Texas Court Finds Alternative Dispute Resolutions Trigger Coverage

In BPX Prod. Co. v. Certain Underwriters at Lloyd's London Subscribing to CGL, No. 23-20034, 2025 U.S. App. LEXIS 27273 (5th Cir. (Tex.) Oct. 20, 2025), the Fifth Circuit once again reversed a district court decision improperly determining that an insurer had no duty to defend. The claims arose out of an oilfield services company’s (BJ Services) use of the wrong components in cement mix that damaged an oil well and ultimately rendered it unusable. After demanding payment, BPX then invoked the dispute resolution procedure set forth in its contract with BJ Services.

The latter immediately tendered the claim to Underwriters, but the insurer denied any duty to defend or indemnify. The two parties continued to pursue agreeable settlement terms, but the matter remained unresolved until BJ Services filed for Chapter 11 bankruptcy. In that proceeding, the bankruptcy judge approved an agreement that assigned to BPX all rights from BJ Services to pursue claims against Underwriters.  

On appeal, Underwriters’ primary argument that it had no duty to defend relied on the policy definition of “suit,” which it claimed was not satisfied despite including the undefined term “[a]ny other alternative dispute resolution proceeding.” Id. at 7. Underwriters also highlighted that this broad term was limited by the requirement that it only applies to proceedings “which the insured submits to with our consent.” Id.  

The court first noted the broad definition of “alternative dispute resolution” provided in Black’s Law Dictionary: “[a]ny procedure for settling a dispute by means other than litigation, as by arbitration or mediation.” It concluded that the contractually required settlement negotiations satisfied this reasonable definition. Under Texas law, courts are obligated to accept any reasonable construction of policy language argued by the insured. SXSW, L.L.C. v. Fed. Ins. Co., No. 22-50933, 2024 WL 1216560, at 4 (5th Cir. (Tex.) Mar. 21, 2024) (“We need not consider Federal's understanding of the exclusion because SXSW's reading of it is plainly reasonable.”) The court also noted that the consent requirement was voided by Underwriters’ wrongful denial of a defense. “Under Texas law, ‘[i]nsurers who wrongfully refuse to defend their insureds lose the benefit of their policies' procedural requirements.’” BPX Prod., 2025 U.S. App. LEXIS 27273 at *11 (quoting Enserch Corp. v. Shand Morahan & Co., 952 F.2d 1485, 1496 n.17 (5th Cir. (Tex.) 1992)).