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Starnet Insurance Co. v. Federal Insurance Co.

United States District Court, W.D. Texas, Austin Division

April 5, 2017

STARNET INSURANCE COMPANY, LLOYD'S SYNDICATE CVS 1919, LLOYD'S SYNDICATE NO. 780 ADV, and LLOYD'S SYNDICATE NO. 4020 ARK, each for his own and not one for the other, severally subscribing to Contract of Insurance No. BD-CJP-555, Plaintiffs,
v.
FEDERAL INSURANCE COMPANY, Defendant.

          ORDER

          SAM SPARKS UNITED STATES DISTRICT JUDGE

         BE IT REMEMBERED on this day the Court reviewed the file in the above-styled cause, and specifically Plaintiffs' Motion for Summary Judgment [#25], Defendant's Motion for Summary Judgment [#26], the parties' Responses [##27, 29] in opposition, and the parties' Replies [##28, 30] in support. Having reviewed the documents, the governing law, and the file as a whole, the Court now enters the following opinion and orders.

         Background

         Plaintiffs Starnet Insurance Company, Lloyd's Syndicate CVS 1919, Lloyd's Syndicate No. 780 ADV, and Lloyd's Syndicate No. 4020 (Plaintiffs) bring this suit against Defendant Federal Insurance Company (Federal), claiming Federal breached its contract with non-party Border to Border Exploration, LLC (BBX). Compl. [#1] ¶ 17-19. Plaintiffs allege they are subrogated to BBX's breach of contract claim against Federal.

         The parties in this case do not dispute any facts and agree the only issue before this Court is the interpretation of three insurance policies to determine the priority of the policies and consequently if Plaintiffs are entitled to recover from Federal. Pis.' Mot. [#25] at 10; Def's Mot. [#26] at 1-2. Nevertheless, the Court provides a brief recitation of the facts for context.

         While this suit features dueling insurance companies, the underlying event centers on an oil well blowout. See Compl. [#1] ¶ 8. On September 1, 2014, an oil well was being drilled for BBX, the insured, when the well experienced a blowout, resulting in surface pollution to adjacent creeks and tributaries and to surrounding property owned by a third party. Id. Approximately $4, 056 million of the clean-up expense was allocated to BBX's working interest in the well. Id. ¶ 12.

         At the time of the blowout, BBX had multiple insurance policies. Id. ¶¶ 9-11. Relevant here, BBX had Cost of Well Control and Extra Expense Coverage from Plaintiffs for up to $25 million (Burke-Daniels Policy). Id. ¶ 11. BBX was also covered by Energy Industries Liability Insurance from Vigilant Insurance Company (Vigilant) with an incident limit of $1 million (Vigilant Policy). Id. ¶ 9. Finally, BBX had Commercial Excess and Umbrella Insurance from Federal (Federal Policy). Id. ¶ 10.

         Following the blowout, Plaintiffs paid BBX $2, 028, 274.49, 50% of the cleanup expenses. Pis.' Mot. [#25] at 7. Vigilant then paid BBX $1 million, the cap for a single incident under the Vigilant Policy. Id. Federal, however, refused to pay BBX the remaining $1, 028, 274.49, asserting its policy was excess over all other policies, including Plaintiffs' Policy. Id.

         After Federal refused to pay, Plaintiffs paid the remainder of BBX's claim in exchange for a release and subrogation agreement. Id. Thus, Plaintiffs paid a total of $3, 056, 548.98. See Id. Plaintiffs now seek reimbursement from Federal. Compl. [#1] ¶ 8.

         A. Burke-Daniels Policy

         Plaintiffs' Burke-Daniels Policy provided BBX with up to $25 million in coverage for control of well events, subject to a $200, 000 self-insured retention, and for a variety of operator's expenses. Pis.' Mot. [#25] at 5. The operator's expense coverage included pollution expenses, such as "[t]he cost of removing, nullifying, or cleaning up seeping, polluting or contaminating substances, which [are] above the surface of the ground or water bottom, emanating from well insured under the CONTROL OF WELL INSURANCE . . . ." Pis.' Mot. [#25-3] Ex. 3 (Burke-Daniels Policy) at 4.[1]

         The Burke-Daniels policy also contained the following "other insurance" clause: "In the event there is other insurance, which insures to the Assured's benefit covering any loss, damage, liability or expense covered hereunder, this insurance shall not pay until such other insurance is exhausted." Id. at 7.

         B. Vigilant Policy

         As mentioned above, BBX also had insurance from Vigilant, a Chubb Insurance Company, which provided pollution liability insurance. Pis.' Mot. [#25-1] Ex. 1 (Vigilant Policy) at 4. The Vigilant Policy included the following "other insurance" provision:

This insurance is primary, except to the extent that the Excess Insurance provision described below applies. If this insurance is primary, then our obligations are not affected unless any of the other insurance is also primary. Then, we will share with all that other insurance by the method described in the Method of Sharing provision below.

Id. at 7.

         In relevant part, the method of sharing provision stated, "If all of the other insurance permits contribution by equal shares, then we will follow this method also. Under this method, each insurer contributes equal amounts until it has paid its applicable limits of insurance or none of the loss remains, whichever comes first." Id. at 8. However, if the other insurance did not permit contribution by equal shares, the Vigilant Policy mandated each insurer's share be determined by "the ratio of its applicable limits of insurance to the total applicable limits of the insurance of all insurers." Id.

         C. Federal Policy

         Federal is also a Chubb Insurance Company. Pis.' Mot. [#25-2] Ex. 2 (Federal Policy) at 1. The Federal Policy was composed of two insuring agreements: Excess Follow-Form Coverage A (Coverage A) and Umbrella Coverage B (Coverage B). The Federal Policy specified a limit of $5 million per occurrence, with separate $5 million limits under each of the two insuring agreements. Federal Policy at 1.

         Coverage A included a promise to pay "on behalf of the insured, that part of loss to which this coverage applies, which exceeds the applicable underlying limits." Id. at 4. Coverage A also explained that it "follow[ed] the terms and conditions of underlying insurance described in the Schedule of Underlying Insurance" but did "not apply to any part of loss within the underlying limits, or any related costs or expenses." Id. The Schedule of Underlying Insurance listed six insurance policies meeting the definition of underlying insurance. Id. ...


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