HNRK Coverage Corner

Today at the Coverage Corner, we examine a Fifth Circuit decision that ponders a fundamental question:  What is a “suit”?  A complaint filed in court or arbitration demand seeking money damages should qualify. But what about a pre-lawsuit ADR procedure? Like all questions of policy interpretation, the answer lies in the policy language, construed in accordance with the established rules of policy interpretation (including, for example, the canon that ambiguities are construed “in favor of the insured”).

At issue in BPX Prod. Co. v. Certain Underwriters at Lloyd’s London, Case No. 23-20034 (5th Cir. 2025), was a dispute between an oil well operator (BPX) and an oil field services company (BJ Services).  BPX demanded payment for a well it was forced to abandon—allegedly because BJ Services improperly cemented the well’s production casing, “resulting in the cement hardening prematurely and forming a 7,000-foot cement plug in the well.”  In the event of a dispute, BPX’s contract with BJ Services required the parties to engage in an ADR procedure prior to commencing an arbitration.  This procedure involved service of a “Notice of Dispute” and a request for a “Settlement Meeting” to be held within 30 days.  The parties settled their dispute pursuant to these procedures. BJ Services’ CGL insurer refused coverage, and a coverage action ensued. 

The district court granted the insurer’s motion to dismiss on the ground that the insured failed to establish either the insurer’s consent to the settlement or a waiver of the right to consent.  The Fifth Circuit reversed.  The decision on appeal first addressed the threshold question whether the “Settlement Meeting” under the parties’ contractual ADR procedures constituted a “suit”.  The policy defined that term as follows (emphasis added):

“Suit” means a civil proceeding in which damages because of “bodily injury”, “property damage” or “personal and advertising injury” to which this insurance applies are alleged.  “Suit” includes: . . . [a]ny other alternative dispute resolution proceeding in which [property] damages are claimed and to which the insured submits with our consent.

The insurers argued that an ADR process could only constitute a “suit” under this definition if it arose in the context of a civil proceeding, and the “Settlement Meeting” at issue here did not qualify because no court or arbitration proceeding had been commenced.  The Fifth Circuit disagreed, explaining:

[T]he settlement negotiations between BPX and BJ Services constitute “alternative dispute resolution proceedings” as defined in the CGL Policy.  Black’s Law Dictionary defines “alternative dispute resolution” as “[a]ny procedure for settling a dispute by means other than litigation, as by arbitration or mediation.”  The [parties’ contract] sets forth a form process for resolving disputes between BJ Services and BPX by means other than litigation; it requires written notice, a request for a meeting, and participation in the settlement meeting.  Several jurisdictions have concluded that similarly mandated settlement negotiation procedures, albeit statutorily required instead of contractually required, constitute “alternative dispute resolution proceedings” under identical policy language.

The Court declined to follow a Tenth Circuit case (Cincinnati Ins. Co. v. AMSCO Windows, 593 F. App’x 802 (10th Cir. 2014), which “interpreted an identical policy definition of ‘suit’ to encompass only those ‘alternative dispute resolution proceedings’ that constitute ‘civil proceedings.’”   It instead adopted a contrary interpretation, reached by the Florida Supreme Court in Altman Contractors, Inc. v. Crum & Forster Specialty Ins. Co., 232 So. 3d 273, 278 (Fla. 2017), that the policy broadly defines “‘suit’ to encompass any other ‘alternative dispute resolution proceedings’ regardless of whether it is a ‘civil proceeding.’”  The Court noted that the “differing conclusions between the Tenth Circuit and the Florida Supreme Court demonstrate ambiguity in the policy’s definition of suit.”   And any ambiguities must be resolved in favor of coverage.

Commercial contracts often have ADR provisions.  Insureds would be well-advised to review their insurance policies to confirm coverage for such proceedings.