JP Energy Mktg., LLC v. Commerce & Indus. Ins. Co.
Docket: Case Number: 115285; Consol. w/115281
Court: Court of Civil Appeals of Oklahoma; March 20, 2017; Oklahoma; State Appellate Court
Kenneth L. Buettner, Chief Judge, affirms the trial court's summary judgment favoring JP Energy Marketing, LLC (JP) against defendants BITCO General Insurance Corporation, Alterra America Insurance Company, and Navigators Insurance Company. The court concludes that JP qualifies as an additional insured under the defendants' insurance policies and that they have a duty to indemnify and defend JP in ongoing litigation related to a fire that occurred during pipeline construction. The court finds that exclusions for professional services and construction operations do not apply, and the indemnity agreements are compliant with Oklahoma's anti-indemnity statute. JP, formerly Parnon Gathering, Inc., had contracted IPS Engineering, LLC for pipeline construction, which involved subcontracts with Global Pipeline Construction, LLC and Wilcrest Field Services, Inc. Following a fire on August 4, 2012, various property owners sued JP and its contractors, prompting JP to seek coverage from the insurance carriers of Global and Wilcrest, which was denied. JP subsequently filed for declaratory relief to establish its status as an additional insured and compel indemnity and defense from the insurers. The trial court ruled in JP's favor, leading to the appeal by BITCO, Alterra, and Navigators. The appellate review confirms that no substantial factual controversy exists, and the case hinges on legal interpretations of contracts and statutes.
The dispute involves whether JP qualifies as an additional insured under four insurance policies. BITCO, Alterra, and Navigators argue against JP's status due to the absence of a direct contractual relationship. Conversely, JP claims that the endorsements do not necessitate privity of contract, asserting that the JP-IPS Contract and relevant subcontracts fulfill the requirement for written agreement to add JP as an additional insured.
Both the BITCO Commercial Lines and Umbrella policies define an "insured" as any person or organization for whom operations are performed, provided there is a prior written agreement to add them as an additional insured. The BITCO general policy includes an Oil and Gas Extended Liability Coverage Endorsement that specifies coverage for bodily injury or property damage arising from negligence related to ongoing operations or the general supervision of such operations. The BITCO umbrella policy extends coverage to any organization defined as an insured under the underlying insurance, which is the BITCO general policy.
Global, at the time of the fire, was also covered under a $5,000,000 Commercial Excess Liability Policy from Alterra, which defines "insured" based on the underlying insurance listed on its declarations page, thus linking it back to the BITCO policies.
The JP-IPS Contract mandates that IPS’s subcontracts incorporate its terms, requiring IPS to name JP as an additional insured. This requirement extends to all subcontractors, ensuring they provide a minimum of $1,000,000 in commercial general liability coverage and $10,000,000 in umbrella coverage. The IPS-Global Subcontract specifies that it is governed by the terms of the JP-IPS Contract, requiring Global and its subcontractors to maintain the insurance coverages stipulated, with the JP-IPS Contract prevailing if there are discrepancies. Exhibit C of this subcontract confirms the need to endorse the insurance to include IPS and JP (the Owner) as additional insureds.
BITCO and Alterra assert that the BITCO policy necessitates a written contract between Global and JP for JP to be recognized as an additional insured. The policy defines "you" as Global and stipulates that an entity qualifies as an additional insured only if there is a written agreement between Global and that entity. No such agreement exists between Global and JP, leading BITCO and Alterra to argue that the trial court improperly used the JP-IPS Contract and the IPS-Global Subcontract to fulfill this requirement. They maintain that JP is not the entity with whom Global has a written contract, and any judicial modification of the contract language would be inappropriate. The policy is characterized as a contract, and under Oklahoma law, insurance policies must be interpreted based on their clear and unambiguous language, which should reflect the parties' intentions without rewriting the contract.
The court finds that while a direct contract between JP and Global would meet the additional insured provision, the policy's plain language does not strictly require one. It concludes that as long as both parties agree in writing to add JP as an additional insured, that condition is satisfied. The agreements in the JP-IPS Contract and the IPS-Global Subcontract confirm that JP is indeed bound by the terms, which include naming JP as an additional insured. Consequently, the court holds that JP qualifies as an additional insured under the BITCO general policy, BITCO umbrella policy, and Alterra policy.
Court decisions from various jurisdictions provide support for the position that an agreement can be documented in separate contracts without necessitating a direct contractual relationship between the involved parties. Notable cases include First Mercury Ins. Co. v. Shawmut Woodworking, which affirmed that direct contracts are not required, and Millis Dev. Constr. Inc. v. America First Lloyd's Ins. Co., which similarly held that policy language does not mandate a direct contract. Conversely, Westfield Ins. Co. v. FCL Builders, Inc. found that a direct written agreement is necessary.
The BITCO general policy does not explicitly mandate a direct contractual relationship between JP and Global. Accepting BITCO and Alterra's interpretation would require altering the policy language to include terms suggesting a direct contractual relationship, which is not present. The use of "such person or organization" in the policy does not limit additional insured status solely to those with a direct contract with the named insured, and a layperson would not interpret the language as requiring privity of contract.
BITCO and Alterra’s claims of not being bound by the JP-IPS Contract and IPS-Global Subcontract are unconvincing. Their insurance policies include terms that provide coverage to any entity meeting specific criteria, including that Global is performing operations for that entity, and an agreement is in place to add that entity as an additional insured. In this case, JP qualifies as that entity.
Navigators also contends that JP is not an additional insured due to the absence of a direct contract between JP and Wilcrest. At the time of the fire, Wilcrest was covered by a substantial Commercial Excess Liability Policy from Navigators, which insures any person designated as an insured under the controlling underlying insurance policy. The additional insured endorsement defines "insured" as any entity that the insured is contractually obligated to cover, applicable concerning bodily injury or property damage linked to the insured’s actions during ongoing operations or on owned premises, with specific conditions about the timing of occurrences and the agreement's validity.
IPS entered into a Master Subcontractor Services Agreement with Wilcrest for engineering and technical services, which was not specifically tied to the Great Salt Plains Pipeline project. This subcontract was executed prior to the JP-IPS Contract and does not incorporate its terms. Wilcrest is required to obtain certain insurance coverages that must include IPS and an undefined "Owner" as additional insureds.
The Navigators insurance policy language is broader than that of the BITCO policy but remains unambiguous. The additional insured provision indicates that JP qualifies as an additional insured. The IPS-Wilcrest Subcontract fulfills the requirements for the additional insured endorsement in the Navigators policy, confirming that JP is an additional insured since the subcontract obligates Wilcrest to provide coverages for both IPS and the Owner, and JP owns the pipeline.
Navigators contends that even if JP is an additional insured, exclusions related to professional services and construction operations in both the Liberty Mutual and Navigators policies apply. The Liberty Mutual policy contains several endorsements that exclude coverage for bodily injury or property damage arising from professional services rendered or failed to be rendered. These exclusions cover a wide range of activities, including consulting, engineering services, and supervisory roles related to construction work, thereby limiting the coverage available for claims against professional services provided by Wilcrest or its agents.
The Navigators policy includes a professional services exclusion, stating that liability does not apply to any liability arising from the rendering or failure to render professional services. "Professional services" encompasses activities such as preparing reports, engineering, and inspection services. However, it has been determined that the professional services exclusions do not apply to the allegations in the underlying litigation, which involve improper fire safety precautions during welding services on a pipeline. The parties agree that Wilcrest was responsible for quality assurance by inspecting the welds. The court clarifies that inspecting welds and related activities like welding and measuring wind speeds are not classified as professional services, which typically require specialized knowledge and are predominantly intellectual.
Navigators contends that Wilcrest's activities could be deemed "consulting and engineering activities," but the court finds this interpretation unreasonable and asserts that the services in question do not fall under the professional services exclusions. Additionally, Navigators argues that a construction operations exclusion within the Liberty Mutual policy applies, which excludes coverage for various construction activities. However, the court notes that Navigators has not provided evidence supporting the claim that inspecting welds qualifies as construction operations, leading to the conclusion that this exclusion does not apply either.
Finally, arguments regarding the exhaustion of policy limits are deemed irrelevant to the question of whether JP qualifies as an additional insured, affirming that the defendant insurers have a duty to indemnify and defend JP regardless of policy limits.
The appeal addresses the application of Oklahoma's anti-indemnity statute, 15 O.S. 221, which BITCO and Navigators argue limits coverage for JP under the insurance policies. The statute renders any construction agreement clause that requires indemnification for damages arising from the indemnitee's negligence void and unenforceable. Exceptions exist for specific indemnity provisions that do not exceed the indemnitor's proportion of fault and for certain types of insurance policies, such as project-specific insurance. The statute, enacted in 2006, is being interpreted for the first time by an appellate court. It is noted that many states have similar anti-indemnity laws, with Oklahoma's statute prohibiting both broad and intermediate forms of indemnity agreements in construction contracts. Under this statute, an indemnitor is only responsible for indemnifying the indemnitee to the extent of the indemnitor's own negligence, thereby reinforcing public policy against holding a non-negligent party liable for another's negligence. This approach aims to encourage responsible actions by indemnitees, knowing they cannot shift their own liability to a non-negligent party.
The IPS-Global and IPS-Wilcrest Subcontracts are recognized as construction contracts under Oklahoma's anti-indemnity statute. In these agreements, Global and Wilcrest act as indemnitors, while JP is the indemnitee. The indemnity provisions require Global and Wilcrest to indemnify and defend JP against claims related to their own negligent acts or omissions but explicitly exclude indemnification for liabilities arising from JP's own negligence.
Oklahoma's 15 O.S. 221(B) prohibits indemnity provisions that require indemnitors to insure against the indemnitee's negligence. The additional insured endorsements in the BITCO and Liberty Mutual policies provide coverage to JP for damages resulting from Global's and Wilcrest's negligence, respectively, but do not cover JP for its own negligence.
The agreements to name JP as an additional insured under both subcontracts and their respective insurance contracts are compliant with Oklahoma's anti-indemnity statute and do not conflict with its provisions. Furthermore, none of the subcontract or insurance provisions require Global or Wilcrest, or their insurers, to indemnify or defend JP against claims stemming from JP's own negligence, affirming the validity and enforceability of these agreements.
BITCO and Navigators assert that JP's liability in the underlying litigation stems solely from its own negligence, thus negating their duty to defend JP. They argue that JP cannot be held vicariously liable for the actions of Wilcrest and Global due to a lack of agency relationship, and that JP cannot be jointly liable under 23 O.S. 15. Navigators highlights a jury's verdict that assigned 0% liability to Wilcrest, which has been dismissed from related cases, reinforcing their position against liability arising from Wilcrest's negligence.
However, the court finds BITCO and Navigators' arguments flawed. The anti-indemnity statute prohibits indemnification for JP's own actions, but the indemnity agreements and insurance contracts cover liabilities resulting from Global and Wilcrest's actions, compliant with 15 O.S. 221. The necessity to defend JP is determined by the allegations in the underlying litigation rather than the outcomes of those cases. If claims against JP include vicarious liability for Global and Wilcrest's negligence, a duty to defend exists, which BITCO and Navigators did not contest with evidence.
Consequently, the court rules that BITCO and Navigators have a duty to defend JP, granting JP summary judgment. JP is recognized as an insured under several policies, and the exclusions claimed do not apply. The indemnity agreements and additional insured provisions comply with Oklahoma's anti-indemnity statute. CIIC was dismissed from the case after JP withdrew its request regarding insurance coverage priority. The Supreme Court of Oklahoma consolidated related cases, and the court determined that the IPS-Global Subcontract meets the requirement for a direct, written agreement concerning insurance coverage.
JP and Global entered into the JP-IPS Contract, with Global agreeing to its terms through the execution of the IPS-Global Subcontract. The policy language concerning additional insureds aligns closely with the definition found in the BITCO general policy, which stipulates that any person or organization can be added as an additional insured if there is a written agreement. Relevant case law supports this definition, illustrating various interpretations of additional insured agreements. Liberty Mutual has committed to defending JP in ongoing litigation and has settled underlying claims by paying its policy limits. The IPS-Wilcrest Subcontract outlines Wilcrest's responsibilities for specific engineering services, with task orders detailing daily inspection coordination and the provision of various inspectors. An Oklahoma statute defines construction agreements broadly, encompassing various aspects of construction work. Additionally, the Oregon Supreme Court has ruled that anti-indemnity statutes not only forbid direct indemnity agreements in construction contracts but also restrict additional insured agreements that require one party to provide insurance for losses stemming from the other's negligence. Furthermore, the Liberty Mutual additional insured endorsement specifies that there is no coverage for bodily injury to the additional insured.
Indemnification for property damage or personal and advertising injury is limited to cases not arising from the sole negligence of the additional insured or their representatives, except as specified in written agreements. If such an agreement mandates indemnification for the additional insured’s sole negligence, coverage must align with that agreement, provided it is legally valid in the relevant state. The Navigators policy explicitly excludes coverage for damages resulting from JP's sole negligence, and the IPS-Wilcrest Subcontract does not impose such an indemnity obligation on Wilcrest. Title 23.15 establishes that in civil actions based on fault, liability is several, meaning each tortfeasor is responsible only for their share of damages, and this applies to actions accruing after November 1, 2011. The underlying litigation's petitions were not included with the summary judgment motions but were acknowledged for judicial notice. BITCO, Alterra, and Navigators’ obligation to indemnify JP is restricted to the proportion of negligence attributed to Global and Wilcrest, in accordance with 15 O.S.2011.221(C).
