Cox Operating, L. L.C. v. St. Paul Surplus Lines Ins. Co.

• Decision Date: 30 July 2015
• Docket Number: No. 13–20529.,13–20529.
• Citation: 795 F.3d 496
• Parties: COX OPERATING, L.L.C., Plaintiff–Appellee v. ST. PAUL SURPLUS LINES INSURANCE COMPANY, Defendant–Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

795 F.3d 496

COX OPERATING, L.L.C., Plaintiff–Appellee

v.ST. PAUL SURPLUS LINES INSURANCE COMPANY, Defendant–Appellant.

No. 13–20529.

United States Court of Appeals, Fifth Circuit.

July 30, 2015.

Jack Thomas Jamison (argued), Alexandra Fernandez Stravinsky, Litigation Counsel, Stravinsky & Jamison, Dallas, TX, for Plaintiff–Appellee.

Charles Thomas Frazier, Jr., Esq. (argued), Alexander Dubose Jefferson & Townsend, L.L.P., Dallas, TX, Robert Benjamin Dubose, Alexander Dubose Jefferson & Townsend, L.L.P., James Clifton Hall, III, William Peter Maines, Esq., Karen Klaas Milhollin, Hall Maines Lugrin, P.C., Houston, TX, Thomas Royal Phillips, Baker Botts, L.L.P., Susan Schlesinger Vance, Alexander Dubose Jefferson & Townsend, L.L.P., Austin, TX, for Defendant–Appellant.

Appeals from the United States District Court for the Southern District of Texas.

Before JOLLY, HIGGINSON, and COSTA, Circuit Judges.

Opinion

E. GRADY JOLLY, Circuit Judge:

This appeal presents a dispute over insurance coverage and penalty interest under the Texas Prompt Payment of Claims Act (the Act), Tex. Ins.Code Ann. §§ 542.051 –.061. The insured, Cox Operating, L.L.C., spent millions of dollars cleaning up pollution and debris after Hurricane Katrina caused extensive damage to the oil-and-gas facilities it operated. After reimbursing Cox for over $1.4 million of its costs, Cox's liability insurer, St. Paul Surplus Lines Insurance Co., filed this suit in the district court, seeking a declaration that the remainder of Cox's costs were not “pollution clean-up costs” covered by the policy. Cox counterclaimed, and, after a five-week jury trial, the district court entered judgment awarding Cox, among other amounts, $9,465,103.22 in damages for breach of the policy and $13,064,948.28 in penalty interest under the Act for failure to promptly and properly respond to Cox's claims.

On appeal, St. Paul argues that the damages award must be reduced (1) because it includes costs that Cox did not report to St. Paul within one year of the clean-up work and thus are not covered by the policy; and (2) because it includes costs that were already reimbursed by other insurers, a double recovery. St. Paul further argues that the penalty-interest award must be reduced, or eliminated, because the district court calculated the amount of penalty interest after incorrectly determining the date on which interest began to accrue. We find no error and AFFIRM.

I.

Cox operated oil-and-gas-production facilities located in Eloi Bay and Quarantine Bay, off the coast of Louisiana. The facilities were owned by certain working-interest owners. In August 2005, Hurricane Katrina severely damaged the facilities, throwing wreckage into the bays and causing oil to escape from the wells and from damaged equipment and pipes. Cox, complying with various federal statutes and regulations, spent millions of dollars cleaning up the oil contamination and removing wreckage from the bays. The working-interest owners provided the clean-up funds to Cox; in return, Cox agreed to repay the working-interest owners from any insurance recovery. Cox completed its clean-up work in September 2007.

At the time of the hurricane, Cox and the working-interest owners had two types of insurance relevant here. First, Cox had two insurance policies issued by St. Paul—a primary commercial general liability policy and an umbrella excess liability policy. The working-interest owners were additional insureds on these policies. The primary policy provided $1 million in coverage for “covered pollution clean-up costs that result from a sudden and accidental pollution incident.” The excess policy provided an additional $20 million in coverage for pollution clean-up costs that, as relevant here, “would have been covered by [the primary policy], but aren't only because its applicable limit of coverage is used up.” Both policies defined “pollution clean-up costs” as follows:

Pollution clean-up costs means any cost or expense that:

• is for pollution work; and

• is reported to us within one year of the ending date of that pollution work.

In turn, the policies defined “pollution work” as:

• the testing for, monitoring, cleaning up, removing, containing, treating, detoxifying, or neutralizing of any pollutant; or

• the responding to, or assessing, in any way the effects of any pollutant.

Second, the working-interest owners had property-insurance policies on the Eloi Bay and Quarantine Bay facilities. These policies were issued by other insurers and, in the aggregate, provided $5 million of coverage for removal of wreckage and debris (ROWD).

On October 17, 2005, Cox notified St. Paul that it had a pollution clean-up claim. On October 27, St. Paul hired Shuman Consulting Services, L.P., to adjust the claim, and a Shuman representative made preliminary contacts with Cox's representative to discuss it. Between November 8, 2005, and March 13, 2006, however, no St. Paul or Shuman representative communicated with any Cox representative to investigate the claim. Additionally, no St. Paul or Shuman representative requested any invoices or other documents to substantiate the claim until July 24, 2006.

In the year following St. Paul's request for documents, Cox submitted various invoices and statements of the amount of its claim. St. Paul paid $1,480,395 of the claim (the policy limit of $1 million under the primary policy and $480,395 under the excess policy). On August 30, 2007, however, St. Paul delivered a letter to Cox acknowledging that “Cox's claim submissions to date exceed $15,000,000 and Cox continues to submit additional expenses,” and stating that St. Paul believed that it had “paid all amounts that ... are owed under the ‘Pollution Clean Up Costs' section of the Policy.” The letter also included a copy of a complaint that St. Paul had filed in this case against Cox seeking a declaration that St. Paul was not liable for the rest of Cox's claim.

Cox counterclaimed on behalf of itself and the working-interest owners, alleging that St. Paul had breached the policy; that St. Paul had done so in bad faith; and that, because St. Paul had failed to commence an investigation or request documents within 30 days of receiving notice of its claim, St. Paul owed penalty interest under the Texas Prompt Payment of Claims Act. In support of the counterclaim, a Cox employee, Tim Morrison, summarized and compiled all pollution clean-up costs that Cox had incurred, along with the relevant invoices. Cox submitted the bulk of this information to St. Paul in February 2011, with additional costs and invoices before trial. These costs amounted to $10,945,498.62, which, subtracting the amount that St. Paul had already paid ($1,480,395), was a total claim at trial of $9,465,103.62. Before trial in the St. Paul proceeding, the ROWD insurers paid the working-interest owners the aggregate debris-removal policy limit—$5 million.

At trial, the jury found that St. Paul had breached the excess policy, resulting in $9,465,103.22 in damages to Cox. Furthermore, the jury found that St. Paul had received notice of Cox's claim on October 17, 2005, but had not, within 30 days of that date, “commence[d] an investigation of Cox['s] claim” or “request[ed] from Cox ... all items, statements, and forms that St. Paul reasonably believed, at that time, would be required from Cox.” Accordingly, St. Paul had violated § 542.055(a) of the Act.

The district court entered judgment on the jury's findings, awarding Cox $9,465,103.22 in damages for breach of the policy, $13,064,948.28 in penalty interest under the Act, $2,864,167.31 in prejudgment interest, and costs and reasonable attorney's fees. St. Paul moved for judgment as a matter of law. The district court denied the motion and entered judgment. St. Paul filed this appeal.

II.

“We review de novo the district court's denial of a motion for judgment as a matter of law, applying the same standard[ ] as the district court.” Abraham v. Alpha Chi Omega, 708 F.3d 614, 620 (5th Cir.2013). “Under that standard, a litigant cannot obtain judgment as a matter of law unless the facts and inferences point so strongly and overwhelmingly in the movant's favor that reasonable jurors could not reach a contrary conclusion.” EEOC v. Boh Bros. Constr. Co., 731 F.3d 444, 451 (5th Cir.2013) (en banc) (internal quotation marks omitted).

III.

St. Paul argues that the district court erroneously awarded to Cox (1) over $2 million of costs that Cox failed to report, in noncompliance with the excess policy's one-year reporting requirement; (2) over $2 million of costs that had already been reimbursed by other insurers; and (3) millions of dollars in excess penalty interest under the Texas Prompt Payment of Claims Act. We consider each argument in turn.

A.

St. Paul first argues that the district court erroneously awarded $2,089,610 of pollution clean-up costs that Cox failed timely to report to St. Paul, in accordance with the excess policy's one-year reporting requirement. The district court held that this amount was properly included in the judgment because the reporting requirement was merely a “condition precedent to coverage,” which St. Paul waived when it denied Cox's claim on August 30, 2007. In St. Paul's view, however, the reporting requirement is not a condition precedent but instead is “included in the policy's definition of the scope of covered costs,” such that, under Texas law, it cannot be waived.

See, e.g., Minn. Mut. Life Ins. Co. v. Morse, 487 S.W.2d 317, 320 (Tex.1972) (“[W]aiver and estoppel cannot enlarge the risks covered by a policy....”).

1.

In Texas, a condition precedent to insurance coverage—i.e., a provision in an insurance policy that “avoid[s] coverage unless an insured does something,” see PAJ, Inc. v. Hanover Ins. Co., 243 S.W.3d 630, 635 (Tex.2008) —is waived if the insurer denies liability within that time period allowed under the policy for the insured to comply with the condition. Sanders v. Aetna Life Ins. Co., 146 Tex. 169, 205 S.W.2d...