Southern Cal. Petroleum Corp. v. Royal Indem. Co.

• Decision Date: 27 February 1962
• Docket Number: No. 6789,6789
• Citation: 1962 NMSC 27,369 P.2d 407,70 N.M. 24
• Parties: SOUTHERN CALIFORNIA PETROLEUM CORPORATION, a corporation, Plaintiff-Appellant, Employers Mutual Liability Insurance Company of Wisconsin, a corporation, Defendant-Appellant, v. ROYAL INDEMNITY COMPANY, a corporation; The American Employers Insurance Company, a corporation; Commercial Standard Insurance Company, a corporation; B. J. Service, Inc., a corporation; J. C. Clower, d/b/a Clower Drilling Company; and E. M. Rowland, d/b/a Rowland Tank Truck Service, Defendants-Appellees.
• Court: New Mexico Supreme Court

Page 407

369 P.2d 407

70 N.M. 24

SOUTHERN CALIFORNIA PETROLEUM CORPORATION, a corporation, Plaintiff-Appellant, Employers Mutual Liability Insurance Company of Wisconsin, a corporation, Defendant-Appellant, v. ROYAL INDEMNITY COMPANY, a corporation; The American

Employers Insurance Company, a corporation; Commercial

Standard Insurance Company, a corporation; B. J. Service,

Inc., a corporation; J. C. Clower, d/b/a Clower Drilling

Company; and E. M. Rowland, d/b/a Rowland Tank Truck

Service, Defendants-Appellees.

No. 6789.

Supreme Court of New Mexico.

Feb. 27, 1962.

C. S. Neal, Carlsbad, for Southern Cal. Pet. Corp.

Neal & Neal, Hobbs, for Employers Mut. Ins. Co.

Charles F. Malone and Paul A. Cooter, Roswell, for Royal Indemnity Co. and B. J. Service, Inc.

Kermit E. Nash, Hobbs, Gilbert, White & Gilbert, Santa Fe, for Commercial Standard Ins. Co. and Rowland.

NOBLE, Justice.

Declaratory judgment action was commenced to determine whether appellant is afforded public liability protection as an omnibus insured under policies of automobile insurance issued to independent contractors cementing an oil well for appellant. This appeal is from a judgment denying such protection.

The declaratory judgment action is an outgrowth of the principal case arising out of an oil well fire and explosion in which two persons were killed; two were seriously injured; and, from which extensive property damage resulted. The issues on this appeal, however, are entirely foreign to those presented in Tipton v. Clower, 67 N.M. 388, 356 P.2d 46 and Royal Indemnity Co. v. Southern California Petroleum Corporation, 67 N.M. 137, 353 P.2d 358, arising out of the same fire and explosion.

Southern California Petroleum Corporation (hereafter referred to as 'Southern California'), as owner of an oil and gas lease located in Lea County, employed J. C. Clower, d/b/a Clower Drilling Company (hereafter referred to as 'Clower') to drill an oil well. Southern California contracted with B. J. Service, Inc. (hereafter referred to as 'B. J. Service') to perform the operation of cementing the oil string. B. M. Rowland, d/b/a Rowland Tank Truck Service (hereafter termed 'Rowland') was employed by Southern California to furnish water for the cementing operation. Employers Mutual Liability Insurance Company of Wisconsin (hereafter termed 'Employers Mutual') was Southern California's liability insurance carrier. Royal Indemnity Company insured B. J. Service vehicles and carried its workmen's compensation coverage. Commercial Standard Insurance Company insured the Rowland truck.

Southern California was instrued by the State Oil and Gas Commission to cement its oil string before penetrating the producing sand but drilled into it before doing so. Before the arrival of B. J. Service and at the direction of Southern California, Clower lowered the five and one-half inch oil string into the hole and pulled the surface casing. Some fifteen hundred feet of oil stood in the hole and a small amount of gas, described as similar to the smoke from a cigarette, was escaping. The field was not known to produce gas in any quantities.

The cementing operation is accomplished by forcing a mixture of cement and water through a cement head fastened to the top of the oil string, into the casing, thence out beneath the lower end up through the drilled hole on the outside of the casing. B. J. Service specialized in this operation and had specially constructed trucks with tanks, pumps, pipes and other equipment by means of which the cement mixture was forced into the casing under pressure. When the cement mixture is forced into the casing, it, in turn, forces any oil, gas or other substances in the casing out through the lower end and thence up through the space between the walls of the drilled hole and the casing and eventually to the surface. Rowland trucks furnished the water for the operation. It was while the B. J. Service trucks were pumping cement into the casing that a trapped pocket of oil and gas suddenly rose to the surface, exploded and burned with the resulting deaths, personal injuries and property damage.

The trial court found that the efficient and predominating cause of the accident was the antecedent negligence of Southern California and Clower in pulling the surface casing and trapping the oil and gas in the hole; in failing to cement the production string before drilling into the production sand; failure to advise B. J. Service of gas in the hole; failure to supply safety devices; and, in failure to provide safe lighting for the cementing operation at night.

Southern California settled its liability for damages occasioned by the fire and explosion, taking joint tort feasor releases. These settlements were found by the trial court to have been proper and to have been made in good faith. Suits were brought and judgments rendered against Clower.

Southern California contends that it is an omnibus insured under the policies of insurance issued to B. J. Service and Rowland insuring their vehicles, and that the insurance carriers of the latter should be required to contribute to reimburse Southern California and Employers Mutual for the damages paid by them.

The decisive question, then, is whether Southern California is an insured within the meaning of the insurance contracts covering the B. J. Service and Rowland trucks. The limits of the coverage and persons protected is to be determined by a proper interpretation of the intent of the contracting parties as disclosed by a construction of the whole policy of insurance. The insuring provision reads:

'I. Coverage A--Bodily Injury Liability

'To pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury, * * * including death at any time resulting therefrom, sustained by any person, caused by accident and arising out of the * * * use of any automobile.'

A similar clause covers property damage and the use of an automobile is extended to include '(c) * * * the loading and unloading thereof.'

The word 'insured' is defined by the policy to include:

'III. Definition of Insured

'The unqualified word 'insured' includes the named insured and also includes any person while using an owned automobile or a hired automobile and any person or organization legally responsible for the use thereof, provided the actual use of the automobile is by the named insured or with his permission, * * *.'

The latter provision is termed the omnibus clause of the policy and it is seriously insisted that Southern California is an omnibus insured either as a person (1) using the B. J. Service and Rowland vehicles, or (2) legally responsible for the use thereof. A construction of the omnibus clause is of first impression in this jurisdiction.

Appellants assert first that Southern California was using the insured vehicles through its employment of B. J. Service, an independent contractor. They contend that the injuries and damages were clearly caused by accident and occurred during the unloading of the vehicles and that under the terms of the policy Southern California is entitled to the protection of the insurance.

It is self evident that the insuring clause limits the obligation to pay only such sums as the insured shall become legally obligated to pay. The omnibus clause extends the coverage to one other than the named insured only if such other person is using the vehicle or is legally responsible for its use, and then only when the actual use thereof is by the named insured or with his permission. It is not denied that the actual use of the vehicles, at all times, was by B. J. Service, the named insured. In what manner was Southern California using the trucks? Appellants maintain that its employment of B. J. Service is sufficient to constitute it as the user under the insurance contract. We cannot agree.

It has been held that one employing an independent contractor may be using the vehicle of such independent contractor when...