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Lexington Insurance Co. v. Exxon Mobil Corp.

Court of Appeals of Texas, Ninth District, Beaumont

April 27, 2017


          Submitted on March 2, 2017

         On Appeal from the 136th District Court Jefferson County, Texas Trial Cause No. D-196093

          Before McKeithen, C.J., Kreger and Horton, JJ.


          HOLLIS HORTON Justice.

         In this interlocutory appeal, Lexington Insurance Company challenges the trial court's denial of its motion to compel arbitration. See Tex. Civ. Prac. & Rem. Code Ann. § 51.016 (West 2015) (authorizing interlocutory appeals from orders denying arbitration for contracts subject to the Federal Arbitration Act); Id. § 171.098(a)(1) (West 2011) (authorizing interlocutory appeals from decrees denying applications to compel arbitration for contracts subject to the Texas Arbitration Act). According to Lexington, the trial court should have required Exxon Mobil Corporation and ExxonMobil Oil Corporation (collectively, Exxon) to arbitrate their dispute over whether an umbrella policy issued by Lexington provided Exxon with coverage for a casualty that occurred on its premises in April 2013.

         We conclude that a valid arbitration agreement exists, that the scope of the matters to be arbitrated include the disagreement the parties have over whether Lexington's umbrella covers Exxon for the claims Exxon made against Lexington under the policy, and that the trial court was required to grant Lexington's motion. We reverse the trial court's order denying Lexington's motion to compel arbitration, and we instruct the trial court to render an order requiring that all of Exxon's claims against Lexington and all of Lexington's defenses to Exxon's claims proceed in arbitration. We remand the cause to the trial court for further proceedings consistent with the Court's opinion.


         The casualty that forms the basis of Exxon's claims arose from a fire that occurred in April 2013 at Exxon's refinery in Beaumont, Texas. Exxon's Second Amended Petition, its live pleading for the purposes of the hearing on Lexington's motion to compel arbitration, indicates that at least ten individuals were injured in or as a result of the fire; of those injured, two of the individuals subsequently died. Three of the individuals injured in the fire were employees of Brock Services, who was performing work at Exxon at the time of the casualty under a written procurement agreement. The written agreement indicates that Exxon hired Brock Services to provide Exxon with scaffolding, painting, and insulation services at Exxon's Beaumont refinery. Under the written agreement, Brock Services was required to name Exxon as an additional insured on all of the liability policies that the agreement required Brock Services to obtain while performing work for Exxon.

         After the casualty, Exxon demanded that Lexington recognize that the umbrella policy that Lexington issued to Brock Services provided insurance coverage to Exxon for claims that arose from the casualty. When Lexington failed to respond to Exxon's demand, Exxon sued Lexington, and alleged that Lexington had wrongfully denied Exxon's claim. Lexington responded to Exxon's suit by filing a motion to compel arbitration. On July 26, 2016, the trial court conducted a hearing on Lexington's motion and admitted various exhibits into evidence for the purposes of the hearing on the motion to compel arbitration. However, no witnesses testified during the hearing. At the conclusion of the hearing, the trial court deferred its ruling and asked the parties to present the court with additional arguments, in writing, to support the positions they had taken during the hearing.

         Exxon and Lexington complied with the court's request. The last documents the trial court considered before ruling on Lexington's motion to compel arbitration were filed on September 9, 2016. Approximately two weeks later, the trial court denied Lexington's motion. In a letter explaining its ruling, the trial court advised the parties that Lexington's umbrella policy was "clear and unambiguous, " and that the court had construed it "by a simple factual analysis requiring no interpretation of the policy itself." The letter indicates that the trial court concluded that one of the policy provisions Lexington relied on to support its argument that the policy did not cover the casualty was not relevant to the dispute. While the trial court's letter does not specifically discuss whether the parties' disagreement over coverage were matters that fell outside those the arbitration agreement required the parties to arbitrate, the court's ruling clearly implies the trial court thought the dispute could be settled as a matter of law based on its construction of the policy.

         On appeal, Lexington argues that the trial court erred by denying Lexington's motion to compel because its dispute with Exxon about whether the umbrella policy covered Exxon for the casualty fell inside the scope of the arbitration clause in the arbitration agreement that is in the umbrella policy that it issued to Brock Services. According to Lexington, Exxon failed to raise any valid defenses to its motion to compel arbitration, and its motion should have been granted. In response, Exxon argues that the trial court properly construed the policy in concluding that the policy provided Exxon with coverage for the casualty. According to Exxon, Lexington's policy covers the casualty based on the language found in the policy so no valid disagreement can exist over whether the policy provided Exxon with coverage from the claims that it was required to defend arising from the casualty.

         Is Exxon Subject to the Arbitration Agreement?

         In its brief, Exxon argues that it is not bound by the arbitration clause in the umbrella policy because Brock Services acquired the policy, it did not negotiate to have a policy that contained an arbitration clause, and it is an additional insured under the agreement. Exxon suggests that a decision to enforce the arbitration clause under circumstances where it did not directly acquire the policy from the carrier would be unconscionable.

         However, Exxon cannot seek to recover under the terms of Lexington's policy and at the same time avoid the provisions in the policy that it disfavors. Under the doctrine of direct benefits estoppel, non-signatories to arbitration agreements may be bound to the arbitration clause of a contract when the plaintiff is suing seeking to enforce all of the other terms of a written agreement. See In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 739-40 (Tex. 2005) (orig. proceeding) (explaining that under the doctrine of direct benefits estoppel, a non-signatory plaintiff seeking to benefit under a contract cannot avoid the contract's arbitration clause). Given that Exxon is suing Lexington on Lexington's policy, we conclude that Exxon cannot avoid the umbrella policy's arbitration clause. Id.; In re FirstMerit Bank, N.A., 52 S.W.3d 749, 755-56 (Tex. 2001) (holding that a non-signatory subjected itself to the contract's terms by suing on the contract, including the contract's arbitration agreement).

         Exxon also contends that enforcing the umbrella policy's arbitration provision against additional insureds who were not involved in the negotiations that led to the purchase of the policy would be unconscionable. See Tex. Civ. Prac. & Rem. Code Ann. ยง 171.022 (West 2011) ("A court may not enforce an agreement to arbitrate if the court finds the agreement was unconscionable at the time the agreement was made."). In this case, the trial court did not make a written finding on Exxon's claim of unconscionability. Additionally, Exxon provided no evidence to the trial court in support of its claim that enforcing the arbitration clause would be unconscionable. Finally, in its brief, Exxon did not provide this Court ...

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