Cowley v. Texas Snubbing Control, Inc.

Citation812 F. Supp. 1437
Decision Date08 December 1992
Docket NumberCiv. A. No. J89-0032(L).
CourtU.S. District Court — Southern District of Mississippi
PartiesSeumas Iain COWLEY, Individually, and as Representative for other Underwriters Subscribing to Policy No. XXXXXXXXX, Plaintiffs, v. TEXAS SNUBBING CONTROL, INC., a Texas Corporation, Gary Knostman, Trustee of the Estate of Bankruptcy of Tomlinson Interests, Inc., a Texas Corporation, and William Waddell Stapleton, Individually, and as Representative for that Class of Claimants in Pending Cause No. 15445, in the Circuit Court of Rankin County, Mississippi and all other Similarly Situated Defendants, Defendants.



John S. Knowles, Brantley & Knowles, Jackson, MS, plaintiffs.

Wayne E. Ferrell, Jr., Ferrell & Hubbard, Jackson, MS, defendants.


TOM S. LEE, District Judge.

This cause is before the court on the motion of plaintiff Seumas Iain Cowley, individually and as representative for other Underwriters subscribing to Policy No. XXXXXXXXX (Underwriters), to dismiss pursuant to Rule 12(b)(6) for failure to state a claim upon which relief can be granted. That motion has been joined in by defendant Texas Snubbing and third-party defendant Jim Hutchings. Underwriters have also filed a separate motion for summary judgment, and there is pending a motion by defendant William Waddell Stapleton, individually and as representative for that class of claimants in pending Cause No. 15,196 in the Circuit Court of Rankin County, Mississippi and all other similarly situated defendants, to set aside an order of dismissal entered by the court on December 12, 1991 and for order declaring the order of dismissal void ab initio and of no legal effect.1 These motions are largely interrelated in terms of the issues which the court is called upon to consider.


This case arises out of a July 15, 1985 above-ground blowout of the E.N. Ross # 2 Well located in the Johns Field in Rankin County, Mississippi. Defendant Gary K. Knostman, as trustee of the bankruptcy estate of Tomlinson Interests, Inc.,2 was the operator of the well. Texas Snubbing Control, Inc. (Texas Snubbing) was the snubbing contractor hired by Knostman that was on-site when the blowout occurred. At the time of the blowout, Texas Snubbing was insured under two policies of insurance issued by Underwriters providing for indemnification against liability incurred by Texas Snubbing, as well as payment of defense costs for covered claims. These included a primary policy with coverage limits of $500,000, and a $2,000,000 umbrella policy, No. XXXXXXXXX.

The blowout generated numerous lawsuits against Knostman, Texas Snubbing and others, including a number of suits filed in the Circuit Court of Rankin County by residents of Rankin County who lived in the vicinity of the well seeking recovery for bodily injury and property damage alleged to have resulted from the blowout and consequent escape of hydrogen sulfide and other toxic gases. The first wave of landowner suits, consolidated under Master Cause No. 15,002, resulted in a settlement pursuant to which Underwriters paid $750,000 on behalf of its insured, Texas Snubbing. Underwriters subsequently paid an additional $50,000 on behalf of Texas Snubbing in settlement of an action filed by another group of landowners. A third group of suits filed by 281 landowner plaintiffs, including William Waddell Stapleton, were consolidated under Master Cause Number 15,196, Stapleton, et al. v. Halliburton, et al. The plaintiffs in Master Cause Number 15,196, as had the plaintiffs in the earlier suits, named as defendants various entities associated with the well, including Knostman and Texas Snubbing. They alleged personal injuries and property damages resulting from the blowout and demanded damages in excess of $1,000,000,000. That case is currently pending in the state circuit court.

In addition to the landowners' suits, Texas Snubbing filed an action against Knostman in the Circuit Court of Rankin County, seeking indemnification from Knostman based upon an indemnity provision in Texas Snubbing's work order with Knostman, and seeking to recover monies which Texas Snubbing had been or might be required to pay as a result of the blowout. Knostman counterclaimed against Texas Snubbing, demanding in excess of $10,000,000 for indemnification from Texas Snubbing and damages for, inter alia, loss of gas, well control and redrilling expenses, evacuation expenses and lost profits.


In consideration of the various claims that third parties had asserted against Texas Snubbing, and in particular the claims by Knostman and the Stapleton plaintiffs, and in view of Texas Snubbing's demand for coverage and defense as provided by Underwriters' policy, Underwriters filed this declaratory judgment action seeking an adjudication that its umbrella policy, which contains exclusions for seepage and pollution, loss of hole, cost of control, removal of debris and punitive damages, provides no coverage for these claims and that consequently, Underwriters have no obligation to indemnify their insured, Texas Snubbing, or to pay any sums to Knostman or the landowner claimants on behalf of Texas Snubbing.3

In his original answer to the Underwriters' complaint for declaratory relief, filed May 11, 1989, Stapleton alleged that the policy issued by Underwriters in effect at the time of the accident did in fact provide coverage for his damages and he charged that Underwriters were in any event estopped from denying coverage for his claims since Underwriters had paid substantial sums to other landowners upon claims similar to Stapleton's.4

On May 7, 1990, Texas Snubbing answered Underwriters' complaint and, like Stapleton, denied Underwriters' allegations of noncoverage. Texas Snubbing included with its answer a counterclaim against Underwriters, in which it contended that the policy in effect at the time of the blowout did provide coverage for the claims being made against it by various parties, but that after the blowout, Underwriters, in dereliction of its duties to Texas Snubbing, attempted to "amend" the policy by adding exclusions (or substituting another policy which contained exclusions) which were not in the policy when the blowout occurred. Texas Snubbing demanded not only indemnity for claims it might be required to pay, but also demanded punitive damages for this alleged wrongful and malicious conduct of Underwriters.5

A settlement was effected between Underwriters and Texas Snubbing in August 1991, under the terms of which Underwriters agreed to pay to Knostman $360,000 on Texas Snubbing's behalf in order to resolve Knostman's claim for damages against Texas Snubbing, this being, according to the terms of the settlement agreement, "the most significant claim against Texas Snubbing."6 Further, Underwriters agreed to pay to Texas Snubbing the sum of $15,000 in settlement of Texas Snubbing's bad faith claim, and in connection with that aspect of the settlement, those parties agreed as follows:

Texas Snubbing and its president, Jim Hutchings, hereby ratifies (sic) the acts of its agent Devitt (Energy) Ltd. in negotiating, drafting and physically assembling the aforementioned policy, and release Underwriters from any and all claims it may have or may have in the future under the policy, including, but not limited to, any and all claims arising out of the blowout of the E.N. Ross Well # 2 in Rankin County, Mississippi, and including, but not limited to, the claim of William Waddell Stapleton, and other members of the class of plaintiffs that have been certified as a class in C.O. Gibb, et al v. Texas Snubbing Control, Inc., et al., as described above, any claims of Knostman, including but not limited to any claims asserted by Knostman for indemnity, the claim of Murco Drilling Company, and any claims of any other party for damages, contribution, or indemnity. Texas Snubbing and Jim Hutchings agree to a full and final release and discharge of any liability of Underwriters as set forth above, including a full and final release of any claim it may have against any employees, agents, attorneys, reinsurers or other insurers of underwriters in connection with the placement or handling of claims under the policy.

In October 1991, shortly after this settlement was reached, Underwriters moved for summary judgment contending that it was entitled to judgment on its claim against Stapleton since his claims were excluded from coverage by the policy in effect at the time of the blowout. Underwriters asserted alternatively that Stapleton was precluded in any event from recovering under the policy since his claims, being derivative in nature, were barred because Texas Snubbing had released all of its claims against the policy.

On December 2, 1991, Stapleton, having learned of the settlement between Texas Snubbing and Underwriters, filed an amended answer and counterclaim against Underwriters, a cross-claim against Texas Snubbing and a third-party complaint against Texas Snubbing's president, Jim Hutchings, asserting, in addition to his claim for recovery against Underwriters under the subject insurance policy, a claim that these parties, by entering into the settlement agreement, had colluded and conspired to defraud Stapleton of his rights to recovery under that policy.7 Underwriters, joined by Texas Snubbing and Jim Hutchings, has moved to dismiss Stapleton's amended counterclaim against it (Texas Snubbing and Jim Hutchings have requested dismissal of Stapleton's cross-claim and third-party complaint, respectively) for failure to state a claim upon which relief can be granted.


In his amended counterclaim against Underwriters, Stapleton asserts, inter alia, what is essentially a claim for a declaratory judgment that he is entitled to coverage under the umbrella policy issued by Underwriters. He avers not only that...

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