Energy Corp. of America v. Bituminous Cas. Corp.

• Decision Date: 04 February 2008
• Docket Number: Civil Action No. 2:07-0062.
• Parties: ENERGY CORPORATION OF AMERICA, a West Virginia corporation; and Eastern American Energy Corporation, a West Virginia corporation, Plaintiffs v. BITUMINOUS CASUALTY CORPORATION, an Illinois corporation, Defendant.
• Court: U.S. District Court — Southern District of West Virginia

543 F.Supp.2d 536

ENERGY CORPORATION OF AMERICA, a West Virginia corporation; and Eastern American Energy Corporation, a West Virginia corporation, Plaintiffs v. BITUMINOUS CASUALTY CORPORATION, an Illinois corporation, Defendant.

Civil Action No. 2:07-0062.

United States District Court, S.D. West Virginia, at Charleston.

February 4, 2008.

COPYRIGHT MATERIAL OMITTED

Johnny M. Knisely, II, Susan C. Wittemeier, Thomas R. Goodwin, Goodwin & Goodwin, Charleston, WV, for Plaintiffs.

Avrum Levicoff, Brian J. Headley, Levicoff Silko & Deemer, Pittsburgh, PA, for Defendant.

MEMORANDUM OPINION AND ORDER

JOHN T. COPENHAVER, JR., District Judge.

Pending in this declaratory judgment proceeding is the motion for summary judgment of defendant Bituminous Casualty Corporation ("Bituminous"), filed September 4, 2007, followed by a corrected version, filed September 12, 2007.

I. Factual and Procedural Background

Plaintiff Energy Corporation of America ("Energy") is a West Virginia corporation, primarily engaged in the business of oil and gas exploration, production, and marketing. (Def.'s Mem. Supp. Mot. 2; Compl. ¶ 1). Plaintiff Eastern American Energy Corporation ("Eastern") is Energy's wholly owned corporate subsidiary that is incorporated in and maintains its principal place of business in West Virginia. (Def.'s Mem. Supp. Mot. 2; Compl. ¶ 2). Eastern owns the mineral rights to and the state drilling permit for the Yawkey # 99 gas well located in Logan County. (Pls.'Mem. Opp'n Mot. 2; Def.'s Mem. Supp. Mot 4).

A. The Contract — Generally

In October of 2005, Energy entered into a contract ("Contract") with S.W. Jack Drilling Company ("S.W.Jack") to drill wells in Kentucky, Pennsylvania, and West Virginia, including the Yawkey # 99. (Def.'s Mem. Supp. Mot. 3; Pls.' Mem. Opp'n Mot. 2-3). S.W. Jack is a Pennsylvania corporation. (Def.'s Mem. Supp. Mot. 2). Defendant Bituminous alleges that S.W. Jack's principal place of business is Pennsylvania. (Id.). Plaintiffs contend that S.W. Jack's principal place of business is West Virginia inasmuch as its Pennsylvania home office employs only office personnel; most of its employees, including all employees who drill wells, work in West Virginia; most of its vehicles are located in West Virginia; and its operations are primarily based in West Virginia. (Pls.' Mem. Opp'n Mot. 4-5).

The Contract was signed by Energy as the "Operator" and S.W. Jack as the "Contractor"; Eastern was not a signatory to the Contract. (Contract ¶ 33). It required both Energy and S.W. Jack to obtain and maintain insurance coverage and to name the other as an "additionally insured" for the liability specifically assumed by each party in the Contract at paragraph 19. (Id. ¶ 17). In accordance with this requirement, S.W. Jack obtained insurance from defendant Bituminous, consisting of a commercial general liability policy ("CGL Policy") and a commercial umbrella liability policy ("Umbrella Policy"). (Def.'s Mem. Supp. Mot. 2-3).

B. The Causes of Action

On November 2, 2005, while S.W. Jack was drilling at the Yawkey # 99 gas well pursuant to the Contract, an S.W. Jack employee was involved in an accident that resulted in his death. (Pls.' Mem. Opp'n Mot. 2; Def.'s Mem. Supp. Mot. 4). His estate filed a wrongful death action ("Underlying Action") which is currently pending in state court. (Pls.' Mem. Opp'n Mot. 2). Eastern, but not Energy, was named a defendant. (Pls.' Mem. Supp. Mot. 3). The claims against Eastern include: negligent hiring, vicarious liability, joint venture, strict liability, wrongful death, and premises liability. (Second Amended Complaint, Jett v. E. Am. Energy Corp.). Energy and Eastern demanded that Bituminous assume the cost of the defense in the Underlying Action. (Pls.' Mem. Supp. Mot. 2, 3). Bituminous refused to do so. (Id.).

Plaintiffs instituted the present action against Bituminous on January 26, 2007, based on diversity jurisdiction. Plaintiffs seek a declaration that Bituminous is obligated to defend Eastern in the Underlying Action and indemnify it to the extent of the policy limits for any liability Eastern may have to the estate of the decedent. (Compl.¶¶ 22-25).

C. The Contract's Allocation of Liability

As to the liability of the contractor, S.W. Jack, paragraph 19 of the Contract states "Contractor shall be liable, and shall release, indemnify, defend and hold Operator harmless, for any bodily injury to Contractor's ... personnel, ... solely caused by Contractor's negligence or willful misconduct." (Id. ¶ 19.1). As to the liability of the Operator, Energy, paragraph 19 of the Contract states "except for the liabilities assumed by Contractor ... Operator hereby assumes, and shall release, defend, indemnify and hold Contractor harmless at all times for any bodily injury to Contractor's ... employees, ... regardless of how or when such damages or destruction occurs. ..." (Id. ¶ 19.2). The indemnity provision of the Contract extends the duty to indemnify to parent, holding, and affiliated companies of the parties to the Contract. (Id. 19.7).

D. The CGL Policy

Bituminous promises in the CGL Policy to "pay those sums the insured becomes legally obligated to pay as damages because of `bodily injury' or `property damage' to which this insurance applies." (CGL Policy). The CGL Policy gives Bituminous the right and duty to defend the insured against any suit seeking those damages. (Id.). The CGL Policy further states that the insurance applies only if the bodily injury or property damage (1) is caused by an "occurrence" that takes place in the "coverage territory," (2) occurs during the policy period, and (3) is unknown to the insured prior to the policy period. (Id.).

The CGL Policy defines its "coverage territory" as "The United States of America (including its territories and possessions), Puerto Rico and Canada...." (Def.'s Mem. Supp. Mot. 2-3). Thus the "coverage territory" included S.W. Jack's drilling operations in Pennsylvania, West Virginia, and Kentucky.

The CGL Policy defines "insureds" as S.W. Jack and its volunteer workers and employees, with some restrictions. (Id. 12 (quoting CGL Policy)). It further states in an amendment that an "additional insured" is:

Any person or organization for whom you [S.W. Jack] are performing operations if you and such person or organization have agreed in a written contract or written agreement executed prior to any loss that such person or organization will be added as an additional insured on your policy ...

(Id. 12 (quoting CGL Policy and adding emphasis); Pls.' Mem. Opp'n Mot. 12).

The CGL Policy excludes from coverage "`[b]odily injury' or `property damage' for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement." (CGL Policy). It then excepts from this exclusion "liability for damages ... (2)[a]ssumed in a contract or agreement that is an `insured contract'...." (Id.). The CGL Policy defines an "insured contract" as, among other things:

That part of any other contract or agreement pertaining to your [S.W. Jack's] business ... under which you assume the tort liability of another party to pay for "bodily injury" or "property damage" to a third person or organization. Tort liability means a liability that would be imposed by law in the absence of any contract or agreement.

(Def.'s Mem. Supp. Mot. 18 (quoting CGL Policy)).

II. Preliminary Matters

A. Ripeness

Plaintiffs allege that the motion for summary judgment is premature inasmuch as Bituminous refuses to provide information requested by Plaintiffs in discovery. (Pls.' Mem. Opp'n Mot. 1-2). Bituminous responds that the Contract, the insurance policies, and the complaint in the Underlying Action have been disclosed and that the information sought by plaintiffs is evidence extrinsic to the contracts and unnecessary for resolution of the motion for summary judgment. (Def.'s Reply 2).

This issue was addressed by Magistrate Judge Mary E. Stanley in her resolution of Defendant's motion for a protective order. In her memorandum opinion and order granting that motion, the magistrate judge appropriately found that regardless of whether the court applied West Virginia or Pennsylvania law, extrinsic evidence is not admissible unless the contract is found to be ambiguous. (Mem. Op. & Ord., Oct. 25, 2007). Thus, discovery is not warranted unless and until the court determines that the policies are ambiguous. (Id.). Bituminous's motion for summary judgment is ripe for consideration.

B. Standing

Bituminous contends that Energy has not been named as a defendant in the Underlying Action and thus has no standing to assert rights under the insurance policies. (Def.'s Mem. Supp. Mot. 1 n. 2). Plaintiffs counter that Energy has a sufficient stake in the outcome to confer standing to seek a declaratory judgment because it is "vindicating" a contractual right to indemnification that it secured for its subsidiary, Eastern. (Pls.' Mem. Opp'n Mot. 3 n. 2). According to plaintiffs, the duty to indemnify found at paragraph 19.7 of the Contract expressly runs to and benefits Energy and all of its affiliates. (Id. 3).

For a federal court to possess the authority to hear a case before it, the plaintiff must have both Article III and statutory standing. Bender v. Williamsport Area Sch, Dist, 475 U.S. 534, 541,106 S.Ct. 1326, 89 L.Ed.2d 501 (1986). On the subject of constitutional standing, the Supreme Court of the United States has stated that "[n]o principle is more fundamental to the judiciary's proper role in our system of government than the constitutional limitation of federal-court jurisdiction to actual cases or controversies." Simon v. E. Ky. Welfare Rights Org., 426 U.S. 26, 37, 96 S.Ct. 1917, 48 L.Ed.2d 450 (1976). "Article III standing ... enforces the Constitution's case-or-controversy requirement." Elk Grove Unified Sch. Dist. v. Newdow, 542 U.S. 1, 11, 124 S.Ct. 2301, 159 L.Ed.2d 98 (2004). To have Article III ...