On October 20, 2025, the United States Court of Appeals for the Fifth Circuit issued a significant decision clarifying that an insurer’s duty to defend under Texas law extends to a contractually mandated alternative dispute resolution (ADR) proceeding.[i] The Fifth Circuit reversed a magistrate judge’s dismissal of BPX Production Co.’s (BPX) coverage claims, holding that an ADR proceeding triggers an insurer’s duty to defend and indemnify under a commercial general liability (CGL) policy—thus rejecting the insurer’s argument that a “suit” was required.  Further, the Fifth Circuit held that an insurer’s conduct can waive conditions to coverage. This decision provides important guidance for corporate policyholders navigating insurance disputes involving an ADR proceeding, policy defenses asserted by insurers, and the assignment of insurance rights to maximize an insurance recovery in the circumstance of a bankruptcy.

Background and Procedural History

The dispute arose after an oilfield services contractor’s (BJ Services) error during cementing operations at a well operated by BPX’s predecessor, which caused substantial property damage and led to the abandonment of the well. BPX demanded payment from BJ Services for its loss and invoked the ADR procedure set forth in the Master Services Agreement between the parties. BJ Services timely noticed BPX’s claim against it to its CGL insurer, which denied coverage. After coverage was denied and while the parties’ ADR process was ongoing, BJ Services filed for Chapter 11 bankruptcy.

BPX, having acquired the BJ Services’ insurance rights through bankruptcy proceedings, sought coverage from BJ Services’ insurer under CGL and umbrella policies. BPX sought declaratory relief as well as damages for alleged breach of the duty to defend and indemnify and extra-contractual bad faith. The magistrate judge dismissed all claims, finding that the insurer’s duty to defend was not triggered by the contractually required ADR process, that the bankruptcy court’s discharge of BJ Services’ liability precluded its insurer’s liability for the claim, and that Texas law did not recognize the asserted bad-faith claims. On appeal, the Fifth Circuit reversed in part, providing a policyholder-friendly interpretation of the relevant policy language and Texas insurance law that could impact policyholders’ claims that are governed by Texas law.

Key Holdings and Analysis

The CGL policy at issue provided that the insurer “had the right and duty to defend the insured against any ‘suit.’”  (Emphasis added).  The Fifth Circuit first considered whether the ADR proceedings constituted a “suit” under the CGL policy. The policy defined “suit” in relevant part as follows:

[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.

(emphasis added). Finding that the reference to “alternative dispute resolution” above “broadens” the policy’s definition of “suit,” the Fifth Circuit rejected reasoning in the Tenth Circuit that construed identical language narrowly as requiring any ADR proceeding to also qualify as a “civil proceeding” to trigger coverage. In the Tenth Circuit decision, a statutorily-mandated settlement conference was considered an “ADR proceeding” but not a “civil proceeding,” and thus fell outside the definition of “suit.”

The Fifth Circuit disagreed, holding that “[u]nlike the Tenth Circuit, we interpret this policy language as broadening the definition of ‘suit’ to encompass any other ‘alternative dispute resolution proceeding’ regardless of whether it is a ‘civil proceeding.’” The court also distinguished formal ADR proceedings, such as contractually-required settlement negotiations, from informal negotiations not required by law or in compliance with contractual ADR obligations, clarifying that only formal ADR proceedings would fall under this definition of “suit.” For policyholders, the Fifth Circuit’s well-reasoned and broader interpretation potentially extends coverage to a wider range of contractual or statutorily-mandated ADR scenarios.

The Fifth Circuit further held that the insurer, having issued a denial of coverage as to “suit”  without raising an alleged defense that the insured also failed to seek consent to ADR, waived the policy’s consent-to-ADR condition. Under Texas law, an insurer that breaches its duty to defend an insured waives any conditions to coverage such as consent clauses, unless asserted in the denial letter. Likewise, the Fifth Circuit emphasized that an insured should not be penalized for failing to seek consent after an insurer has denied coverage, reinforcing the principle that insurers must raise all procedural defenses in a timely manner or risk waiving them completely.

Addressing the effect of bankruptcy and assignment, the Fifth Circuit also rejected the argument that BPX’s inability to recover from the bankrupt oil services contractor or its estate precluded an indemnity claim against the insurer. The court held that a bankruptcy discharge does not allow an insurer to escape coverage for injuries caused by its insured, and that an assignee like BPX may pursue claims against the insurer even if recovery from the insured is barred due to the bankruptcy. The assignment of insurance rights in bankruptcy was recognized as a valid mechanism for preserving the ability to seek indemnity from the insurer, providing a critical tool for policyholders (or others with assumed rights to pursue insurance claims) in insolvency scenarios.

Implications for Corporate Policyholders

The Fifth Circuit’s decision confirms that contractually required ADR processes may trigger the duty to defend under CGL policies that define “suit” to include ADR, even if the ADR does not constitute a “civil proceeding.” Policyholders should review policy definitions at the outset of a claim and ensure that formal dispute resolution procedures are documented and communicated to insurers, as pre-litigation ADR may trigger valuable duty to defend insurance coverage for the policyholders.  Further, policyholders should carefully review coverage correspondence when insurers argue that underlying disputes do not constitute a “suit,” as the Fifth Circuit made clear that a “suit” existed even absent an underlying “lawsuit” having been filed.

Importantly, insurers that issue blanket denials of coverage without raising all potential conditions to coverage defenses may be deemed to have waived those defenses, including consent-to-ADR or consent-to-settlement requirements. Policyholders should scrutinize denial letters and invoke waiver arguments to resist insurers’ later attempt to rely on policy conditions when the insurers failed to raise those conditions earlier.

Finally, the assignment of insurance rights in bankruptcy remains a viable strategy for preserving claims against insurers, even where the insured’s liability is discharged and the assignee cannot recover from the estate. This is particularly relevant in industries with high insolvency risk or where insurance is the primary source of recovery. Aggrieved parties should carefully assess their insolvent adversaries’ insurance assets to determine whether there may still be a recovery available.

Conclusion

The Fifth Circuit’s decision provides important clarification for policyholders, confirming that contractually mandated ADR proceedings may trigger an insurer’s duty to defend under CGL policies that define “suit” to include such proceedings. The ruling also reinforces established principles of policy interpretation favoring insureds, including that insurers waive the right to assert procedural policy defenses after issuing a denial of coverage.  This thoughtful opinion offers practical guidance for managing claims—including those assigned from other policyholders—and responding to coverage denials.  Companies should also be mindful of their insurance rights and paths to potential recovery when negotiating service agreements, as ADR provisions in the service agreements may be the key to triggering coverage prior to litigation.  Corporate insureds should carefully review policy language and claims-handling practices with their brokers and coverage counsel in light of this decision to maximize insurance recoveries, protect their interests in complex coverage disputes, and consider alternative recoveries from an adversary’s insurer if the adversary is insolvent and otherwise not a viable source of recovery.

[i] BPX Production Co. v. Certain Underwriters at Lloyd’s, London et al., No. 23-20034, 2025 WL 2952911 (5th Cir. Oct. 20, 2025).