Texas Supreme Court Reverses ‘Frank’s Casing’ Ruling

The Texas Supreme Court on Feb. 1 handed down a long-awaited ruling in a case that many believe to be one of Texas’ most significant insurance cases in recent history. The Court reversed its May 2005 decision in Excess Underwriters at Lloyd’s, London, et al. v. Frank’s Casing Crew & Rental Tools Inc., in which it held in a 7-0 ruling that in certain circumstances an insurance company has a right to seek reimbursement for settlement of uncovered claims.

The Court’s recent 5-3 decision, however, affirms a 2002 ruling by the Fourteenth Court of Appeals in Houston, which found that unless an insurance policyholder’s contract provides the insurer with the right to reimbursement of settlement proceeds following a coverage dispute, then the insurer cannot unilaterally create such a right, according to a statement by Warren W. Harris of Bracewell & Giuliani LLP (www.bgllp.com), who defended Frank’s Casing Crew & Rental Tools Inc.

Attorney Brian S. Martin of Thompson, Coe, Cousins and Irons LLP and a frequent contributor to Insurance Journal, said the ruling, along with other recent decisions by the Court, will make it more difficult for insurers to reach settlements in cases where coverage is questionable. “It will lead to more coverage litigation, not less as the court errantly assumes,” Martin said.

The Frank’s Casing case stems from an incident in which a drilling platform fabricated by Frank’s Casing Crew & Rental Tools Inc. at its facility in Louisiana for ARCO collapsed several months after it was installed in the Gulf of Mexico.

In an article that appeared in the March 26, 2007, edition of Insurance Journal — South Central, Martin wrote that Frank’s Casing “has generated more interest, and less certainty, than any other pending before the Texas Supreme Court. The case resulted in a landmark decision that sent shockwaves through the insurance bar, only to be unceremoniously withdrawn for further consideration.”

Beth D. Bradley, a partner in Tollefson Bradley Ball & Mitchell LLP, wrote in “An Insurer’s Right to Reimbursement: Frank’s Casing” (Insurance Journal — South Central, July 18, 2005) that, “In what appeared to be a departure from prior law, the court held that an insurance company has a right to seek reimbursement for settlement of uncovered claims, at least in certain circumstances.

In the majority opinion in the current ruling, the Court wrote:

Not all justices agreed with the majority opinion, however. In his dissenting opinion, Justice Hecht explained:

The Supreme Court of Texas opinion may be found online at: www.supreme.courts.state.tx.us.