill.
BP, the oil field developer, contracted with Transocean, an owner of a drilling
rig in the Gulf of Mexico. 2015 WL 674744, at *1. The parties’ Drilling
Contract called for Transocean to indemnify BP for above-surface pollution; BP
was to indemnify Transocean for all other pollution risk. Id. at *2. The Drilling
Contract also required Transocean to name BP as an additional insured in its
insurance policies, “except Workers’ Compensation for liabilities assumed by
[Transocean] under the terms of [the Drilling] Contract.” Id. at *4. BP sought
coverage under that policy after the rig caught fire, submersed into the ocean,
killed a number of crew members, and discharged millions of gallons of oil. Id.
at *3.
         As in this case, the parties disputed whether the terms of the contract
between the oilfield companies limited the coverage owed under the insurance
policies. Transocean argued that BP was not entitled to coverage for below-
surface pollution claims because its coverage was limited to liabilities assumed
by Transocean under the Drilling Contract. Id. at *6. BP argued that “the
existence and extent of coverage [had] to be ascertained exclusively from the
four corners of the Transocean insurance policies,” which did not themselves
limit the extent of coverage to above-surface pollution. Id. at *4.
         The case came to our court, and we initially ruled that the policies did
“not impose any relevant limitation upon the extent to which BP is an
additional insured.” In re Deepwater Horizon, 710 F.3d 338, 350 (5th Cir.
2013). After issuing that opinion, however, we withdrew it and certified the
key questions to the Supreme Court of Texas. In re Deepwater Horizon, 728
F.3d 491, 493 (5th Cir. 2013).
         That court found that Transocean’s policies did incorporate limitations
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from the Drilling Contract. In doing so, it relied on two provisions of the
insurance policies. One of those provisions is almost identical to the “Insured
Contract” language that Defendants in this case argue incorporates the MSA’s
limitations:
      Only the following are included in the definition of the “Insured”
      under this Policy:
      ...
               (c)   any person or entity to whom the “Insured” is obliged
                     by any oral or written “Insured Contract” . . . to provide
                     insurance such as is afforded by this Policy;
Deepwater Horizon, 2015 WL 674744, at *14 (quoted by Johnson, J.,
dissenting) (alterations in original). The other, however, has no analogue in
Basic’s policies:
      Underwriters agree where required by written contract, bid or
      work order, additional insureds are automatically included
      hereunder, and/or waiver(s) of subrogation are provided as may be
      required by contract.
Id. The court reasoned as follows:
      BP is not named in any of the insurance policies nor is there any
      claim or evidence that it is expressly included as an additional
      insured in an endorsement or certificate of insurance; thus, if the
      coverage inquiry were constrained to the language in the
      insurance policy, BP would have no coverage at all. But that is not
      the case. Instead, the policies confer coverage by reference to the
      Drilling Contract in which (1) Transocean assumed some liability
      for pollution that might otherwise be imposed on BP (making that
      contract an “Insured Contract”) and (2) Transocean is “obliged” to
      procure insurance coverage for BP as an additional insured
      (making BP an “Insured”). Moreover, additional insureds are
      automatically included under the policy only “where required by
      written contract, bid or work order.” The language in the
      insurance policies providing additional-insured coverage “where
      required” and as “obliged” requires us to consult the Drilling
      Contract’s additional-insured clause to determine whether the
      stated conditions exist.

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Id. at *9 (majority opinion). The court then determined:
      The Drilling Contract required Transocean to name BP as an
      additional insured only for the liability Transocean assumed under
      the contract. Accordingly, Transocean had separate duties to
      indemnify and insure BP for certain risk, but the scope of that risk
      for either indemnity or insurance purposes extends only to above-
      surface pollution.
Id. at *12. It thus found that the BP was an additional insured “only to the
extent of the liability Transocean assumed for above-surface pollution,” and
denied coverage. Id. at *13.
      As mentioned above, the “Insured Contract” provision in Basic’s policies
is essentially the same as the corresponding provision in Transocean’s
policies. That does not resolve the question, however, because it is not clear
what effect the Deepwater Horizon court gave to the “Insured Contract”
provision alone. The court also relied on another provision that is not present
in Basic’s policies, adding additional insureds “where required by written
contract.” We must decide, therefore, whether both the “Insured Contract” and
“where required” provisions were necessary to Deepwater Horizon’s result, or
whether each provision standing alone was an independent basis for the
decision.
      Our best reading of Deepwater Horizon is the latter. The dissent in that
case put forward the view that the “Insured Contract” provision merely
required reference to the Drilling Contract in order to determine whether BP
was an Insured, but did not limit the scope of BP’s coverage “to the scope of the
obligation assumed by the ‘Insured’ in a written contract or agreement.” Id. at
*14 (Johnson, J., dissenting). The majority apparently rejected this view,
characterizing the provision as requiring “additional-insured coverage . . . as
‘obliged.’”   Id. at *9 (majority opinion) (emphasis added).     And the court
appeared to treat the “where required” and “Insured Contract” provisions as

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functionally identical when it stated that “[t]he language in the insurance
policies providing additional-insured coverage ‘where required’ and as ‘obliged’
requires us to consult the Drilling Contract’s additional-insured clause to
determine whether the stated conditions exist.” Id. at *9. Finally, the court’s
use of the word “moreover” when describing the effect of the “where required”
provision suggests that the provision was an alternative ground for its holding.
Cf. Wetzel v. Lambert, 132 S. Ct. 1195, 1198 & n.* (2012) (per curiam) (holding
that the court of appeals erred in granting habeas corpus when it only
addressed one of the state court’s alternative grounds for rejecting a Brady
claim, noting that the ground it addressed was introduced by the state court
with the word “moreover,” “confirming that it was an alternative basis for its
decision”).
      Our Erie guess, therefore, is that the “Insured Contract” provision was a
sufficient ground in Deepwater Horizon to incorporate the Drilling Contract’s
limitation on coverage for above-surface pollution.        The nearly identical
language in Basic’s policies thus compels the same result. Because Basic was
only “obliged” to procure $5 million in insurance, we AFFIRM the district
court’s grant of summary judgment in favor of Defendants.




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