Tyler v. Dowell, Inc.

• Decision Date: 10 February 1960
• Docket Number: No. 6093.,6093.
• Citation: 274 F.2d 890
• Parties: J. J. TYLER and Herman King, d/b/a King Drilling Company; Merchants Fire Assurance Corporation, a corporation; Guaranty Mutual Insurance Company; and Standard Accident Insurance Company, Appellants, v. DOWELL, INC., a Delaware corporation, and Phillips Petroleum Company, a corporation, Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

274 F.2d 890 (1960)

J. J. TYLER and Herman King, d/b/a King Drilling Company; Merchants Fire Assurance Corporation, a corporation; Guaranty Mutual Insurance Company; and Standard Accident Insurance Company, Appellants, v. DOWELL, INC., a Delaware corporation, and Phillips Petroleum Company, a corporation, Appellees.

No. 6093.

United States Court of Appeals Tenth Circuit.

January 14, 1960.

Rehearing Denied February 10, 1960.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

John D. Robb, of Rodey, Dickason, Sloan, Akin & Robb, Albuquerque, N. M., for appellants.

Carl H. Gilbert, Sante Fe, N. M., and Royal H. Brin, Jr., Dallas, Tex. (Gary W. Davis, Bartlesville, Okl., and Bryan G. Johnson, Albuquerque, N. M., were with them on brief), for appellees.

Before MURRAH, Chief Judge, BREITENSTEIN, Circuit Judge, and CHRISTENSON, District Judge.

MURRAH, Chief Judge.

This is an appeal from a judgment of the District Court of New Mexico on a jury verdict in a tort action by appellants against appellee Dowell, Inc., for loss or damage to its oil well drilling equipment caused by fire.

The basic facts are these. Tyler and King, doing business as King Drilling Company, contracted with Phillips Petroleum Company to drill and complete an oil well in New Mexico for a stipulated amount per vertical foot, and another agreed amount for work performed on a daily basis when not actually engaged in drilling operations. After the well had been drilled to the producing formation and virtually completed, and while the contractor was standing by on a day basis, Phillips arranged with appellee, Dowell, to sand frack the producing formation to increase productivity. This operation involved the injection of a mixture or blend of crude oil and sand into the producing formation under high pressure by means of pressure pumps, followed by injections of rubberized nylon balls to seal off the fractured formation. The oil-sand mixture entered the well through a frack head which is secured to the top of the blow-out preventer at the well head. The frack head comprises a cylinder with two-inch nipples screwed into its sides and valves attached to the outside of the nipples. After the oil and sand are mixed in a blender, it passes through flow lines to pressure pumps from which it is conveyed under high pressure through other flow lines attached to the valves on the nipples. The mixture first passes through the valves, then through the nipples into the cylinder, thence into the well casing and to the bottom of the well hole where it is pressurized through perforations in the casing into the producing formation.

In our case, the fracking operation had been completed and the well hole was being washed under pressure with clean oil, when one of the nipples on the frack head failed, causing oil to spray in a radius of approximately 100 feet in about a 45 degree arc, within which area was located the pressure pumps about 80 feet distant from the well head, and the nylon-ball pumping truck approximately 60 feet. The spraying oil caught fire, causing the asserted loss. The contractor, King Drilling Co., sued Dowell, charging negligent conduct in the fracking operation. Dowell denied negligence and pleaded contributory negligence and assumption of risk, and by a third party action against Phillips, invoked an indemnity agreement, whereby Phillips agreed to "secure Dowell against loss or damage not expressly accepted by Dowell." Phillips thereupon counterclaimed against the contractor, pleading an assumption of risk and hold-harmless agreement with the contractor.

Before trial, Phillips and Dowell composed their differences and the trial court sustained Dowell's motion to make the contractor's insurance carrier a party plaintiff, apparently on the grounds that it had paid part of the loss and was therefore a necessary or real party in interest. The case went to the jury on the issues drawn between the contractor and its insurance carrier on the one hand, and Dowell and Phillips on the other. The contractor objected to making the insurance company party plaintiff on the grounds that it had not actually paid any of the loss, but rather had merely entered into a loan agreement with the contractor by which it had advanced the contractor a stipulated sum of money to be repaid from the proceeds of this litigation.

The question under both New Mexico and federal law is whether by this transaction with its insured, the insurance company became a real party in interest, i. e., whether it is the owner or part owner of the right sought to be enforced. Sellman v. Haddock, 62 N.M. 391, 310 P.2d 1045; American Fidelity and Casualty Co. v. All American Bus Lines, 10 Cir., 179 F.2d 7; Gas Service Co. v. Hunt, 10 Cir., 183 F.2d 417; Celanese Corp. of America v. John Clark Industries, 5 Cir., 214 F.2d 551. Courts have generally sanctioned agreements between the insured and insurer, whereby the insurer advances a sum of money to its insured, to be repaid from the proceeds of an action against a tort-feasor. Western Spring Service Co. v. Andrew, 10 Cir., 229 F.2d 413; Celanese Corp. of America v. John Clark Industries, supra; Export Leaf Tobacco Co. v. American Insurance Co., 4 Cir., 260 F.2d 839. And, there is authority for saying that the insurer does not thereby become the owner of the right of action so as to make it the real party in interest. Augusta Broadcasting Co. v. United States, 5 Cir., 170 F.2d 199; 3 Moore Federal Practice, § 17.09, p. 1349.

The question is whether by the terms of the loan receipt in this case, the insurer actually became the subrogee of the insured, hence the real party in interest to the extent of the "loan." The insured agreed to promptly present the claim, and if necessary prosecute a suit against the parties whose negligence or other fault caused the loss "with all due diligence in their own name." And, the insurer was furthermore given complete control of the litigation "with irrevocable power to collect any such claim or claims, and to begin, prosecute, compromise or withdraw * * * in the name of the insured any and all legal proceedings that the said company may deem necessary to enforce such claim or claims, and to execute in the name of the insured any documents that may be necessary to carry the same into effect for the purpose of this agreement." The nature of the "loan receipt" in Sellman v. Haddock, supra 62 N.M. 391, 310 P. 2d 1047, was not disclosed. But, there was testimony to the effect that it gave the insurer authority to "collect from who ever caused the damage if they could determine that." The New Mexico court construed this authority as giving the insurer an interest in the litigation which made it a necessary, even indispensable, party to the action against the tort-feasor. Evidently the trial court was of the view that what was in form a loan was in fact a payment of the loss and a subrogation of the claim to the extent thereof. Involving as it does a mixed question of state and federal procedural law, we adopt the decision of the trial court thereon. See Cities Service Oil Co. v. Adair, 10 Cir., 273 F.2d 673.

Appellant also complains of Phillips' participation in the lawsuit, but again, we cannot say that Phillips did not have a litigable interest therein.

The contractor requested numerous instructions setting forth its theory of the factual and legal issues of negligence, all of which the trial court declined to give. At the conclusion of the court's instructions, the contractor renewed its request and objected to the refusal of the court to so instruct. It also objected to the submission of the assumption of risk and to the exclusion of evidence relating to the feasibility of the use of safer equipment by Dowell to rebut and impeach the testimony of one of Dowell's witnesses in that respect. Dowell and Phillips earnestly insist that they were entitled to a directed verdict upon the contractor's evidence. And, it goes without saying that if the contractor did not make out a case for the jury, it was not entitled to any instructions. Dowell and Phillips' theory is twofold. First, they invoke the provision in the drilling contract between the contractor and Phillips whereby the contractor agreed to "assume and bear all risk of accidents and damages to persons and property which may occur in the course of contractor's operations * * * and to indemnify and hold Phillips harmless against or on account of such accidents and damages." And further "all risk and damage to drilling tools, machinery, appliances, derricks or equipment from whatever causes shall at all times be assumed and borne by contractor * * *." They say that these provisions of the contract not only operated to save Phillips harmless from all risk of accidents and damages to persons and property which may occur in the course of the contractor's operations, but that it was also made and entered into for the benefit of Dowell, and operated to exonerate it from any liability to the contractor, even for its own negligence.

Applicable New Mexico law sanctions exculpatory clauses in contracts of this kind, whereby one party covenants to hold another harmless and to indemnify him against loss caused by his own negligence if, and only if, the intention to do so is "clear and unequivocal." Metropolitan Paving Co. v. Gordon Herkenhoff & Associates, 66 N.M. 41, 341 P.2d 460, 463. And see also Fosson v. Ashland Oil & Refining Co., Ky., 309 S.W.2d 176; Sinclair Prairie Oil Co. v. Thornley, 10 Cir., 127 F.2d 128; Standard Ins. Co. of N. Y. v. Ashland Oil & Refining Co., 10 Cir., 186 F.2d 44; Griffiths v. Henry Broderick, Inc., 27 Wash. 2d 901, 182 P.2d 18, 175 A.L.R. 1; Annotation, 175 A.L.R. 8. And, we take it that the contracting parties may likewise contract for the benefit of a third party beneficiary, if the intention to do so is either expressed or manifestly implied. See Hamill v. Maryland Casualty Co., 10 Cir., 209 F.2d 338; Coleman v....