Excess Policy that Follows Form Does Not Agree to Pay Defense Costs

    The Texas Supreme Court determined that language in the following form excess policy did not obligate it to defend the insured. Ohio Cas. Ins. Co. v Patterson UTI Energy, Inc., 2025 Tex. LEXIS 1123 (Tex. Sup. Ct. Dec. 20, 2024).

    Patterson provided oil-and-gas equipment and services. Patterson was insured by a primary policy and multiple layers of excess coverage. For the 2017-2018 policy year, Patterson bought several lines of insurance through its broker, Marsh USA, Inc. The underlying policy was an umbrella policy issued by Liberty Mutual Insurance Europe, Ltd. Among the excess policies Patterson obtained through Marsh was one from Ohio Casualty Insurance Company.

    Patterson was sued in multiple lawsuits regarding a drilling-rig accident. Patterson settled the lawsuits after extensive litigation. The settlements and the litigation's defense expenses triggered the Ohio Casualty excess policy after the lower level policies were exhausted. Ohio Casualty funded portions of the settlements but refused to indemnify Patterson for any defense expenses.

    Patterson sued Ohio Casualty and Marsh. Competing motions for summary judgment regarding whether the Ohio Casualty policy covered defense expenses were filed. The trial court granted Patterson's motion and denied Ohio Casualty's. The court determined that the defense costs were covered under the Ohio Casualty policy because the policy did not clearly and unambiguously exclude the coverage for defense costs provided by the underlying primary policy. 

    The court of appeals affirmed. The excess policy was a "follow form" policy that did not unambiguously exclude defense expenses. Therefore, the excess policy also covered these expenses. The matter was appealed to the Texas Supreme Court. 

  The Ohio Casualty excess policy promised to pay the amount of "loss" in excess of the underlying limits. "Except for the terms, conditions, definitions and exclusions of this policy, the coverage provided by this policy will follow the [underlying policy]." Loss was defined as:

those sums actually paid in the settlement or satisfaction of a claim which [Patterson is] legally olibgated to pay as damages after making proper deductions for all recoveries and salvage. 

    Ohio Casualty agreed that the settlement amounts were "damages" under this definition and were covered as "loss." But Ohio Casualty submitted that Patterson's own legal expenses did not qualify as "loss" because they did to constitute "damages." The Supreme Court agreed that the excess policy did not cover attorney's fees as "loss." 

    Patterson relied too much on the excess policy's "follow-form" status. Patterson argued that the excess police was bound by the underlying policy's coverage choice unless the excess policy repudiated that choice rather than simply providing a different kind of coverage. The excess policy specified that it covered "loss," a term for which it provided its own definition. That definition referred to "damages" – a term that, without more, did not include defense expenses. The excess policy confined its coverage to sums paid to an adverse party, like the personal-injury claimants who sued Patterson after the drilling-rig incident.

    Therefore, the judgment of the court of appeals was reversed. Judgment was rendered for Ohio Casualty. The case was remanded for Patterson to pursue its negligence claims against Marsh.