Nearly 12 years after Hurricane Rita ripped through the Gulf of Mexico, a Texas jury Friday ordered an insurer to pay over $41 million to an oil company that lost an offshore oil-drilling platform and well, including $28 million in punitive damages and more than $1.6 million in attorney fees.
The six-week trial revolved around claims by Houston-based equity firm Prime Natural Resources that the well’s insurer, Lloyd’s of London, improperly refused to reimburse some of the expenses it incurred to repair and replace it.
Prime was seeking $1.8 million in damages and more than $1 million in attorney fees; lead plaintiffs attorney John Zavitsanos of Houston’s Ahmad, Zavitsanos, Anaipakos, Alavi & Mensing said that, once interest and statutory penalties are factored in, he expects the award to climb by a few million dollars more.
Lloyd’s offered “absolutely nothing” to settle the case prior to trial, he said.
Zavitsanos, who tried the case with firm colleagues Sammy Ford IV, Foster Johnson and Ward Goolsby, said the case involved issues of first impression for Texas courts regarding insurers’ duties under the Texas Insurance Code and is particularly important for smaller companies such as Prime.
Lloyd’ was represented by J. Clifton Hall III, William Maines and Reece Rondon of Houston’s Hall Maines Lugrin, who did not immediately respond to requests for comment.
According to Zavitsanos and court filings, the case involved a policy Prime and its partner in the well, W&T Offshore Inc., purchased in April 2005.
It was not a good year to insure oil wells in the Gulf of Mexico with Hurricane Katrina ravaging the Gulf before laying waste to New Orleans and the Louisiana coast in August 2006. Rita struck less than a month later. Hundreds of wells were damaged or destroyed, Zavitsanos said.
The Prime well, like the majority of the others, was covered by Wellsure insurance policies, a package that includes preventive services provided by well=-control firm Boots & Coots as well as insurance for various well components.
As Zavitsanos explained, the policy package divides coverage into “silos” of coverage available for purchase: one for the well, one for the platform, one for environmental contamination and so forth.
“It’s like a cafeteria,” he said. “Most energy companies purchase a lot of coverage for the oil well and very little for the platform.”
“We believe that Lloyd's at some point began concocting a way to avoid coverage under these policies … and that this was sort of a test case for them,” he said.
The actual cost to replace the well and platform and remove the debris was more than $17 million, with Prime responsible for half.
While Prime was being stiff-armed as it demanded coverage for its losses, its partner–the much larger W&T—“was paid 99 cents on the dollar for the exact same expenses on the exact same policy by the same vendor,” Zavitsanos said.
=======================
Prime Natural Resources, Inc. v. Certain Underwriters at Lloyd’s, London, Syndicate Numbers 2020, 1084, 2001, 457, 510, 2791, 2987, 3000, 1221, 5000
Prime Natural Resources, Inc. v. Certain Underwriters at Lloyd’s, London, Syndicate Numbers 2020, 1084, 2001, 457, 510, 2791, 2987, 3000, 1221, 5000 held that an insurer’s obligation to cover costs incurred to restore a well to its pre-loss condition did not include coverage for all costs incurred to restore a producing well to its pre-loss production capabilities. Prime Natural Resources, Inc. (“Company”) insured its interest in the off-shore H 2 Well (“Well”), the adjacent H 2 Platform (“Platform”), and related pipelines (“Pipelines”) under two nearly identical policies (“Policy”) underwritten by Lloyd’s of London, et al. (“Underwriters”). The forces of Hurricane Rita bent the Well about seven feet above the mudline, toppled the Platform away from the Well, and damaged the Pipelines. The Underwriters paid the Company approximately $4 million under the Policy. The Company sought reimbursement from Underwriters for additional costs incurred to repair the Platform and remove debris from the Platform necessary to restore production. Underwriters denied the request, asserting that they had already paid the Company the policy limits or the additional claims were not covered. Because the policy limits on the physical damage to the Platform were far short of the amount necessary to replace the Platform, the principal issue in the case was whether other Policy provisions included coverage for repairs to equipment or appurtenances which are necessary to restore a producing well to its pre-loss production capabilities.
The Company primarily relied on Section IB of the Policy to support its assertion that Underwriters were required to cover costs incurred by the Company in order to repair the Platform and return the Well to its pre-loss production capabilities. The plain language of Section IB covered expenses incurred in recompletion and salvage efforts to restore an insured well to its pre-loss condition and expressly listed various costs and expenses directly related to the wellbore. To support its contention that Section IB also covered repairs to the Platform, the Company argued that because the Well was producing before the loss, all costs incurred by the Company to restore the Well to its pre-loss production capabilities, including repair of the Platform, were covered by Section IB, so long as those activities were necessary to restore the Well to production. Underwriters argued that restoring the Well to its pre-loss condition simply involved restoring the internal components of the Well.
The term “well” was not defined in the Policy. When interpreting insurance policies, “[t]he policy’s terms are given their ordinary and generally accepted meaning unless the policy shows the words were meant in a technical or different sense.” The court relied on the commonly understood meaning of the term “well” as “borehole, hole, or wellbore,” which does not “include a production platform or other ‘appurtenances’ associated with the well itself.”
The Company also argued that because Section IB provided coverage for “salvage operations as may be necessary to recover or restore [a well],” it also covered the removal of debris from the Platform (which actually fell away from the Well). The terms “debris” and “salvage” were not defined in the Policy. The court relied on the commonly understood meanings of “debris” and “salvage” in order to draw a distinction between the two terms and support its finding that an insurance policy that covers salvage operations does not implicitly cover debris removal. Based on common definitions and the use of the words elsewhere in the Policy, the Court concluded that “salvage” related to recovering something of value and “debris” was simply refuse. The Policy referred to salvage operations by specific reference to the Well, which cannot be reasonably read as including the removal of debris and wreckage of the Platform. Therefore, the court affirmed the judgment holding that Section IB did not provide coverage for costs incurred to replace, repair, or refurbish the Platform or Platform equipment or to remove Platform debris.
This case is significant because of the holding that an insurer’s obligation to cover costs incurred to restore a well to its pre-loss condition is strictly limited to the wellbore and does not include coverage for other costs incurred to restore a producing well to its pre-loss production capabilities.
==================
Texas Court Says Lloyd's Off Hook For $5M Rita Repairs
Law360, Houston (March 26, 2015, 6:50 PM EDT) -- A Texas appeals court ruled Lloyd's of London could withhold nearly $5 million in coverage from an oil and gas operator, finding Thursday that policy insuring offshore drilling assets damaged during 2005's Hurricane Rita did not cover platform repair or debris cleanup costs.In a long-running appeal that began in 2011 and was argued in late 2013, Prime Natural Resources Inc. asked a Houston Court of Appeals to decide whether the trial court erred in granting summary judgment to a group of Lloyd's underwriters and declaring that certain sections of the policy didn't provide coverage.
On Thursday the appeals panel declined to overturn the lower court's judgment, finding that neither of the two policy sections cited by Prime covered the costs to replace, repair or refurbish the platform or platform equipment, or to remove platform debris.
Attorneys for both sides did not immediately respond to requests for comment.
Prime's complaint alleged that the insurer issued a policy to a number of Gulf of Mexico oil and gas drilling interests for a one-year period beginning April 1, 2005, including a Prime well and platform.
Months after the policies took effect, Hurricane Rita bore down on the gulf, bending the well 7 feet above the mud line, toppling the platform and damaging the attached pipeline, Thursday's opinion said.
The repair costs allegedly reached or will reach $17 million, of which more than $4 million was for debris removal and platform rebuilding that was "unambiguously covered" under the policy, Prime said.
But the Lloyd's underwriters disagreed, leading Prime to sue on several counts, including a $4.7 million breach of contract claim and claims for lost profits and attorneys' fees, the opinion said.
In a counterclaim, the underwriters said Lloyd's considered the platform to be a total loss and paid the company its coverage limits. The underwriters also asserted that the company was attempting to recover additional costs not covered by the policy, the appellate panel said.
The trial court granted summary judgment to the underwriters on those claims, and the two sides nonsuited the remaining claims, the appeals court said.
Prime later appealed, arguing that although Lloyd’s had paid about $4 million in repair and cleanup costs, maxing out the limits of coverage available under a provision of the policy covering the drilling platform, Prime was entitled to the additional $4.7 million for restoring the damaged well.
But a lawyer for Lloyd’s argued that those policy provisions were never triggered because there was no evidence that the wells posed a danger.
Safety valves closed off the flow of hydrocarbons when the disaster struck, and Prime was later able to temporarily seal off the wells while repair and cleanup operations were ongoing, Lloyd's said. Lloyd's contended that the policy offered coverage only for repairs needed to wells spilling out of control.
Prime underinsured its own platform and was trying to improperly recharacterize platform debris removal as being insurable under the policy’s well restoration provisions, Lloyd's said.
Prime is represented by L. Keith Slade and Matthew S. Parish of Tucker Taunton Snyder & Slade PC.
Lloyds is represented by J. Clifton Hall III, William P. Maines and Allyson L. Wilkinson of Hall Maines Lugrin PC and David M. Gunn and Erin H. Huber of Beck Redden LLP.
The case is Prime Natural Resources Inc. v. Certain Underwriters at Lloyd’s London et al., case number 01-11-00995-CV, in the First District Court of Appeals of the State of Texas.
==================
In The
Court of Appeals
For The
First District of Texas
————————————
NO. 01-11-00995-CV
———————————
PRIME NATURAL RESOURCES, INC., Appellant
V.
CERTAIN UNDERWRITERS AT LLOYD’S, LONDON, SYNDICATE
NUMBERS 2020, 1084, 2001, 457, 510, 2791, 2987, 3000, 1221, 5000, AND
NAVIGATORS INSURANCE CO. UK, Appellees
On Appeal from the 129th District Court
Harris County, Texas
Trial Court Case No. 2007-56696
MEMORANDUM OPINION
Appellant, Prime Natural Resources, Inc. (“Prime”), challenges the trial
court’s rendition of summary judgment in favor of appellees, a group of
underwriters at Lloyd’s of London, namely, Lloyds’s of London Syndicate
Numbers 2020, 1084, 2001, 457, 510, 2791, 2987, 3000, 1221, and 5000 and
Navigators Insurance Co. UK (collectively, “Underwriters”), in Underwriters’
counterclaim for a declaration regarding their coverage obligations under two
essentially identical insurance policies, numbers 203794 and 203796 (jointly, the
“Policy”). In two issues, Prime contends that the trial court erred in granting
summary judgment in favor of Underwriters.
We affirm.
Background
In its Third Amended Petition, Prime alleged that Underwriters issued to it
the Policy, a “Wellsure Energy Package” policy, to insure Prime’s various oil and
gas drilling interests and operations in the Gulf of Mexico for the period of April 1,
2005 to April 1, 2006. Among other interests, the Policy expressly insured an
offshore well, the “H-2 Well,” and an adjacent platform, the “H-Platform.” Both
the H-2 Well and the H-Platform were significantly damaged by Hurricane Rita
during the policy period.
The H-2 Well, located about 75 miles south-southeast of Morgan City off
the Louisiana coast in an area called Ship Shoal Block 148 (“SS 148”), is a single
well that stood alone adjacent to the H-Platform. F-W Oil Interests (“F-W”) and
Phillips Petroleum (“Phillips”) divided the working interest in the H-2 Well
2
equally. Phillips, the operator, drilled the H-2 Well, set up the H-Platform, and
built pipelines between the H-2 Well and the H-Platform and to a nearby Phillips
facility. Subsequently, F-W conveyed its 50% working interest to Prime, and
Phillips conveyed its 50% working interest to W&T Offshore, Inc. (“W&T”).
In September 2005, the forces of Hurricane Rita bent the H-2 Well about
seven feet above the mudline, toppled the H-Platform away from the H-2 Well, and
damaged the attached pipeline. W&T, as the operator, issued authorizations for
expenditures and joint interest billings to Prime for the “wreck and debris cleanup
at [SS] 148, recompleting and restoring the [H-2 Well], re-establishing connection
to the [H-2 Well] bore, and ultimately, rebuilding the SS 148” H-Platform.
Prime further alleged that the “costs associated with the completion” of
W&T’s activities, “all of which were necessary to place the [H-2 Well] back into a
comparable pre-loss condition, either have, or are anticipated to, exceed
$17,000,000 on a 100% joint operating basis.” And of this amount, “in excess of
$4,000,000 has been expended for debris removal and the rebuilding of the [H-
Platform].” According to Prime, the Policy provided “coverage for all costs
incurred by [it] in the restoration of the [SS 148] Complex,” including “all costs
and actual expenses incurred in recompleting the [SS 148 H-2 Well] and getting it
back into production as a result of the damage covered by [or] of the result of
Hurricane Rita.” (Emphasis added.)
3
Asserting that the above incurred costs and expenses were “unambiguously
covered under the terms, conditions and coverage grant contained in the Policy,”
Prime alleged that Underwriters “have breached the Policy by failing and/or
refusing to indemnify Prime . . . .” Specifically, it asserted that, “[p]ursuant to
Section IB [entitled, “Expenses of Redrilling/Recompletion”] and other relevant
provisions of the Policy, Underwriters have a clear duty to indemnify Prime for the
costs and/or expenses associated with the wreck and debris clean up at [SS 148 H-
2 Well],” including “rebuilding the [H-Platform], reestablishing the connection to
the [H-2 Well] bore, and recompleting and restoring the [H-2 Well] to its
comparable pre-loss condition.” (Emphasis added.)
On its claim for breach of contract, Prime sought actual damages of
approximately “$4.7 million in proceeds under” the Policy, consequential damages
for “sustained lost business opportunities and lost profits, and its attorneys’ fees.”
In their Amended Counterclaim for Declaratory Judgment, Underwriters
alleged that they “determined the [H-Platform] to be a constructive total loss and,
in accordance with coverage limits available under the Policy, made a payment to
[Prime] in the amount of $900,000 for its 50% interest of the replacement cost
value of the [H-Platform],” which “exhausted Policy limits available for the [H-
Platform] for physical damage.” Underwriters also paid Prime “$225,000, equal to
the applicable coverage limit under the Policy (25% of replacement-cost value) for
4
the costs of debris removal associated with the [H-Platform],” which “exhausted
Policy limits available for the [H-Platform] debris removal.” And Underwriters
further paid Prime “$2,880,866, equal to the applicable Policy limits for covered
claims arising from pipeline damage and debris removal, as well as well-redrill
operations.”
Underwriters further alleged, thus, that they had in fact paid Prime for “all of
[its] covered loses related to the SS 148 [H-Platform], associated pipelines and [H-
2 Well] redrill.” In other words, they “have paid the limits of coverage available
under the Policy for [Prime’s] platform and pipeline physical-damage and debris-
removal claims.” (Emphasis added.) And they asserted that Prime, in suing them,
was attempting to recover “additional physical-damage and debris-removal
coverage for the replacement, repair and or refurbishment of the [H-Platform] and
top-side equipment.”
Underwriters sought from the trial court a declaration that “they are not
obligated under the Policy’s Section IB for any additional costs or expenses
incurred to replace, repair and/or refurbish the [H-Platform].” They also sought to
recover their attorneys’ fees.
Both Prime and Underwriters filed cross-motions for partial summary
judgment concerning the Policy’s coverage. Underwriters also filed several
motions for summary judgment in which they argued that because the
5
unambiguous language of Section IA, entitled, “Control of Well Insurance,”
including a “Making Wells Safe Endorsement,” and Section IB of the Policy
provided coverage only for wells, not platforms, Prime’s unreimbursed costs and
expenses, which consisted only of excess platform-damage and debris-removal
costs, are not covered by the Policy. They also asserted that Section II of the
Policy, entitled “Physical Loss or Physical Damage,” provided coverage for the H-
Platform, pipelines, and removal of debris. Underwriters, in a no-evidence
summary-judgment motion, further argued that the Making Wells Safe
Endorsement is inapplicable because “Prime has offered no evidence that the [H-2
Well] was at risk of becoming out of control.” In response, Prime argued that
because all of its unreimbursed expenses are covered by Section IA, the Making
Wells Safe Endorsement, and/or Section IB of the Policy, it was entitled to
summary judgment on its claim for breach of contract.
After a hearing, the trial court issued an interlocutory order granting
Underwriters’ pending “Motions for Summary Judgment concerning coverage
under [the] Policy” and declaring that:
a. Coverage under Section II of the Policy (for Physical Loss and
Physical Damage to the H platform and removal of debris of the H
platform) is limited in an amount to the Policy’s scheduled limits
for platforms/caissons, pipelines and debris removal. Costs
incurred by Prime to repair/refurbish the H platform or remove the
6
platform debris in excess of the Policy limits are not covered
under Section II.[ 1]
b. Section IB of the Policy (Expense of Redrilling/Recompleting)
does not provide coverage for costs incurred to replace, repair or
refurbish the H platform or platform equipment or to remove H
platform debris; and
c. Section IA (specifically, the Making Wells Safe Endorsement)
does not provide coverage for costs to replace, repair or refurbish
the H platform or remove H platform debris.
Prime and Underwriters subsequently non-suited their remaining claims
against one another without prejudice, and the trial court expressly incorporated
the above interlocutory order into a final judgment. In doing so, the trial court
expressly stated that its final judgment is limited to the claims underlying the
interlocutory order and “shall not be interpreted or construed as an adjudication on
the merits of any cause of action or claim that has been non-suited without
prejudice by Prime and/or Underwriters prior to the entry of this Final Judgment.”
Standard of Review
Appellate courts review declaratory judgments rendered by summary
judgment under the same standards that govern summary judgments generally.
Bowers v. Taylor,
263 S.W.3d 260, 264 (Tex. App.—Houston [1st Dist.] 2007, no
pet.). And we review de novo a trial court’s ruling on a summary-judgment
1
Prime is not challenging the trial court’s interpretation of Section II.
7
motion. Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding,
289 S.W.3d 844,
848 (Tex. 2009).
To prevail on a summary-judgment motion, a movant has the burden of
establishing that it is entitled to judgment as a matter of law and there is no
genuine issue of material fact. TEX. R. CIV. P. 166a(c); Cathey v. Booth,
900
S.W.2d 339, 341 (Tex. 1995). When a plaintiff moves for summary judgment on
its own claim, it must conclusively prove all essential elements of its cause of
action. Rhone–Poulenc, Inc. v. Steel,
997 S.W.2d 217, 223 (Tex. 1999). When a
defendant moves for summary judgment, it must either (1) disprove at least one
essential element of the plaintiff’s cause of action or (2) plead and conclusively
establish each essential element of its affirmative defense, thereby defeating the
plaintiff’s cause of action. Cathey, 900 S.W.2d at 341; Yazdchi v. Bank One, Tex.,
N.A.,
177 S.W.3d 399, 404 (Tex. App.—Houston [1st Dist.] 2005, pet. denied).
When deciding whether there is a disputed, material fact issue precluding summary
judgment, evidence favorable to the non-movant will be taken as true. Nixon v.
Mr. Prop. Mgmt. Co.,
690 S.W.2d 546, 548–49 (Tex. 1985). Every reasonable
inference must be indulged in favor of the non-movant and any doubts must be
resolved in its favor. Id. at 549.
When, as here, both sides move for summary judgment and the trial court
grants one motion and denies the other, we review the summary judgment proof
8
presented by both sides and determine all questions presented. See Centerpoint
Energy Hous. Elec., L.L.P. v. Old TJC Co.,
177 S.W.3d 425, 430 (Tex. App.—
Houston [1st Dist.] 2005, pet. denied).
Insurance Coverage
In two issues, Prime argues that the trial court erred in granting Underwriters
summary judgment and declaring that Sections IA and IB of the Policy did not
provide it coverage for costs incurred to replace, repair, or refurbish the H-
Platform or platform equipment, or to remove H-Platform debris, because “it failed
to recognize the coverages under” these sections “unambiguously provide coverage
for the outstanding portion of [its] claim.” Underwriters assert that they have
“already paid Prime the maximum amount recoverable” under the Policy “for
repair of the H-Platform and removal of debris” and the “trial court properly
declared that Sections IA and IB well coverage do not extend to reimburse Prime’s
extra costs for platform replacement/repair/refurbishment or platform debris
removal.”
The rules governing interpretation of contracts, in general, apply to
interpreting insurance policies. Gilbert Tex. Constr., L.P. v. Underwriters at
Lloyd’s, London,
327 S.W.3d 118, 126 (Tex. 2010). When construing an insurance
policy, a court’s primary concern is to give effect to the written expression of the
parties’ intent. Mid–Continent Cas. Co. v. Global Enercom Mgmt., Inc., 323
9
S.W.3d 151, 154 (Tex. 2010). We examine the entire policy and seek to
harmonize and give effect to all provisions so that none will be meaningless or
inoperative. Gilbert Tex. Constr., 327 S.W.3d at 126; see also State Farm Life Ins.
Co. v. Beaston,
907 S.W.2d 430, 433 (Tex. 1995) (“Indeed, courts must be
particularly wary of isolating from its surroundings or considering apart from other
provisions a single phrase, sentence, or section of a contract.”). The policy’s terms
are given their ordinary and generally accepted meaning unless the policy shows
the words were meant in a technical or different sense. Gilbert Tex. Constr., 327
S.W.3d at 126.
If an insurance policy uses unambiguous language, we must enforce it as
written. Don’s Bldg. Supply, Inc. v. OneBeacon Ins. Co.,
267 S.W.3d 20, 23 (Tex.
2008). Mere lack of clarity does not create an ambiguity. Universal Health Servs.,
Inc. v. Renaissance Women’s Group P.A.,
121 S.W.3d 742, 746 (Tex. 2003). Only
if the policy is subject to two or more reasonable interpretations may it be
considered ambiguous. State Farm Lloyds v. Page,
315 S.W.3d 525, 527 (Tex.
2010). Terms in an insurance policy that are subject to more than one reasonable
construction are interpreted in favor of coverage. Gilbert Tex. Constr., 327 S.W.3d
at 133. Even if parties interpret a policy differently, an insurance contract having a
clear and definite meaning is not ambiguous as a matter of law. Mid–Continent
Cas., 323 S.W.3d at 154 (citations omitted). Whether a contract is ambiguous is a
10
question of law. Am. Mfrs. Mut. Ins. Co. v. Schaefer,
124 S.W.3d 154, 157 (Tex.
2003). Likewise, we review a trial court’s interpretation of a contract de novo.
See MCI Telecomms. Corp. v. Tex. Util. Elec. Co.,
995 S.W.2d 647, 650–51 (Tex.
1999).
When an alleged contract ambiguity involves an exclusionary provision of
an insurance policy, we must adopt the construction urged by the insured as long as
that construction is not unreasonable, even if the construction urged by the insurer
appears to be more reasonable or a more accurate reflection of the parties’ intent.
See Evanston Ins. Co. v. ATOFINA Petrochemicals, Inc.,
256 S.W.3d 660, 668
(Tex. 2008) (citing Nat’l Union Fire Ins. Co. v. Hudson Energy Co.,
811 S.W.2d
552, 555 (Tex. 1991)); see also Dallas Nat’l Ins. Co. v. Sabic Ams., Inc.,
355
S.W.3d 111, 117 (Tex. App.—Houston [1st Dist.] 2011, pet. denied).
“‘Exceptions or limitations on liability are strictly construed against the insurer and
in favor of the insured,’ and ‘[a]n intent to exclude coverage must be expressed in
clear and unambiguous language.’” Evanston Ins., 256 S.W.3d at 668 (quoting
Nat’l Union Fire Ins., 811 S.W.2d at 555).
The Policy
On the Policy’s “Package Declarations” page, which summarizes the
contents of the entire Policy, including coverage limits and deductibles, there are,
under the title “Coverage,” four scheduled sections: Section I (a), “Operator’s
11
Extra Expense”; Section I (b), “Oil Spill Financial Responsibility”; Section II,
“Physical Loss or Physical Damage”; and Section III, “Builder’s Risk.”
There are three sections under Section I (a): Section IA, “Control of Well
Insurance,” which covers costs incurred to regain control of any well that gets out
of control; Section IB, “Redrilling/Recompletion Insurance,” which covers costs
incurred to re-drill or restore a well damaged by specified perils; and Section IC,
“Cleanup Expenses and Seepage, Pollution and Contamination Insurance.” Under
Section I (a), “[o]perations” include “Oil and/or gas and/or thermal energy and/or
salt water disposal wells and/or injection wells and or water supply wells in Areas
1, 2 Land, 2 Wet and 3.” (Emphasis added.) There are two sections under Section
II: Section IIA, “Platforms/Caissons,” and Section II B, “Pipelines/Flowlines.”
The trial court’s declarations concern only Sections IA and IB of Section I (a) and
Section IIA of Section II.
Section I (a) - Operator’s Extra Expenses
Section I (a) insured all manners of wells, both onshore and offshore,
provided said wells were identified on a schedule submitted by Prime and the
appropriate premium was paid for the well.2 And it afforded $50 million in
coverage as a combined single limit for Sections IA, IB, and IC.
2
The Policy’s “General Conditions,” which applied to Section I, defined the term
“Well(s) Insured” as “oil and/or gas and/or thermal energy wells and/or salt water
disposal wells and/or injection wells and/or water supply wells that come at risk
12
In regard to the Control-of-Well Insurance, paragraph 1 of Section IA
provides, in pertinent part, as follows:
Underwriters agree subject to the terms and conditions of this
[Policy], to reimburse [Prime] for actual costs and/or expenses
incurred by [Prime]: (a) in regaining control of all well(s) insured
hereunder which get out of control, including any other well or hole
which gets out of control as a direct result of a well insured hereunder
getting out of control; (b) in extinguishing fire in or from such well(s)
or which may endanger the well(s) insured hereunder; and (c) for
removal of wreckage and/or debris of property of [Prime] owned or
leased in whole or in part, resulting from a loss insured in (a) or (b)
above provided removal and/or destruction is required by a legal or
contractual obligation of [Prime], provided, however, that from any
such claim for costs and/or expenses shall be deducted the value of
any property salvaged or recovered inuring finally and irrevocably to
the benefit of [Prime].
(Emphasis added.) The term “well out of control” is defined as follows:
A well(s) shall be deemed to be out of control when there is a
continuous unintended, uncontrolled flow of drilling fluid, oil, gas
and/or water from the well, above the surface of the earth and/or
waterbottom or when it is declared to be out of control by the
appropriate regulatory authority.
Section IA further provides that “expenses” recoverable under this section
“include costs of materials and supplies required, the services of individuals or
firms specializing in controlling wells and extinguishing fires, and directional
on or after the inception date of this Certificate while being drilled, deepened,
serviced, worked over, completed and/or reconditioned until completion or
abandonment . . . and as may be included within the areas and types of wells
insured as set forth in the Declarations hereto.” This definition also included “all
of [Prime’s] scheduled producing and shut-in wells (which include[d] plugged,
cemented and abandoned wells) provided that the schedule of these wells [was] on
file with Global Special Risks, Inc. and an appropriate premium [was] paid.”
13
drilling and similar operations necessary to bring the well(s) under control,
including costs and expenses incurred at the direction of regulatory authorities to
bring the well(s) under control and other expenses included within Paragraph 1
above.” (Emphasis added.) Section IA also contains the following express
exclusion: “Notwithstanding anything to the contrary which may be contained in
these clauses, Underwriters shall have no liability under this Section in respect
of . . . loss or damage to property.” (Emphasis added.)
Prime paid an additional premium for the Making Wells Safe Endorsement,
which applied to Section IA. The endorsement provided additional coverage for
“actual costs and expenses incurred in preventing” a blowout or out-of-control well
“when the drilling and/or workover and/or production equipment has been directly
lost or damaged” by specifically enumerated risks, including windstorm.
However, it applied “only when, in accordance with all regulations, requirements
and normal and customary practices in the industry, it [was] necessary to reenter
the original well(s) in order to continue operations or restore production from or
plug and abandon such well(s).” And Underwriters’ liability for costs and
expenses incurred by reason of the endorsement ceased at the time that (1)
“operations or production [could] be safely resumed” or (2) “the well is or [could]
be safely plugged and abandoned,” whichever occurred first.
14
In regard to Redrilling/Recompletion Insurance, paragraph 1 of Section IB
provides, in pertinent part, as follows:
Underwriters agree, subject to the terms and conditions of this
[Policy], to reimburse [Prime] for actual expenses incurred by [Prime]
including all in-hole equipment (including casing) owned by [Prime]
in redrilling, recompletion, washover, fishing and/or any other salvage
operations as may be necessary to recover or restore any well which
may be lost or damaged as a result of:
A. an occurrence insured against in Section IA of this
insurance; or
B. loss of or damage to the drilling and/or work over
and/or production equipment by lightning; fire,
explosion or implosion above the surface of the
ground or water bottom; collision with land, sea or
air conveyance or vehicle; windstorm; collapse of
derrick or mast; flood; strikes; riots; civil
commotions or malicious damage; and where
covered under Section IA, earthquake, volcanic
eruption or tidal wave; and in respect of offshore
wells only, collision or impact of anchors, chains,
trawlboards or fishing nets.
and which cannot be recovered or restored by means other than
redrilling and/or recompletion. Actual expenses for redrilling or
recompletion shall be limited to the depth of the well and “comparable
condition” that existed prior to the loss.
(Emphasis added.)
Section IB also contains the following express exclusion:
Notwithstanding anything to the contrary which may be contained in
these clauses, there shall be no liability under this Section in respect
of:
15
A. Bodily injury, illness, disease, death, Worker’s Compensation,
loss of drillstem, damage to any part of contractor’s drilling rig
and equipment, loss or damage to property, loss of production
and all fishing costs (except such fishing costs incurred in
connection with redrilling/reconditioning).
B. Redrilling and/or recompletion or for in-hole equipment in
respect of any well that was plugged and abandoned by [Prime]
prior to loss or damage hereunder.
(Emphasis added.) Section IB further provides that “Underwriters’ liability
cease[d] when a lost or damaged well [was] restored to the original depth and
comparable condition that existed prior to the well becoming out of control, on fire
or lost or damaged as the result of the peril or perils insured” in Section IB.
Section II - Physical Loss or Physical Damage
Section IIA, entitled “London Standard Platform Form,” provided “all risks”
property coverage for physical loss or damage to platforms, but it expressly did not
apply to “[w]ell(s) and/or hole(s) whilst being drilled or otherwise.” It scheduled
the replacement cost of the H-Platform at $1,800,000, 50% of which corresponded
to Prime’s interest, or $900,000. It also scheduled $225,000 for Prime’s interest
for platform-related debris removal. Section IIB, entitled “Pipeline Form,”
provided “all risks” coverage for pipelines.
Prime paid an additional premium for a “Removal of Wreckage or Debris
Endorsement, which applied to Section II. The endorsement provided additional
coverage for:
16
all costs or expenses of, or incidental to the actual or attempted
raising, removal or destruction of the wreckage and/or debris of the
property insured hereunder (such wreckage or debris resulting from
loss or damage to the property insured hereunder as a result of a peril
insured against in this insurance) including the provision and
maintenance of lights, markings, and audible warnings when such
removal is compulsory by law or ordinance or is by contractual
obligation or when [Prime] may not or cannot, for practicability of
[Prime’s] Operations at the site in question, abandon the wreckage or
debris, provided, however, that from any such claim for costs or
expenses shall be deducted the value of property salvaged or
recovered inuring to the benefit of [Prime].
Prime’s liability under this extension of coverage was “not [to] exceed in any one
accident an additional 25% limit per item insured/amount stated.”
Redrilling and Recompletion Insurance
In its first issue, Prime specifically argues that the trial court erred in
determining, as a matter of law, that “the costs incurred by Prime in restoring the
[H-2] Well to its pre-loss, producing condition were not covered under Section IB
of the [Policy]” because Section IB, “by its plain and unambiguous language,
provide[d] coverage for actual expenses incurred by [Prime] for those
recompletion and salvage operations necessary to recover an insured well.” It
asserts that it “incurred such costs to restore the [H-2] Well to its pre-loss
condition,” including “those appurtenances necessary for production,” like the H-
Platform. Prime further asserts that the “restoration of a producing well to its pre-
loss condition consists of more than simply ensuring the hole exists at the same
depth” and “[r]ecompletion and restoration of a producing well entails
17
guaranteeing all the equipment and appurtenances necessary to receive the well’s
production are in place and functioning.” (Emphasis added.)
The plain language of Section IB covered expenses incurred in recompletion
efforts and salvage operations to restore an insured “well” that was lost or damaged
by specified perils, including windstorm, to its pre-loss condition. Underwriters
specifically agreed “to reimburse [Prime] for actual expenses incurred by [Prime]
including all in-hole equipment (including casing) owned by [Prime] in redrilling,
recompletion, washover, fishing and/or any other salvage operations as [were]
necessary to recover or restore any well which [was] lost or damaged as a result of”
a specified peril, including windstorm. (Emphasis added.) “Actual expenses for
redrilling or recompletion” were “limited to the depth of the well and comparable
condition that existed prior to the loss.”
Even though the term “well” is not defined in the Policy, 3 it is commonly
understood to mean “the hole made by the drilling bit, which can be open, cased,
or both. Also called borehole, hole, or wellbore.” PETROLEUM EXTENSION
SERVICE OF THE UNIVERSITY OF TEXAS AT AUSTIN (PETEX), A DICTIONARY FOR
THE OIL & GAS INDUSTRY (1st ed. 2005); BLACK’S LAW DICTIONARY 1732 (9th ed.
2009) (“A hole or shaft sunk into the earth to obtain a fluid, such as water, oil, or
3
As noted above, the Policy’s “General Conditions,” which applied to Section I,
defined the term “Well(s) Insured” as “oil and/or gas . . . wells . . . that come at
risk on or after the inception date of this Certificate while being drilled, deepened,
serviced, worked over, completed and/or reconditioned . . . .”
18
natural gas.”). Thus, the term “well” is not commonly understood, in the industry
or otherwise, to include a production platform or other “appurtenances” associated
with the well itself, as asserted by Prime. See Gilbert Tex. Constr., 327 S.W.3d at
126 (stating insurance policy’s terms given their ordinary and generally accepted
meaning unless policy shows words actually meant in technical or different sense).
Prime argues that because the H-2 Well was producing prior to the loss,
Section IB covered all costs incurred by Prime to restore the H-2 Well to
production, including costs and expenses associated with the removal of the old
platform or the construction of a replacement platform, so long as those activities
were necessary to restore the H-2 Well to production, i.e., the well’s pre-loss
condition. Prime further argues that interpreting the term “well” as merely “the
hole made by the drilling bit” renders Section IB’s “comparable condition”
requirement superfluous because a producing well is more than a hole in the
ground.
Section IB expressly obligated Underwriters to only “reimburse [Prime] for
actual expenses incurred by [Prime] including all in-hole equipment (including
casing) owned by [Prime].” (Emphasis added.) As Underwriters’ counsel argued
to the trial court, restoring the actual “well” to its comparable, pre-loss condition,
simply involved restoring the well’s internal components, i.e., the type, kind and
location of the casing set, the number of liners, and any sand screens.
19
Thus, using the ordinary and common meaning of the term “well” does not
render the “comparable condition” requirement of Section IB superfluous or
meaningless. See id. (stating courts should seek to harmonize and give effect to all
policy provisions so none rendered meaningless or inoperative).
Prime also argues that because Section IB provided coverage for costs for
“salvage operations as may be necessary to recover or restore” a well, it
necessarily covered the costs and expenses associated with the removal of the
debris and wreckage of the H-Platform (which actually fell away from the well).
Section IB did provide coverage for “salvage operations” necessary to recover or
restore a well. However, Section IB did not provide coverage over and above the
amount of coverage that Prime purchased through the Removal of Wreckage or
Debris Endorsement as it applied to platform damage under Section IIA.
The terms “salvage” and “debris” do not have the same meaning. Because
“debris” and “salvage” are not defined in the policy, we apply their common
meanings. See Don’s Bldg. Supply, 267 S.W.3d at 23 (“Policy terms are given
their ordinary and commonly understood meaning unless the policy itself shows
the parties intended a different, technical meaning.”).
“Debris” is commonly understood to mean rubbish or “refuse.” THE NEW
OXFORD AM. DICTIONARY 439 (1st ed. 2001). In contrast, “salvage” means the act
of “sav[ing]” or “preserv[ing]” something of value. Id. at 1507. Because a plain
20
reading of the words “debris” and “salvage” confirms that they have different
meanings, we cannot use them interchangeably. Indeed, the Policy does not use
the terms interchangeably. The Removal of Wreckage or Debris Endorsement,
concerning Section IIA, platform damage, and Section IIB, pipeline damage,
specifically refers to coverage for removal of “wreckage and/or debris.” And the
“Removal of Wreck/Debris” Endorsement, which applies to Section III of the
Policy, provides similar coverage. These endorsements use the term “debris”
synonymously with refuse and provide specific coverage for its removal.
In contrast, the General Conditions of Section I contain a separate section
entitled “Recovery and Salvage,” which recognizes that, unlike “debris,” the term
“salvage” connotes value. It provides that “[a]ny salvage or other recovery
including recovery through subrogation proceedings, after expenses incurred are
deducted, shall accrue entirely to the benefit of the Underwriters until the sum paid
by the Underwriters has been recovered.” Section IC contains a similar provision
for “Application of Salvage.”
The term “salvage operations,” as used in Section IB specifically concerns
salvaging a “well,” and it cannot be reasonably read as including the removal of
the debris and wreckage of the H-Platform, which was specifically covered under
the Removal of Wreckage or Debris Endorsement as it concerned Section IIA,
platform damage. It would not be reasonable for us to interpret the terms “salvage
21
operations” and “debris removal” to have the same meaning because such an
interpretation would render one or the other term meaningless or redundant. See
Cherokee Water Co. v. Freeman,
33 S.W.3d 349, 354 (Tex. App.—Texarkana
2000, no pet.) (holding construing different terms to have same meaning would
render one term meaningless).
Accordingly, we hold that the trial court did not err in granting summary
judgment by declaring that “Section IB of the Policy (Expense of
Redrilling/Recompleting) does not provide coverage for costs incurred to replace,
repair or refurbish the [H-Platform] or platform equipment or to remove [H-
Platform debris.”4
We overrule Prime’s first issue.
Control of Well Insurance and Making Wells Safe Endorsement
In its second issue, Prime specifically argues that the trial court erred in
determining, as a matter of law, that Prime “incurred no costs to ensure its severely
damaged [H-2] Well did not become out of control such that none of its costs
would be covered under Section IA and the Making Wells Safe Endorsement of the
[Policy]” because “the plain language of . . . Section IA and the Making Wells Safe
Endorsement” do not restrict coverage “to those instances in which the well
4
The question of whether the costs and expenses actually incurred by Prime can be
classified as falling within one or more of these excluded types of costs and
expenses was not before the trial court and is not before this Court on appeal.
22
actually . . . becomes out of control.” (Emphasis added.) Prime asserts that it
presented summary-judgment evidence that demonstrated that “it incurred
substantial costs in order to ensure the damaged [H-2] Well did not become out of
control.” It also asserts that the trial court “implicitly determined Underwriter’s
classification of Prime’s costs were correct.”
However, the trial court, in its judgment, simply and narrowly declared:
Section IA (specifically, the Making Wells Safe Endorsement) does
not provide coverage for costs to replace, repair or refurbish the H-
Platform or remove H-Platform debris.
Although Prime frames its issue in terms of whether it incurred certain costs, the
trial court made no determination, either explicitly or implicitly, as to whether
Prime actually incurred such costs. Nor did it make any determination about how
Underwriters had classified Prime’s costs. As is readily apparent from the express
language of the trial court’s judgment, it merely declared that certain specific
costs—described as costs to replace, repair, or refurbish the H-Platform, or remove
the H-Platform debris—were not covered under Section IA or the Making Wells
Safe Endorsement.
As noted above, Underwriters, in Section IA of the Policy, entitled “Control
of Well Insurance,” agreed to reimburse Prime for actual costs, expenses, or both
incurred by [Prime]:
(a) in regaining control of all well(s) insured hereunder which get
out of control, including any other well or hole which gets out
23
of control as a direct result of a well insured hereunder getting
out of control;
(b) in extinguishing fire in or from such well(s) or which may
endanger the well(s) insured hereunder; and
(c) for removal of wreckage and/or debris of property of [Prime]
owned or leased in whole or in part, resulting from a loss
insured in (a) or (b) above provided removal and/or destruction
is required by a legal or contractual obligation of [Prime],
provided, however, that from any such claim for costs and/or
expenses shall be deducted the value of any property salvaged
or recovered inuring finally and irrevocably to the benefit of
[Prime].
(Emphasis added.) The Policy deemed a well to be out of control “when there
[was] a continuous unintended, uncontrolled flow of drilling fluid, oil, gas and/or
water from the well, above the surface of the earth and/or waterbottom or when it
[was] declared to be out of control by the appropriate regulatory authority.” And
Section IA expressly excluded “loss or damage to property.”
Also, as noted above, the “Making Wells Safe Endorsement,” which applied
to Section IA, provided Prime additional coverage for “actual costs and expenses”
incurred in “preventing” a blowout or well out of control “when the drilling and/or
workover and/or production equipment has been directly lost or damaged” by
specifically enumerated risks, including windstorm. However, it applied “only
when, in accordance with all regulations, requirements and normal and customary
practices in the industry, it [was] necessary to reenter the original well(s) in order
to continue operations or restore production from or plug and abandon such
24
well(s).” And Underwriters’ liability for such costs and expenses incurred by
reason of the endorsement ceased at the time that (1) “operations or production
[could] be safely resumed” or (2) “the well is or [could] be safely plugged and
abandoned,” whichever occurred first.
The trial court’s declaration that Section IA, and specifically the Making
Wells Safe Endorsement, did “not provide coverage for costs to replace, repair or
refurbish the [H-Platform] or remove [H-Platform] debris” is not in any way
inconsistent with the express language of the section or the endorsement. Indeed,
the trial court’s declaration is consistent with Section IA and the endorsement,
especially when read in the context of the entire Policy.
Regardless, in its brief, Prime asserts that although it has “never contended
the [H-2] Well was, at any time, ‘out of control,’ as that term is [used in] Section
IA,” it incurred various costs to prevent the H-2 Well “from becoming out of
control.” It further asserts that it was required to retain the services of well-
control experts, the Making Wells Safe Endorsement “enables an insured to be
proactive in preventing a well control loss,” and Sections I and II of the Policy are
“not mutually exclusive.” And Prime asserts that fact issues precluded summary
judgment, highlighting and analyzing the affidavit testimony of certain witnesses.
However, nowhere in its brief does Prime explain how Section IA and the
Making Wells Safe Endorsement actually “provide[d] coverage for costs to
25
replace, repair or refurbish the [H-Platform] or remove [H-Platform] debris,”
contrary to the trial court’s narrow and specific declaration. In fact, Section IIA,
entitled “London Standard Platform Form,” provided “all risks” property coverage
for physical loss or damage to the H-Platform, and it specifically scheduled
$225,000 for Prime’s interest for platform-related debris removal. And although
Prime paid an additional premium for a Removal of Wreckage or Debris
Endorsement, which applied to Section II, and, thus, the H-Platform, Prime does
not complain that Underwriters failed to indemnify it, as per the Policy’s terms
and limits, for its costs and expenses related to the H-Platform.
In its reply brief, Prime further argues that “at a minimum, a fact issue
existed regarding whether Prime incurred costs under Section IA” because it
presented to the trial court as summary-judgment evidence the affidavit of Andy
Scott, an employee of well operator W&T. Prime specifically relies on Scott’s
testimony that the H-2 Well was “at risk for becoming out of control.” However,
Prime does not explain how this testimony concerns the H-Platform. Nor does
Prime direct us to any summary-judgment evidence demonstrating that the H-
Platform’s replacement, repair, or refurbishment, or the removal of the H-
Platform’s debris was necessary to prevent the H-2 Well from blowing out or
becoming out of control.
26
Focusing on the actual wording of the trial court’s judgment concerning
Section IA and the Making Wells Safe Endorsement, we conclude that its
declaration is consistent with the express language of the section and the
endorsement, especially when read in the context of the entire Policy.
Accordingly, we hold that the trial court did not err in declaring that “Section IA
(specifically, the Making Wells Safe Endorsement) does not provide coverage for
costs to replace, repair or refurbish the H-Platform or remove H-Platform debris.”
Conclusion
We affirm the judgment of the trial court.
Terry Jennings
Justice
Panel consists of Justices Jennings and Brown. 5
5
The Honorable Jim Sharp, former Justice of this Court, was a member of the Panel
and present for argument when this case was submitted. Because his term expired
on December 31, 2014, he did not participate in the decision of the case. See TEX.
R. APP. P. 41.1.