Ranger Ins. Co. v. American Intern.

• Court: Texas Court of Appeals
• Writing for the Court: Adele Hedges
• Citation: Ranger Ins. Co. v. American Intern., 78 S.W.3d 659 (Tex. App. 2002)
• Decision Date: 23 May 2002
• Docket Number: No. 01-00-00586-CV.,01-00-00586-CV.
• Parties: RANGER INSURANCE COMPANY and Swift Energy Company, Appellants, v. AMERICAN INTERNATIONAL SPECIALTY LINES INSURANCE COMPANY, Flournoy Production Company, and Flournoy Drilling Company, Appellees.

78 S.W.3d 659

RANGER INSURANCE COMPANY and Swift Energy Company, Appellants, v. AMERICAN INTERNATIONAL SPECIALTY LINES INSURANCE COMPANY, Flournoy Production Company, and Flournoy Drilling Company, Appellees.

No. 01-00-00586-CV.

Court of Appeals of Texas, Houston (1st Dist.).

May 23, 2002.

Joseph Edward Byrne, Louis S. Hakim, Berry, Byrne & Randall, Dallas, for Appellants.

Kevin D. Cullen, Cullen, Carsner, Seerden & Cullen, LLP, Victoria, James D. Wise, Jr., Brown, Sims, Wise & White, Mark Christopher Clemer, Brown, Sims, P.C., Houston, for Appellees.

Panel consists of Justices MIRABAL, HEDGES, and JENNINGS.

OPINION

ADELE HEDGES, Justice.

This case involves indemnity and insurance claims arising out of oilfield litigation. Plaintiffs/appellants, Ranger Insurance Company ("Ranger") and Swift Energy Company ("Swift"), filed a declaratory judgment action to recover money paid in settlement for personal injury claims. The trial court rendered summary judgment for defendants/appellees, American International Specialty Lines Insurance Company ("AISLIC"), Flournoy Production Company, and Flournoy Drilling Company ("Flournoy"). We reverse and remand.

Background

Plaintiffs/appellants are Swift, the well operator of an oil and gas property, and its insurer, Ranger. Defendants/appellees are Flournoy, the drilling contractor, and its insurer, AISLIC. Swift and Flournoy entered into an oil and gas well drilling contract dated March 21, 1996. The contract contained mutual indemnity provisions to protect each against suits by the other's employees. Flournoy (the contractor) agreed to indemnify Swift (the operator) for claims by Flournoy's employees. In turn, Swift agreed to indemnify Flournoy for claims by Swift's employees.

On June 23, 1996, a blowout occurred at the well site. Two Flournoy employees, Craig Claus and Tommy Rackowitz, were injured. They were barred from suing Flournoy, their employer, because of workers' compensation; therefore, they sued only Swift. On December 3, 1997, Swift and its insurance carriers paid $2.7 million to settle the Claus litigation. Shortly thereafter, Swift and its insurance carriers paid $2.3 million to settle the Rackowitz litigation.

Swift and Ranger (as Swift's subrogee) filed a declaratory judgment action against Flournoy and its carriers to recover the reasonable and necessary costs of defense and indemnity associated with the Claus and Rackowitz litigation. The trial court rendered summary judgment for appellees, Flournoy and AISLIC, holding that the indemnity provisions were void under the Texas Oilfield Anti Indemnity Act. Swift and Ranger appeal.

Standard of Review

To prevail on a motion for summary judgment, a defendant must establish that no material fact issue exists and that it is entitled to judgment as a matter of law. See Rhone-Poulenc, Inc. v. Steel 997 S.W.2d 217, 222 (Tex.1999). A defendant who moves for summary judgment on the basis of an affirmative defense has the burden to prove conclusively all the elements of the affirmative defense as a matter of law. See KPMG Peat Marwick v. Harrison County Hous. Fin. Corp., 988 S.W.2d 746, 748 (Tex.1999). In conducting our review of the summary judgment, we take as true all evidence favorable to the nonmovant, and we make all reasonable inferences in the nonmovant's favor. Id.

Texas Oilfield Anti-Indemnity Act

This case requires an interpretation of the 1995 version of the Texas Oilfield Anti-Indemnity Act (the 1995 Act).¹ Under the 1995 Act, certain agreements between operators and drillers providing for indemnification of a negligent indemnitee are against public policy. 1995 Act § 127.002(b). The legislative history indicates that in 1973, drilling and other contractors had agreed to indemnify operators, but were unable to obtain insurance at a reasonable cost, or in some cases to obtain any insurance at all to cover liability that might be incurred from the indemnity obligations. Ken Petroleum Corp. v. Questor Drilling Corp., 24 S.W.3d 344, 348 (Tex.2000). Contractors were thus subjected to significant liability with no feasible means of insuring against those obligations. Id.

The 1995 Act voids indemnity provisions that purport to indemnify a party against liability caused by the indemnitee's sole or concurrent negligence and arising from personal injury, death, or property damage. 1995 Act § 127.003. The Legislature carved out the "mutual indemnity obligation" exception to the general rule:

With regard to a mutual indemnity obligation, the indemnity obligation is limited to the extent of the coverage and dollar limits of insurance or qualified self-insurance each party as indemnitor has agreed to provide in equal amounts to the other party as indemnitee.

1995 Act § 127.005(b).² Accordingly, a mutual indemnity obligation must be "limited to the extent of coverage and dollar limits of insurance" that each party "has agreed to provide in equal amounts" to the other party. Id. (emphasis added).

In Ken Petroleum Corp. v. Questor Drilling Corp., the Texas Supreme Court interpreted the 1991 version of the Act³ with regard to "dollar limits" of insurance. 24 S.W.3d at 348-51. Two courts of appeals had held that indemnity provisions were void under the Act because the parties did not agree to procure the same dollar amount of insurance to support their respective indemnity obligations. See Ken Petroleum Corp. v. Questor Drilling Corp., 976 S.W.2d 283, 289 (Tex.App.-Corpus Christi 1998), rev'd, 24 S.W.3d 344 (Tex. 2000); Weber Energy Corp. v. Grey Wolf Drilling Co., 976 S.W.2d 766, 769 (Tex. App.-Houston [1st Dist.] 1998) rev'd, 24 S.W.3d 344 (Tex.2000).

The Texas Supreme Court reversed, holding that: (1) mutual indemnity obligations can be valid under the 1991 Act, even if the parties agree to provide liability insurance in differing amounts; (2) the indemnity obligations are enforceable to the coverage and dollar limits that apply equally to both parties; and (3) the indemnity agreement need not specify the amount of liability insurance. Ken Petroleum, 24 S.W.3d at 351. The supreme court held that the indemnity obligation is limited to the amount of insurance that is equally provided:

The meaning of section 127.005(b) is not as clear as it might have been. But we conclude that it does not require parties to a mutual indemnity agreement to agree to have insurance in the same dollar amount. Instead, it contemplates that the mutual indemnity obligations will be enforceable only up to "the extent of the coverage and dollar limits of insurance or qualified self-insurance each party as indemnitor has agreed to provide in equal amounts to the other party as indemnitee." TEX. CIV. PRAC. & REM.CODE § 127.005(b). In other words, "the indemnity obligation is limited" to the amount of insurance that is equally provided. If one party provides more insurance than the other, the party providing the higher amount of coverage may not enforce its right to indemnity beyond the amount of coverage that the other party agreed to provide. And the party providing the lower amount of insurance may not enforce its right to indemnity beyond its own amount of coverage.

Id. at 350.

Dollar Limits

In issue one, appellants contend that the trial court erred in holding that the indemnity agreement was unenforceable, invalid, or void.

Under the 1995 Act, a mutual indemnity obligation must be "limited" to the extent of coverage and dollar limits of insurance that each party has agreed to provide in equal amounts to the other party. 1995 Act § 127.005(b). Appellees contend that the indemnity obligation was not limited to the extent of available insurance because paragraphs 18.10 and 18.11 of the contract specified that the obligation was "without limit and without regard to the cause or causes thereof or the negligence of any party or parties." Appellees argue that this provision invalidates the contract. We disagree.

Appellees' motion for summary judgment relied on the two underlying courts of appeals opinions in Ken Petroleum and Weber Energy. See Ken Petroleum, 976 S.W.2d at 283; Weber, 976 S.W.2d at 766. After the trial court granted appellees' motion for summary judgment in this case, the Texas Supreme Court reversed Ken Petroleum and Weber Energy — the two courts of appeals opinions upon which appellees relied. Ken Petroleum, 24 S.W.3d at 346. In Ken Petroleum, the supreme court upheld contracts containing similar "without limit" and "without regard" provisions. Id. at 357 n. 16. Likewise, those provisions do not invalidate the contract here. In accordance with the supreme court's opinion in Ken Petroleum, the contract in this case is enforceable up to the dollar limits that apply equally to both parties.

We sustain issue one.

Extent of Coverage

In issue two, appellants contend that the trial court erred in holding that the indemnity provisions of the contract are neither "unilateral" nor "mutual" under the Act.

"Mutual" and "unilateral" indemnity obligations, which are defined in the 1995 Act, are statutory exceptions to the general rule invalidating oilfield indemnity agreements. 1995 Act § 127.005(b), (c). Appellees argue that the contract was neither mutual nor unilateral because Swift did not indemnify Flournoy for Flournoy's gross negligence, whereas Flournoy indemnified Swift for Swift's gross negligence. The third paragraph of Exhibit "D" to the contract, entitled Footage Drilling Contract, states, "In no event shall the assumption of liability by Operator [Swift] in Articles 12.2, 12.3 and 18 above be construed to include the damage or loss resulting from gross negligence of Contractor [Flournoy]." There is no provision stating that Flournoy is not responsible for any damage or loss resulting from Swift's gross negligence; therefore, Flournoy argues that the obligations are not reciprocal.

Under section 127.005(b), a mutual indemnity obligation must be "limited to the extent of coverage and dollar limits of...