Petrol Industries, Inc. v. Gearhart-Owen Industries, Inc.
| Decision Date | 29 November 1982 |
| Docket Number | GEARHART-OWEN,No. 15093-CA,15093-CA |
| Parties | PETROL INDUSTRIES, INC., Plaintiff-Appellant, v.INDUSTRIES, INC.; Appalachian Insurance Company and Employers Casualty Company, Defendants-Appellants-Appellees. |
| Court | Court of Appeal of Louisiana — District of US |
Bodenheimer, Jones, Klotz & Simmons by J.W. Jones, Shreveport, for plaintiff-appellant.
Cook, Yancey, King & Galloway by Benjamin C. King, Shreveport, for defendants-appellants-appellees Gearhart-Owen and Appalachian Ins. Co.
Mayer, Smith & Roberts by Paul R. Mayer, Shreveport, for defendant-appellant-appellee Employers Cas. Co.
Wiener, Weiss, Madison & Howell by James Fleet Howell, Shreveport, for defendant-appellee, Scogin Well Service, Inc.
Before HALL, FRED W. JONES, Jr. and NORRIS, JJ.
In this suit for damages for the destruction of an oil well due to an explosion which occurred during an attempt to patch a hole in the casing, the issues presented on appeal are:
(1) Did the trial judge make an inadequate damage award?
(2) Did the comprehensive general liability insurance policy issued by Employers Casualty Company to Gearhart-Owen Industries, Inc. afford coverage for the accident and damages in question?
For the reasons hereinafter explained, we answer both questions in the affirmative, but amend the district court judgment in the particulars described.
In 1975 Petrol Industries, Inc. ("Petrol") orally contracted with Gearhart-Owen Industries Inc. ("Gearhart-Owen") to patch a hole in the casing of a Caddo Parish oil well (owned and operated by Petrol), at about the 2500 to 2700 foot subsurface level. Pursuant to this agreement, Gearhart-Owen sent its employee, Gaston, to the well site. Acting under Gaston's supervision and direction, one of his helpers and personnel from Scogin Well Service (hired by Gearhart-Owen to assist in the repair operation with a workover rig) assembled a patching tool and ran it into the well bore.
When the patching tool was activated in an attempt to patch the well casing in place, at the described subsurface level, an explosion occurred which resulted in the loss of the patching tool and damage of such severity to the casing that the well was plugged and abandoned.
As a result of this accident, in June 1976 Petrol filed this damage suit against Gearhart-Owen and its insurer, Appalachian Insurance Company ("Appalachian"). Subsequently, in an amended petition Petrol joined as a defendant Employers Casualty Company ("Employers"), another alleged insurer of Gearhart-Owen, together with other parties not involved in this appeal.
Gearhart-Owen and Appalachian filed a third party demand against Employers, asserting that Appalachian was Gearhart-Owen's excess insurer; that Employers' insurance policy afforded primary coverage to Gearhart-Owen for this accident; and that Employers was obligated to defend this claim against Gearhart-Owen and pay any judgment rendered against that defendant up to the $100,000 policy limits.
Employers filed a motion for summary judgment, denying that the comprehensive general liability insurance policy issued by it to Gearhart-Owen covered this particular accident. Initially, the motion was sustained and the suit dismissed as to Employers. However, the trial judge granted a motion for a new trial filed by Gearhart-Owen and Appalachian, reconsidered his ruling on the motion for summary judgment, decided that Employers' policy did afford insurance coverage, and denied the motion for summary judgment. Employers continued in its denial of coverage, resisting the claims of Petrol and the third party demands of Gearhart-Owen and Appalachian.
After trial on the merits, in written reasons for judgment the trial judge, applying the doctrine of res ipso loquitur, concluded that the loss of the oil well was due to the negligence of Gearhart-Owen and that, as damages, Petrol was entitled to recover the cost of drilling a new well less a depreciation factor of 30%. 1 Declining to reconsider its previous ruling on insurance coverage, the trial court held that Employers had breached its legal duty to defend Gearhart-Owen in the proceeding and was liable to third party plaintiffs for attorney fees in the sum of $10,000.
Petrol appealed, asking for an increase in the damage award.
Employers appealed for itself alone, again raising the defense of lack of insurance coverage.
Gearhart-Owen also appealed. 2 Further, Gearhart-Owen and Appalachian answered Employers' appeal, asking for an increase in the attorney fee award to cover legal services rendered in connection with the appeal and for reimbursement of the premium paid for the suspensive appeal bond.
Petrol argues that, since the oil well was destroyed, it should have been awarded the value of the well--calculated on the basis of future profits anticipated over the production lifespan, amounting to $348,859. Alternatively, Petrol asserted that the trial court should not have deducted any depreciation from the cost of the new well since this depreciation had been taken care of by depletion of the reservoir itself.
Where property has been damaged through the fault of another and legal recourse is sought, the primary objective of the judicial process is to restore the owner of the damaged property, as nearly as feasible, to his status immediately prior to the damaging incident. Consequently, where the thing damaged can be adequately repaired, the proper measure of damages is the cost of restoration. If it is not practical to repair the damaged property, the objective of restoring the injured party to his prior position may be achieved by awarding him the difference in the value of the property before the damage was inflicted and immediately afterwards. If this figure cannot be determined with a reasonable degree of certainty, the damage award should be based upon the cost to replace the damaged property less a depreciation factor. Since the aim in each suit of this nature is to do substantial justice, the particular facts of each case will determine which of the foregoing tests is appropriate to apply. See Schexneider v. United Geophysical Corp., 385 So.2d 533 (La.App. 3rd Cir.1980); Mayer v. McNair Transport, Inc., 384 So.2d 525 (La.App. 2d Cir.1980); Gullatt v. Ashland Oil & Refining Co., 243 So.2d 820 (La.App. 2d Cir.1971).
Here, the oil well could not be repaired since it had been destroyed. Estimates of the difference in value of the well before the accident and afterwards were too speculative to serve as a basis for the damage award. Therefore, the trial judge correctly ruled:
The trial judge's selection of $135,000 as the cost of a new well in 1975 is not contested by any of the parties on appeal. We conclude, however, that he erred in depreciating this entire figure, including drilling costs, rather than just depreciating the physical equipment which was to be installed in connection with the new well. After all, the proper measure of damages would have been the entire cost of the new well except for the fact that, with new equipment, Petrol would be in a better position than before the accident--particularly in view of the obvious fact that before the explosion it had casing which needed repairing.
To achieve the goal of placing Petrol, as nearly as possible, in the same position as before the accident, we have determined that only the items of physical equipment included in the cost of the new well should be depreciated. Our examination of the exhibit filed in the record detailing the new well cost reveals that approximately 45% of the total consists of cost of new equipment. Of the total cost of $135,000, this amounts to $60,750, which we depreciate by 30% (percentage used by the trial judge, which we consider reasonable), or the sum of $18,225. Using these figures, our computation of damages is as follows:
$ 135.000 cost of new well
- 18,225 depreciation
---------
116,775
X 93.75% Petrol's working interest
---------
109,477
k 8,482 additional expenses incurred by Petrol, as found by trial judge
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$ 117,959 total damages to be awarded Petrol
Insurance Coverage
At the time of the accident there was in force a comprehensive general liability insurance policy issued by Employers to Gearhart-Owen including, together with other coverage, a limit of $100,000 per occurrence for property damage liability.
Coverage originally extended to all property damage arising out of blasting or explosion except for Gearhart-Owen's ammunition manufacturing operation. Endorsement No. 8 eliminated that exclusion.
Employers contends that its policy does not cover this property damage because: (1) Endorsement No. 3 excludes underground operations by the insured in connection with servicing oil wells and (2) Part 1(k) of the policy excludes damage to property in the care, custody and control of the insured, which was allegedly the case here.
Endorsement No. 3 provides in pertinent part:
EXCLUSION
(Underground Resources and Equipment)
It is agreed that with respect to operations performed by or on behalf of the named insured and described in this endorsement:
1. The insurance does not apply to
(a) property damage included within the underground resources and equipment hazard;
(b) the cost of reducing any property included within the underground resources and equipment hazard to physical possession above the surface of the earth or above the surface of any body of water, or to the expense incurred or rendered necessary to prevent or minimize property damage to other property resulting from acts or omissions causing property damage included within the...
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