Reading Surplus Lines Property Policies in a Tower of Insurance After Ohio Casualty v. Patterson-UTI Energy
Commercial property losses involving surplus lines insurance rarely implicate a single policy. Instead, they trigger towers of insurance composed of a primary policy and multiple excess or follow-form layers, many of which are placed in the London market. When coverage disputes arise, they often stem from a fundamental misunderstanding of how those follow-form policies must be read.
In December 2024, the Texas Supreme Court issued a decision that provides a clear framework for analyzing follow-form policies within an insurance tower. While the dispute arose in a liability context, the court’s reasoning applies directly to surplus lines property programs. That decision is Ohio Casualty Insurance Company v. Patterson-UTI Energy, Inc., 703 S.W.3d 790 (Tex. 2024).
At the same time, the 2025 Excess and Surplus Lines Laws Manual, published by Troutman Pepper Locke LLP, reinforces the same foundational principle. A surplus lines policy is its own contract. Follow-form language does not convert it into a carbon copy of the underlying policy. The manual emphasizes that surplus lines insurers are permitted to use manuscript wording, alternative definitions, and bespoke coverage grants, even when those policies sit within a larger insurance program.
Together, the court’s decision and the updated manual correct a widespread analytical error. Coverage analysis must begin with the policy that is being asked to respond, not with the policy beneath it.
The Core Rule Clarified by the Texas Supreme Court
The Texas Supreme Court rejected the approach taken by the lower courts, which began by analyzing the underlying policy and then asked whether the follow-form policy clearly excluded that coverage. According to the court, that method inverts the contractual analysis.
Instead, courts must start with the excess or follow-form policy itself. Only after identifying what that policy affirmatively covers may the reader look to the underlying policy, and only to the extent the follow-form policy expressly incorporates it. Even when a policy is labeled “follow-form,” it remains the governing contract for that layer of coverage.
This rule is especially important in surplus lines property claims, where follow-form policies frequently redefine key terms, narrow insuring agreements, or apply conditions that do not exist in the primary form.
How the 2025 Surplus Lines Manual Reinforces This Framework
The 2025 edition of the Excess and Surplus Lines Laws Manual confirms that surplus lines policies are not constrained by uniform form requirements and are often intentionally drafted to differ from admitted-market policies. As Troutman Pepper Locke LLP explains, surplus lines insurers are permitted to tailor policy language, including definitions and scope of coverage, even when participating in a layered insurance structure.
This flexibility is a defining feature of the surplus lines market. It also explains why follow-form language must be read with precision. The manual makes clear that incorporation of underlying policy terms is never automatic. The degree of incorporation depends entirely on what the follow-form policy says, not on what the insured or claims handler assumes it should say.
In property insurance towers, this means that a follow-form excess policy may adopt the structure of the underlying form while simultaneously narrowing coverage through its own definitions or insuring agreement. The label “follow-form” does not resolve that tension. Only the text does.
Why This Matters in Surplus Lines Property Claims
Large commercial property claims often trigger multiple layers of coverage. When that happens, claims handlers frequently rely on the primary policy’s definitions to evaluate the entire tower. That practice is inconsistent with both the Ohio Casualty decision and the principles outlined in the 2025 manual.
The correct approach requires each layer to be analyzed independently. The underlying policy may inform the analysis, but it does not control it. This is particularly true for London market property policies, where follow-form wording is often paired with manuscript endorsements or modified insuring agreements.
Policyholders are most often harmed not by hidden exclusions but by misreading or misunderstanding the policies they purchased. When coverage disputes arise, they frequently trace back to assumptions made long before the claim was submitted.
Persuasive Authority Beyond Texas
Although Ohio Casualty is a Texas decision, its reasoning is not jurisdiction-specific. The court relied on basic principles of contract interpretation that apply nationwide. Courts across the country confront the same issue when analyzing layered insurance programs. For that reason, the decision is persuasive authority well beyond Texas.
The 2025 Surplus Lines Manual further supports that national relevance by documenting consistent surplus lines practices across jurisdictions. While regulatory requirements vary by state, the contractual nature of surplus lines policies does not. Each policy stands on its own terms.
A Final Observation for Policyholders and Professionals
Surplus lines property insurance towers are complex by design. They are not intended to be read as a single document. The Texas Supreme Court’s decision, reinforced by the 2025 Excess and Surplus Lines Laws Manual published by Troutman Pepper Locke LLP, confirms a disciplined method for reading them.
Start with the policy being asked to pay. Read its insuring agreement. Examine its definitions. Then, and only then, look downward to see what it incorporates. Anything less invites confusion, delay, and avoidable disputes.
For policyholders, property owners, risk managers, public adjusters, and attorneys, the lesson is straightforward. Review existing towers carefully, and involve experienced coverage counsel early, before assumptions about “following form” dictate the outcome of a large property claim.
