HOUSTON COURT OF APPEALS REVERSES JUDGMENT IN A SUBROGATION CASE AND ORDERS DAMAGES TO BE PRORATED AMONG EXCESS INSURERS

December 12, 2011

On December 8th, the Houston 14th Court of Appeals reversed judgment in a subrogation case which required USF&G to pay the limits of its primary and umbrella policies to its insured and two co-insurers. United States Fidelity & Guaranty Co. v. Coastal Refining & Marketing, Inc., Coastal Offshore Insurance Limited, and Lexington Insurance Company, 2011 WL 6098077 (Tex.App.—Houston [14th Dist.] Dec. 8, 2011). The appellate court held that a portion of the loss should have been prorated among the excess insurers and remanded the case to the trial court in Houston with instructions to reduce the damage award and to reevaluate the award of attorney’s fees and costs in light of the reduced damages awarded.

The Court first analyzed whether the Texas Supreme Court’s holding in Mid–Continent Insurance Co. v. Liberty Mutual Insurance Co., 236 S.W.3d 765 (Tex. 2007), barred Coastal Offshore Insurance Limited (COIL)  and  Lexington’s  claims  for  subrogation.  Finding  that  the  facts  of  Mid–Continent  were significantly unlike those presented in the instant case, the Court concluded that Mid–Continent was inapplicable so COIL and Lexington’s subrogation claims were not barred.  Next, the Court found that the other-insurance clauses of the excess insurance policies at issue were mutually repugnant, therefore the insurers must contribute to the settlement on a pro rata basis in accordance with the precedent established in Hardware Dealers Mutual Fire Insurance Co. v. Farmers Insurance Exchange, 444 S.W.2d 583 (1969) (holding that when faced with conflicting other-insurance clauses, “the only reasonable result to be reached is a proration between the two insurance companies in proportion to the amount of insurance provided by their respective policies.”).

Thus, finding that the trial court erred in failing to prorate a portion of the covered loss among COIL, Lexington, and USF&G, the appellate court reverse the judgment and remand the case with instructions to the trial court to (a) reduce the damage award from $6 million to $2.8 million; (b) reduce the interest award in accordance with the reduced damages; and (c) determine the extent to which the Coastal parties are entitled to attorney’s fees in light of the reduced damage award.