Broadhead v. Hartford Cas. Ins. Co.

• Decision Date: 16 April 1991
• Docket Number: Civ. A. No. J86-0667(L).
• Citation: 773 F. Supp. 882
• Parties: Eugene A. BROADHEAD, Receiver and Statutory Liquidator for the State Board of Insurance in the State of Texas for Mission National Insurance Co., and International Insurance Company, Plaintiffs, v. HARTFORD CASUALTY INSURANCE COMPANY and Hartford Accident & Indemnity Company, Defendants and Cross-Claimants, v. Bryan D. PIERI, et al., R.K. Webb, et al., and Indemnity Marine Assurance Company, Ltd., et al., Defendants and Cross-Defendants, Dan Pierce and Pierce Petro-Management, Inc., d/b/a Pierce Petroleum, Intervenors, Tomlinson Interests, Inc., Republic Refining, Ltd., and Gary J. Knostman, Intervenors.
• Court: U.S. District Court — Southern District of Mississippi

773 F. Supp. 882

Eugene A. BROADHEAD, Receiver and Statutory Liquidator for the State Board of Insurance in the State of Texas for Mission National Insurance Co., and International Insurance Company, Plaintiffs, v. HARTFORD CASUALTY INSURANCE COMPANY and Hartford Accident & Indemnity Company, Defendants and Cross-Claimants, v. Bryan D. PIERI, et al., R.K. Webb, et al., and Indemnity Marine Assurance Company, Ltd., et al., Defendants and Cross-Defendants, Dan Pierce and Pierce Petro-Management, Inc., d/b/a Pierce Petroleum, Intervenors, Tomlinson Interests, Inc., Republic Refining, Ltd., and Gary J. Knostman, Intervenors.

Civ. A. No. J86-0667(L).

United States District Court, S.D. Mississippi, Jackson Division.

April 16, 1991.

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Suzanne N. Saunders, Sheila R. Fortenberry, Jackson, Miss., Bryon, Nelson Randolph, Land & Weathers, Hattiesburg, Miss., for Eugene Broadhead.

Lawrence C. Gunn, Jr., Hattiesburg, Miss., David Ringer, Florence, Miss., for Dan Pierce, etc.

Edmund L. Brunini, Jr., Chris Shapley, Jackson, Miss., for Tomlinson, Knostman & Republic.

Winston Edward Rice, Rice, Fowler, Kingsmill, Vance & Flint, New Orleans, La., for Ins. Companies and Underwriters Cert. No. 35120.

Daniel A. Goforth, Randy W. Williams, Goforth & Lewis, Houston, Tex., for Tomlinson, Republic Refining & Knostman.

MEMORANDUM OPINION AND ORDER

TOM S. LEE, District Judge.

THE INCIDENT AND COVERAGES

Tomlinson Interests, Inc. (Tomlinson) operated the E.N. Ross # 2 Well located in the Johns Field in Rankin County, Mississippi.¹ Republic Refining, Ltd. (Republic), a Tomlinson subsidiary, operated a gas plant nearby to process the sour gas produced by Tomlinson's wells.² On July 15, 1985, there was an above-ground blowout of the Ross # 2 well. At the time of the blowout, Tomlinson and Republic had comprehensive general liability coverage under several insurance policies issued by Hartford Accident & Indemnity Company and Hartford Casualty Insurance Company (collectively Hartford), as follows:

Hartford Policy No. 61 CESSA0639, issued to Tomlinson, was the primary policy which provided liability coverage in limits of $500,000 for bodily injury and $100,000 for property damage (hereinafter Tomlinson primary or 0639);

Hartford Policy No. 61 CESSA0642, issued to Republic providing comprehensive general liability coverage of $500,000 for bodily injury and $100,000 for property damage (hereinafter Republic primary or 0642);

Hartford Policy No. 61 HUNV 1261, issued to Republic and which listed Tomlinson as an additional insured for drilling activities in the Johns Field, was an umbrella policy providing liability limits of $1,000,000 (hereinafter Republic umbrella or 1261);

Hartford Policy No. 61 HUNV 1262, issued to Tomlinson, provided liability limits of $5,000,000 (hereinafter Tomlinson umbrella or 1262).

A first layer of excess umbrella coverage was provided Republic, and by endorsement, Tomlinson, by Mission National Insurance Company's (Mission) policy number MN038651, which furnished $4,000,000 coverage in excess of the Hartford policies 0642 and 1261. International Insurance Company (International) provided a second layer of excess coverage through its policy 522 6145 2 which had policy limits of $10,000,000 in excess of the underlying Mission policy.³ In addition, Tomlinson had well control and redrill/replacement coverage under two certificates of insurance, numbers 35120 and 34595, subscribed to by certain insurance companies and Underwriters at Lloyd's London (Underwriters).

ENSUING LITIGATION

Following the blowout, a number of Rankin County residents who lived in the vicinity of the well filed suits in Rankin County Circuit Court against the Estates of Tomlinson and Republic, and Dan Pierce and/or Pierce-Petro Management (Pierce),⁴ a contractor hired by Tomlinson to perform consulting services on the well, among others, seeking to recover for bodily injury and property damage, and for loss of use of their property as a result of the escape of hydrogen sulfide and other toxic gases. These lawsuits, which were consolidated under Master Cause Number 15,002, were ultimately settled for the sum of $1,665,283, evidenced by an October 16, 1986 agreed judgment between Tomlinson and the plaintiffs.

Upon entry of the agreed judgment, Hartford, which had defended Tomlinson in the case, paid $1,065,283 toward satisfaction of the judgment, leaving $600,000 unpaid. Hartford claimed that the Tomlinson umbrella policy, 1262, did not apply to the loss and that its payment of $1,065,283 had exhausted the coverage available under its policies. Hartford advised Tomlinson by letter dated December 22, 1986 that because the policy limits were exhausted, Hartford would no longer defend it.⁵

In September 1986, Roxani Gillespie, then conservator for the insolvent Mission,⁶ and International Insurance Company, the insurance carriers which provide coverage in excess of that provided by Hartford, brought the present action pursuant to 28 U.S.C. § 2201 and Federal Rule of Civil Procedure 57, seeking, among other things, a declaratory judgment that coverage under Hartford's policies had not been exhausted and that therefore, the policies issued by Mission and International were not yet activated. Plaintiffs alleged that the underlying coverage was not exhausted as Hartford had wrongfully added insureds, including Pierce, after the loss occurred and had paid benefits on behalf of Pierce and other additional insureds and thereby had depleted funds available under Hartford's policies to be used on behalf of actual insureds. Plaintiffs requested an order that Hartford recredit to the available policy proceeds all sums paid by or on behalf of Pierce, or any other person or entity who was not an insured prior to the loss. International also sought a declaration that it had no duty to "drop down" to substitute its policy limits for the coverage provided by Mission, which was insolvent, so as to prevent a gap in coverage.

Pierce was permitted to intervene in this cause by order of January 27, 1987, and on March 23, 1989, asserted a counterclaim against Mission and International and a crossclaim against Hartford seeking a declaration that Pierce is an insured under the primary and umbrella policies issued by Hartford to Tomlinson as well as the International excess policy. Pierce also alleged entitlement to attorney's fees from International for being forced to intervene and defend in this action as a result of International's taking the position that Pierce was entitled to no coverage under any of the policies at issue.

While this case was pending, Tomlinson, on October 31, 1986, brought suit in the United States Bankruptcy Court for the Southern District of Texas seeking to establish that it continued to have coverage under Hartford's policies, In re: Tomlinson Interests, Debtor, Gary J. Knostman, Trustee for Tomlinson Interests, Inc., et al. v. Hartford Casualty Insurance Company and Hartford Accident and Indemnity Company, Case No. 84-03173-HS-7. Hartford responded with a request that the bankruptcy court reform the Tomlinson umbrella policy to exclude coverage of Tomlinson's exposure in the Johns Field. After being advised by Hartford on December 22, 1986 that Hartford was taking the position that policy 1262 did not cover Tomlinson's Johns Field operations and would no longer defend lawsuits against it, Tomlinson sought and obtained from the bankruptcy court a preliminary injunction, enjoining Hartford from abandoning its defense of lawsuits filed and pending against Tomlinson and prohibiting Hartford from denying coverage under policy 1262.

Tomlinson and Republic thereafter, on February 20, 1987, intervened in this suit, contending, as in the bankruptcy court action, that its coverage under the Hartford policies had not been exhausted and that Hartford therefore remained obligated to defend and pay claims against Tomlinson. Tomlinson claimed entitlement to recover from Hartford certain costs allegedly incurred as a result of the blowout, including post-blowout evacuation expenses and costs associated with lost and damaged equipment, and additionally asserted claims against Hartford for punitive damages based on various alleged actions and inactions by Hartford in connection with Tomlinson's claims under Tomlinson's umbrella policy. Hartford filed a counterclaim against Mission, International, Tomlinson and Pierce seeking an adjudication that it was not liable under policy 1262 for payment of Tomlinson's claims and was under no further obligation to defend Tomlinson, or any other insured, by virtue of exhaustion of the primary coverage.

When, upon motion by Hartford, Underwriters were joined in the action, Hartford filed a crossclaim seeking to hold the Underwriters liable for any damages awarded to Tomlinson on its claim against Hartford for post-blowout expenses. Hartford later amended its crossclaim seeking an additional declaration that Underwriters were and are obligated to defend Tomlinson in all landowner actions (past, present and future) and that Underwriters are therefore liable for all sums expended by Hartford in Tomlinson's defense of Master Cause 15,002 and all additional costs that have been expended or will be expended in defense of landowner suits. Further, Hartford sought to recover from Underwriters all sums which Hartford paid in settlement of Master Cause 15,002. Tomlinson, likewise, asserted a crossclaim against Underwriters seeking recovery of the evacuation costs originally sought only against Hartford, as well as a declaration that Underwriters had a duty to defend Tomlinson in Master Cause 15,445 and any landowner suits which might be filed in the future.

In addition to its claims against Mission, International, Tomlinson and Underwriters, Hartford filed a crossclaim against Pierce claiming that while Pierce was properly treated as a...