COVERAGE NOT AFFORDED FOR POLICY PROVISIONS STRICKEN DURING NEGOTIATIONS

August 29, 2011

Last Friday, the Texas Supreme Court ruled that a Lloyd’s of London underwriter did not owe The Houston Exploration Co. coverage for certain offshore oil rig repairs because the provision governing the charges was stricken before the parties signed the policy.  The Houston Explor. Co., et al., v. Wellington Underwriting Agencies, Ltd., et al., No. 08-0890, S.W.3d (Tex. Aug. 26, 2011) (slip opinion).  In a 6-3 decision, the court affirmed a lower court’s holding that the parties’ decision to strike through a policy provision covering weather “standby charges” reflected their intention that Wellington Underwriting Agencies Ltd. would not have to cover these expenses.

The court reviewed the practice through which Lloyd’s policies are purchased, including the negotiations that went on in this case.  In those negotiations, the parties began with a form and deleted those portions of the form that the insured did not want to purchase.  The court noted that these negotiations evidenced the parties’ intent, and were relevant to the inquiry of coverage.  The court stated “to see the deletions as irrelevant blinks reality.”