GEMINI
INSURANCE COMPANY and Berkley Oil & Gas Specialty Services, LLC,
Appellants, v. DRILLING RISK MANAGEMENT, INC., Appellee.
Court of
Appeals of Texas, Fourth District, San Antonio.
June 3,
2016.
This
appeal concerns
insurance coverage
for re-drilling expenses under a Control of Well policy issued by Gemini Insurance
Company and underwritten by Berkley Oil & Gas Specialty
Services, LLC (collectively, “Gemini” unless otherwise stated). Drilling Risk Management, Inc. (“DRMI”) sought coverage under the policy after it experienced two underground blowouts in the well it was drilling.
After Gemini partially denied DRMI’s claim, DRMI filed suit. The trial court granted
summary judgment in favor of the insured, DRMI, on the coverage
and deductible issues.
DRMI’s
remaining claims for deceptive acts and practices in violation
of the Insurance
Code were tried to a jury which found in favor of DRMI. Gemini appeals the trial court’s final judgment,
arguing that under the plain language of the policy the cost of certain redrilling materials is not covered and each blowout constituted a separate
occurrence warranting separate deductibles, and that the trial evidence
does not support
the jury’s finding
of deceptive acts or practices or its assessment
of damages and attorney’s fees.
We reverse
the summary judgments in favor of DRMI on the issues of coverage and the two deductibles, and we render judgment
in favor of Gemini as a matter of law on those issues.
Based on our disposition of the issues concerning the policy,
we need not address the jury’s
findings of deceptive
acts and practices
and the award of damages and attorney’s fees. Accordingly,
we render a take-nothing judgment against
DRMI.
GEMINI INSURANCE
AND BERKLEY OIL & GAS SPECIALTY SERVICES V. DRILLING RISK MANAGEMENT: TEXAS
APPELLATE COURT REVERSES SUMMARY JUDGMENTS IN FAVOR OF DRMI ON THE ISSUES OF
COVERAGE AND THE TWO DEDUCTIBLES
Gemini Insurance Company & Berkley Oil & Gas Specialty Services, LLC v. Drilling Risk Management, Inc. - This appeal concerns
insurance coverage for re-drilling expenses
under a “Control of Well” policy issued
by
Gemini and underwritten by Berkley
after DRMI experienced two underground blowouts
in the well it was drilling.
Summary judgment was granted in favor of the insured,
DRMI, on the coverage and deductible issues. DRMI’s remaining common law and statutory claims against Gemini and Berkley for deceptive acts and practices and unfair settlement practices in violation
of the Insurance Code were tried to a jury which found in favor of DRMI. Gemini and Berkley
appeal the trial court’s
judgment, arguing that under the plain language of the policy the cost of routine
drilling materials is not a covered
loss and each blowout
constituted a separate
occurrence. They also argue the evidence
does not support finding of deceptive acts
or practices or its assessment
of damages.
GEMINI INSURANCE COMPANY v. DRILLING RISK MANAGEMENT, INC.
No.
04-15-00318-CV.
GEMINI
INSURANCE COMPANY and Berkley Oil & Gas Specialty Services, LLC,
Appellants, v. DRILLING RISK MANAGEMENT, INC., Appellee.
Court of
Appeals of Texas, Fourth District, San Antonio.
June 3,
2016.
------------------------------------------------------
Lawsuit jury’s $8.3
million award is likely Kendall County record
By Zeke MacCormack
November 25, 2014
BOERNE, TEXAS — A local drilling
contractor is celebrating an apparent record jury award in Kendall County of
$8.3 million in its suit over an unpaid insurance claim on an oil well in
Lousiana.
The award, which included $4 million in
punitive damages, should make other insurance industry officials think twice
before short-changing policy holders, said Steve Skarnulis, lead attorney for
the plaintiffs, Drilling Risk Management Inc.
“The jury chose to send a message to
this insurance company that the old 'business as usual’ of underpaying policy
claims cannot continue,” he said. “It may take their verdict to get the industry’s
attention and make insurers properly handle oilfield claims.”
The jury deliberated about five hours
Thursday before ruling against defendants Gemini Insurance Co. and Berkley
Specialty Co., capping a four-day trial.
“I’m grateful to the jurors who had to
sit there and listen through this entire ordeal,” said Allan Bloxsom, president
of DRMI, who expects the verdict to be appealed.
DRMI, d/b/a Fort Apache Energy Inc.,
paid Gemini in October 2011 to insure the well it was to drill in Cameron
Parish, Louisiana., with Berkley serving as the underwriter.
Before the end of 2011, the well
experienced two problems that resulted in costly repairs and the filing of
insurance claims.
The insurers paid $4.6 million to DRMI,
but denied the firm’s claim for $1.7 million more to cover the expense of
installing casing and a liner in the well to repair it, Bloxsom said.
DRMI’s suit accused them of signing off
on the repair strategy and costs, then wrongfully denying coverage once the
work was done.
The defendants cited a study by a
petroleum engineer to justify their partial denial of the claim. Gemini also
asserted that two separate deductibles were due, of $250,000 apiece, one for
each problem at the well.
Prior to trial, Kendall County Court At
Law Judge Bill Palmer granted DRMI a partial summary judgment, finding that
Gemini had breached its policy and was due only one deductible, Bloxsom said.
The jury found DRMI suffered a profit
loss of $1.5 million due to the defendants’ acts, that DRMI incurred $1.7
million in eligible repair costs that were denied coverage, and that Berkley
engaged in unfair and deceptive acts.
The hefty verdict, which also included
$929,015 in attorney fees for DRMI, is a hot topic at the courthouse here,
where seven-figure jury awards are rare.
“I think it’s the
largest one that we’ve had,” District Clerk Kay Pugh said Monday.
Drilling Company Hits Pay Dirt With Record Verdict in Kendall County
Angela Neville, Texas Lawyer
A jury
in Kendall County sent a strong message to large insurance companies about the
negative consequences of underpaying claims to their policyholders. The jury
awarded Boerne-based Drilling Risk Management Inc., an oil field drilling
contractor, an $8.3 million verdict in a lawsuit against Gemini Insurance Company
and its underwriter Berkley Oil & Gas Specialty Services.
Founding
partners Charlie Cain and Steve Skarnulis of Cain & Skarnulis, an
Austin-based firm specializing in commercial litigation, filed the lawsuit on
behalf of the plaintiff against Gemini and its underwriter, Berkley Oil &
Gas Specialty Services, for an unpaid insurance claim for two underground well
blowouts at DRMI's Cameron Parish, La., location.
George
Lugrin, a founding shareholder in Hall Maines Lugrin, and Amanda Kujda, senior
counsel with the firm, represent Gemini in the litigation. Neither Lugrin nor
Kujda returned a call for comment.
On Nov.
20, 2014, after a trial on the merits, the court submitted this case to the
jury. The jury returned a verdict the same day and found in favor of DMRI,
according to the motion for entry of judgment filed by Cain with the court on
Jan. 15.
After
the jury returned its verdict, the parties then agreed by stipulations to
submit the calculation of the amount of statutory interest due to DMRI under Texas
Insurance Code §542.001 to the court for determination, according to the DMRI's
motion for entry of judgment. Texas Insurance Code Section 542.060 provides
that if an insurer fails to timely pay policy benefits, then it is liable to
the holder of the policy, in addition to the amount of the claim, a penalty of
18 percent per annum in damages—in addition to attorney fees, according to
Cain.
DMRI's
motion for entry of judgment requested that the court determine the statutory
interest due to DMRI. At this time, no postverdict motions have been filed by
the defendants, Cain said.
Currently,
a hearing is scheduled for Feb. 20 based on DMRI's request for the court to
rule on its motion for entry of judgment and its request for statutory interest
it asserts it is due under the Texas Insurance Code, according to Cain.
Cain and
Skarnulis initiated the litigation in July of 2014 in Kendall County. According
to Cain, the award is roughly 84 times more than the next highest verdict in
Kendall County and is one of the only decisions rendered in favor of a
plaintiff in the last 13 years in the county.
Cain
said one of the greatest challenges that he and Skarnulis faced in litigating
this case was "undeveloped law."
"We
were dealing with an area of the law that was completely undeveloped. While
this form of well control policy has been used for decades, no court had
interpreted the language of the coverage grant. This allowed the insurance
company to take an aggressive posture and deny about one-third of our claim,"
Cain said.
Two Blowouts
In 2011,
DRMI insured its Cameron Parish well with Gemini and Berkley. On two separate
occasions, the well went out of control, resulting in major damage to the well
and forcing DRMI to make expensive repairs, according to the petition.
"There
were two blowouts. One on Nov. 6, 2011, and the other on Dec. 5, 2011,"
Cain said. "The hole had to be abandoned after both blowouts and sealed
off. The drilling company had to go back up and drill a sidetrack hole. There
actually ended up being three sidetracks, and it became an extremely difficult
technical feat to get the well to total depth."
Before
trial, Kendall County Court at Law Judge Bill Palmer awarded DRMI a partial
summary judgment, agreeing that Gemini had in fact breached its contract and
was entitled to only one $250,000 deductible, not two separate deductibles,
which Gemini claimed DRMI owed, according to Cain
Cain
said that he and Skarnulis were able to obtain a summary judgment on
coverage—finding coverage for DMRI's claims—so the issue before the jury was
whether the insurance company's denial was reasonable under the circumstances,
including their reliance on the defendants' "independent" expert
engineer's report.
"Insurance
companies often rely on these reports as a means of showing that they conducted
a reasonable investigation and, therefore, their conduct was reasonable. We
were able to show the jury that their investigation was a pretext with the
results preordained," Cain said.
Cain
said that the total loss was approximately $6.3 million. The insurance company
paid approximately $4.6 million of the claim and denied approximately $1.7
million. The insurance company also charged two $250,000 deductibles—one for
each blowout. In contrast, the trial court ruled that only one deductible
should have been charged.
Cain
discussed the evidence that defendants presented at trial to justify their
partial denial of DMRI's claim. He said, "The engineer's report was a big
part of their case, plus a slew of insurance experts who tried to show the jury
that their reading of the policy was reasonable and our interpretation would
create a 'horrendous moral hazard.'"
After
both parties presented their case at trial, the jury ruled that the defendants
acted in bad faith and that Berkley engaged in unfair and deceptive acts by
wrongfully denying the repair costs, according to the motion for entry of
judgment. The jury also found that Gemini violated the Texas Insurance Code in
its denial, and awarded punitive damages of $4 million. Additionally, the jury
determined that DRMI suffered a profit loss of $1.5 million as a result of the
defendants' actions, according to the motion for entry of judgment.
Looking
ahead, Cain said, "No doubt there will be an appeal. We like our chances.
The trial judge is well respected, and it was a clean trial. We want to point
out that the defendants' lawyers with Hall Maines Lugrin—George Lugrin and
Amanda Kujda—did a good job for their client. The jury just didn't see things
their way."
Cain
believes this verdict sends out a strong message to the insurance industry.
"It
should have a large impact in this area [well control policies]. We expect
policy forms to include exclusions based on language that the insurance company
wished was in our client's policy," Cain said. "The message to the
industry is clear: Do not deny based on language that is not in the policy;
hire fair umpires (independent experts) who visit both dugouts, not just the
insurance company's; train your adjusters better on these types of claims; be
willing to reevaluate coverage positions; don't assume that paying the majority
of the claim is enough; and don't assume that small businesses are willing to
accept less than 100 percent of what they are owed."
Fourth Court of Appeals
San Antonio, Texas
GEMINI INSURANCE COMPANY and
Berkley Oil &
Gas Specialty Services,
LLC, Appellants
v.
DRILLING RISK MANAGEMENT, INC.,
Appellee
From the 216th Judicial District Court, Kendall County,
Texas Trial Court No.
12-066
Honorable
Bill R. Palmer, Judge Presiding
Sitting: Karen Angelini,
Justice
Rebeca
C.
Martinez, Justice Patricia
O. Alvarez, Justice
This
appeal concerns
insurance coverage
for re-drilling expenses under a Control of Well policy issued by Gemini Insurance
Company and underwritten by Berkley Oil & Gas Specialty
Services, LLC (collectively, “Gemini” unless otherwise stated). Drilling Risk Management, Inc. (“DRMI”) sought coverage under the policy after it experienced two underground blowouts in the well it was drilling.
After Gemini partially denied DRMI’s claim, DRMI filed suit. The trial court granted
summary judgment in favor of the insured, DRMI, on the coverage
and deductible issues.
DRMI’s
remaining claims for deceptive acts and practices in violation
of the Insurance
Code were
04-15-00318-CV
tried to
a jury which found in favor of DRMI. Gemini appeals the trial court’s final judgment,
arguing that under the plain language of the policy the cost of certain redrilling materials is not covered and each blowout constituted a separate
occurrence warranting separate deductibles, and that the trial evidence
does not support
the jury’s finding
of deceptive acts or practices or its assessment
of damages and attorney’s fees.
We reverse
the summary judgments in favor of DRMI on the issues of coverage and the two deductibles, and we render judgment
in favor of Gemini as a matter of law on those issues.
Based on our disposition of the issues concerning the policy,
we need not address the jury’s
findings of deceptive
acts and practices
and the award of damages and attorney’s fees. Accordingly,
we render a take-nothing judgment against
DRMI.
FACTUAL AND
PROCEDURAL BACKGROUND
DRMI is an oilfield drilling
contractor that was hired to drill a well to a total depth of 13,738
feet in shallow
waters off the Louisiana coast for a fixed price under a turnkey
drilling contract.
DRMI is an additional named insured on a Control of Well insurance policy (the “Policy”)
purchased by Fort Apache Energy, Inc. The Policy was purchased
from Gemini, but issued through
J.H. Blades & Co., Inc. The Policy covers “well out of control” events such as blowouts
and redrilling efforts necessary
to control the well and restore it to a comparable pre- blowout
condition.
The
following facts
are the relevant facts as
developed by the competing
summary judgment
motions. After approximately two weeks of drilling,
DRMI experienced the first problem when it encountered an unexpected weak pressure zone, or depleted
zone, in the Planulina
B Sand at a depth of 6,906
feet. The weak zone resulted
in full losses and
caused DRMI to revise
its casing plan. The original
drilling plan called for DRMI to set
9 5/8 inch casing (“the Casing”) in the hole at a depth of 10,200 feet. After encountering the weak zone at 6,906 feet, DRMI revised
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04-15-00318-CV
its drilling plan with respect to where to set the Casing—its intent was to drill past the Planulina B Sand and set the Casing at a depth
of
9,750 feet. However, before it reached
the planned depth for setting the Casing, DRMI drilled into an unexpected high pressure zone at 9,674 feet, which caused the well to “kick,”
resulting in uncontrolled subsurface flow between the kick zone and the weak zone. This underground blowout
on November 3, 2011 was the
first “Well Out of Control”
event (“Blowout #1”). Despite its efforts to control the subsurface flow, DRMI had to plug the hole at the
Blowout #1 depth of 9,674 feet. No Casing was ever
set in the original wellbore.
DRMI again revised its drilling
plan and began drilling a “sidetrack” well at a shallow depth off of the initial wellbore (“Sidetrack #1”). In drilling
Sidetrack #1, DRMI set the Casing at a depth of 9,570 feet in order to isolate
the high and low pressure zones
that had caused Blowout
#1. DRMI successfully reached the depth of the initial blowout (9,674 feet) and continued drilling below it. However,
on December 5, 2011, DRMI drilled into another unexpected
weak zone at 10,304 feet, followed by a high pressure
kick zone at 10,917 feet, which
caused uncontrolled subsurface flow and resulted in a second underground blowout (“Blowout #2”). DRMI was forced to plug
the sidetrack well.
In order to avoid
the cost of drilling a new well, DRMI initiated a second sidetrack
well at 10,320 feet, but it was unsuccessful due to unexpected pressure zones and uncontrolled flow; the drilling
never reached the depth of Blowout #2. DRMI then began drilling
a third sidetrack
well (“Sidetrack #3”) at a shallower depth of 9,952 feet. Before Sidetrack
#3 reached the 10,917-foot depth of Blowout
#2, DRMI installed a 7 inch liner (the “Liner”) at a depth of 10,854 feet to isolate
the high and low pressure
zones that caused the second blowout. DRMI successfully completed Sidetrack
#3 to total depth.
DRMI made a claim on the Policy after each blowout.
Berkley, the underwriting manager for Gemini, assigned BC Johnson
& Associates to investigate and adjust the claims.
Berkley hired
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04-15-00318-CV
David Watson, an independent petroleum engineer, to evaluate
DRMI’s claims, including
whether the blowouts
met the Policy’s
definition of an “Occurrence,” whether DRMI acted with due diligence, and whether the casing and liner costs were necessary
as a result of
the blowouts or due to pre-existing geological conditions. Berkley determined that each blowout constituted a separate
“Occurrence” under the Policy’s terms
and a $250,000 deductible was assessed
on each claim.
Berkley concluded
that each blowout met the “Well Out of Control” definition in Section IA of the Policy and triggered the Section
IB redrill coverage. Berkley also concluded
that DRMI had acted as a prudent and diligent driller. Gemini reimbursed DRMI under Section IA for approximately $4.5 million in covered
expenses incurred in bringing
the two blowouts
under control. Gemini
also reimbursed DRMI under Section IB for approximately $3 million in covered
redrilling expenses incurred
in drilling the sidetrack wells.
On
January 19, 2012, Berkley sent DRMI a “Partial
Denial of Coverage”
letter declining to reimburse DRMI for other redrilling expenses it concluded
were not caused by the blowouts. Specifically, the letter stated,
“there does not appear to be coverage
for costs associated with the 9 5/8 inch casing used in the first sidetrack
and relating to the first Occurrence. Likewise, there does not appear
to be coverage for the 7 inch
liner used in the third sidetrack
and relating to the second
Occurrence.” The letter explained
that coverage for these costs was denied “based on the terms and conditions of the Policy, the information DRMI has provided
to date, the adjustment by BC Johnson
[&] Associates to date, and the opinion of petroleum
engineer David Watson,” which was attached to the letter. The letter summarized Watson’s investigation and findings that (1) the 9 5/8 inch casing
was required to be set shallow
at 9,570 feet “as a result of pre-existing hole conditions,” defined as the previously unknown loss and kick zones, “and not as a result of the well control
incident — the Occurrence,” and (2) the 7 inch liner was “necessary as a result of pre-existing hole conditions,” defined as the previously unknown
loss and kick zones, “and not because
of damage
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04-15-00318-CV
to the Well as a result of the second Occurrence.” The value of the denied claim was approximately
$1.7 million.
DRMI filed suit alleging breach
of contract against Gemini for “improperly denying covered claims” under the Policy,
and
seeking a declaratory judgment on DRMI’s construction of the Policy,
specifically, that Gemini had a duty to indemnify it for the costs of “running 9 5/8” casing,
a 7” liner, extra drilling time, pro-rated logging, and the amount of the second deductible unlawfully withheld.”
DRMI also alleged
that Gemini breached its common law duty of good faith and fair dealing
by denying coverage
without a reasonable basis, conducting a pretextual investigation, and misrepresenting the Policy terms in its denial letter, and that both Gemini and Berkley
violated the Insurance Code by knowingly engaging in unfair
settlement practices and failing to promptly pay a covered claim. See TEX. INS. CODE ANN.
§§ 541.060, 541.152(b) (West 2009); id.
§ 542.060 (West 2009 & Supp.
2015). DRMI sought
to recover its actual damages (i.e., the cost of the Casing and Liner, and associated logging and extra drilling time), the improperly withheld second deductible, lost profits
as a result of Gemini’s and Berkley’s conduct, treble damages for the Chapter
541 violation, statutory penalty
interest for the Chapter
542 violation, and attorney’s fees.
The
parties filed
competing summary
judgment motions on the various claims. On June 23, 2014, the trial court signed a general order granting DRMI’s partial summary
judgment motion on its construction of the Policy
language, and denying Berkley’s summary judgment motions on the same issue as well as the other DRMI claims. On September 15, 2014, the trial court granted
partial summary
judgment in favor of DRMI on its claim for recovery of the second deductible withheld by Gemini. The trial court having
resolved the issues
of coverage and the second
deductible in DRMI’s
favor as a matter of law, a jury trial was held on the remaining claims
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04-15-00318-CV
asserted by DRMI, i.e.,
common law bad faith
and
Insurance Code violations.1 At the conclusion of trial, the jury found in favor of DRMI on the statutory
violations and found that Gemini’s and Berkley’s conduct was “knowing.” On November 17, 2014, the trial court signed
a final judgment
incorporating the prior summary
judgment orders and the jury’s verdict. The court awarded DRMI
(i) stipulated
actual damages
totaling $1,942,440, consisting of the costs of the Casing ($1,024,415), the Liner ($597,627), and the associated logging ($70,398), and recovery
of the second deductible ($250,000); (ii) past lost profits
of $1,500,000; (iii) additional damages of
$4,000,000 for “knowing”
conduct under Chapter 541 of the Insurance
Code; (iv) $1,093,619
in penalty interest Chapter 542 of the Insurance
Code; and (v) attorney’s fees for trial ($929,015) and appeal
($165,000).
Gemini
appeals, arguing
the trial court erred in granting
summary judgment in favor of DRMI on the coverage
issue because the cost of the Casing and Liner, and associated logging, was not “caused
by an Occurrence,” and thus is not a covered loss, under the plain language
of the Policy. Gemini also argues the trial court erred in concluding the two blowouts
were a single
“Occurrence” subject
to a single deductible because the blowouts happened at different depths and one month apart. Gemini also challenges the jury’s findings that it knowingly engaged in unfair or
deceptive acts and
practices, and the awards of
damages and attorney’s fees.
SUMMARY
JUDGMENT — CONSTRUCTION OF THE POLICY
Standard of Review
We
review a trial court’s grant
or denial of summary judgment de novo. Provident
Life & Accident Ins. Co. v. Knott, 128 S.W.3d 211, 215 (Tex. 2003). To prevail
on a traditional motion for summary judgment, the moving party must prove that “there is no genuine issue
as to any
1 DRMI
pursued its
common law bad faith claim through trial but dropped it before the jury charge was submitted. Therefore, the jury considered only the alleged Insurance Code violations.
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04-15-00318-CV
material fact
and the
moving party is entitled
to judgment as a matter of law on the issues expressly
set out in the motion.”
TEX. R. CIV. P. 166a(c); Nixon v. Mr. Prop. Mgmt. Co. Inc., 690 S.W.2d
546, 548 (Tex. 1985). When there are competing summary
judgment motions
on the same issues, and the trial court grants one and denies the other, we consider
the summary judgment evidence presented
by
both sides and determine all questions presented, and, if
we determine the trial court erred, we render
the judgment the trial court should have rendered.
Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005). When the trial court does not specify
the grounds on which the summary
judgment was granted, we must affirm
if any of the summary
judgment grounds are
meritorious. Knott, 128 S.W.3d at
216.
The Policy Language
The
Policy contains two types of coverage,
“Control of Well” and “Redrill/Extra Expense.” Section IA provides
the coverage for expenses incurred in bringing a well under control
after a blowout
and ends when the well is under control
or plugged. As noted, Gemini
paid DRMI for its well control
costs incurred under this provision, but assessed
separate deductibles for each Occurrence.
The Policy defines the term “Occurrence”
as “one loss, disaster or casualty or series
of losses, disasters or casualties arising out of one event.”
The relevant language of Section IA is quoted
below.
SECTION
IA CONTROL
OF WELL
INSURANCE
1. COVERAGE:
The Company [Gemini] agrees, subject to the . . . terms and conditions of this Policy, to reimburse
the Assured [DRMI] for actual costs and/or expenses incurred by the Assured [DRMI] (a) in regaining
or attempting to regain control of any and all Wells Insured which get out of control,
including any other Well that gets out of control
as a direct result of a Well Insured
getting out of control, but only such costs and/or expenses
incurred until
the Well is brought
under control as defined
in Paragraph 2b of this Section IA . . . .
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04-15-00318-CV
2. DEFINITIONS:
a. Well Out of Control:
For the
purposes of this insurance, a Well shall be deemed
to be out of control
only when there is an unintended flow of drilling
fluid, oil, gas or water above the surface
of the ground, or water bottom in case of a Well located in water, or when there is an unintended subsurface flow of oil, gas, water and/or fluid from one subsurface zone to another subsurface zone via the bore of the Well, which cannot be controlled by the blowout preventer . . . or stopped
by increasing the weight by volume of drilling fluid or by the use of other conditioning materials in the Well…
b. Well Brought
under Control:
For purposes of this insurance a Well deemed out of control in accordance with Paragraph 2a of this Section IA shall be deemed to be brought under control at the time
that the flow giving rise to a
claim hereunder stops, or is stopped
and:
(1)
the drilling, deepening, lengthening, Side Tracking
or Working Over/ recompleting/ re-entering, or other similar
operation taking place in the Well immediately prior to the Occurrence giving rise to a claim hereunder is resumed
or can be resumed; or
(2)
the Well is or can be returned to
the same producing, shut-in or other similar status
that existed immediately prior to the
Occurrence giving
rise to a claim hereunder; or
(3)
when the Well is
permanently plugged and abandoned
. . . whichever shall first
occur . . . .
***
3. TERMINATION OF EXPENSES:
In
any circumstances . . . the Company’s liability for
costs and/or expenses incurred
in regaining or attempting to regain
control of a Well shall cease
when the Well is brought
under control as defined
in Paragraph
2b of this Section IA.
Section
IB of the Policy provides
additional coverage for expenses incurred
to redrill or restore the well, or any part of the well, lost or damaged as a result
of an Occurrence under Section
IA. The Section
IB coverage ends when redrilling reaches the depth at which the well became out of control
and the well is restored
to a condition comparable to its pre-blowout condition. As
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04-15-00318-CV
noted,
Gemini partially denied coverage for redrilling
expenses claimed under Section IB.
The relevant
provisions of Section IB are
quoted below.
SECTION
IB REDRILL/EXTRA EXPENSE
1. COVERAGE:
The Company [Gemini] agrees, subject to . . . the terms and conditions of this Policy, to reimburse
the Assured [DRMI] for actual
costs and/or expenses reasonably incurred to restore
or redrill a Well, or any part thereof,
which has been lost or otherwise
damaged as a result
of crater or an Occurrence giving rise to a claim
which would be recoverable under Section IA of this
Policy . . . subject to the following conditions:
***
c.
In
no event
shall the Company be
liable for cost and/or
expenses incurred (a)
with respect to drilling,
deepening, lengthening or Side Track
Wells, to drill beyond the length reached when
the Well became Out of Control
as defined
in Clause 2 of Section IA of this Policy . . . .
d.
In any circumstances, the Company’s liability under this Section IB for costs
and/or expenses shall cease
in any event when the
length set forth in Paragraph
1c of this Section IB has
been reached and the Well restored
to a condition comparable to that existing prior
to the Occurrence giving
rise to the claim, or so far as possible . . . .
e.
In
the event
the restoration
or redrill Well becomes a Well Out
of Control, it shall
be considered a continuation
of the original Occurrence.
The Policy does not define the terms “restoration well” or “redrill
well,” but does define
the term “Well” as
“a
hole bored into the earth with the intention
of discovering . . .
oil and/or
gas
. . . including
such . . . casing,
liner and/or tubing as may be installed therein
and such Wellhead Equipment as may be installed
immediately above the hole.” The Policy also defines
the term “Side Track” as “an operation involving
the use of a portion of an existing Well to drill a new Well.” The Policy
provides a “Retention/Deductible” of $250,000 per “any one Occurrence.” The loss or series of losses
arising out of one “Well Out of Control” event constitutes an “Occurrence.”
- 9
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04-15-00318-CV
The
Policy limit
is $30 million per Occurrence for Wells located in Wet areas (defined in the Policy).
Applicable Law
An
insurance policy is construed
according to the same rules of construction applied to contracts generally. RSUI Indem. Co. v. The Lynd Co., 466 S.W.3d 113, 118 (Tex. 2015).
Courts focus on the plain language of the policy
and give the words and phrases
their ordinary and generally accepted meaning, unless otherwise specified. Id. The words and phrases are read in context of the policy
as a whole, giving effect to all of the words and provisions so none is rendered
meaningless. Id.; Forbau v. Aetna Life Ins. Co.,
876 S.W.2d 132, 134 (Tex. 1994) (no provision
should be isolated and considered apart from the other provisions). Language that can be given a certain or definite
meaning is not ambiguous, and is construed
as a matter of law. Chrysler Ins. Co. v. Greenspoint Dodge of Houston,
Inc., 297 S.W.3d 248, 252 (Tex. 2009); Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983). Insurance policy terms are not ambiguous simply
because they are undefined; they are given their ordinary
meaning. Gilbert Tex. Const.,
L.P. v. Underwriters at Lloyd’s
London, 327 S.W.3d 118, 126 (Tex. 2010). A contract
is ambiguous only if, after applying
the rules of construction, it remains
“subject to two or more reasonable interpretations.” Lynd, 466 S.W.3d
at 119. Where ambiguity
exists, insurance
policies are analyzed with a presumption in favor
of coverage, i.e., in favor of the insured.
Id. at 118-19 (recognizing the unequal bargaining
power between the insured and the insurer).
The presumption in favor of coverage in construing an ambiguous policy
provision applies
only if the insured’s
interpretation is reasonable. Balandran v. Safeco Ins. Co. of Am., 972 S.W.2d 738, 741 (Tex. 1998). A mere disagreement over interpretation of a policy’s language or coverage does not render the contract ambiguous. Am. Mfrs.
Mut. Ins. Co. v. Schaefer, 124 S.W.3d 154, 157 (Tex.
2003).
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04-15-00318-CV
Summary Judgment Motions and Evidence
In
their competing summary judgment
motions, Gemini and DRMI each argued that their interpretation with respect to coverage of the disputed
redrill expenses and the propriety of a second deductible
is the only reasonable
interpretation based on the plain, unambiguous
language of the Policy.
Neither party asserts
the Policy is ambiguous.2
1. Section IB Redrill Coverage for the Casing and Liner
In
its summary
judgment motion on the disputed coverage issue, which the trial court denied, Gemini asserted
that, under the plain unambiguous language of the Policy, the expenses
for the Casing used in Sidetrack #1 and the Liner used in Sidetrack
#3 were not covered because DRMI would have incurred those costs in any event due to the pre-existing geologic zones and regardless of any blowout;
thus, the costs were not incurred “as a result of” an Occurrence. Gemini’s argument is based on the language
in the first sentence of Section IB which defines the scope of the redrill
coverage as reimbursement for “actual costs and/or expenses reasonably incurred to . . . redrill a Well, or any part thereof,
which has been lost or otherwise
damaged as a result of . . . an Occurrence giving rise to a claim . . . recoverable under Section
IA . . . .” (emphasis added). In essence, Gemini’s position
is that Section
IB covers only redrill
expenses that are incurred
because of an Occurrence, i.e., a Well Out of Control
event or blowout.3 As an additional ground, Gemini noted the Policy is a “named peril” indemnity contract, not an all-risk
insurance contract, and asserted that reimbursement for the Casing and Liner would put DRMI in a better position than it would have been if the blowouts never occurred.
2 On appeal,
DRMI argues that if this court determines both parties’
interpretations are equally
reasonable and concludes the Policy is therefore
ambiguous, then the presumption in favor of an insured on the issue of coverage applies and its “reasonable” interpretation prevails. Lynd, 466 S.W.3d
at 118-19.
3 The parties
use “Occurrence” and “blowout”
interchangeably in their briefs, even though the
Policy’s definition of “Occurrence” technically refers to the loss(es) arising from the Well Out of Control event, rather than the event itself. At oral argument,
the parties agreed that the two terms mean essentially the same thing in the context of this dispute.
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04-15-00318-CV
In
support of its interpretation of the scope of the redrill
coverage, Gemini relied on the Policy language
as well as summary judgment
evidence showing that
DRMI would have incurred the Casing and Liner expenses in order to reach total depth, even without any blowout, due to the unexpected pressure zones it encountered during drilling. Gemini
submitted the following
summary judgment evidence
in support of its motion: (1) the affidavit
of Steve Morton,
Senior Claims Specialist for Berkley; (2) DRMI’s responses to requests
for disclosure; (3) DRMI’s second
amended petition; (4) excerpts
from the deposition of Allan Bloxsom, DRMI’s President; (5) excerpts from the deposition of George
Brazzel, a principle
with DRMI; (6) Fort Apache’s
responses to first requests
for admission; (7) the affidavit
of Robert Kachnik,
the BC Johnson
adjuster; and (8)
the Policy.
In
its summary judgment motion,
granted by the trial court, DRMI asserted that the plain language
of the same sentence in Section
IB means the Policy
covers the “actual
costs and/or expenses reasonably
incurred to . . . redrill a Well, or any part thereof, which has been lost . . . as a result of an Occurrence . . . .” (emphasis added). DRMI’s argument stresses that the phrase “lost as a result of” modifies
the term “Well,” which the Policy defines
as including not only the bore hole, but also casing
and liner. In essence, DRMI’s position
is that Section
IB covers all reasonable expenses incurred to redrill
a Well after an Occurrence, i.e., a blowout.
DRMI also asserted
that the Policy does not use or define
the term “preexisting hole conditions,” and contains no exclusion for “pre-existing hole conditions” or for “betterments or improvements.” Therefore, DRMI asserted
Gemini could not deny coverage for the Casing and Liner expenses
based on terms not contained in the Policy.
In
support of
its interpretation of the redrill
coverage, Gemini relied on the Policy
language and the absence
of the above-referenced exclusions, as well as summary judgment evidence showing that Berkley (through
Steve Morton) agreed that the well was damaged “as a result of”
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04-15-00318-CV
the two blowouts and that the Casing
and Liner expenses were “reasonably incurred.” DRMI attached the following
summary judgment
evidence to its motion:
(1) Berkley’s “Partial Denial of Coverage” letter and David Watson’s report;
(2) the deposition of Steve Morton;
(3) a timeline of the relevant drilling events prepared by BC Johnson after its investigation; (4) the Policy;
and (5) excerpts
from the deposition of Robert
Kachnik, the adjuster for BC
Johnson.
Summary
Judgment Evidence. Turning to the parties’ summary
judgment evidence,
we
begin with the report conducted
by
the petroleum engineer
David Watson and attached
to Berkley’s Partial
Denial Letter. Watson states in the report that he was hired by
Berkley, in part, to “determine if the modified casing program was [the] result of
the underground blowout(s) or if the changes were dictated by the natural
geological and pressure conditions present before the well was drilled.”
Based on his investigation, Watson concluded
that “[p]reexisting hole conditions, not Event #1, caused the intermediate casing to be set shallow in the sidetrack hole,” and, similarly, that “[p]reexisting hole conditions, not Event #2, caused the need for the 7-inch liner to be set at 10,854 feet.” Watson’s report states that Allan Bloxsom, DRMI’s President, told him that, based on its research, DRMI believed its wellbore
was separated by a fault
from potential depleted
zones in the area. Watson’s report includes a diagram
(Figure 2) comparing DRMI’s original drilling plan to the actual drilling program it used to complete
the well. Figure 2 shows DRMI originally planned to set 9 5/8-inch
casing in the original wellbore at 10,200 feet and install a 5 1/2–inch liner at 13,500 feet near total depth.
Instead, DRMI ended up having to set the 9 5/8-inch casing (the Casing) at a shallower
depth of 9,570 feet in a sidetrack well (Sidetrack #1) and to use an unplanned
7-inch liner (the Liner) in Sidetrack #3 in order to reach total depth. Brazzel, a DRMI principle,
confirmed in his deposition that DRMI’s original
well plan called for setting 9 5/8-inch casing in the original hole at a shallower depth than the depth where it was actually
set; he conceded
that prudent drilling practice is to drill based on actual conditions encountered and
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04-15-00318-CV
adjustments must be made during
drilling. In discovery, Fort Apache admitted
that 9 5/8-inch
casing had been ordered
and was on the dock, but had not yet been purchased, before the date of Blowout #1 in the original
hole. Watson’s report
states the weak zone DRMI drilled
into at 6,906 feet in the original hole “effectively voided the original
casing program as a viable plan for reaching total
depth.” Watson further states that Bloxsom told him that “DRMI recognized at the
time intermediate casing could not be set at the depth originally planned and their intent was to drill past the Planulina B Sand and set casing at . . . 9,750 feet.” However, Blowout #1 occurred
at 9,674 feet before
the Casing was set.
In
the drilling
of Sidetrack #1, Watson’s report states that setting the Casing shallower (at 9,570 feet) than intended (at 9,750 feet) “was necessary at this depth to isolate the weak zone at 6,900 feet from the zone that kicked in the original
hole. The revised hole program was not caused
by the well control event in
the original hole but was rather
dictated by the preexisting conditions that were encountered during
the drilling process.” Berkley’s Steve Morton stated
in his deposition that the need to set casing higher up in the hole to isolate
those zones preexisted the blowout.
Brazzel also testified that the Casing
was set at the shallower
depth in order to isolate the depleted
zone from the kick zone that caused Blowout
#1.
Brazzel
further testified
that Blowout #2 occurred
in Sidetrack #1 after DRMI drilled into unexpected weak sandstone creating a loss
zone at 10,304 feet and the
well kicked at 10,917 feet, resulting in uncontrolled subsurface flow. Brazzel was asked in his deposition, “So at this point in time you know if you are
going to get to TD [total depth],
you
are going to have to run a seven-
inch liner, right?” Brazzel answered, “Yes.” Brazzel
also agreed that the reason for running
a seven-inch liner was
“these preexisting hole
conditions . . . that existed
before you started drilling the well.” Watson’s
report states that “Allan Bloxsom
expected shale to be the predominant lithology to the next casing point at approximately 11,700 feet and the weak sandstone at 10,304
- 14 -
04-15-00318-CV
feet was
a surprise. DRMI now recognized that another
liner would be required
and Mr. Bloxsom
told me their intent was to push the . . . hole to approximately 11,000 feet. . . However
the well kicked at
10,917 feet . . . the
kick also came as a
surprise.”
Finally,
Watson’s report
states that,
after Blowout
#2, DRMI initiated
a second sidetrack well and planned to “drill an 8 ½ inch hole to a depth shallower than the [Blowout
#2] kick zone and set a 7-inch drilling liner.” However, the second sidetrack well failed because
it experienced subsurface flow before drilling reached the sand at 10,917 feet, the depth of Blowout #2. DRMI then began drilling Sidetrack #3 at a depth of 9,952 feet. Casing
was set at 10,854
feet and DRMI was “rigging
up to run the 7-inch
liner when the well again flowed
with pipe out of the hole.” DRMI suffered
some loses but was able to regain control and installed the 7-inch liner at 10,854 feet. Watson concludes
in his report,
“The 7-inch drilling liner was necessary to isolate the sand at 10,304 feet from the zone that kicked in Sidetrack
#1 and the additional casing was not caused by the well control event in Sidetrack #1 but was rather dictated by the preexisting conditions encountered
during the drilling process.”
Analysis. Gemini
argues on
appeal that this uncontroverted evidence establishes that
the Casing and Liner expenses were not incurred
“as a result of” the blowouts, i.e., the Occurrences, and thus according
to the plain language of the Policy
are not covered redrill expenses. We agree. The summary judgment evidence shows that DRMI had to modify
its drilling plan several times as it encountered unexpected, preexisting pressure zones — the modifications (including use of the Casing and Liner) were not caused by the two blowouts. DRMI presented no evidence
that it was the blowouts themselves that created the need for the Casing and Liner. Indeed, DRMI’s own principles, Brazzel and Bloxsom,
agreed that preexisting geological conditions
caused the casing and liner
plans to be modified.
In addition, the evidence shows
that, before the first blowout,
DRMI knew it needed
to use 9 5/8-inch
intermediate casing in the hole in
- 15 -
04-15-00318-CV
order to
drill the well because
of the natural
geological features it planned to drill through;
it had that size casing on hand. Based on the detailed information set forth in his report and summarized above, Watson’s report concluded that “preexisting hole conditions,” not Blowout
#1, caused the Casing to be set shallow
in Sidetrack #1, and “preexisting hole conditions,” not Blowout
#2, caused the Liner to be set in Sidetrack
#3. DRMI presented no summary judgment evidence to the contrary. The evidence shows
that, regardless of whether
a blowout occurred
or not, DRMI would have had to incur the Casing and Liner expenses
in order to complete the well. Applying
the undisputed facts to the Policy’s
plain language, the Casing and Liner costs were not incurred “as a
result of” an
Occurrence, and therefore those costs do not fall within the scope of
Section IB.
DRMI’s
interpretation of the scope of Section IB focuses on the phrase “redrill
a Well” and the definition of “Well” as encompassing casing and liner.
In DRMI’s reading
of the coverage language, once a Well has been lost or damaged
as a result of an Occurrence, all costs and expenses reasonably incurred to redrill the Well are covered under the Policy.
DRMI contends the undefined terms redrill well and restoration well “plainly
mean the entire well after restoration or redrill
operations have begun (regardless of depth).”
Referring to the definition of an “Occurrence,” DRMI argues the “loss” is the loss of a functioning well and the money it expended
on the well. Under DRMI’s interpretation, all reasonably incurred redrilling expenses undertaken after a well suffers a blowout are “incurred as a result of”
the blowout. This broad interpretation
of the scope of coverage ignores the restrictions provided in subsections 1c and 1d of Section IB and renders
them meaningless. See Lynd, 466 S.W.3d at 118 (words and phrases
must be read in the context of the policy as a whole, and so that no provisions are rendered meaningless). As quoted, supra, subsection 1d states
that “in any circumstances,” Gemini’s redrill liability ceases
when drilling reaches
the depth of the blowout
and the well is restored to a condition comparable to that existing before
the blowout. DRMI asserts
that restoration to a comparable condition
means a “functional
- 16 -
04-15-00318-CV
well.” However,
DRMI did not yet have a “functional well” at the time of Blowout #1 or Blowout
#2. Further, subsection 1c states that, “in no event,” shall Gemini be liable for costs incurred to drill a Side Track Well beyond
the depth reached when the Well became
Out of Control. A
“Side Track Well” is defined
as a “new Well” drilled
by using a portion of an existing
Well. The evidence
shows that Gemini reimbursed DRMI for approximately $3 million in costs incurred
in drilling the sidetrack wells
as “losses resulting from the blowouts,” but determined the Casing and Liner expenses
did not result from the blowouts.
We agree with Gemini that DRMI’s
interpretation of the scope of Section IB’s redrill coverage is unreasonable because it “attempts
to transform coverage for losses caused by a
blowout into coverage for expenses incurred after a blowout.”
The
trial court’s
summary judgment in favor of DRMI could also have been based
on DRMI’s summary judgment ground that Berkley’s denial of coverage for the Casing and Liner was outside the Policy terms, i.e., that the Policy did not contain a definition of or exclusion
for “preexisting hole conditions” or “betterments or improvements.” Berkley’s use of the term “preexisting hole conditions” in its Partial Denial Letter was drawn from Watson’s
report which is attached
to the letter. The first page of his report describing his assignment makes clear that Watson used the term to mean “the natural
geological and pressure conditions present before the well was drilled.”
Thus, the term is not mysterious or incapable
of comprehension in the context of this dispute, as DRMI suggests.
Indeed, Brazzel and Bloxsom
acknowledged that preexisting geological conditions caused the casing and liner plans to be modified.
The “preexisting hole conditions” is simply
the reason the claimed
Casing and Liner costs did not fall within the scope of the redrill coverage. As Gemini notes, the Policy is a contract of indemnity whose scope is limited to that expressly
set
forth in the insurance agreement. See State Farm Fire & Cas. Co. v. Griffin, 888 S.W.2d 150, 156 (Tex. App.—Houston [1st Dist.] 1994, no writ). If the claimed
expenses do not fall within the scope of the Policy,
then they are not covered; a specific exclusion
- 17 -
04-15-00318-CV
is not necessary. An insured
bears the burden to establish that its claim falls within the scope of coverage provided
by the insurance
agreement. Employers Cas. Co. v. Block,
744 S.W.2d 940, 945 (Tex. 1988). As discussed
above, DRMI failed to prove that the Casing and Liner expenses fall
within the scope of Section IB
coverage.
The
same logic
applies to
DRMI’s argument
that the
Policy could have contained, but did not contain, an “improvements or “betterments” exclusion. As noted, Gemini argued in its summary
judgment motion
that its liability was limited to the “named peril” set forth in the Policy, and if it paid for the Casing and Liner, DRMI would be put in a better position than if the two blowouts never occurred, i.e., amounting to an improvement or betterment beyond the “comparable condition” restriction stated in 1d of Section
IB. Thus, under the plain language of the Policy, Gemini’s obligation was limited
to restoring the well to a condition
comparable to that existing before
the blowout. A
specific exclusion for an improved
condition was not required.
Based
on the foregoing analysis, we conclude
that DRMI’s broad interpretation of the coverage language in Section
IB is not reasonable, and that its argument
that the referenced specific exclusions were necessary also fails. We therefore
hold that summary judgment
in favor of DRMI on the coverage
issue was improper on either ground.4 We conclude
that, as a matter of law, the only reasonable interpretation of the Section IB coverage language is that its scope is limited to redrill expenses incurred because of an Occurrence, i.e., a Well Out of Control
event, as asserted by Gemini. See Evergreen Nat’l Indem. Co. v. Tan It All, Inc., 111 S.W.3d 669, 675 (Tex. App.—
4 DRMI
argues that
even if the trial court’s
decision to grant summary
judgment in its favor on coverage was erroneous, the error was rendered harmless
by
evidence presented during the trial on its
deceptive acts and practices claim.
See Progressive Cnty. Mut. Ins. Co. v. Boyd,
177 S.W.3d 919, 921 (Tex. 2005) (holding
that any error in granting
partial summary
judgment was rendered
harmless when subsequent jury finding
negated recovery
on dismissed
claim); see also DeNucci
v. Matthews, 463 S.W.3d 200, 207-08 (Tex. App.—Austin 2015, no pet.) (holding that trial evidence
on breach of fiduciary
duty claims based on the same set of facts as the fraud claim
dismissed on no-evidence summary judgment rendered any error in dismissing the fraud claim harmless). That line of cases is distinguishable. The present case does not involve
dismissal of a claim
on summary judgment, but rather a grant of relief in DRMI’s
favor.
- 18 -
04-15-00318-CV
Austin
2003, no pet.) (construction of an insurance
policy is a legal issue for the court to determine).
2. Second Deductible
The
parties also
filed competing summary judgment motions
on the issue of whether
a second deductible for Blowout #2 was appropriate under the Policy.
The trial court granted DRMI’s
summary judgment on the issue.
In
support of
its assertion that the blowouts were two separate Occurrences warranting two deductibles, Gemini relied
on the Policy’s definition of an “Occurrence” as a loss or series of losses arising out of “one event.”
Gemini stressed the undisputed facts that the two separate
blowouts occurred at different depths
and one month apart, and asserted
they constituted two separate “events.” Gemini also stressed
the fact that the second blowout occurred
after Sidetrack #1 had reached the 9,674-foot depth of the first blowout,
and drilling had continued beyond that point to approximately 1,000 feet deeper
before the second blowout
happened. Gemini thus asserted that, pursuant to 1c and 1d, Section IB restoration coverage for the first
blowout had terminated before
Blowout #2 occurred.
Gemini attached summary
judgment evidence consisting of the Policy, Morton’s affidavit, discovery
responses by DRMI and Fort Apache,
the proof of loss submitted by DRMI, and
a report by John Meloy, an insurance underwriter.
In
its motion contending assessment of a second deductible was improper
under the Policy, DRMI asserted
the two blowouts were part of the same “Occurrence.” DRMI relied on subsection 1e of Section
IB which states that if a
redrill well becomes
a Well Out of Control, it is
considered a “continuation of the original Occurrence.” DRMI again relied on the Policy’s definition of a “Well” as the hole and the casing and liner, and asserted that a redrill
well or restoration well “plainly
means the entire well after restoration or redrill
operations have begun (regardless of depth).” Because the second blowout occurred in the same “entire
hole” created when DRMI
- 19 -
04-15-00318-CV
originally began drilling,
it contended it was part of, or a “continuation” of, the same event or “Occurrence” according to subsection 1e. DRMI relied on Bloxsom’s
affidavit, as well as affidavits by DRMI’s Chief Financial
Officer Matthew Milligan, and Leo Munoz, a CPA expert, plus the depositions of Morton,
Kachnik, Meloy, and Jeffrey Hughes, a petroleum
engineering expert, and the status updates by Kachnik. As noted,
the trial court agreed with DRMI and granted
its motion for summary judgment
on this issue.
However, DRMI’s interpretation
of the Policy relies on reading subsection 1e in isolation, not in context with the limitation of liability
provisions in subsections 1c and 1d. As noted above, when read together subsections 1c and 1d state that coverage under the Policy ends when redrilling reaches the depth of the blowout and the well is restored
to a condition comparable to its condition prior to the blowout. DRMI points
out that there is no cross-reference between
subsections 1c, 1d, and 1e. DRMI argues the Policy could have been written to make the “continuation” language in section 1e “subject to” the cessation of liability provisions of sections
1c and 1d, but it was not drafted that way. However,
we must read all three subsections together
and harmonize their provisions in order to give full meaning to the Policy language.
See Lynd, 466 S.W.3d at 118. Reading
the three subsections together within the context of the entire Policy, once Sidetrack
#1 reached the length/depth at which the well initially
became out of control
(subsection 1c) and the well was restored
to a comparable pre-blowout condition (subsection 1d), then the Section IB redrill coverage terminated; as drilling continued below that point, the sidetrack well was no longer
a “restoration or redrill Well”
under the Policy.
Therefore, the “continuation” provision of subsection 1e did not apply
to the second blowout, which occurred 1,000 feet below the depth of Blowout
#1. Because the two blowouts constituted two separate events or Occurrences, separate deductibles were required
under the Policy.
Therefore, we hold the trial court erred in granting
summary judgment in favor of DRMI on this issue.
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04-15-00318-CV
CONCLUSION
Based
on the foregoing reasons, we reverse the summary
judgments in favor of DRMI on the issues of coverage and the two deductibles, and we render judgment
in favor of Gemini and Berkley
as a matter of law on those issues, declaring
that the disputed
expenses are not covered under the insurance
policy and that two deductibles are warranted. Based on our disposition of the issues concerning the Policy,
we need not address the jury’s
findings of deceptive
acts and practices and the award of damages and attorney’s fees. Accordingly, we render a take-nothing judgment
against DRMI.
Rebeca
C.
Martinez, Justice