Certain Underwriters at Lloyds, London v. Oryx Energy Co.

• Decision Date: 21 February 1997
• Docket Number: Civil Action No. G-96-306.
• Citation: 957 F.Supp. 930
• Parties: CERTAIN UNDERWRITERS AT LLOYDS, LONDON Who Are Members of Lloyd's Syndicated Numbered 658, 483, 741, 687, 79, 872, 535, 552, 123, 114, 741, 209, 1023, 309, 872 and 500, et al. v. ORYX ENERGY COMPANY.
• Court: U.S. District Court — Southern District of Texas

957 F.Supp. 930

CERTAIN UNDERWRITERS AT LLOYDS, LONDON Who Are Members of Lloyd's Syndicated Numbered 658, 483, 741, 687, 79, 872, 535, 552, 123, 114, 741, 209, 1023, 309, 872 and 500, et al. v. ORYX ENERGY COMPANY.

Civil Action No. G-96-306.

United States District Court, S.D. Texas, Galveston Division.

February 21, 1997.

COPYRIGHT MATERIAL OMITTED

James Richard Watkins, Royston Rayzor Vickery & Williams, Galveston, TX, Bradley A. Jackson, Edward D. Vickery, Royston Rayzor, Vickery & Williams, Houston, TX, for plaintiffs Certain Underwriters at Lloyd's, London, Indemnity Marine Assurance Co., Ltd., Zurich Re (UK), Ltd., Ocean Marine Insurance Co. Ltd., Commercial Union Assurance, Tokio Marine & Fire, Phoenix Assurance P.L.C., LSA, Northern Assurance Company Limited, Gan Minster Insurance Co., Ltd., Terra Nova Insurance Company Ltd., Phoenix Assurance Public Ltd., Cornhill Insurance P.L.C., Yorkshire Insurance Co., Ltd., Skandia Marine Insurance Company (UK), Scottish Lion Insurance Co., Ltd., Hansa Re & Marine Insurance Company (UK) Limited, Threadneedle Insurance Co., Ltd., Sphere Drake Insurance, Dai-Tokyo Insurance Co., Compagnie D'Assurancey Martimes, Aeriennes & Terrestres (CAMAT), Americas Insurance Company, Hansa Re-Marine, Anglo American Insurance Company, Gan France, Phoenix, Terra Nova, Camat, Cornhill D. A/C, Skandia Marine, Indemnity Marine, Yorkshire L. A/C, Zurich Re, Ocean Marine, Phoenix LSA A/C, Northern Marine, London & Edinburgh, Gan Minster, Gernerali, Sphere Drake No. 1, Scottish Lion.

Jim E. Cowles, B. Michael Bennett, Cowles and Thompson, Dallas, TX, for defendant Oryx Energy Company.

ORDER GRANTING SUMMARY JUDGMENT

KENT, District Judge.

Now before the Court are Plaintiffs' Motion for Summary Judgment, dated September 4, 1996, and Defendant's Cross-Motion for Summary Judgment, dated September 27, 1996. For the reasons set forth below, Plaintiffs' Motion is GRANTED and Defendant's Motion is DENIED.

I. FACTUAL BACKGROUND

This case arises out of the serious personal injuries sustained by Henry Mote, an oil field worker, while employed by Mallard Bay Drilling on Oryx's fixed platform located on the Outer Continental Shelf offshore Texas. Mr. Mote filed suit against Oryx and other defendants to recover for his injuries which resulted in his becoming a paraplegic.¹ Mote settled this underlying action for $12,000,000, of which amount the Plaintiff Underwriters funded $11,050,000 on behalf of Oryx.

At the time of Mr. Mote's accident, Oryx and Mallard had a written agreement (the Drilling Agreement) under which Mallard was performing certain oil well drilling operations on Oryx's fixed platform located on the Outer Continental Shelf offshore Texas. The Drilling Agreement, which was written entirely by Oryx, provided that Mallard would defend and indemnify Oryx for injuries to Mallard employees. The Drilling Agreement also required Mallard to provide certain insurance coverages and to make Oryx an "additional insured for all coverages to the extent of the indemnity provided by" Mallard under the Drilling Agreement. See Plaintiffs' Ex. 1, p. 38. Mallard obtained the required insurance coverages from the Plaintiff Underwriters in Policy No. SP93-3096.

In response to Mr. Mote's lawsuit, Oryx requested Mallard to defend and indemnify Oryx for its liability to Mr. Mote as provided in the Drilling Agreement. Mallard agreed to defend and indemnify Oryx and appointed independent trial counsel, Robert J. Killeen, to defend Oryx. Mr. Killeen reported Mallard's agreement to defend and indemnify Oryx and Mallard's appointment of counsel to the Underwriters.

During the pendency of the Mote litigation, Oryx's separate insurance counsel, Jim Cowles, advised Underwriters that Oryx was making a claim as an unlimited additional insured, not limited by the laws of Texas, the Drilling Agreement, or the terms of the Policy, and further demanded that Underwriters settle the Mote case up to their full policy limits of $26,000,000, or consent to the negotiation and resolution of the Mote litigation by Oryx and its counsel. As requested, the Underwriters gave Oryx consent to negotiate a settlement, reserving the right to be advised of any settlement proposed and to be given the opportunity to comment before it was agreed upon by Mote and his counsel. At that time the Underwriters also stated their position with respect to their obligations under the Policy to Oryx, Oryx's limited additional insured status, and the statutory limitation on Mallard's indemnity obligations.

While Oryx and the Underwriters debated coverage issues, settlement discussion in the underlying Mote litigation continued. Mr. Mote offered to settle his action against all defendants and the intervenor for payments of $6,000,000 in cash and $6,000,000 in annuities for his benefit, a total of $12,000,000. The Underwriters informed Oryx by letter that, in order to ensure that the favorable settlement not be lost to both themselves and to Oryx, the Underwriters would fund the settlement up to $11,050,000, and hold Oryx responsible and seek reimbursement for all sums paid in excess of Oryx's coverage.² The Underwriters specifically stated that the funding of the settlement was not the act of a volunteer. See Plaintiffs' Ex. 16.

Thereafter, all of the parties entered into a Settlement Agreement with Mr. Mote in which three of the other parties to the litigation agreed to pay $950,000 of the $12,000,000. The Underwriters agreed to fund the remaining $11,050,000 on behalf of Oryx while reserving their rights to seek reimbursement for the amounts in excess of Mallard's indemnity obligations to Oryx. The Mote settlement was funded on April 10, 1996.

II. SUMMARY JUDGMENT STANDARD

Summary judgment is appropriate if there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law. FED.R.CIV.P. 56. Rule 56(e) requires that when a motion for summary judgment is made, the nonmoving party must set forth set forth specific facts showing that there is a genuine issue for trial. Id.; See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). The mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment. Only disputes over facts that might affect the outcome of the lawsuit under governing law will preclude the entry of summary judgment. Anderson, 477 U.S. at 247-48, 106 S.Ct. at 2510. If the evidence is such that a reasonable fact-finder could find in favor of the nonmoving party, summary judgment should not be granted. Id.; see also Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986).

III. WAIVER AND ESTOPPEL

Oryx claims that the Underwriters' payment of Mote's claim prohibits the Underwriters from now contesting coverage as a matter of law. In the alternative, Oryx asserts that the Underwriters' failure to communicate a reservation of rights to Oryx until well over a year into the Mote litigation constitutes a waiver and estoppel of their coverage defenses. The Court will address each of these theories in turn.

First, the Underwriters did not voluntarily pay the claim, and under binding Fifth Circuit authority, their funding of the Mote settlement did not waive any rights to assert coverage defenses or to seek reimbursement. The Fifth Circuit has recognized that Texas law does provide that "money voluntarily paid with full knowledge of all of the facts cannot be recovered back, although it was paid upon a void or illegal demand or upon a claim which had no foundation in fact and was paid without consideration." Arkwright-Boston Manufacturers Mutual Insurance Co. v. Aries Marine Corp., 932 F.2d 442, 447 (5th Cir.1991) (citations omitted). However, the Fifth Circuit held that this rule only applies where there appears "an intention on the part of the payor to waive his rights." Id. (citations omitted). In this case, the Underwriters unambiguously informed Oryx that they intended to fund the Mote settlement without prejudice to their right to seek reimbursement of any amounts in excess of the Policy's coverage. This negates any claim of waiver.

Oryx next argues that the Underwriters are barred by their pre-settlement conduct from asserting their rights under the Policy. To prove waiver or estoppel, Oryx must show: "(1) that the insurer had sufficient knowledge of the facts or circumstances indicating non-coverage but (2) assumed or continued to defend its insured without obtaining an effective reservation of rights or non-waiver agreement and, as a result, (3) the insured suffered some type of harm." Pennsylvania Nat'l Mut. Ins. Co. v. Kitty Hawk Airways, Inc., 964 F.2d 478, 481 (5th Cir.1992) (applying Texas law). A failure to establish any one of these three elements is all that is required to defeat a waiver or estoppel defense.

Although the Underwriters waited until one year after the filing of the Mote litigation to assert their reservation of rights, there is no evidence in the summary judgment record to support the claim that the Underwriters assumed or controlled Oryx's defense. In fact, the summary judgment evidence instead clearly shows that Mr. Killeen, Oryx's independent counsel in the Mote litigation, was hired by Mallard's Claims Manager. The Underwriters were not aware of Mr. Killeen's retention until after the fact. Furthermore, Mr. Killeen himself testifies by affidavit that he took instructions from no one but Oryx, and he acted as counsel at all times only for Oryx. The fact that the Underwriters were kept apprised of the Mote litigation by status reports is evidence only of a completely routine practice and does not create a question of fact that does not exist in the record. Furthermore, the Underwriters' participation in the negotiations of the ultimate Mote settlement does not constitute an...