Court: District Court, W.D. Louisiana; August 10, 2015; Federal District Court
Evanston Insurance Company filed a motion for summary judgment seeking a declaration that it does not have a duty to defend or indemnify its insureds, Arkla Tex Gyro Services, LLC and Justin Hoops (collectively, Arklatex). The court, presided over by District Judge Elizabeth E. Foote, granted the motion in part and denied it in part. The factual background centers on an oil, gas, and mineral lease executed on July 10, 2006, by Rubert and Judith Madden, which was later assigned to Forest Oil Corporation. After drilling activities commenced, a collision occurred between the Madden 20 well and the previously producing Madden 17 well, resulting in the latter ceasing production. The Maddens subsequently sued Forest Oil and Arklatex, seeking to cancel the leases and recover damages. Forest Oil contended that an incorrect gyroscopic survey conducted by Arklatex led to the collision, claiming damages for additional drilling costs, diagnostic work, and repair costs for the Madden 17 well, along with potential damages from judicial cancellation of the leases. In response, Evanston sought a declaratory judgment against all parties, asserting it has no obligation to defend or indemnify Arklatex regarding the claims. Arklatex brought St. Paul Fire and Marine Insurance Company into the case as a third-party defendant, leading to further counterclaims from St. Paul against the other parties.
Summary judgment under Rule 56 of the Federal Rules of Civil Procedure is granted when pleadings, depositions, and other relevant documents demonstrate no genuine issue of material fact, allowing the moving party to prevail as a matter of law. A party opposing summary judgment must provide specific facts showing a genuine issue for trial, rather than relying on conclusory statements or unsubstantiated claims. If the moving party does not meet its burden to show the absence of such issues, the motion must be denied. In cases under diversity jurisdiction, federal courts must apply the substantive law of the forum state, following the Louisiana Supreme Court's decisions or making an educated guess on how that court would rule in the absence of a definitive decision. Louisiana's legal methodology prioritizes primary sources of law, such as the constitution and statutes, while jurisprudence serves as a secondary source. Courts are not strictly bound by intermediate court decisions unless they are convinced that the Louisiana Supreme Court would rule differently.
Evanston contends that its insurance policy excludes coverage for Arklatex regarding damages from the collision of the Madden 20 and Madden 17 wells, asserting no duty to defend or indemnify Arklatex in the related state court lawsuit. The Professional Services Liability policy specifies coverage for damages resulting from claims made during the policy period, contingent upon the occurrence of a wrongful act or personal injury during that time and without prior knowledge of such issues by the insured. However, the policy explicitly excludes claims involving bodily injury, sickness, disease, death, or damage to tangible property, including loss of use.
The Fifth Circuit distinguishes between an insurer's duty to defend and its duty to indemnify, emphasizing that the duty to defend is broader, requiring coverage if there's any possibility of liability based on the allegations in the complaint. The insurer must demonstrate that the allegations unequivocally fall within an exclusion to negate this duty. Forest Oil does not contest Evanston's lack of duty to defend but argues for coverage concerning economic losses unrelated to property damage, despite the policy's exclusions regarding damage to tangible property.
Forest Oil has submitted a third-party demand in a state court lawsuit, seeking damages for: 1) additional costs associated with drilling and completing the Madden 20 well due to a collision; 2) diagnostic expenses for the Madden 17 well resulting from the same incident; and 3) estimated repair costs for the Madden 17 well to restore it to production. Forest Oil also seeks damages related to any judgment in favor of the Maddens and potential damages from the judicial cancellation of the Surface Lease and associated oil, gas, and mineral leases. Evanston contends that these claims are excluded under its insurance policy, arguing they stem from property damage or loss of use. Citing the case In re Katrina Canal Breaches Consol. Litig., Evanston highlights that similar claims for loss of business opportunities and income were deemed excluded due to their connection to property damage. The Court must evaluate Forest Oil's counterclaims against Arklatex and whether they are covered by the Evanston policy. The claims for additional drilling costs and diagnostic work are linked to the destruction of tangible property—the Madden wells—and thus fall under Exclusion L of the Evanston policy. The Court finds that these claims arise directly from the property damage caused by the collision. Similarly, the claim for repair costs of the Madden 17 well also clearly pertains to tangible property damage and is likewise excluded under the policy.
Forest Oil seeks damages related to potential judgment against it in favor of the Maddens, which includes claims for cancellation of the surface lease, removal of the Madden 20 well, compensation for damage to the Madden 17 well, 'civil fruits' owed due to a collision, and attorney’s fees. The Maddens' claims are contested by the declaratory Defendants, who argue they are not 'property damage' but rather economic losses not covered under the insurance policy. Citing the court's findings in In re Katrina Canal Breaches, the exclusionary language of the insurance policy is noted to limit coverage significantly, as economic damages resulting from property damage are excluded. The court also referenced Chicago Prop. Interests, emphasizing that increased living expenses or similar costs due to property damage are excluded under similar policy language. The court concludes that the damages sought by the Maddens and Forest Oil, while economic, are closely tied to tangible property damage from the collision of the wells, thus falling under Exclusion L of the Evanston policy. Consequently, the court rules that the Evanston policy excludes coverage for the claims made by Forest Oil and the Maddens, relieving Evanston of its duty to defend Arklatex in the state court suit. Regarding the duty to indemnify, Forest Oil and Arklatex argue that it is premature to decide this without considering all evidence that may arise during trial. Evanston contends that the court should rule on coverage first, citing relevant case law that supports the notion that a lack of coverage for the damages claimed eliminates any duty to indemnify.
The Evanston policy is determined to be non-illusory and provides narrow coverage for wrongful acts, including libel and slander. However, the Court finds no circumstances under which the policy would cover the specific facts of the case. Both Forest Oil and Arklatex have failed to present compelling evidence that would warrant coverage under the Evanston policy, and the Court cites relevant case law supporting the ability to rule out coverage at an early litigation stage. Consequently, the Court concludes that the Evanston policy does not cover the damages claimed by the plaintiffs in state court, granting Evanston's motion for summary judgment regarding its duty to indemnify Arklatex. St. Paul does not oppose the ruling on property damage coverage, while Arklatex argues for coverage of damages not classified as property damage. The Court emphasizes that St. Paul's opposition lacks a distinction between the duty to indemnify and the duty to defend.
