Certain Underwriters at Lloyd's v. Prime Natural Res., Inc.

• Decision Date: 26 November 2019
• Docket Number: NO. 01-17-00881-CV,01-17-00881-CV
• Parties: CERTAIN UNDERWRITERS AT LLOYD'S, LONDON, Syndicate Numbers 2020, 1084, 2001, 457, 510, 2791, 2987, 3000, 1221, 5000 and Navigators Insurance Company UK, Appellants v. PRIME NATURAL RESOURCES, INC., Appellee
• Court: Texas Court of Appeals

634 S.W.3d 54

CERTAIN UNDERWRITERS AT LLOYD'S, LONDON, Syndicate Numbers 2020, 1084, 2001, 457, 510, 2791, 2987, 3000, 1221, 5000 and Navigators Insurance Company UK, Appellants

v.PRIME NATURAL RESOURCES, INC., Appellee

NO. 01-17-00881-CV

Court of Appeals of Texas, Houston (1st Dist.).

Opinion issued November 26, 2019

Robert Dubose, Houston, Charles T. Frazier Jr., Dallas, J. Clifton Hall III, William P. Maines, Mauricio Rondon, Allyson L. Wilkinson, Houston, Roger D. Townsend, for Appellants.

John Zavitsanos, Houston, Foster C. Johnson, Jane Robinson, Robert "Randy" M. Roach Jr., Houston, Daniel W. Davis, Robert J. Cunningham, Houston, for Appellee.

Panel consists of Justices Kelly, Hightower, and Countiss.

Richard Hightower, Justice This oil and gas insurance dispute originated in 2005, when a well (the H-2 Well) and platform (the H-Platform) owned in part by appellee Prime Natural Resources, Inc., were damaged during Hurricane Rita. Shortly after the storm, on September 29, 2005, Prime informed its insurance providers, appellants Certain Underwriters at Lloyd's, London, Syndicate Numbers 2020, 1084, 2001, 457, 510, 2791, 2987, 3000, 1221, 5000, and Navigators Insurance Company UK (collectively, Underwriters), of its losses.

Prime made a claim on its policy with Underwriters, and Underwriters paid a portion of that claim—$1,125,000, which includes the policy limits for the loss of the H-Platform. In September 2007, Prime filed it first lawsuit seeking approximately $4.7 million in remaining unpaid expenses under the policy. In December 2007, Underwriters made a partial payment of approximately $2,880,866 "for covered claims arising from pipeline damage and debris removal, as well as well-redrill operations." See Prime Nat. Res., Inc. v. Certain Underwriters at Lloyd's, London , No. 01-11-00995-CV, 2015 WL 1457534, at *2 (Tex. App.—Houston [1st Dist.] Mar. 26, 2015, no pet.) (mem. op.) (hereinafter, Prime I ). In Prime I , the trial court and this Court construed the terms of the policy and ruled in favor of Underwriters that the portion of the policy covering the H-2 Well did not cover expenses for the H-Platform. Id. at *4.

After Prime I issued, Prime filed the current lawsuit seeking approximately $1.8 million in unpaid policy benefits for expenses it incurred related to redrilling and recompleting the H-2 Well and making the H-2 Well safe from the risk of a blowout or loss of control due to the damage caused by Hurricane Rita. Prime also alleged that Underwriters committed unfair or deceptive acts or practices in violation of Insurance Code Chapter 541, and that Underwriters violated Insurance Code Chapter 542's Prompt Payment Act resulting in Underwriters owing Prime statutory and prejudgment interest, including interest on the partial payment made in December 2007. Underwriters counterclaimed, alleging that they had overpaid Prime's claim and seeking approximately $1.8 million in damages as a result of the overpayment.

The jury found in favor of Prime, finding that Underwriters had failed to comply with the policy and that Prime was entitled to $1.8 million in unpaid policy benefits. The jury further found violations of the Insurance Code based on Underwriters' unfair practices, it found that Underwriters committed those violations knowingly, and it found that the December 2007 partial payment was made conditionally, entitling Prime to statutory interest. The trial court entered judgment on the jury's award and Prime's election of remedies for a total of $19,562,960.94.

On appeal, Underwriters challenge this judgment in three issues, arguing that: (1) because Prime's evidence of covered expenses was not based on the correct interpretation of the policy and Prime I , Prime failed to prove that Underwriters owed Prime additional policy benefits; (2) damages awarded under Chapter 541 for unfair or deceptive acts or practices should be reversed; and (3) the trial court incorrectly awarded Chapter 542 interest and prejudgment interest on Underwriters' December 2007 partial payment. We conclude that the trial court properly instructed the jury on the interpretation of the policy and there was sufficient evidence to support the jury's findings of actual damages. We further conclude, however, that there was no evidence that Underwriters acted knowingly, and we hold that the tender of the December 2007 partial payment was unconditional. Accordingly, we affirm in part and reverse and remand in part for further proceedings consistent with this opinion.

Background

Prime owns certain oil and gas drilling interests in the Gulf of Mexico, including a fifty-percent interest in the H-2 Well. The H-2 Well is part of a larger installation located about seventy-five miles south-southeast of Morgan City off the Louisiana coast in an area called Ship Shoal Block 148 (SS 148). The H-2 Well is a single well that stands alone adjacent to the H-Platform, a production platform. The owner of the remaining fifty-percent interest in the H-2 Well is W&T Offshore, Inc., which serves as the operator for the well installation.

Underwriters issued a "Wellsure Energy Package" insurance policy (the Policy) to insure, in part, Prime's interest in the H-2 Well and the H-Platform. Underwriters issued a substantially similar policy to W&T covering its interest in the H-2 Well and H-Platform. The Policy is divided into three sections. Section I covers wells, with specific provisions in Section IA for "Control of Well Insurance" and an additional endorsement for "Making Wells Safe." Section IB addresses the "Expense of Redrilling/Recompletion" of wells. Section II covers platforms, caissons, pipelines, and flowlines.

On September 23, 2005, Hurricane Rita swept through the Gulf and damaged the H-2 Well. The windstorm toppled the H-Platform away from the H-2 Well and damaged the attached pipeline. Prime's expert described the damage to the H-2 Well and H-Platform as "catastrophic." An aerial survey completed shortly after the storm revealed that the H-2 Well and H-Platform were both missing and were no longer visible above the surface of the water. W&T and Prime later discovered that the outer thirty-inch conductor pipe that provided support for the entire well apparatus had a seven-foot crack in it and was bent to a ninety-degree angle about seven feet above the seabed. Control lines to subsurface controls and the wellhead were damaged. The H-2 Well was buried underneath debris, including some debris from the H-Platform. Prime's expert further indicated that due to the bend in the conductor pipe, the other casing strings—the smaller pipes located inside the conductor pipe—had failed, which was especially concerning because the H-2 Well had a history of corrosion that left the Well vulnerable to a sudden unintended release of hydrocarbons even though it was not yet leaking in the aftermath of the storm.

On September 29, 2005, Ken Reed with Prime emailed Alan Ammentorp, an employee of Matthews Daniel (MattDan), the firm responsible for adjusting Underwriters' claims. Reed informed Underwriters that the H-Platform and H-2 Well had been lost. Around that same time, W&T, as the H-2 Well's operator, placed Andy Scott in charge of overseeing the repairs to the Well, coordinating with the necessary contractors and governmental entities, communicating with and submitting bills to Prime as the co-owner of the Well, and communicating with Underwriters regarding insurance coverage through MattDan.

By November 2005, notes and emails from Ammentorp indicate that he, and, thus, MattDan, were aware that the H-Platform and the H-2 Well were on the sea floor. On November 28, 2005, Ammentorp wrote a report to Underwriters indicating that there was a constructive total loss of the H-Platform, and he recommended that Underwriters reserve $1,375,000—including $1,125,000 in platform Policy limits and $250,000 in pipeline limits—to pay this claim.

By the end of January 2006, Prime began requesting partial payment based on the total loss of the H-Platform. Around that same time in June 2006, W&T was finally able to commence repairs, which had been delayed because Hurricanes Rita and Katrina had struck within weeks of each other and had damaged hundreds of platforms, wells, and pipelines in the Gulf. W&T prioritized repairs to its wells that were actively leaking in the weeks after the storm, and it experienced numerous delays caused by overburdened work crews, limited repair resources, and the lengthy permitting process dictated by the U.S. Department of the Interior's Mineral Management Service.

On June 16, 2006, Underwriters agreed to pay Prime the Policy limits for the loss of the H-Platform, and Underwriters subsequently issued a payment of $1,125,000 on July 5, 2006.

W&T continued making repairs, including cleaning up wreckage and debris; recompleting and restoring the H-2 Well, which, according to Scott—who oversaw the repairs and who later testified on behalf of Prime—required replacing the wellhead and the production tree;¹ reestablishing pipeline connections to the H-2 Well; and rebuilding the H-Platform. Scott further testified that W&T had regained control of the H-2 Well and had rendered it "safe" by September 10, 2006.

Over the next two months, W&T finished recompletion of the H-2 Well by installing a permanent Christmas tree and preparing to stimulate the Well. The total repair costs exceeded $17.5 million; Prime was required to pay half of that amount.

By January 2007, W&T had submitted to MattDan all the repair costs and supporting documentation, and W&T was paid on its claim in early March 2007 as part of a negotiated settlement with Underwriters that covered W&T's interest in numerous oil and gas installments throughout the Gulf of Mexico, including the H-2 Well and H-Platform.

Prime likewise submitted its claim using identical costs and supporting documentation, but it was not paid for its costs incurred in repairing and recompleting the damaged H-2 Well at the same...