Natol Petroleum Corp. v. Aetna Insurance Co.

• Decision Date: 08 September 1972
• Docket Number: No. 72-1004.,72-1004.
• Parties: NATOL PETROLEUM CORPORATION, Plaintiff-Appellee, v. AETNA INSURANCE COMPANY, Defendant-Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

466 F.2d 38 (1972)

NATOL PETROLEUM CORPORATION, Plaintiff-Appellee, v. AETNA INSURANCE COMPANY, Defendant-Appellant.

No. 72-1004.

United States Court of Appeals, Tenth Circuit.

September 8, 1972.

Kent F. Frates, of Sullivan, Frates & Maguire, Oklahoma City, Okl., (Anthony F. Maguire, of Sullivan, Frates & Maguire, Oklahoma City, Okl., on the brief), for plaintiff-appellee.

Ronald R. Hudson, of Rhodes, Hieronymus, Holloway & Wilson, Tulsa, Okl., for defendant-appellant.

Before JONES^*, SETH and McWILLIAMS, Circuit Judges.

McWILLIAMS, Circuit Judge.

Natol Petroleum Corporation, an oil and gas exploration company, brought an action against Aetna Insurance Company, alleging the breach of a contract of insurance issued it by Aetna. The action seeks reimbursement of sums paid by Natol in satisfaction of its contractual liability to a third party.

Natol alleged in its complaint that it incurred liability to a drilling contractor, the Grey-Wolf Drilling Company, under the terms of a drilling contract, and that such contractual liability was insured against by a policy of insurance with Aetna. Natol further alleged that it gave immediate notice to Aetna and promptly furnished a proof of loss; that Aetna undertook to adjust the loss, but thereafter denied liability and refused to compromise or pay the loss, to the end that Natol was required to settle the claim for the sum of $32,511.90. Natol in the present action seeks reimbursement from Aetna in that amount.

Aetna, by answer, denied any breach of contract and alleged, among other things, that the policy provided no coverage for Natol's liability to Grey-Wolf assumed under the drilling contract.

Following extensive discovery, the parties entered into a stipulation as to the facts. Based on such stipulation, plus certain depositions, both parties moved for summary judgment. Upon hearing, the trial court granted Natol's motion and entered judgment for it in the sum of $32,061.90. Aetna now appeals.

The first issue to be resolved is whether the insurance policy covered Natol's liability to Grey-Wolf. If there is no coverage, other matters raised on appeal need not be considered. Before setting forth the pertinent provisions of the insurance contract, brief reference to the facts as stipulated to by the parties will put the issue in focus. As indicated, Natol is engaged in the business of exploration for oil and gas. Grey-Wolf is an independent drilling contractor engaged in the business of drilling oil and gas wells. Accordingly, Natol entered into a contract with Grey-Wolf to drill a well for it in Louisiana.

The drilling contract between Natol and Grey-Wolf provided that the latter was an independent contractor who directs, controls, performs and supervises work performed under the contract. In return for drilling services, Natol agreed to pay Grey-Wolf by the foot for all drilling to a depth of 12,000 feet, and by the day for all drilling below 12,000 feet. Under the terms of the drilling contract, Natol assumed liability for all damage or destruction to Grey-Wolf's in-hole equipment while the work was on a "day work basis," the contract providing as follows:

"18.3 CONTRACTOR\'S IN-HOLE EQUIPMENT—DAY WORK BASIS: Owner shall assume liability at all times while work is on a day work basis for damage to or destruction of Contractor\'s in-hole equipment, including but not limited to, drill pipe, drill collars, and tool joints; and Owner shall reimburse Contractor for the actual cash value of any such loss or damage provided such loss or damage is not due to the negligence of the Contractor, his agents, servants or employees."

On November 16, 1969, at an approximate depth of 12,700 feet, when the drilling operations were on a day work basis under the drilling contract, a high pressure formation was encountered. Efforts to control the pressure were unsuccessful and it became necessary to abandon a quantity of drill pipe and other drilling equipment owned by Grey-Wolf which was cemented in the hole.

Since the equipment was lost while drilling was being done on a day work basis, Grey-Wolf, under the terms of its contract with Natol, made claim against Natol for the value of its equipment which was lost when the hole was plugged. As indicated, after making demands on Aetna, Natol paid Grey-Wolf the sum of $32,061.90 pursuant to the liability assumed by it under the drilling contract. It was stipulated that Grey-Wolf's loss of drilling equipment was not caused by or the result of any negligence or other tortious conduct by Natol or any of its employees and that Natol's liability to Grey-Wolf was assumed under the drilling contract.

The policy issued Natol by Aetna is characterized by Aetna as a specialty form which expressly excludes from coverage liability assumed under a drilling contract. Otherwise, the policy essentially provides coverage for "liability imposed by law" for the destruction of or damage to specialty equipment of specialty contractors, when the equipment was used or rented to or was in the care, custody, or control of the assured. More specifically, the insuring language of the policy reads as follows:

"1. Subject otherwise to all the terms, conditions, limitations and exclusions hereinbelow set forth, the Company agrees to pay on behalf of the Assured all sums up to $100,000.00 either under Paragraph 1(A) or 1(B) or both combined, which the Assured shall become obligated to pay:

(A) By reason of the liability imposed by law for the destruction of or damage to property of others consisting of drilling rigs, workover equipment, tools and other property of electrical log surveyors, gun perforators, acidizers, directional drillers, fishing tool suppliers, cementers, corers and other servicing and specialty oil and gas contractors, provided that the damage or destruction occurs during the drilling, completion, or working over of a well insured hereunder and provided that such property was occupied or used by or rented to or in the care, custody or control of the Assured.

(B) By reason of the liability which has been assumed by the Assured under the usual and customary form of work order, service ticket and rental agreement used by oil or gas well servicing and specialty contractors (excepting the term usual and customary form of work order, service ticket and rental agreement as used herein shall not be interpreted to include drilling contracts) for physical loss of or damage to oil or gas well servicing and specialty equipment provided that such property was occupied or used by or rented to or in the care, custody or control of the Assured and such loss or damage is directly caused by: * * * specified perils." (Emphasis added.)

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