Creole Explorations, Inc. v. Underwriters at Lloyd's, London

• Decision Date: 24 February 1964
• Docket Number: No. 46759,46759
• Citation: 245 La. 927,161 So.2d 768
• Parties: CREOLE EXPLORATIONS, INC. v. UNDERWRITERS AT LLOYD'S, LONDON, et al.
• Court: Louisiana Supreme Court

Page 768

161 So.2d 768

245 La. 927

CREOLE EXPLORATIONS, INC. v. UNDERWRITERS AT LLOYD'S, LONDON, et al.

No. 46759.

Supreme Court of Louisiana.

Feb. 24, 1964.

Rehearings Denied March 30, 1964.

Robert U. Blum, Charles F. Seemann, New Orleans, for plaintiff-applicant.

Blake West, New Orleans, Newton Gresham, Houston, Tex., for respondent.

HAWTHORNE, Justice.

Creole Explorations, Inc., instituted this suit to recover its expenses in regaining control of an oil and gas well which allegedly got out of control because of a blowout. Plaintiff was the insured under a certificate of insurance issued by Underwriters at Lloyd's, London, and recovery is claimed under the following provision:

'To cover expenses entailed by the assured in regaining control of oil or gas well(s) being drilled * * * which get out of control as a direct result of the drilling of wells insured hereunder until completion of (or) abandonment * * *' caused by * * * Blowout * * *.'

Under this provision it will readily be seen that in order to recover plaintiff must establish (1) that there was a blowout, (2) that loss of control of the well was caused by such blowout, and (3) what expenses were incurred in regaining control.

The district court awarded plaintiff a judgment of $69,624.74. The Court of Appeal reversed the judgment and dismissed plaintiff's suit, being of the opinion that plaintiff had failed to establish that a blowout occurred. See La.App., 151 So.2d 382. On application of plaintiff we granted a writ of certiorari. 244 La. 477, 152 So.2d 565.

According to plaintiff's petition, the basis of the suit is that one of its wells known as A. Courville No. 1 while being drilled blew out on July 20, 1958; that the well was intermittently under and out of control until August 17, 1958, when it was plugged and abandoned, and that more that $146,000.00 was expended during this period in an effort to regain control. The defense is that no blowout occurred, that control of the well was never lost, and that therefore no expense was incurred by plaintiff to regain control.

The well was spudded in by Atlas Drilling Company, drilling contractors, on June 26, 1958, and except for some saltwater difficulty on July 11, normal drilling conditions prevailed until July 20. On that day (July 20) the drilling was normal for the first six hours of the day tour which commenced at 7:00 a.m., and then at about 1:00 o'clock in the afternoon the driller Gregorich hit a break in the formation and drilled five feet in 10 minutes. Upon having the derrick man check the mud tanks Gregorich was informed that the tanks were running over. He ordered mud to be mixed and called the tool pusher Baltha Hughes, Jr., who was away from the well at the time. Hughes and Charles Kelley, president of Atlas, arrived at the well site quickly. Soon after Kelley's arrival the mud was escaping over the bell nipple onto the rig floor, and when this happened, he ordered the pipe picked up enough so that it could be rotated, and closed the blowout preventers. Shortly after the blowout preventers were closed, the drill pipe became stuck in the hole. The blowout preventers remained closed until 4:30 a.m. on the 21st, when they were opened. In the interim the well had been 'on choke', and mud had been mixed to control it.

Houston Oil Field Material Company's fishing tool operators came on location on the 21st at about 3:00 p.m. to fish for the drilling pipe which had become stuck, and after a delay of seven hours began washingover operations. ¹ From then until July 31 fishing operations were performed every day, although they were stopped at times when the mud became so gas- or salt-cut that it had to be weighted up and conditioned in order for these operations to be continued.

On July 31 a cement plug was set preparatory to whipstocking operations. ² Because this plug did not hold, a second plug was necessary on August 1, and on this was set the whipstock tool. Whipstocking operations were commenced and were continued until some equipment was lost in the hole, and a new plug and a second whipstock were set on August 5. Though interrupted by the gas- and saltwater-cut mud, drilling operations were continued to a depth of 6918 feet, when extreme pressures were encountered on August 10. On that date (August 10) the well again started blowing mud over the bell nipple, and drilling was stopped. From this time until the 17th, when it was finally plugged, the only operations at the well were mixing and conditioning mud, plugging the hole with cement and baroid to hold the pressure down in the hole, and fishing to recover stuck drill pipe and lost fishing tools from the well.

It is important to state at this time that the certificate of insurance does not define the term 'blowout'. Witnesses at the trial who were present on July 20 and on August 10 were of the view that the well blew out on these dates. The experts called by plaintiff were of the opinion that a blowout occurs whenever the pressures from the formation overcome the hydrostatic pressure exerted by the mud column and force formation fluids to the surface. On the other hand, defendants' experts were of the opinion that nothing less than a wild well is a blowout, and that as long as the blowout-preventing equipment performs its function of containing pressure within the well hole, no blowout occurs. Witnesses for both sides agreed that 'blowout' is a loose term in the petroleum industry, and that no standard definition is recognized.

The Court of Appeal apparently gave no wright to the testimony of the various expert witnesses in this case as to what a blowout is, evidently because there was no unanimity among them. The court reviewed cases where the meaning of the term 'blowout' had been considered by several federal courts, and selected from these cases the meaning 'it likes' the best, the definition given in Central Manufacturers' Mut. Ins. Co. v. Elliott, 10 Cir., 177 F.2d 1011, as follows:

'* * * The term 'blowout' as used in oil operations has a technical meaning. It is generally defined as a condition in which a well builds up a sufficient gas pressure at the bottom of the hole and causes a rather sudden, forceful eruption or explosion which cleans out the well and causes it to go out of control.'

Accepting this definition, the Court of Appeal concluded that plaintiff did not establish that a blowout had occurred in the well. We think the Court of Appeal erred in accepting this definition, for the court completely overlooked the well established legal principle for the interpretation of insurance contracts, that when more than one interpretation is possible, the one favoring the insured will be adopted. Finley v. Massachusetts Mut. Life Ins. Co., 172 La. 477, 134 So. 399; Ardoin v. Great Southern Life Ins. Co., 186 La. 583, 173 So. 112; Albritton v. Fireman's Fund Ins. Co., 224 La. 522, 70 So.2d 111; Jones v. Standard Life and Accident Ins. Co. (La.App.), 115 So.2d 630.

Regardless of what definition may have been given of the term 'blowout' by the federal court, we think this rule of interpretation of insurance contracts is controlling here, and we shall adopt the definition of 'blowout' most favorable to the insured in this case, that is:

'A blowout occurs whenever the pressure from the formation overcomes the hydrostatic pressure exerted by the mud column and forces formation fluids to the surface.'

Under this definition plaintiff here has established to our satisfaction that the well being drilled blew out on July 20 and again on August 10.

The next question is: Was control of the well lost as a direct result of these two blowouts? Like 'blowout', the term 'control' is not defined in the certificate of insurance, and the same rule of interpretation of insurance contracts governs this phase of the case.

Plaintiff and defendants are far apart in their theories of what 'control' means. Defendants-respondents contend that the well was never out of control, making their definition of 'control' conform with their definition of 'blowout'. In other words, under their theory there is always control unless the well is blowing wild. Having rejected their definition of 'blowout', we must also reject their theory of 'control'. Plaintiff-relator, on the other hand, takes the position that the well was out of control from the time it blew out on July 20 either until the drilling depth of 10,005 feet of that date should be regained (which depth was never regained) or until the well was abandoned at a lesser depth on August 17. Plaintiff's view is also not acceptable. Its own witnesses and those working in the oil industry admitted that a well had to be in control for drilling, fishing operations, washing-over operations, whipstocking operations, etc., to be performed; and many such operations were conducted in this well after July 20.

The definition of 'control' most favorable to the insured that is sensible and accords with the preponderant view of its own witnesses is that the well was under control when the column of mud was balanced so that whatever operations were necessary could be performed in the well bore hole, and that it was out of control when the mud column became so imbalanced from gas and saltwater penetrations that operations had to be stopped while the mud was conditioned or weighted up and control regained.

The drilling report ³ and the testimony of numerous witnesses show conclusively that the well went out of control during the day tour of July 20, according to this meaning of the term 'control'. Plaintiff's own witnesses testified that control of this well was regained on July 21. ⁴ They differed, however, as to whether control was regained in the morning tour or in the evening tour; but the testimony when considered with the drilling report shows that control was regained during the evening tour of that date.

Although witnesses for the plaintiff who were engaged from July 21 to August...