Contractual Pre‑Suit ADR Can Trigger a CGL “Duty to Defend,” and Wrongful Denial Waives Consent-to-ADR; Bankruptcy Assignment Does Not Bar Indemnity Litigation

Case: BPX Prod. Co. v. Certain Underwriters at Lloyd’s London, No. 23‑20034 (5th Cir. Oct. 20, 2025) (unpublished)

Court: United States Court of Appeals for the Fifth Circuit

Panel: Richman, Haynes, and Duncan, JJ. (opinion by Judge Priscila Richman)

Governing Law: Texas law (by party agreement), notwithstanding New York choice-of-law in the policies

Introduction

BPX Production Company, as assignee of its cementing contractor BJ Services, sued BJ’s insurers—Certain Underwriters at Lloyd’s London—alleging breach of the duties to defend and indemnify, and extra-contractual bad faith, after a botched cement job rendered a West Texas well unusable. The dispute hinged on three pivotal legal questions under Texas insurance law:

• Whether a contractually mandated pre-suit settlement process qualifies as an “alternative dispute resolution proceeding” (ADR) that counts as a “suit” triggering the insurer’s duty to defend under a commercial general liability (CGL) policy that defines “suit” to include certain ADR.
• Whether an insurer that denies coverage on specified grounds but omits the policy’s consent-to-ADR requirement can later rely on lack of consent to avoid its defense obligation, or instead waives that requirement by wrongfully refusing to defend.
• Whether the insured’s bankruptcy and a settlement/assignment structure that releases the insured but transfers its insurance claims to the claimant foreclose a duty-to-indemnify claim—and the extent to which the insured’s underlying liability may be litigated in the coverage suit under Texas law.

The district court (by magistrate judge) dismissed BPX’s case at the Rule 12(b)(6) stage. The Fifth Circuit reversed in substantial part, clarifying the breadth of “suit” language in CGL policies, reaffirming waiver-by-wrongful-denial as to consent requirements, and confirming the continued vitality of Texas doctrines permitting litigation of underlying liability within the coverage action after an insurer refuses to defend—even when the insured has been discharged in bankruptcy.

Summary of the Opinion

• Duty to defend: Reversed dismissal. The contractually required settlement meeting procedure in the Master Services Agreement (MSA) between BPX and BJ Services qualifies as an “alternative dispute resolution proceeding” under the CGL policy’s definition of “suit.” Although the policy also required Underwriters’ consent to ADR, Underwriters waived that consent requirement by wrongfully denying a defense and omitting “lack of consent” from their denial letter.
• Duty to indemnify: Reversed dismissal. Under Great American Ins. Co. v. Hamel, the insured’s underlying liability and coverage can be litigated together in the same coverage suit when the insurer refused to defend. The bankruptcy court’s settlement/assignment and BPX’s inability to recover from BJ Services or its estate do not bar the coverage action; under In re Edgeworth, suits may proceed nominally against (or on behalf of) a discharged debtor to reach insurance proceeds.
• Common-law bad faith (third-party): Affirmed dismissal. Texas recognizes no general third-party bad-faith cause of action apart from the Stowers duty to accept reasonable settlement demands within limits. Any Stowers theory fails because the insured’s bankruptcy discharge eliminates the required legal injury from an excess judgment.
• Declaratory judgment: Vacated and remanded. Because the defense and indemnity claims survive, the declaratory judgment claim should be reconsidered on remand.

Note: The opinion is unpublished under 5th Cir. R. 47.5 and thus non-precedential, but it offers persuasive guidance on recurring issues.

Analysis

Precedents Cited and How They Shaped the Decision

• Duty to defend and eight-corners framework
  • Colony Ins. Co. v. Peachtree Constr., Ltd., 647 F.3d 248 (5th Cir. 2011) and D.R. Horton-Texas, Ltd. v. Markel, 300 S.W.3d 740 (Tex. 2009): Reinforce that under Texas law the duty to defend is triggered by allegations of potentially covered damage, assessed under the “eight-corners” rule (pleadings vs. policy).
  • Pine Oak Builders, Inc. v. Great Am. Lloyds, 279 S.W.3d 650 (Tex. 2009): Confirms strict eight-corners analysis.
• What counts as a “suit” under a CGL policy that includes ADR
  • Altman Contractors, Inc. v. Crum & Forster Specialty Ins. Co., 232 So. 3d 273 (Fla. 2017): The Florida Supreme Court held that a pre-suit statutory notice-and-repair process was an ADR “suit” when the policy broadened “suit” to include “any other alternative dispute resolution proceeding” with the insurer’s consent.
  • Melssen v. Auto-Owners Ins. Co., 285 P.3d 328 (Colo. App. 2012): Similar conclusion that such statutory processes qualify as ADR “suits,” and recognizes waiver of consent when coverage is denied on other grounds.
  • Cincinnati Ins. Co. v. AMSCO Windows, 593 F. App’x 802 (10th Cir. 2014) (unpublished): Read identical language more narrowly, limiting “suit” to “civil proceedings,” and finding a Nevada pre-suit process insufficient. The Fifth Circuit declined to follow this approach.
  • Meyers Warehouse, Inc. v. Canal Indem. Co., 614 F. App’x 719 (5th Cir. 2015) (unpublished): Held that informal settlement negotiations were not a “suit,” but the panel distinguished Meyers because BPX–BJS negotiations were contractually mandated and structured, not informal.
  • Nat’l Union Fire Ins. Co. v. Hudson Energy Co., 811 S.W.2d 552 (Tex. 1991) and Evanston Ins. Co. v. ATOFINA, 256 S.W.3d 660 (Tex. 2008): Ambiguities are resolved and exclusions strictly construed in favor of insureds; this principle supported reading “suit” broadly.
  • Hardesty Builders, Inc. v. Mid-Continent Cas. Co., 2010 WL 5146597 (S.D. Tex. Dec. 13, 2010), aff’d, 453 F. App’x 471 (5th Cir. 2011): A state-sponsored inspection process could qualify as “any other alternative dispute resolution proceeding.”
• Waiver of consent requirements after wrongful denial
  • Enserch Corp. v. Shand Morahan & Co., 952 F.2d 1485, 1496 n.17 (5th Cir. 1992): Insurers that wrongfully refuse to defend lose the benefit of policy procedural requirements.
  • Scottsdale Ins. Co. v. Knox Park Constr., Inc., 488 F.3d 680 (5th Cir. 2007): Applying Texas law, an insurer that erroneously denied coverage could not enforce a consent-to-settlement clause; quotes the Texas Supreme Court’s rationale that an insurer cannot deny liability yet insist on the insured’s strict compliance with consent provisions.
  • Ford v. State Farm Mut. Auto. Ins. Co., 550 S.W.2d 663 (Tex. 1977): Policy justification for waiver when the insurer has repudiated liability.
  • King v. State Farm Mut. Auto. Ins. Co., 218 A.D.2d 863 (N.Y. App. Div. 1995): After repudiating liability on other grounds, an insurer should not be able to demand compliance with procedural prerequisites.
  • Nautilus Ins. Co. v. Concierge Care Nursing Ctrs., 804 F. Supp. 2d 557 (S.D. Tex. 2011): Distinguishes anti-assignment clauses (standing-related) from claim-handling conditions precedent (like consent provisions); the Fifth Circuit emphasized waiver applies to the latter.
• Litigating underlying liability within the coverage suit; bankruptcy effects
  • Great Am. Ins. Co. v. Hamel, 525 S.W.3d 655 (Tex. 2017): If an insurer wrongfully refuses to defend, underlying liability issues can be litigated within the coverage action because any prior non-adversarial judgment does not bind the insurer; the process puts parties “back to square one” on liability and damages.
  • Eagle Supply & Mfg., L.P. v. Landmark Am. Ins. Co., 630 S.W.3d 342 (Tex. App.—Eastland 2021, pet. denied): Applies Hamel to allow liability and damages to be tried in the coverage case; highlights the inefficiency of first obtaining a non-binding judgment and then relitigating.
  • In re Edgeworth, 993 F.2d 51 (5th Cir. 1993): A bankruptcy discharge does not bar a claimant from pursuing a nominal liability determination solely to recover from insurance; the claimant’s failure to file a proof of claim in the bankruptcy does not extinguish rights against the insurer.
• Third-party bad faith; Stowers and bankruptcy
  • Md. Ins. Co. v. Head Indus. Coatings & Servs., Inc., 938 S.W.2d 27 (Tex. 1996): Texas recognizes only one tort duty for liability insurers in third-party cases: the Stowers duty; no general third-party bad-faith claim.
  • Mid-Continent Ins. Co. v. Liberty Mut. Ins. Co., 236 S.W.3d 765 (Tex. 2007): Restates that the only common-law tort in this context is Stowers.
  • In re Farmers Tex. Cnty. Mut. Ins. Co., 621 S.W.3d 261 (Tex. 2021) and Phillips v. Bramlett, 288 S.W.3d 876 (Tex. 2009): Elements and contours of the Stowers duty.
  • In re Davis, 253 F.3d 807 (5th Cir. 2001): A bankruptcy discharge negates the essential Stowers element of insured harm from an excess judgment; therefore, no Stowers claim exists.
  • Tex. Med. Res., LLP v. Molina Healthcare of Tex., Inc., 659 S.W.3d 424 (Tex. 2023): Certain statutory claims (e.g., Texas Insurance Code Chapter 541) are not assignable; BPX conceded this point.

Legal Reasoning

1) “Suit” includes the contractually required ADR process; ambiguity resolved for the insured

The CGL policy covered defense against any “suit,” defined to include a “civil proceeding” and “any other alternative dispute resolution proceeding in which [covered] damages are claimed and to which the insured submits with our consent.” The panel held that contractually mandated settlement procedures in the parties’ MSA fit within “alternative dispute resolution.” The court treated the “includes” clause as broadening “suit” beyond formal “civil proceedings.” Given divergent readings in other jurisdictions (e.g., the Tenth Circuit’s narrower Cincinnati v. AMSCO versus Florida’s broader Altman), any ambiguity must be construed in favor of the insured under Texas rules of insurance construction.

2) Consent-to-ADR requirement was waived by wrongful denial

Underwriters’ denial letter relied on exclusions and endorsement-based reasons, and broadly reserved rights, but did not identify “lack of consent” to ADR as a ground. Texas law holds that an insurer that wrongfully refuses to defend “loses the benefit of [its] policies’ procedural requirements.” The panel applied the waiver-by-wrongful-denial principle to the consent requirement, citing Knox Park and Texas Supreme Court reasoning that an insurer cannot repudiate coverage while insisting on consent-based conditions. If the insurer had wanted to rely on consent, it needed to say so; having denied coverage for other reasons, it could not later manufacture a consent defense. At the Rule 12(b)(6) stage, BPX’s allegations that the denial was wrongful were accepted as true, making the waiver theory plausibly pleaded.

3) Duty to indemnify survives dismissal; liability may be tried in the coverage suit despite bankruptcy

Texas treats defense and indemnity duties as distinct. Although indemnity usually awaits a completed liability adjudication, Hamel allows the coverage court to decide the insured’s underlying liability when the insurer wrongfully refused to defend and no “fully adversarial” judgment exists. Here, because BJ Services declared bankruptcy and later assigned its rights to BPX in a settlement approved by the bankruptcy court, any standalone judgment against BJ likely would not have bound Underwriters and would have set the parties “back to square one.” The Fifth Circuit endorsed avoiding that waste by allowing liability and damages to be litigated in the coverage suit itself.

Further, under Edgeworth, bankruptcy does not shield insurers from claims simply because the debtor is discharged and the claimant did not file a proof of claim. A claimant may proceed to establish nominal liability solely to access insurance proceeds; here, the assignment structure accomplished the same goal without burdening the bankruptcy estate.

4) No extra-contractual third-party bad-faith claim; no viable Stowers claim post-discharge

Texas recognizes only the Stowers duty in third-party liability contexts. BPX’s generic bad-faith claim was therefore properly dismissed. And any assigned Stowers claim fails because the insured suffered no cognizable legal injury: a bankruptcy discharge eliminates personal exposure to an excess judgment (In re Davis), an essential element of Stowers. BPX’s separate Chapter 541 statutory claim is unassignable under Tex. Med. Res., as BPX conceded.

5) Declaratory judgment revived

Because the defense and indemnity claims survive, declaratory relief is once again justiciable and was remanded for the district court to exercise its discretion.

Impact

• Triggering the duty to defend in pre-suit stages: Where CGL policies define “suit” to include ADR, contractually mandated pre-suit settlement meetings can trigger the duty to defend—even before litigation is filed—at least under Texas law and on similar language. Carriers should expect tender and defense demands upon receipt of formal pre-suit notices and structured negotiation processes required by contract or statute.
• Consent defenses must be timely and explicit: If an insurer denies a defense without invoking consent-based conditions, it risks waiving them, especially when the denial is wrongful. Reservation-of-rights boilerplate may not cure the failure to identify consent as a basis. Claims teams should scrutinize tender letters for ADR features and, if relying on consent, expressly say so.
• Policy drafting implications: Insurers wishing to avoid early defense obligations may tighten “suit” definitions (e.g., expressly excluding informal or preliminary steps, or limiting ADR to formal arbitration/mediation convened under specified rules). But any narrowing would be strictly construed against the insurer in Texas.
• Efficient path for claimants post-bankruptcy: Hamel/Edgeworth together provide a procedural roadmap: When an insurer refuses to defend and the insured is bankrupt or otherwise unable to litigate, the claimant can obtain an assignment and try underlying liability and coverage together in a single coverage action. Courts will not require a non-adversarial merits judgment first only to redo the merits later.
• Limits on third-party bad faith remain firm in Texas: Outside the Stowers context, third-party common-law bad-faith claims are not recognized. And where the insured is discharged in bankruptcy, Stowers claims typically evaporate for lack of injury to the insured.
• Non-precedential but persuasive: Although unpublished, the opinion aligns with Florida and Colorado authority on ADR-as-“suit,” diverges from the Tenth Circuit’s restrictive reading, and applies settled Texas doctrines on ambiguity, waiver, Hamel, and Edgeworth. Expect parties to cite this decision in Texas federal and state courts confronting similar policy language.

Complex Concepts Simplified

• Duty to defend vs. duty to indemnify: The duty to defend is broader and triggered by allegations of potentially covered damage; it concerns providing a defense. The duty to indemnify concerns paying covered judgments or settlements and often depends on actual liability facts proven later.
• Eight-corners rule: Texas courts compare the “four corners” of the pleading to the “four corners” of the policy; extrinsic facts are generally off-limits in duty-to-defend determinations.
• “Suit” including ADR: Some CGL policies define “suit” to include not only lawsuits but also “alternative dispute resolution proceedings.” Where that is so, formal pre-suit processes required by contract or law may trigger defense obligations.
• Consent-to-ADR (or consent-to-settlement) clauses: These are policy conditions that require the insured to obtain the insurer’s consent before participating in certain processes. If an insurer wrongfully refuses to defend, Texas law may treat such conditions as waived.
• Waiver by wrongful denial: When an insurer wrongly refuses to defend, it can forfeit procedural protections (like consent requirements) because it would be unfair to let the insurer repudiate coverage yet demand strict compliance from the insured.
• Stowers duty: A Texas insurer’s common-law duty to accept a reasonable, within-limits settlement demand when coverage is implicated and an ordinarily prudent insurer would do so. It requires actual harm to the insured, typically via an excess judgment.
• “Fully adversarial” trial requirement (Hamel): A default or agreed judgment lacking true adversarial testing generally does not bind the insurer; instead, the coverage court can try the underlying liability issues anew.
• Bankruptcy discharge and insurance (Edgeworth): A debtor’s discharge wipes out personal liability but does not extinguish insurance coverage; a claimant may pursue a nominal liability finding to reach policy proceeds.
• Assignment of claims: An insured can assign many contract-based claims against its insurer to a claimant, but some statutory claims (e.g., Texas Insurance Code Chapter 541) are not assignable.
• Declaratory judgment: A procedural vehicle to obtain a binding court declaration on rights and obligations, often used in insurance to resolve defense and coverage disputes.

Conclusion

This opinion makes three practical points clear under Texas law:

• When a CGL policy’s “suit” definition includes ADR, structured, contractually required pre-suit negotiation processes can trigger an insurer’s duty to defend—notwithstanding the absence of a filed lawsuit.
• Insurers that deny a defense on stated grounds and omit consent-based defenses risk waiving those procedural conditions if their denial is wrongful. Reservations of rights will not always salvage unarticulated consent defenses.
• Where an insurer refuses to defend and the insured later enters bankruptcy, the claimant may—via an assignment—litigate both the insured’s underlying liability and coverage in one suit and reach insurance proceeds, even though the debtor itself is discharged and the claimant filed no proof of claim.

At the same time, the court reaffirms bedrock Texas limitations on extra-contractual liability: there is no third-party common-law bad-faith claim beyond Stowers, and a bankruptcy discharge usually defeats Stowers because the insured suffers no excess-judgment injury. Practitioners should treat this unpublished decision as persuasive authority that harmonizes Texas construction principles, waiver doctrine, and Hamel/Edgeworth bankruptcy interplay in a realistic, claimant- and insured-facing posture.