Pioneer Exploration, L.L.C. v. Steadfast Ins. Co.
| Decision Date | 22 September 2014 |
| Docket Number | No. 13–30802.,13–30802. |
| Parties | PIONEER EXPLORATION, L.L.C., Plaintiff–Appellant v. STEADFAST INSURANCE COMPANY, Defendant–Appellee. |
| Court | U.S. Court of Appeals — Fifth Circuit |
PIONEER EXPLORATION, L.L.C., Plaintiff–Appellant
v.
STEADFAST INSURANCE COMPANY, Defendant–Appellee.
No. 13–30802.
United States Court of Appeals, Fifth Circuit.
Sept. 22, 2014
Affirmed.
[767 F.3d 506]
Philip D. Nizialek (argued), Sarah Elizabeth Stogner, Carver, Darden, Koretzky, Tessier, Finn, Blossman & Areaux, L.L.C., New Orleans, LA, Patrick Donovan Gallaugher, Jr., Scofield, Gerard, Pohorelsky, Gallaugher & Landry, Lake Charles, LA, for Plaintiff–Appellant.
Glen E. Mercer, Esq. (argued), Salley, Hite, Mercer & Resor, L.L.C., New Orleans, LA, for Defendant–Appellee.
Appeal from the United States District Court for the Western District of Louisiana.
Before HIGGINBOTHAM, CLEMENT, and HIGGINSON, Circuit Judges. PATRICK E. HIGGINBOTHAM, Circuit Judge:
In this diversity action, plaintiff-appellant Pioneer Exploration, L.L.C. (“Pioneer”) appeals the grant of summary judgment to defendant-appellee Steadfast Insurance Co. (“Steadfast”). We agree with the district court that coverage for Pioneer's damages is unavailable under Steadfast's umbrella policy and AFFIRM.
Pioneer, an oil and gas exploration company, operated a gas well (“Meaux No. 1 Well”) in Cameron Parish, Louisiana.1 The well was located on property owned by John Brent Meaux and Jimmi Meaux McLean (“the Meauxes”). At the time of the blowout, the well was leased by Pioneer pursuant to a 1958 mineral lease—between the Meauxes' predecessor-in-interest and Pioneer's predecessor-in-interest—covering approximately 284.52 acres in Cameron Parish. The well was located
[767 F.3d 507]
near the southern boundary of the Meauxes' property in a small limestone parking area or “pad,” which occupied a little more than half an acre of the Meauxes' land. Pioneer conducted its operations for the Meaux No. 1 Well on this limited portion of land.2
The well suffered a blowout in January 2008, and salt water and other fluids flowed from the wellhead until March 2008. The contamination covered roughly 12 acres of land, with some portion of the contamination seeping into neighbors' property.
Pioneer began response and cleanup operations immediately. First, Pioneer began by hiring a company 3 to furnish crews to control and plug the well. It took approximately 50 days to control and plug the well, explaining the flow from January to March 2008. Second, as part of the cleanup efforts, Pioneer hired another company 4 to construct levees and impoundments to contain the fluids and prevent them from flowing onto nearby land—an act that Pioneer claims prevented the contamination from spreading to roughly 315 acres beyond the Meaux property. Third, when the levees and impoundments threatened to overflow, Pioneer hired several contractors 5 to provide specialized “vacuum trucks” to suction and remove the fluids and transport them to commercial disposal facilities. Fourth, after the well was successfully plugged, Pioneer hired a company 6 to perform environmental remediation on the affected land, which included both the Meauxes' property as well as the property of one of their neighbors, Kevin Rutherford. This remediation process lasted from May 2008 until the summer of 2011.
During the course of these events, the Office of Conservation of the Louisiana Department of Natural Resources issued an order threatening to fine Pioneer $5,000 per day if Pioneer did not commence cleanup. Pioneer was also sued by Rutherford and the owners of another adjacent property, Andrew J. Vaughan and Gaylin Richard.
When the blowout occurred, Pioneer was insured under three different policies. Pioneer had a “control of well” insurance policy, issued by Lloyds of London, which provided $5 million in coverage for costs incurred because of a well failure. Pioneer also had two policies from Steadfast: a commercial general liability (“CGL”) policy and an umbrella policy. Both had terms from April 7, 2007 to April 7, 2008. Because Pioneer's costs exceeded the $5 million in coverage under the Lloyds policy, Pioneer requested coverage for the remaining amount from Steadfast. Steadfast denied coverage.
On January 28, 2009, Pioneer filed this lawsuit in Louisiana state court, seeking coverage under both the CGL and umbrella polices. Pioneer sought costs and
[767 F.3d 508]
expenses incurred in cleaning up and remediating the property; a declaratory judgment that Steadfast is obligated to defend or indemnify Pioneer with respect to the two lawsuits by the neighboring landowners; and penalties, costs, and attorney's fees for Steadfast's alleged violation of its good faith duty.7 On February 25, 2009, Steadfast timely removed to the U.S. District Court for the Western District of Louisiana based on diversity of citizenship. Pioneer amended its petition for coverage to include the fact that the Meauxes had filed suit against Pioneer, and Steadfast had denied this claim as well. The Rutherford and Vaughan/Richard suits settled in December 2009 and the Meaux suit was dismissed in January 2012 after Pioneer finished remediation.
Therefore, Pioneer sought recovery of the following approximate sums: $7.1 million to control and plug the well, $6.4 million to construct the levees and impoundments and haul the fluids away, $1.2 million to perform remediation on the affected property, $91,814 to defend the three lawsuits it faced, and $56,354.16 in settlement costs for the Rutherford and Vaughan/Richard lawsuits.
While Pioneer originally sought coverage under both policies, it has now conceded that coverage is unavailable under the CGL policy. The only policy at issue in this appeal is the umbrella policy.
The umbrella policy has two types of coverage: Coverage A and Coverage B. Whether Coverage A or Coverage B applies depends on whether coverage is afforded by underlying insurance, a term defined in the umbrella policy. 8 If coverage is afforded by underlying insurance, then Coverage A applies. If not, then Coverage B applies. Both parties agree that coverage was not provided by underlying insurance, and therefore, Coverage B applies.
As relevant to this appeal, the umbrella policy has two parts: the main part of the policy, which is a standard ISO form,9 and various attached endorsements that modify the policy in some way. The provisions at issue in this appeal come from both parts. The general description of Coverage B under Section I in the main part of the policy states:
B. Coverage B—Umbrella Liability Insurance
Under Coverage B, we will pay on behalf of the insured, sums as damages the insured becomes legally obligated to pay by reason of liability imposed by law or assumed under an insured contract because of bodily injury, property damage, or personal and advertising injury covered by this insurance but only if the injury, damage or offense arises out of your business, takes place during the policy period of this policy and is caused by an occurrence happening anywhere. We will pay such damages in excess of the Retained Limit specified in Item 5 of the Declarations or the amount payable by other insurance, whichever is greater.
[767 F.3d 509]
Within the main part of the policy, the retained limit is specified as $10,000. Thus, Pioneer has to bear the cost of the initial $10,000 before Steadfast pays its share. A representative of Steadfast admitted during deposition that the well blowout meets the definition of an occurrence that happened during the policy period and that the blowout arose out of Pioneer's business. On its face, then, coverage seems available. But Steadfast points to several other provisions to demonstrate that Pioneer's claims are not covered.
First, Section IV(C)(8) of the main part of the policy contains a Property Damage exclusion. The exclusion states that Coverage B does not apply to property damage to:
Property you own, rent or occupy, including any costs or expenses incurred by you, or any person or organization or entity, for repair, replacement, enhancement, restoration or maintenance of such property for any reason, including prevention of injury to a person or damage to another's property.
The Property Damage exclusion thus precludes coverage for any property “owned, rented or occupied” by Pioneer.
Second, the umbrella policy contains an Oil Industry Limitation (“OIL”) endorsement. The endorsement begins by stating that it changes the policy. It then states that both Coverage A and Coverage B are subject to additional exclusions. Specifically, the endorsement provides that:
This policy shall not apply to any obligation or liability incurred by or imposed upon any insured arising out of:
...
A. 2. any cost or expense incurred by or at the request of any insured or any co-owner of a working interest in connection with controlling or bringing under control any oil, gas or water well which becomes out of control. A well shall be deemed out of control only so long as there is a continuous flow of drilling fluid, oil, gas or water above the ground or ocean floor which is uncontrollable;
...
B. 2. injury to or destruction of property located on or above the surface of the earth arising from a blowout or cratering of any well.
The OIL endorsement precludes coverage for any costs connected with controlling or bringing under control any out-of-control well.
Third, there is the Blended Pollution endorsement. This endorsement replaces two pollution exclusions in the main part of the policy, specifically Sections IV(B)(1) and IV(C)(6). These exclusions, identical in wording, preclude coverage for almost all pollution-related expenses under Coverage A and Coverage B, respectively.
The Blended Pollution endorsement begins by stating that it changes the policy. In Paragraph A, it states that the pollution exclusions in Sections IV(B)(1) and IV(C)(6) are deleted. In Paragraphs B(1) and B(2), the endorsement reproduces much of the language of the deleted exclusions, essentially excluding “any liability, damage, loss, cost or expense” arising from actual,...
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