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BPX Production Company v. Certain Underwriters at Lloyd's London
The Fifth Circuit reversed dismissal of BPX Production Company's duty-to-defend claim against Lloyd's underwriters arising from a 7,000-foot cement plug that destroyed a Reeves County well, holding that contractually mandated settlement negotiations under a Master Services Agreement constitute an 'alternative dispute resolution proceeding' triggering coverage. The court resolved policy ambiguity in favor of the insured under Texas law, rejecting the insurer's argument that only formal ADR proceedings with consent invoke the duty to defend.
Analysis
Fifth Circuit Holds Contractually-Mandated Settlement Negotiations Trigger Insurer's Duty to Defend Under CGL Policy
The Fifth Circuit reversed dismissal of BPX Production's breach-of-duty-to-defend claim against Lloyd's underwriters arising from a cementing failure that created a 7,000-foot cement plug in a Reeves County well, holding that the contractually-required dispute resolution procedure under the parties' Master Services Agreement constituted a "suit" under the policy. The court applied the eight-corners rule and construed the policy's ambiguous definition of "suit"—which included "any other alternative dispute resolution proceeding"—in favor of coverage for the insured.
Fifth Circuit Reverses Dismissal of Duty-to-Defend Claim, Holds Contractual Settlement Negotiations Constitute 'Alternative Dispute Resolution Proceeding' Under CGL Policy
The Fifth Circuit reversed dismissal of BPX Production Company's duty-to-defend claim against Lloyd's underwriters arising from a 7,000-foot cement plug that destroyed a Reeves County well, holding that contractually mandated settlement negotiations under a Master Services Agreement constitute an 'alternative dispute resolution proceeding' triggering coverage. The court resolved policy ambiguity in favor of the insured under Texas law, rejecting the insurer's argument that only formal ADR proceedings with consent invoke the duty to defend.