CBX Res., LLC v. ACE Am. Ins. Co.

• Decision Date: 16 October 2017
• Docket Number: NO. 5:17–CV–17–DAE,5:17–CV–17–DAE
• Citation: 282 F.Supp.3d 948
• Parties: CBX RESOURCES, LLC, Plaintiff, v. ACE AMERICAN INSURANCE COMPANY, Ace Property and Casualty Insurance Company, Defendants.
• Court: U.S. District Court — Western District of Texas

282 F.Supp.3d 948

CBX RESOURCES, LLC, Plaintiff,

v.ACE AMERICAN INSURANCE COMPANY, Ace Property and Casualty Insurance Company, Defendants.

NO. 5:17–CV–17–DAE

United States District Court, W.D. Texas, San Antonio Division.

Signed October 16, 2017

Mark A. J. Fassold, Francisco Guerra, IV, Mikal C. Watts, Watts Guerra LLP, San Antonio, TX, for Plaintiff.

Jennifer G. Durbin, Allen, Stein, Durbin, P.C., San Antonio, TX, Katherine M. Willis, Allen, Stein & Durbin, P.C., San Antonio, TX, Manuel Mungia, Matthew E. Pepping, Daniel McNeel Lane, Jr., Norton Rose Fulbright US LLP, San Antonio, TX, for Defendants.

ORDER: (1) GRANTING ACE'S MOTION FOR PARTIAL SUMMARY JUDGMENT; (2) DENYING CBX'S MOTION FOR PARTIAL SUMMARY JUDGMENT; AND (3) OVERRULING OBJECTIONS

David Alan Ezra, Senior United States Distict Judge

The matters before the Court are (1) Plaintiff CBX Resources, LLC's ("CBX") Motion for Partial Summary Judgment (Dkt. # 16), (2) Defendants Ace American Insurance Company ("Ace American") and Ace Property and Casualty Insurance Company's ("Ace Property") (collectively, "Defendants" or "Ace") Motion for Partial Summary Judgment on Ace's Duty to Defend (Dkt. # 17); and (3) CBX's Objections to and Motion to Strike Evidence in Support of Defendants Motion for Partial Summary Judgment (Dkt. # 22).

On October 12, 2017, the Court held a hearing on these matters. CBX was represented by Mark Fassold; Defendants were represented by Manuel Mungia and Daniel Lane. After careful consideration of the memoranda in support of and in opposition to the motions, and in light of the parties' arguments at the hearing, the Court, for the reasons that follow, GRANTS Ace's motion for partial summary judgment, DENIES CBX's motion for partial summary judgment, and OVERRULES CBX's objections and motion to strike evidence.

FACTUAL BACKGROUND

CBX was the lessee of the Hibdon Lease, a mineral tract located in Zavala County, Texas. (Dkt. # 16 at 7.) As lessee, CBX arranged for the drilling and operation of the Picosa Creek 1V Well ("the Well") to be performed by Espada Operating, LLC ("Espada"). (Id. ) In 2011, Espada drilled the well bore, placing almost 900 feet of surface casing and more than 5,700 feet of production casing into the Well, and installed a fracking system into the production casing. (Id. ) On October 25, 2011, Espada attempted to pressurize the fracking system; a few months later, on January 25, 2012, Espada attempted to pull the production casing out of the well bore. (Id. ) In pulling out the production casing, Espada discovered a fracture of about 3,400 feet in the Well. (Id. ) Espada determined that the production casing below the fracture could not be recovered from the well bore. (Id. ) Because the casing was irremovable, the well bore could not be restored, resulting in the plugging and abandonment of the Well. (Id. )

Espada was a named insured on a Commercial General Liability ("CGL Policy") issued by Ace American, with a coverage period from April 2, 2011, through April 2, 2012. (Dkt. # 16 at 7.) The CGL Policy was accompanied by an "Underground Resources and Equipment Coverage Endorsement," which replaced and/or added exclusions in the CGL Policy, while adding certain definitions to the CGL Policy. (Id. ) Espada was also a named insured on an Umbrella Policy issued by Ace Property, which covered the same policy period of April 2, 2011, through April 2, 2012. (Id. )

PROCEDURAL BACKGROUND—STATE COURT CASE

On February 21, 2013, CBX brought suit for damages arising from its total loss of the use of the Well against several defendants—but not Espada—in the 293rd Judicial District Court of Zavala County, Texas ("underlying case"). (Dkt. # 16 at Ex. C.) In October 2013, CBX amended its state court petition, adding Espada as a defendant, and appending a Certificate of Merit of a licensed engineer who described Espada's role in the failure of the Well. (Id. at Ex. D.) According to CBX, Espada filed its original answer on November 19, 2013, represented by counsel retained by Ace American after Espada tendered the defense of the lawsuit to Ace.¹ (Id. at Exs. E, L.) The state court set a trial in this case for February 9, 2016. (Id. at Ex. F.)

On August 7, 2015, CBX filed its second amended petition, itemizing alleged damages to its tangible property including: drilling operations, surface casing, unrecovered production casing, the Well and the well bore, the oil and gas itself, and the lease. (Dkt. # 16 at Ex. G.) On August 13, 2015, Espada filed a third party petition, suing three separate parties. (Id. at Ex. H.) Espada's third party petition stated that it "alleges that a catastrophic failure of the casing occurred down hole in the Well," and that the "Well allegedly could not be repaired and was plugged and abandoned." (Id. )

On September 22, 2015, CBX served a Stowers demand upon Espada through its counsel, seeking to fully and unconditionally release its claims for an amount within the limits of the policies issued to Espada by Ace American and Ace Property. (Dkt. # 16 at Ex. I.) By its terms, the Stowers demand was set to expire on October 23, 2015, at 5:00pm. (Id. )

However, on October 15, 2017, the Claims Director for Ace American, Matthew Spector, sent a withdrawal letter to Espada. (Id. at Ex. K.) The letter indicated that Ace American intended "to cease the retention of defense counsel effective fourteen days from that date of [the] letter," or, on October 29, 2015. (Id. ) Mr. Spector's letter characterized CBX's claims as non-professional liability negligence claims. (Id. ) On November 30, 2015, approximately 71 days before the February 9, 2016 trial setting, the state court granted Espada's defense counsel's motion to withdraw as counsel. (Id. at Exs. L, M.)

A pre-trial hearing was held in the state court case on February 1, 2016; Espada failed to appear at the hearing. (Dkt. # 16 at Ex. N.) Because of Espada's failure to appear at the hearing, CBX requested the state court enter judgment in CBX's favor against Espada.² (Id. ) The Court ordered that judgment be entered in CBX's favor and set the matter for February 10, 2016, to hear evidence in support of damages. (Id. ) On February 10, 2016, the state court heard evidence from CBX's witnesses and exhibits in support of its claim. (Id. at Ex. O.) The state court entered judgment, finding that Espada was negligent and awarded damages and post-judgment interest payable to CBX by Espada. (Id. at Ex. N.) According to CBX, the judgment became final and is no longer appealable. (Dkt. # 16 at 10.)

On November 1, 2016, the state court entered an Order for Turnover Relief ("turnover order"), transferring ownership of Espada's causes of action against Ace American and Ace Property to CBX.³ (Dkt. # 16 at Ex. P.) The turnover order also compelled Espada to execute an assignment of those claims to CBX; according to CBX, Espada has complied with that portion of the turnover order. (See id. at 11; Ex. P.)

PROCEDURAL BACKGROUND—FEDERAL COURT CASE

On January 10, 2017, CBX filed suit in this Court against Ace American and Ace Property. (Dkt. # 1.) Its first amended complaint alleges claims against Defendants for (1) breach of the Stowers duty to reasonably settle claims within the scope of coverage and for an amount within the limits of the applicable policy; (2) bad faith; (3) breach of contract; (4) deceptive insurance practices; and (5) declaratory judgment regarding Defendants' duties to defend and indemnify Espada in the underlying case. (Dkt. # 33.)

Pursuant to the Court's scheduling order entered in this case on April 13, 2017, the parties were allowed to file partial motions for summary judgment regarding Ace's duty to defend the underlying case based on the terms and conditions of the CGL Policy and the Umbrella Policy. (Dkt. # 14.) In accordance with that Order, CBX filed the instant motion for partial summary judgment on May 19, 2017. (Dkt. # 16.) Ace filed its own motion for partial summary judgment on the same day. (Dkt. # 17.) Both parties filed responses in opposition to the respective motions on June 16, 2017. (Dkts. ## 20, 21.) The parties filed replies on June 30, 2017. (Dkts. ## 27, 29.) On June 16, 2017, CBX filed an objection to, and a motion to strike, evidence in support of Ace's motion for partial summary judgment. (Dkt. # 22.) Ace filed a response in opposition on June 30, 2017. (Dkt. # 28.) The pending motions are addressed below.

APPLICABLE LAW

A movant is entitled to summary judgment upon showing that "there is no genuine dispute as to any material fact," and the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a) ; see also Meadaa v. K.A.P. Enters., L.L.C., 756 F.3d 875, 880 (5th Cir. 2014). A dispute is only genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

The moving party bears the initial burden of demonstrating the absence of any genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). If the moving party meets this burden, the nonmoving party must come forward with specific facts that establish the existence of a genuine issue for trial. Distribuidora Mari Jose, S.A. de C.V. v. Transmaritime, Inc., 738 F.3d 703, 706 (5th Cir. 2013) (quoting Allen v. Rapides Parish Sch. Bd., 204 F.3d 619, 621 (5th Cir. 2000) ). "Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no ‘genuine issue for trial.’ " Hillman v. Loga, 697 F.3d 299, 302 (5th Cir. 2012) (quoting Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) ).

In deciding whether a fact issue has been created, the court must draw all reasonable inferences in favor of the nonmoving party, and it "may not make credibility determinations or weigh the evidence." Tiblier v....