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Thursday, November 5, 2015

Texas Supreme Court Hears Arguments in Pivotal Personal Injury & Product Liability Case

How does Texas law interpret the term “physical injury” within the context of insurance litigation?

Insurance litigation is one of the most syntax-centric areas of the law, with each word in a policy agreement carrying a significant and meaningful definition. In one recent case before the Texas Supreme Court, oil giant Exxon Mobil, Corp. argued against U.S. Metals with regard to the definition of “physical injury” in the context of defective and broken oil rig components. While not expressly limited to personal physical injury, the term has been interpreted to include property damage and financial harm as well. This is the case in the litigation between the two companies. Depending on the outcome of the case, the definition of this pivotal term may  involve possible coverage for refinery damage under a Liberty Mutual insurance policy. 

As a bit of background, Exxon maintains an oil refinery in Baytown, Texas. Several years ago, the company installed metal flanges it obtained from U.S. Metals, which subsequently (and allegedly) broke, causing a massive production halt and substantial damage to the area.

Naturally, Exxon sued U.S. Metals for the damage – and it turned to its insurer: Liberty Mutual. The insurer, however, denied the flange-maker’s claim for coverage, stating that the damage to the refinery was not considered a “physical injury” within the definition. The insured appealed the decision, and the Texas Supreme Court recently heard the arguments for and against the expanded definition of physical injury within the product liability context.

To support its claim, Exxon advanced the argument that “physical injury” occurs whenever a defective part or component is implanted or installed – and pointed to a 1992 case holding the same. By contrast, U.S. Metals asserts that it did not commit physical injury against Exxon because the affected part, the flange, could have been removed and replaced at any time.

While a ruling has yet to emerge, one Justice stated it “seems perverse for the Liberty policy to not provide coverage for the replacement of defective parts.”


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