Baldwin Haspel Burke & Mayer LLC

Insurance Law Update: Court Rules MSA Terms to Control Insurance/Indemnity Obligation

William B. Schwartz -  Posted on by Baldwin, Haspel, Burke & Mayer

IRONSHORE SPECIALTY INSURANCE COMPANY v. ASPEN UNDERWRITING, LIMITED; DORNOCH, LIMITED

In its June 10, 2015 decision, the Fifth Circuit Court of Appeals (federal) ruled under Texas law the insurance requirements contained within a Master Service Agreement (MSA) controlled as to the amount of insurance available to cover indemnity claims under that contract. More specifically, in IRONSHORE SPECIALTY INSURANCE COMPANY v. ASPEN UNDERWRITING, LIMITED; DORNOCH, LIMITED, there was a fire at a Texas oil well owned by Endeavor Energy Resources that killed two men employed by Basic Energy Services. The two companies had entered into an MSA which contained an indemnity provision in which both sides agreed to cover any liability resulting from claims brought by their own employees against the other company, regardless of fault. The MSA also required each company to obtain $5 million of insurance to cover the claims asserted by their own employees against the other. However, both companies actually obtained much more than $5 million in coverage in various primary and excess layers of insurance.

With a potential liability exceeding $5 million, the question arose as to whether the primary insurers were obliged to provide coverage up to the full limits of their policies when the policies themselves did not expressly limit the coverage available to $5 million. The district court ruled on a summary judgment motion the terms of the MSA would prevail which thereby limited the insurance for such claims to $5 million. On appeal, the Fifth Circuit affirmed that the terms of the MSA controlled as to how much insurance applied to the indemnity obligation.

If you have any questions, please feel free to contact Bill Schwartz at (504) 569-2900 or wschwartz@bhbmlaw.com.


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