PPI Tech. Servs., L.P. v. Liberty Mut. Ins. Co.

• Decision Date: 29 November 2012
• Docket Number: No. 12–40189.,12–40189.
• Citation: 701 F.3d 1070
• Parties: PPI TECHNOLOGY SERVICES, L.P., Plaintiff–Appellant, v. LIBERTY MUTUAL INSURANCE CO., Defendant–Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

701 F.3d 1070

PPI TECHNOLOGY SERVICES, L.P., Plaintiff–Appellant,

v.LIBERTY MUTUAL INSURANCE CO., Defendant–Appellee.

No. 12–40189.

United States Court of Appeals, Fifth Circuit.

Nov. 29, 2012.

Gene Francis Creely, II, Creely Law Firm, P.L.L.C., Houston, TX, Darrell L. Barger, Hartline, Dacus, Barger, Dryer, L.L.P., Corpus Christi, TX, for Plaintiff–Appellant.

Catherine L. Hanna, Jeffrey Charles Glass, Hanna & Plaut, L.L.P., Austin, TX, for Defendant–Appellee.

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

Before WIENER, CLEMENT, and PRADO, Circuit Judges.

PRADO, Circuit Judge:

Defendant–Appellee, Liberty Mutual Insurance Co., (“Liberty Mutual”), insured Plaintiff–Appellant, PPI Technology Services, L.P., (“PPI”). PPI was retained by several third parties to assist in planning well-drilling operations. After a well was drilled in the wrong area, PPI was sued by the third parties. PPI then sought defense and indemnification from its insurance company, Liberty Mutual. When Liberty Mutual refused, PPI brought suit claiming breach of contract, violation of the Texas Prompt Payment Statute, and breach of the duty of good faith and fair dealing. On Cross Motions for Summary Judgment, the district court found for Liberty Mutual, holding that it did not have a duty to defend PPI against two underlying lawsuits. PPI appeals the district court's judgment, arguing that the district court erred in refusing to consider some allegations in the underlying lawsuits as “factual allegations,” and in its determination that, of the “factual allegations,” none alleged “property damage” from an “occurrence” as required by PPI's insurance policy with Liberty Mutual. We AFFIRM the district court's dismissal.

I. FACTUAL AND PROCEDURAL BACKGROUND

A. The Insurance Policy

Liberty Mutual issued a commercial general liability policy to PPI (the “Policy”). The Policy provided that Liberty Mutual would defend and indemnify PPI for claims arising out of PPI's exploration and production business operations. The Policy provides “Bodily Injury and Property Damage Liability” coverage (Coverage A) for “property damage” caused by an “occurrence.” The Policy defines “property damage” as follows:

a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or

b. Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the “occurrence” that caused it.

The Policy also provides coverage for “property damage” within the “underground resources and equipment hazard” endorsement to the Policy. The Policy defines the term “underground resources and equipment hazard” to include:

“Property damage” to any of the following:

a. Oil, gas, water or other mineral substances which have not been reduced to physical possession above the surface of the earth or above the surface of any body of water;

b. Any well, hole, formation, strata or area in or through which exploration for or production of any substance is carried on; c. Any casing, pipe, bit, tool, pump or other drilling or well servicing machinery or equipment located beneath the surface of the earth in any such well or hole or beneath the surface of any body of water.

B. Underlying Lawsuit

Royal Production Company, Inc. (“Royal”) is the lessor and operator of three leases located in Lake Boudreaux, Louisiana. Royal retained PPI as the representative of the working interest owners, including Blue Moon Exploration Company, L.L.C. (“Blue Moon”). PPI was allegedly to assist in well-planning and oversee the drilling of wells on the leases.

Oil and gas operations were to be conducted on three mineral leases: 18891, 18892, and 18893. The well was supposed to be drilled on Lease 18891. The well resulted in a dry hole, which was plugged and abandoned. It was later determined that the well had been drilled on Lease 18892, instead of Lease 18891. Royal filed suit against PPI in the 347th District Court of Nueces County in Cause No. 09–4086–H, Royal Production Company, Inc. v. PPI Technology Services, L.P. Royal sought to compel arbitration regarding its claim that PPI's negligence caused the drilling rig to be towed to the wrong location, resulting in a “dry hole” and “property damage.”

The non-operator working interest owners filed suit against PPI in Cause No. 158193, Blue Moon Exploration Company, L.L.C. et al. v. PPI Technology Services, L.P. in the 32nd District Court of Terrebonne Parish, Louisiana. Their petition sought damages for “PPI's negligence and/or gross negligence in locating and drilling an oil and gas well in an incorrect location.” Both the Royal and the Blue Moon petitions were referred to arbitration and consolidated into Case No. 70 198 Y00701 09, Blue Moon Exploration Company, L.L.C. et al. v. Royal Production Company, Inc. et al. We refer to the consolidated claims collectively as the “underlying lawsuits.”

C. The Present Case

PPI tendered the underlying lawsuits to Liberty Mutual for defense and indemnification. Liberty Mutual denied that it owed PPI either. In a complaint filed in Texas state court, and timely removed to federal district court, PPI brought three claims against Liberty Mutual: (1) breach of insurance contract; (2) breach of section 541.060 of the Texas Insurance Code; and (3) breach of the duty of good faith and fair dealing.

PPI filed a Motion for Partial Summary Judgment seeking a judicial declaration that Liberty Mutual had a duty to defend PPI based upon the allegations in the underlying lawsuits. Liberty Mutual responded by filing a Motion for Summary Judgment, arguing it had no duty to defend or indemnify PPI because the underlying lawsuits did not contain factual allegations of “property damage” caused by an “occurrence” as required by the Policy, and that, in the alternative, policy exclusions precluded coverage.

The district court denied PPI's Motion for Partial Summary Judgment and granted Liberty Mutual's Motion for Summary Judgment, dismissing all of PPI's claims against Liberty Mutual. First, the district court declined to consider the allegations of “property damage,” concluding that they were legal, rather than factual, allegations. The district court concluded that the “property damage” allegations were legal in nature because they “concern the definition and categorization of certain conduct and objects, rather than the ‘ facts giving rise to the alleged actionable conduct.’ ” PPI Tech. Servs., LP v. Liberty Mut. Ins. Co., 2012 WL 130389, at *11 (S.D.Tex.2012) (citing Merchs. Fast, 939 S.W.2d at 141 (quoting Adamo, 853 S.W.2d at 676)). “As mere legal assertions, these statements do not qualify as ‘allegations' for purpose of the eight-corners rule.” Id. PPI timely appealed, invoking our jurisdiction pursuant to 28 U.S.C. § 1291.

II. STANDARD OF REVIEW

This Court reviews a grant of summary judgment de novo. Gore Design Completions, Ltd. v. Hartford Fire Ins. Co., 538 F.3d 365, 368 (5th Cir.2008). Summary judgment is appropriate when the pleadings and the record show “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a); see Gore Design Completions, Ltd., 538 F.3d at 368 (quoting Celotex v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)). Because federal jurisdiction is based on diversity of citizenship, the federal court looks to the substantive law of the forum state, here, Texas. See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938); Tex. Indus., Inc. v. Factory Mut. Ins. Co., 486 F.3d 844, 846 (5th Cir.2007).

III. DISCUSSION

On appeal, PPI challenges the district court's determinations that the underlying lawsuits did not include factual allegations of “property damage” and that they did not allege an “occurrence” as required under the Policy. Because no specific facts about the type or kind of harm were alleged, we affirm the district court's dismissal on the grounds that the underlying lawsuits did not include factual allegations of “property damage.” Thus, we do not reach whether the underlying lawsuits alleged an “occurrence.”

A. Breach of Contract

PPI argues, in its first count, that Liberty Mutual breached its contract by neglecting its duties to defend and indemnify PPI against the underlying lawsuits filed by Royal and Blue Mountain. We conclude that Liberty Mutual has not breached its contract because it has no duty to defend.¹ As discussed below, the allegations in the underlying lawsuits are either purely economic, and thus not covered, or are purely legal conclusions, rather than factual allegations as required.

1. Duty to Defenda. Standards for Duty to Defend

Texas follows the eight-corners rule. Colony Ins. Co. v. Peachtree Constr., Ltd., 647 F.3d 248, 253 (5th Cir.2011) (citing Pine Oak Builders, Inc. v. Great Am. Lloyds Ins. Co., 279 S.W.3d 650, 654 (Tex.2009)). The insurance company's duty to defend the insured party is determined solely on the facts alleged in the underlying lawsuit and the terms of the policy. Id. Under the eight-corners rule, the duty to defend is not affected by facts ascertained before suit (except to the extent they are alleged in the petition), developed during litigation, or by the ultimate outcome of the suit. Trinity Universal Ins. Co. v. Cowan, 945 S.W.2d 819, 829 (Tex.1997) (quoting Heyden Newport Chem. Co. v. Southern Gen. Ins. Co., 387 S.W.2d 22, 26 (Tex.1965)). “Thus, the duty to defend arises only when the facts alleged in the [underlying lawsuit], if taken as true, would potentially state a cause of action falling within the terms of the policy.” Northfield Ins. Co. v. Loving Home Care, Inc., 363 F.3d 523, 528 (5th Cir.2004) (first emphasis added).

If there is a “doubt as to whether or not the allegations of a complaint against the insured...