Court: District Court, W.D. Oklahoma; September 28, 2016; Federal District Court
Cross-motions for summary judgment have been filed by Plaintiff Colony Insurance Company and Defendants Chesapeake Energy Corporation and Chesapeake Operating, Inc. The case stems from a January 26, 2013 incident where Eduardo Garza, an employee of Nomac Drilling, L.L.C., was injured at a well site owned by Chesapeake, leading to a lawsuit that was settled for a confidential amount. Colony partially funded this settlement under an agreement with Chesapeake to resolve coverage issues in future litigation, which is the focus of the current proceedings.
Summary judgment is warranted if there are no genuine disputes regarding material facts, allowing the movant to claim entitlement to judgment as a matter of law, per Federal Rule of Civil Procedure 56(a). A material fact can influence the outcome of the suit, and a genuine issue exists if reasonable evidence could lead a jury to a verdict for either party. The Court evaluates cross-motions independently, favoring the non-moving party when assessing the motions.
Colony issued two excess liability insurance policies to Chesapeake between 2012 and 2014. The first policy (2012-2013), effective from July 1, 2012, to July 1, 2013, provided $2,000,000 liability limits per occurrence, while the second policy (2013-2014), effective from July 1, 2013, to July 1, 2014, offered $1,000,000 per occurrence. Both policies included an indemnity agreement covering sums the insured is legally obligated to pay due to bodily injury, personal injury, or property damage resulting from occurrences related to their operations or joint ventures.
A claim is defined as any demand or suit against an insured for damages related to bodily injury, personal injury, or property damage, with multiple demands arising from the same occurrence treated as a single claim. A “Notice of Circumstances” refers to written notice from the insured to the insurance company of any occurrence likely to lead to a claim, detailing the nature of the occurrence, anticipated injuries or damages, potential claimants, and how the insured became aware of the occurrence. Chesapeake received a litigation hold letter on February 6, 2013, related to Mr. Garza's injury, requesting the preservation of relevant records and prohibiting direct contact with him. Chesapeake subsequently provided a Notice of Circumstances to Colony on June 27, 2014. The court is determining which of two insurance policies applies to the underlying lawsuit, focusing on whether the February 6, 2013, letter constitutes a claim. Chesapeake contends that it does, invoking the 2012-2013 policy, while Colony argues it does not meet the policy’s definition, indicating only the 2013-2014 policy is relevant. As the case is brought under 28 U.S.C. § 1332(a)(1), Oklahoma law governs the interpretation of the policies. Oklahoma law treats insurance policies as contracts, guiding interpretation by the parties' intentions at contract formation, requiring clear and unambiguous language to be given effect. In instances of ambiguity, policies are construed liberally in favor of the insured. The court concludes that for coverage to be activated, either an actual claim must be made during the policy period or a Notice of Circumstances must be provided during that period.
The Policies stipulate that any notice of a claim or circumstances likely to lead to a claim must be given during the policy period, as allowing notice beyond this period would unfairly expand coverage and increase the insurer's risk. A 'Notice of Circumstances' can be provided for any occurrence that may give rise to a claim, although the insured is only required to notify the insurer if they anticipate a loss exceeding 50% of the underlying limits. Chesapeake provided a 'Notice of Circumstances' in June 2014, well after the 2012-2013 Policy period had ended, which does not trigger coverage under that period. A 'claim' is defined as a third-party assertion of potential liability, requiring either a demand or a lawsuit. The underlying lawsuit was filed in 2014, thus not qualifying as a claim made within the policy period. For the 2012-2013 Policy to apply, the Letter must be interpreted as a 'demand,' but the court declines to do so. The Policies do not define 'demand,' and the court must interpret terms using their ordinary meaning. Chesapeake's argument, which relies on a precedent where a letter was deemed a demand, is rejected as the current Letter does not share sufficient characteristics to be considered a demand for coverage under the Policy.
The Letter serves two main purposes: notifying Chesapeake that Mr. Garza is now represented by counsel and requesting the preservation of records related to Mr. Garza’s accident. It does not allege wrongdoing against Chesapeake, nor does it inform them of any imminent lawsuit or demand damages. The Letter only conveys a duty to preserve documents relevant to potential litigation against an unnamed party. The Court determines that the Letter's language does not imply a claim, leading to the conclusion that coverage under the 2012-2013 Policy is not triggered by the Underlying Lawsuit. Additionally, the 2013-2014 Policy's coverage is irrelevant as the underlying loss has not exceeded Chesapeake’s $2,000,000 self-insured retention. Consequently, there are no genuine issues of fact regarding the applicable policy, and Colony is granted judgment as a matter of law. The Court grants Plaintiff’s Motion for Summary Judgment and denies Defendants’ Motion for Summary Judgment. Discovery will proceed in two phases, focusing initially on determining which Colony policy applies. The Court also refrains from addressing Chesapeake’s argument regarding Nomac's responsibility as a subsidiary. The definition of a 'claim' involves an allegation of damages, and the duty to preserve documents can apply to non-parties. The Court instructs the parties to notify it of any remaining issues and propose a schedule for future proceedings within 14 days.
