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5th Circ. Panel Told To Keep Insurance Row In Arbitration

Law360 (May 10, 2022, 7:29 PM EDT) — A Fifth Circuit panel offered little suggestion in oral arguments Tuesday on whether it would disturb a decision sending an excess insurance coverage dispute to arbitration over underlying lawsuits alleging that an oil company’s operations in Louisiana caused environmental property damage.

Anadarko E&P Onshore LLC and its excess insurers, California Union Insurance Co. and Century Indemnity Co., disagree on whether the coverage dispute over the underlying suits should go to arbitration or state court. The petroleum company takes the position that the insurance policies allow it to keep the case in state court, but the insurers say a 2007 settlement agreement that had an arbitration provision dictates that an arbitrator should settle their disagreement over defense costs.

Anadarko told a Fifth Circuit panel that an excess insurance coverage dispute should be heard in state court, while its two excess insurers argued that a 2007 settlement agreement to address two environmental property damage suits means the dispute belongs in front of an arbitrator. (AP Photo/Richard Drew, File)

The insurers reached the 2007 agreement to address two lawsuits filed in 2006 in Pennsylvania and Texas courts against Anadarko, according to court records. The suits alleged that the oil company’s operations caused property damage and bodily injury due to exposure to asbestos, silica and benzene at its sites.

Anadarko was then hit with five Louisiana lawsuits between 2013 and 2014 involving liability and exposure under the same policies. The parties agreed to an addendum in 2017 where the insurers paid part of the defense costs in the Louisiana cases, according to court records, but a dispute arose over additional invoices. The petroleum company sued in Texas state court, but the insurers removed the case to federal court and then pushed for the matter to head to arbitration per the 2007 settlement agreement.

Aidan McCormack of DLA Piper, counsel for the insurers, told the Fifth Circuit on Tuesday that the matter isn’t as complicated as Anadarko suggested. The petroleum company can’t revive a right in the policies that it gave up in the 2007 settlement, so the matter should be sent to arbitration, he said. If Anadarko doesn’t have the right, then it “can’t magically raise it back up,” McCormack said.

McCormack told the panel to keep intact Senior US District Judge Sim Lake’s Sept. 8 ruling that concluded that the 2007 settlement’s arbitration provision superseded the policies’ service-of-suit clause, which would have allowed the policyholder to file suit in any forum it desired because of the insurer’s nonpayment of a claim.

Alan York of Reed Smith LLP, counsel for Anadarko, argued that the 2017 addendum recognizes future defense costs for the Louisiana lawsuits. The panel asked York if it should be up to the arbitrator first to decide whether the petroleum company preserved its rights to the policies’ service-of-suit provisions.

He said that it would “put the cart before the horse,” as the issue is whether the case could be removed.

York argued that Anadarko’s Texas suit over the Louisiana claims fell within service-of-suit provisions under the policies. The arbitration clause doesn’t say all disputes under the policies should be sent to arbitration but that types of claims referenced in the 2007 settlement and amended by the 2017 addendum should be handled by an arbitrator, I added.

McCormack countered that the arbitration clause is “super broad” and applies to any claim or controversy and future defense costs. When pressed about whether there were limitations in the 2017 addendum, he said there are six exceptions to private action claims that were defined in the 2007 agreement.

For example, McCormack said there could be a declaratory judgment claim for no damages and that this type of claim would fall within the insurance policies, not the 2007 settlement. But that’s not the case with the current claims, which fall within the 2007 settlement and the arbitration provision, he said.

The case comes down to whether the Louisiana claims are private action claims, McCormack said. He said Anadarko doesn’t dispute that but “dances around” and says the insurers phrase these claims as private action claims. Ultimately, the 2017 addendum doesn’t delete the arbitration clause in the 2007 settlement but preserves it, McCormack said.

McCormack told Law360 that it’s been over a decade since the Fifth Circuit has spoken on the topic at hand, and the question is if they will follow binding precedent “or diverge down some different path.” Commercial parties should have the right to agree to and enforce provisions requiring arbitration, he said.

Representatives for Anadarko declined comment Tuesday, and his counsel didn’t respond to requests for comment. Representatives for the insurers didn’t respond to requests for comment.

US Circuit Judges Edith H. Jones, Leslie H. Southwick and Andrew S. Oldham sat on panel.

Anadarko is represented by R. Alan York, J. James Cooper, John D. Shugrue and Christopher T. Kuleba of Reed Smith LLP.

The insurers are represented by Aidan M. McCormack, Mark L. Deckman, Cara Vasquez and Samantha Craig of DLA Piper.

The case is Anadarko E&P Onshore LLC v. California Union Insurance Company et al., case number 21-20548, in the US Court of Appeals for the Fifth Circuit.

–Editing by Emma Brauer.

For a reprint of this article, please contact reprints@law360.com.

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