Tesoro Petroleum v. Nabors Drilling Usa

• Decision Date: 12 December 2002
• Docket Number: No. 01-0040050-CV.,01-0040050-CV.
• Citation: 106 S.W.3d 118
• Parties: TESORO PETROLEUM CORPORATION and Tesoro E & P Company, L.P., Appellants, v. NABORS DRILLING USA, INC., Appellee. Nabors Drilling USA, Inc. (Zurich American Insurance Company, Subrogee), Appellant, v. Tesoro Petroleum Corporation and Tesoro E & P Company, L.P., Appellees.
• Court: Texas Court of Appeals

Page 118

106 S.W.3d 118

TESORO PETROLEUM CORPORATION and Tesoro E & P Company, L.P., Appellants, v. NABORS DRILLING USA, INC., Appellee.

Nabors Drilling USA, Inc. (Zurich American Insurance Company, Subrogee), Appellant, v. Tesoro Petroleum Corporation and Tesoro E & P Company, L.P., Appellees.

No. 01-0040050-CV.

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

December 12, 2002.

Rehearing Overruled June 13, 2003.

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Roy L. Barnes, William Pannill, Houston, TX, for Appellants.

Kenneth J. Lambert, Fletcher & Springer, L.L.P., Dallas, TX, R. Glen Rigby, Vinson & Elkins, L.L.P., Houston, TX, for Appellees.

Panel consists of Justices JENNINGS and WILSON.^*

OPINION

DAVIE L. WILSON, Justice (Assigned).

Tesoro Petroleum Corporation and Tesoro E & P Company, L.P. (collectively "Tesoro") appeal a summary judgment requiring it to indemnify Nabors Drilling USA, Inc. (Nabors) for settlement monies Nabors paid a third party as a result of an oil well blowout. In five points of error, Tesoro contends the trial court erred in granting summary judgment on Nabors's indemnity claim because (1) Nabors's damages arose from a claim by LMP Petroleum Corporation (LMP) for gross negligence and willful misconduct, which were specifically excluded from the indemnity agreement; (2) the summary judgment evidence raised a disputed fact issue as to whether Nabors had been grossly negligent in causing the blowout; (3) negligence and gross negligence are separate causes of action, either of which can lead to a judgment for compensatory damages; (4) a disputed issue of fact exists as to whether Nabors breached the contract, excusing Tesoro of its duty to indemnify Nabors; and (5) "Tesoro Petroleum Corporation" was not a party to the contract.

In a separate appeal, Nabors's insurance carrier, Zurich American Insurance Company (Zurich), appeals a summary judgment holding that it breached the drilling contract by filing suit in subrogation to Nabors's rights against Tesoro to recover insurance proceeds Zurich paid Nabors for the loss of its rig.

We affirm the summary judgment granted on behalf of Nabors and reverse and remand the summary judgment granted on behalf of Tesoro.

I. Factual and Procedural Background

Tesoro entered into a Joint Operating Agreement with LMP to explore and develop oil and gas property located in Webb County, Texas. As the "operator," Tesoro agreed to manage and control all operations related to the oil and gas development of the property. Pursuant to the Agreement, Tesoro was authorized to enter into an independent contract with a drilling contractor to drill the oil and gas wells.

A. The Drilling Contract

Tesoro entered into a Daywork Drilling Contract with Nabors.¹ As the "drilling contractor," Nabors agreed to drill Longoria No. 2, an oil well located in Webb County, to maintain the drilling equipment and the well-control equipment, to prevent and control fires and blowouts, and to protect the well hole. Nabors also agreed to assume liability for losses to or destruction of its surface equipment and to release Tesoro from liability for that damage. Tesoro assumed sole responsibility for damage to or loss of the hole, released Nabors from liability for such damage or loss, and indemnified Nabors against "any and all claims, liability and expense relating to such damage or loss." Each party also assumed liability and agreed to indemnify the other "from and against all claims, demands, and causes of action" arising from the contract in favor of the party's own employees, subcontractors, or invitees "on account of bodily injury, death or damage to property." Tesoro and Nabors assumed the foregoing indemnities and liabilities without regard to the cause, except and excluding gross negligence or willful misconduct by either party.² Each party agreed to maintain insurance for the liabilities it assumed under the drilling contract, in the same kind and amount as the other party, and to cause its insurer to waive subrogation to its rights against the other party for the liabilities contractually assumed.

Before drilling, Nabors obtained a certificate of insurance listing Zurich as its insurer for damage to Nabors's drilling rig. Zurich's certificate waived subrogation to Nabors's rights against Tesoro "only as required by signed written contract and only insofar as liability is assumed by [Nabors] under signed written contract subject always to the policy's terms, conditions and exclusions."

One month after Nabors began drilling the Longoria No. 2 Well, the well began flowing, but several of its blowout preventers (BOPS) began to leak. Longoria No. 2 eventually blew out and caught fire, destroying the drilling rig and rendering Longoria No. 2 unworkable. Tesoro spent $425,400 to get the well under control and an additional $404,900 to reimburse suppliers whose equipment was lost.³

B. Webb County Lawsuit

After the blowout, LMP, as a working interest owner in Longoria No. 2, brought an action in Webb County against Nabors, alleging, among other things, gross negligence and willful misconduct. Nabors sought indemnity from Tesoro. Tesoro intervened and sought a declaratory judgment as to whether it owed a duty to indemnify Nabors. LMP then sued Tesoro.

In early 1999, the Webb County suit settled, with Nabors paying LMP $113,333 and Tesoro paying LMP $95,000. There was no admission of liability by any party. Nabors's demand for indemnity from Tesoro, Tesoro's request for a declaratory judgment regarding its duty to indemnify Nabors, and Tesoro's claims against Nabors were not resolved and remained pending in Webb County.

C. Harris County Lawsuit

In March 1998, while the Webb County suit was pending, Zurich, as Nabors's carrier, sued Tesoro in the 234th District Court of Harris County in Nabors's name and in subrogation to Nabors's rights against Tesoro. Zurich sought recovery of the insurance proceeds it paid to Nabors for the damage to Nabors's equipment from the blowout. The same day Zurich filed its suit, Tesoro's carrier sued various parties, but not Nabors, in the 190th District Court of Harris County, in connection with the blowout. The two Harris County suits were consolidated in the 234th District Court and form the basis of this appeal.

After consolidation, Tesoro filed a counterclaim against Zurich, asserting, among other things, that Zurich breached the drilling contract by filing suit in subrogation against Tesoro. Tesoro also filed a claim against Nabors, asserting that Nabors breached the drilling contract by providing faulty BOPs. Nabors then asserted its indemnity claim against Tesoro for recovery of the costs of its defense and settlement in the Webb County lawsuit, claiming that Tesoro had assumed liability for the damage to the well and that Tesoro's negligence or gross negligence had caused the blowout.

Tesoro moved for summary judgment against Zurich and Nabors. The trial court granted the motion "in its entirety." However, in response to Nabors's motion for partial reconsideration, the court changed its order, granting Tesoro's motion in part and denying it in part. In its final summary judgment, the court denied Tesoro's motion for summary judgment against Nabors for breach of contract relating to the BOPs. However, it granted Tesoro's motion against Zurich, holding that Zurich breached the waiver of subrogation clause in the indemnity provision of the drilling contract by filing suit against Tesoro, and it awarded Tesoro damages against Zurich for the breach. Tesoro and Zurich stipulated that Tesoro's damages were $120,000 in addition to appellate attorneys' fees.

Nabors likewise filed a motion for summary judgment on its indemnity claim against Tesoro. The trial court granted Nabors's motion and denied all of Tesoro's claims against Nabors. After a bench trial on damages, the trial court awarded Nabors $513,333, comprising $113,333 for the settlement payment to LMP in the Webb County suit and $400,000 in legal fees and other defense costs incurred by Nabors in that Webb County suit. The trial court also awarded Nabors $200,000 in legal fees in the Harris County suit for prosecuting its breach of contract and indemnity claim. The trial court additionally awarded Nabors $75,000 for appellate fees at the various stages of appeals. Tesoro and. Zurich/Nabors non-suited their claims against the other defendants.

Tesoro and Zurich have both appealed the summary judgments entered against them.

II. Standard of Review

A party moving for a traditional summary judgment has the burden of proving that there is no genuine issue of material fact and that the movant is entitled to judgment as a matter of law. TEX.R. CIV. P. 166a(c); Nixon v. Mr. Property Mgmt. Co., Inc., 690 S.W.2d 546, 548 (Tex.1985); Hernandez v. Koch Mach. Co., 16 S.W.3d 48, 51-52 (Tex.App.-Houston [1st Dist.] 2000, pet. denied). When deciding whether there is a disputed material fact issue precluding summary judgment, evidence favorable to the nonmovant will be taken as true. Nixon, 690 S.W.2d at 548-49. Every reasonable inference must be indulged in favor of the nonmovant and any doubts resolved in its favor. Id.

A no-evidence summary judgment is improper if the nonmovant presents more than a scintilla of probative evidence to raise a material fact question in response to the motion. A.H. Belo Corp. v. Corcoran, 52 S.W.3d 375, 378 (Tex.App.-Houston [1st Dist.] 2001, pet. denied). More than a scintilla of evidence exists when the evidence presented arises to a level where reasonable and fair-minded people could differ in their conclusions. Burroughs Wellcome Co. v. Crye, 907 S.W.2d 497, 499 (Tex.1995).

A plaintiff, when moving for summary judgment, is not under any obligation to negate affirmative defenses. An affirmative defense will prevent the granting of summary judgment only if each element of the affirmative defense is supported by summary judgment evidence. Kirby...