Westchester Surplus Lines Ins. Co. v. Maverick Tube Corp..

• Citation: 722 F.Supp.2d 787
• Decision Date: 28 June 2010
• Docket Number: Civil Action No. H-07-540.
• Parties: WESTCHESTER SURPLUS LINES INSURANCE COMPANY, Plaintiff, v. MAVERICK TUBE CORPORATION, Defendant.
• Court: U.S. District Court — Southern District of Texas

722 F.Supp.2d 787

WESTCHESTER SURPLUS LINES INSURANCE COMPANY, Plaintiff,

v.MAVERICK TUBE CORPORATION, Defendant.

Civil Action No. H-07-540.

United States District Court, S.D. Texas,Houston Division.

June 28, 2010.

COPYRIGHT MATERIAL OMITTED.

Joseph A. Ziemianski, April Michelle Zubizarreta, Cozen O'Connor, Houston, TX, for Plaintiff.

John David Carsey, Chevron USA Inc., for Maverick Tube Corporation.

Tynan Buthod, William Zachary Hughes, Baker Botts LLP, Houston, TX, for Maverick Tube Corporation, Maverick Tube LP, Tubos Del Caribe, Ltda.

Alan S. Breckenridge, Jennifer A. Bierman, Gallop Johnson et al., St. Louis, MO, John David Carsey, Chevron USA Inc., Houston, TX, for Maverick Tube LP, Tubos Del Caribe, Ltda.

MEMORANDUM AND ORDER

LEE H. ROSENTHAL, District Judge.

This is an insurance coverage dispute between Maverick Tube Corporation and its insurer, Westchester Surplus Lines Insurance Company. Westchester sued Maverick, seeking a declaratory judgment that a commercial general liability policy and umbrella policy did not cover Maverick's settlement of a breach of warranty claim asserted by one of its customers, Dominion Exploration and Production Company. Dominion claimed that drill casing manufactured by Maverick and sold through its distributor failed due to a defect in the manufacturing process. Westchester and Maverick cross-moved for summary judgment on coverage. Another judge in this district held that the policies did not cover Dominion's claim because the casing failure was not an “occurrence.” Maverick appealed and the Fifth Circuit reversed. Westchester Surplus Lines Ins. Co. v. Maverick Tube Corp., 590 F.3d 316 (5th Cir.2009). The appellate court held that the casing failure was an “occurrence” and remanded “for a determination of damages.” Id. at 324. The judge who decided the case prior to appeal recused and the case was reassigned to this court.

The parties have submitted statements of the issues to be decided. (Docket Entry Nos. 88, 89, 93). Maverick has moved for entry of final judgment, (Docket Entry Nos. 90, 96), and Westchester has responded, (Docket Entry No. 94). The parties presented oral argument at a hearing. The issues on remand are as follows:

• whether there was more than one “occurrence,” which would reduce Maverick's recovery because of the per-occurrence self-insured retention;

• whether Westchester waived or forfeited the argument that there were multiple occurrences;

• whether Maverick is required to allocate the settlement with Dominion between covered and uncovered claims;

• whether Maverick is entitled to attorneys' fees and, if so, in what amount; and

• when the claim accrued for the purpose of calculating prejudgment interest.

Based on the record, the parties' filings, the arguments of counsel presented at a hearing, and the applicable law, this court rules that: Westchester did not waive or forfeit the multiple-occurrence argument; the casing failure was a single occurrence; there are no uncovered damages included in the settlement Maverick paid to Dominion and therefore no duty to allocate the payment between covered and uncovered claims; Maverick is not entitled to attorneys' fees; and prejudgment interest began to accrue on January 25, 2007. Based on these rulings, final judgment is appropriate. By July 9, 2010, the parties must confer and submit a proposed final judgment consistent with this opinion.

The reasons for these rulings are explained below.

I. Background

The facts of this case have been described in the prior opinions by the Fifth Circuit, 590 F.3d 316 (5th Cir.2009), and by the district judge who previously presided over this case, (Docket Entry No. 55). The parties submitted stipulated facts on remand. (Docket Entry No. 95). They include the following:

1. Maverick purchased commercial general liability insurance policy number G22033621001 (the “Primary Policy”) and umbrella insurance policy number G2198615A001 (“Umbrella Policy”) (collectively, the “policies”) from Westchester. The policies were originally in effect from October 1, 2005, to October 1, 2006.

2. The Primary Policy has a $1,000,000.00 limit of liability per occurrence and a $2,000,000.00 products-completed operations aggregate limit, subject to a Self-Insured Retention (“SIR”) of $350,000 per occurrence.

3. The Umbrella Policy provides coverage of $25 million for each occurrence in excess of the scheduled underlying coverage. It has a $25 million general aggregate limit and a $25 million products/completed operations aggregate limit.

4. The Primary Policy defines “occurrence” as “[a]n accident, including continuous or repeated exposure to substantially the same general harmful conditions.” The Umbrella Policy defines occurrence as “[a]n accident, including continuous or repeated exposure to substantially the same general harmful conditions that results in ‘Bodily Injury’ or ‘Property Damage’ that is not expected or intended by the ‘Insured’.”

5. In July and August 2006, Maverick sold at least 1,306 pieces of a specific type of casing, P-110, to its distributor to be shipped to Dominion Exploration and Production Company (“Dominion”) for use and operation in multiple gas wells.

6. During a two-week period in early September 2006, Dominion experienced failures in four different gas wells that incorporated Maverick's P-110 casing.

7. The casing provided to Dominion failed due to a manufacturing defect at Maverick's processing facility in Colombia.

8. On November 29, 2006, Dominion sent a written demand to Maverick for $9,802,506.00 for (1) the costs incurred to originally drill the four wells; (2) lost revenue; (3) costs to plug and abandon the wells; and (4) costs to drill four new wells. Dominion stated that the “failure [of the casing] falls within Maverick's published Warranty Policy for its API and Proprietary grade casing and tubing,” and thanked Maverick for the acknowledgment of that fact.

9. Westchester responded to Dominion's claim against Maverick with a letter on December 13, 2006, and another letter on January 25, 2007.

10. Maverick settled with Dominion on March 16, 2007 for $6,601,035.39.

11. The settlement excluded a $350,000 [self-insured retention] for one occurrence, and the cost of the casing, $808,390.61, both of which were paid separately by Maverick.

( Id. at 1-3).

Other evidence in the record provides further detail. Dominion's November 26, 2006 demand letter explained the damage to the four wells and stated that Maverick had investigated and confirmed the reported damage. The letter concluded that “[b]ased on our prior meetings and discussions, it is our understanding that Maverick is satisfied that Dominion's loss is a result of the casing failure, and that such failure falls within Maverick's published Warranty Policy for its API and Proprietary grade casing and tubing.” (Docket Entry No. 46, Ex. J at 5). Dominion separately broke out the four categories of damages sought-completion costs, lost production/revenue, plugging liability, and redrilling costs-for each of the four wells, for a total of $9,802,506.00. Dominion stated that it had “considered several alternative methods of resolving this matter, and ha[d] decided that the easiest to administer would be a lump sum payment in exchange of a complete release of all claims.” ( Id. at 6). Dominion offered to “release all claims associated with this matter in exchange of the total sum of $9,802,506.00.” ( Id.). After receiving this letter, Maverick forwarded it to Westchester via e-mail on December 7, 2006. In the transmittal e-mail, Maverick stated that it attached “our cover letter, Dominion Exploration and Production, Inc's claim letter, and three investigative documents concerning claims for which you were notified initially on or about September 6, 2006.” ( Id. at 2). As the Fifth Circuit stated, “[t]hese investigations and reports showed that Maverick and [its subsidiary] were responsible for Dominion's damages.” Westchester, 590 F.3d at 318. Maverick asked Westchester to pay Dominion's proposed settlement. (Docket Entry No. 46, Ex. J at 2, 4). Westchester received Maverick's letter on December 7, 2006. (Docket Entry No. 90, Ex. A-1 at 1). Westchester's first response, dated December 13, 2006, informed Maverick that “[w]hile we are still investigating this matter, and are requesting certain additional information, discussed below, at this time I must respectfully reserve the rights of [Westchester] to deny, disclaim or limit coverage for this matter.” ( Id.). After recounting the facts of the underlying dispute described in Dominion's demand letter and quoting the relevant provisions of the insurance policies, Westchester stated again that it “specifically reserves its rights to deny, disclaim or limit coverage under the umbrella policy” for a variety of reasons. ( Id. at 7). Westchester also requested a number of specific documents relating to the claim. ( Id.). At the end of the letter, Westchester once again stated that its “position as set forth herein is preliminary, based on the information that has been provided to date,” and asked Westchester to provide quickly the requested information as well as “any additional information that you believe should be considered.” ( Id. at 7-8).

On December 20, 2006, Maverick responded to Westchester's letter with an e-mail stating that it would attempt to provide all requested information by December 22. The e-mail conveyed Maverick's concern that a delay in responding to the settlement offer might jeopardize its relationship with Dominion, “a major customer,” and asked for Westchester's written consent to tender the $350,000 self-insured retention to Dominion. (Docket Entry No. 46., Ex. 1-L at 2). On January 5, 2007, Maverick sent Westchester an e-mail responding to the document request in the December 13 letter. ( Id., Ex. 1-M). Among the attached documents were Dominion's invoices for the work described in the demand letter. On January...