Basic Energy Services, Inc. v. Liberty Mut. Ins.

• Decision Date: 18 September 2009
• Docket Number: No. MO-08-CV-78.,MO-08-CV-78.
• Citation: 655 F.Supp.2d 666
• Parties: BASIC ENERGY SERVICES, INC., Plaintiff v. LIBERTY MUTUAL INSURANCE CO., Defendant.
• Court: U.S. District Court — Western District of Texas

655 F.Supp.2d 666

BASIC ENERGY SERVICES, INC., Plaintiff v. LIBERTY MUTUAL INSURANCE CO., Defendant.

No. MO-08-CV-78.

United States District Court, W.D. Texas, Midland-Odessa Division.

September 18, 2009.

COPYRIGHT MATERIAL OMITTED

Lee H. Shidlofsky, Douglas P. Skelley, Visser Shidlofsky LLP, Austin, TX, for Plaintiff.

George B. Hall, Jr., Phelps Dunbar LLP, New Orleans, LA, Mary Cazes Greene, Phelps Dunbar, LLP, Houston, TX, for Defendant.

ORDER (1) GRANTING PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT, (2) GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION FOR SUMMARY JUDGMENT, and (3) GRANTING PLAINTIFF'S MOTION TO STRIKE SUMMARY JUDGMENT EVIDENCE

ROBERT JUNELL, District Judge.

Before the Court are Plaintiffs Motion for Partial Summary Judgment (Doc. No. 30) and Defendant's Motion for Summary Judgment (Doc. No. 32, corrected 44), responses and supplemental responses to each, and Plaintiffs Opposed Motion to Strike Summary Judgment Evidence (Doc. No. 41). The Court held a pretrial hearing on July 28, 2009, at which it addressed the pending motions. The Court now GRANTS Plaintiffs Motion for Partial Summary Judgment, GRANTS IN PART and DENIES IN PART Defendant's Motion for Summary Judgment, and DENIES Plaintiffs Motion to Strike Summary Judgment Evidence.

BACKGROUND

Basic Energy ("Plaintiff") purchased an Excess Commercial General Liability policy with Liberty Mutual Insurance Company ("Defendant"), effective August 1, 2007 to August 1, 2008, numbered EB1-641-005029-027. Basic Energy is an oil company based in Midland, Texas.

In September 2007, D-S-B Properties contracted with Plaintiff to replace an oil pump on a well (BM-Mosley # 1, or "the well"). Replacement began on September 12, 2007. While replacing the pump, Plaintiff discovered the tubing in the well might have a leak, and Plaintiff and D-B agreed to have Plaintiff conduct pressure tests on the tubing before returning it to the well. In the process of replacing the tubing and conducting the pressure tests, the tubing was dropped into the well, allegedly causing injury to the well bore and casing. As a result, D-S-B claimed the well was no longer able to produce oil. D-S-B risked losing its mineral lease on the property due to cessation of production. On November 5, 2007, D-S-B then sued Plaintiff in the 114th District Court of Smith County, Texas, in a case entitled S-B Properties, Inc. v. Basic Energy Services, Cause Number 07-2869-B, seeking damages for the cost to repair the well bore and reproduce (or re-drill) the well.

Several intervenors later also filed petitions in intervention in the state court case, on September 20, 2008. The intervenors sought damages for repair of the well, cost of reproduction of the well, market value of the well, lost income and royalties and cost of environmental damage to the well.

The case is before this court because Plaintiff is seeking to have its liability insurance carrier, Liberty Mutual ("Defendant"), pay the costs of Plaintiff's defense in the state court case, under the terms of its policy. Plaintiff alleges that it tendered the state court petition to Defendant and requested they pay defense costs on November 12, 2007. Defendant denied coverage (and declined to pay for the costs of defense) on February 13, 2008. Plaintiff requested a clarification of the coverage denial on February 18, 2008, and again on April 11, 2008, to no avail. Additionally, Plaintiff tendered Intervenors' Original and First Amended Petitions to Defendant on October 9, 2008, seeking defense. On November 12, 2008, Defendant again denied coverage for the underlying lawsuit.

Plaintiff then brought suit, based on diversity jurisdiction and adequate amount in controversy, alleging that it is entitled to attorney's fees as well as reimbursement. Plaintiff specifically seeks: (1) declaratory relief as to whether Defendant owes Plaintiff defense costs and expenses in the underlying lawsuit, (2) damages for breach of contract for Defendant's denial of coverage, (3) damages for violation of Art. 542.051 of the Texas Insurance Code, which requires prompt payment of claims and 18% penalty interest and attorney's fees for violations, and (4) attorney's fees.

In its answer, Defendant states: (1) Plaintiffs Original Complaint fails to state a cause of action upon which relief can be granted, (2) the policy language does not provide coverage to Plaintiff because no "occurrence" caused "property damage" or "loss of use" as those terms are defined in the policy and its exclusions, (3) Defendant's actions were not a producing cause of damages, injury, or loss suffered by Plaintiff, and (4) the policy does not provide a duty to defend because policy exclusions preclude coverage.

Defendant also counterclaims for declaratory judgment, seeking a judgment that it has no duty to defend or indemnify Plaintiff or pay any insurance proceeds under the policy. Further, under Texas Civil Practice and Remedies Code and 28 U.S.C. § 2202, Defendant also seeks recovery of its attorney's fees and costs.

STANDARD OF REVIEW

Summary judgment should be granted only where "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). The moving party bears the initial burden to demonstrate the basis for the motion and the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Meadowbriar Home for Children, Inc. v. Gunn, 81 F.3d 521, 533 (5th Cir.1996). Only factual disputes that affect a suit's outcome to the extent that a reasonable jury could return a verdict for the nonmoving party warrant granting summary judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

If the movant carries this burden, the burden shifts to the nonmovant to show the existence of a genuine issue for trial. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986); Littlefield v. Forney Indep. Sch. Dist., 268 F.3d 275, 282 (5th Cir.2001). Any inferences drawn from the underlying facts in dispute must be viewed in the light most favorable to the nonmovant. Matsushita, 475 U.S. at 587, 106 S.Ct. 1348. If the record, viewed in this manner, could not lead a rational trier of fact to find for the nonmovant, then summary judgment is proper. Kelley v. Price-Macemon, Inc., 992 F.2d 1408, 1413 (5th Cir.1993) (citing Matsushita, 475 U.S. at 577-78, 106 S.Ct. 1348). If, on the other hand, the factfinder could reasonably find in the nonmovant's favor, then summary judgment should be denied. Id. (citing Anderson, 477 U.S. at 250, 106 S.Ct. 2505). Finally, even if the standards of Rule 56 are met, a court has discretion to deny a motion for summary judgment if it believes that it would be prudent to proceed to trial. Anderson, 477 U.S. at 255, 106 S.Ct. 2505.

DISCUSSION

The policy at issue is an excess commercial general liability insurance policy. It contains two main coverage grants, one for bodily injury and property damage liability, and one for personal and advertising injury liability. Regarding the property damage coverage, which is occurrencebased, the policy agrees to indemnify the insured for sums in excess of the "selfinsured amount" for property damage to which the insurance applies. The insuring agreement states that "No other obligation or liability to pay sums or perform acts or services is covered unless explicitly provided for in Section VII—Supplementary Payments/ Allocated Loss Adjustment Expense." (Def. Mot. Summ. J. App. 69).

The parties' dispute, and the key issue in analyzing their competing claims for summary judgment, revolves around the analysis of Allocated Loss Adjustment Expense ("ALAE") in the insurance contract. This provision discusses a duty to reimburse under the insurance contract for certain legal expenses.

In major part, Plaintiffs allege that the duty to reimburse provision grants coverage for immediate payment by Defendant (after Plaintiff pays up to the self-insured amount) of Plaintiffs state court defense expenses and is not subject to any policy exclusions under the facts of this case. Defendant, to the contrary, claims that because the duty to defend is explicitly disclaimed in the insurance contract, Defendant is under no obligation to pay ALAE under the insurance agreement unless the payment is indemnification (paid after completion of the state court suit), and further, the factual situation of the underlying lawsuit falls under a policy exclusion that excludes payment entirely. The Court first analyzes the ALAE policy language, then examines whether this language triggers any duty to pay for Plaintiffs defense costs under Texas law. The Court finds that Defendant has an obligation to reimburse Plaintiffs defense costs and GRANTS Plaintiffs Motion for Partial Summary Judgment.

I. Allocated Loss Adjustment Expense ("ALAE") Policy Language

Plaintiff seeks a ruling that Defendant is obligated to reimburse Plaintiff for "allocated loss adjustment expenses" incurred in defense of the state court lawsuit; Defendant seeks the opposite ruling. It is helpful, then, to establish exactly what policy language is being discussed.

Within the standard policy, Allocated Loss Adjustment Expense is initially discussed in Section VII, entitled "Supplementary Payments / Allocated Loss Adjustment Expense." (Def. Mot. Summ. J. App. 91). That section states, in pertinent part:

1. Where the insured controls the defense, we [Defendant] will reimburse the insured [Plaintiff] for our proper share of the "allocated loss adjustment expense" paid by the insured for each "occurrence." Our proper share of the paid "allocated loss adjustment expense" shall be the ratio that the amount of...