gotham-insurance-company-v-warren-ep-inc-fka-petroleum-development ( 2014 )

IN THE SUPREME COURT OF TEXAS
444444444444
NO. 12-0452
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GOTHAM INSURANCE COMPANY, PETITIONER,
v.
WARREN E&P, INC. F/K/A PETROLEUM DEVELOPMENT CORPORATION D/B/A
PEDECO, INC., WARREN RESOURCES, INC., AND OIL TECHNOLOGY FUND 1996 -
SERIES D, L.P., RESPONDENTS
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ON PETITION FOR REVIEW FROM THE
COURT OF APPEALS FOR THE EIGHTH DISTRICT OF TEXAS
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Argued November 8, 2013
JUSTICE GUZMAN delivered the opinion of the Court.
This is an insurance coverage dispute concerning an oil well that blew out and caught fire.
The parties have previously appealed on three separate occasions to the court of appeals, and this
is the first time we have granted review. Though the parties raise a number of issues related to
equity and contract claims, the crux of our analysis is determining the proper role of equity claims
when a contractual provision addresses the matter in dispute. Here, the insured obtained an
insurance policy to reimburse its expenses in regaining control of an oil well in the event of a
blowout. When the well blew out, the insured represented to the insurer that it owned a 100%
working interest in the well and the insurer paid claims accordingly. But a later-discovered joint
operating agreement reflected that the insured might have possessed less than a 100% working
interest in the well. The insurer sued for a return of its payments under breach of contract and equity
theories.
In the first two appeals, the court of appeals held that summary judgment in favor of the
insurer was proper on its equity claims. The third appeal was transferred to a different court of
appeals under docket equalization procedures. That court of appeals overturned the prior rulings,
concluding that under Excess Underwriters at Lloyd’s, London v. Frank’s Casing Crew & Rental
Tools, Inc.,1 the insurer had no equitable right to reimbursement. We agree with the court of appeals
that the insurer may not proceed on its equity claims but for different reasons. We held in Fortis
Benefits v. Cantu that an insurer is limited to contractual claims when the policy addresses the matter
at issue.2 There, we held that an insurer is limited to contractual claims when the policy addresses
the matter at issue. Here, this policy contains several clauses addressing misrepresentations,
reporting, salvage and recoveries, subrogation, and due diligence. Thus, because the insurance
contract addresses the insured’s conduct, we hold that the insurer cannot rely on its equity claims.
We therefore reverse the judgment of the court of appeals and remand to that court to address the
contract claims.
I. Background
The factual and procedural background surrounding this appeal is complex. The underlying
suit involves the Halff-Oppenheimer No. 1 oil well (the H&O Well) in Frio County, which blew out
and caught fire in 1997. Pedeco, Inc., now known as Warren E&P, Inc. (Pedeco), entered into a
1
246 S.W.3d 42 (Tex. 2008).
2
234 S.W.3d 642 (Tex. 2007).
2
joint venture with Warren Resources, Inc. (WRI) and Oil Technology Fund 1996—Series D, L.P.
(the Fund) in 1992 to drill a series of wells that included the H&O Well. In 1996, Pedeco, WRI, and
the Fund entered into a joint operating agreement that covered a number of wells, including the
H&O Well, once the wells went into production. The operating agreement designated Pedeco as the
operator and indicated Pedeco and WRI would each possess 12.5% cost-bearing working interests
while the Fund would possess the remaining 75% interest.3 After receiving a drilling permit, Pedeco
began drilling the H&O Well in July 1997. During the drilling process, the rig lost circulation
pressure, formation gas rose to the surface, the blowout preventer failed, and the gas ignited.
Pedeco was insured under a policy by Gotham Insurance Company (Gotham) to reimburse
Pedeco for actual expenses in regaining or attempting to regain control of the well. The policy
covered Pedeco to the extent of its working interest in the well.4 Pedeco notified Gotham of the loss
and represented it was the sole operator and held a 100% working interest in the well. Gotham
requested all turnkey contracts,5 joint operating agreements, and other documents regarding the
claim. Pedeco sent a handwritten response from its insuring agent that Pedeco was the operator for
the well and subsequently sent sworn proofs of loss to Gotham that it held a 100% working interest.
3
These allocations are for revenues received before payout. After the well reached payout, revenue was to be
distributed 20% each to Pedeco and WRI and 60% to the Fund under the operating agreement. Notwithstanding these
revenue allocations, Pedeco and WRI remained obligated for drilling expenses.
4
The primary insured on the policy was R.W. Dirks Petroleum Engineers, Inc., whom Pedeco contracted with
to perform its duties before Pedeco became fully licensed in Texas. Pedeco was named an additional insured for no
additional premium on the representation that Pedeco was a non-operator. The parties initially disputed the effect of that
representation, which is not at issue in our disposition of this appeal.
5
In this context, a turnkey contract is a contract by which an entity agrees to drill a well for a fixed price. The
record indicates WRI agreed to a turnkey contract with the Fund, and Pedeco agreed to a turnkey contract with WRI for
a lower price.
3
WRI reimbursed Pedeco for its expenses in controlling the well, but WRI’s CEO testified that under
the arrangement between WRI and Pedeco, the two companies would share evenly in drilling profits
and drilling losses in the aggregate at the end of each year. Gotham subsequently paid claims
totaling over $1.8 million.
After issuing payment on the claim, in May 1998, Gotham discovered that several
subcontractors providing services to Pedeco for the H&O Well had sued Pedeco for allegedly failing
to use proper blowout prevention equipment. Gotham also obtained a copy of Pedeco’s joint
operating agreement from another source indicating Pedeco’s interest was 12.5%. Gotham then
inquired of Pedeco whether it had a 100% working interest in the well, as it previously reported, in
light of the agreement. Pedeco responded that it held 100% of the equitable title to the well under
a farmout agreement, was the sole performing party under the turnkey drilling agreements, would
have full liability in the event of a blowout, and paid full premiums to Gotham for its full interest
in the well.
Gotham ceased further payments under the claim and intervened in the existing lawsuit
involving Pedeco and its subcontractors. Gotham alleged Pedeco breached the insurance policy by
using improper blowout prevention equipment and making misrepresentations regarding its interest
in the well. Gotham also added a claim for restitution and unjust enrichment against Pedeco for a
return of its payments, and sued WRI and the Fund to recoup the portion of its payments that
benefitted them under theories of restitution, unjust enrichment, and subrogation. Pedeco
counterclaimed for breach, alleging that Gotham failed to pay sums due under the policy.
4
The parties were in the discovery phase of the underlying suit when we announced in Texas
Association of Counties County Government Risk Management Pool v. Matagorda County that an
insurer may not seek reimbursement from the insured in equity for settlement funds paid in the
absence of a contractual right to do so. 52 S.W.3d 128, 133–36 (Tex. 2000).
In the trial court, Gotham, Pedeco, WRI, and the Fund all moved for summary judgment.
In 2001, the trial court denied Gotham’s motion for summary judgment and entered judgment in
favor of Pedeco, WRI, and the Fund. In the first of three appeals, the court of appeals held Pedeco
should take nothing on its contract counterclaim on the ground that it was not entitled to benefits
under the policy because WRI reimbursed Pedeco, who thus suffered no loss. __ S.W.3d __, __
(Gotham I). The court of appeals further held that because Pedeco was not entitled to benefits,
Gotham prevailed on its claims for restitution and unjust enrichment against Pedeco, WRI, and the
Fund. Id. at __. The court reasoned that our holding in Matagorda (precluding equitable
reimbursement for voluntary settlement of claims in litigation when the contract does not address
such a right to recovery) did not apply because Gotham was not settling a claim in litigation on
behalf of Pedeco. Id. at __. But the court remanded Gotham’s restitution and unjust enrichment
claims for a determination on the amount of damages because “the judgment that should have been
rendered [wa]s not at all obvious.” Id. at __.
On the first remand, the trial court awarded Gotham a judgment of over $1.8 million against
Pedeco, WRI, and the Fund. In the second appeal, the court of appeals again reversed and remanded
because the trial court failed to conduct further proceedings to determine the amount Gotham was
entitled to under its restitution and unjust enrichment claims. __ S.W.3d __, __ (Gotham II).
5
In January 2010, the trial court again awarded Gotham judgment for over $1.8 million
against Pedeco, WRI, and the Fund.6 The third appeal was transferred under docket equalization
procedures to a different court of appeals. 368 S.W.3d 633, 634 n.1 (Gotham III). After
determining that Frank’s Casing was a change in governing law, the court of appeals reconsidered
Gotham I and Gotham II and held that Gotham was not entitled to any equitable right of
reimbursement because it concluded that such a right does not exist in the insurance policy.7 Id. at
638–39. We granted Gotham’s petition for review.
II. Discussion
We conclude that under Fortis Benefits, Gotham may not proceed on its equity claims
because the policy addresses the matters in dispute. 234 S.W.3d at 648–49. Regarding Gotham’s
contract claim, we disagree with the court of appeals in Gotham III that the contract conclusively
precludes Gotham’s recovery. We hold that there is some evidence Pedeco breached the policy as
alleged in Gotham’s live pleading. Finally, we disagree with the Gotham I court of appeals’ holding
that because WRI reimbursed Pedeco’s expenses in controlling the well, Pedeco suffered no loss.
There is record evidence that WRI and Pedeco agreed to evenly share in the aggregate drilling
profits and losses at the end of each calender year; therefore Gotham has not conclusively
established that Pedeco suffered no loss.
6
During the second remand, we issued Frank’s Casing, where we declined to recognize an exception to the
rule we announced in Matagorda. 246 S.W.3d at 43–44.
7
The dissenting justice concluded that “Frank’s Casing did not change the law” and did not allow the court
to revisit the holding of Gotham I. 368 S.W.3d at 643 (Antcliffe, J., dissenting).
6
A. Gotham’s Equity Claims
The court of appeals in Gotham III concluded Gotham had no equitable right to
reimbursement under Frank’s Casing. 368 S.W.3d at 638–39. We agree that Gotham cannot
proceed on its equity claims but for a different reason.8
In Fortis Benefits, we held that “[w]here a valid contract prescribes particular remedies or
imposes particular obligations, equity generally must yield unless the contract violates positive law
or offends public policy.” 234 S.W.3d at 648–49. At issue in Fortis Benefits was the equitable
“made whole” doctrine that bars insurers from recovering through equitable subrogation if the
insured’s loss exceeds their recovery. Id. at 645. Without referencing the “made whole” doctrine,
Fortis Benefits’ insurance policy granted it the right to recover through subrogation against third
parties or seek reimbursement from the insured. Id. at 651. We held that:
We generally adhere to the maxim that “equity follows the law,” which requires
equitable doctrines to conform to contractual and statutory mandates, not the other
way around. Where a valid contract prescribes particular remedies or imposes
particular obligations, equity generally must yield unless the contract violates
positive law or offends public policy.
8
The Gotham III court revisited the holdings of the Gotham I and Gotham II courts. Under the law of the case
doctrine, a court of appeals is ordinarily bound by its initial decision if there is a subsequent appeal in the same case;
but a determination to revisit an earlier decision is within the discretion of the court under the particular circumstances
of each case. Paradigm Oil, Inc. v. Retamco Operating, Inc., 372 S.W.3d 177, 182 (Tex. 2012); City of Houston v.
Jackson, 192 S.W.3d 764, 769 (Tex. 2006); Briscoe v. Goodmark Corp., 102 S.W.3d 714, 716 (Tex. 2003). Regardless,
the law of the case doctrine does not foreclose our consideration of legal questions properly before us for the first time.
Jackson, 192 S.W.3d at 769. Therefore, we first assess the court’s holding in Gotham III that Gotham may not proceed
on its equity claims.
7
Id. at 648–49. Because the contractual provisions there did not violate positive law or offend public
policy, we enforced the contractual provisions without subordinating them to the equitable “made
whole” doctrine.9 Id. at 649, 651.
Here, Gotham has argued that several clauses in the policy address its ability to recover from
Pedeco and other parties for payments made based on Pedeco’s purported failure to use due
diligence in preventing the blowout and alleged misrepresentations regarding its interest in the well.
First, the due diligence clause requires Pedeco to utilize a blowout preventer “in accordance with
all regulations, requirements and normal and customary practices in the industry.” Second, under
the misrepresentation clause, if Pedeco makes material misrepresentations of fact concerning its
interest or the subject of the insurance, one remedy is to allow Gotham to void the policy. Third,
the salvage and recoveries clause operates to apply payments and recoveries received after settling
a loss as if received before the loss. Fourth, the reporting clause requires Pedeco to semi-annually
report to Gotham the status of all covered wells. And fifth, the subrogation clause grants Gotham
the authority to pursue Pedeco’s right to recover against other parties that may be liable for the
loss.10 As in Fortis Benefits, these clauses indicate that the contract addresses the matter at issue,
9
We decided Fortis Benefits well after this lawsuit began, but we cannot say that Fortis Benefits announced
a new rule of law. See, e.g., Fortune Prod. Co. v. Conoco, Inc., 52 S.W.3d 671, 685 (Tex. 2000) (requiring a party
opposing claim for unjust enrichment to secure findings “that an express contract exists that covers the subject matter
of the dispute” (citing Freeman v. Carroll, 499 S.W.2d 668 (Tex. Civ. App.—Tyler 1973, writ ref’d n.r.e.)); Truly v.
Austin, 744 S.W.2d 934, 936 (Tex. 1988) (discussing the general rule that one may recover in quantum meruit only when
there is no express contract).
10
Gotham’s live pleading omitted its claim for contractual subrogation, but this does not negate the fact that
the contract addresses the issue and bars Gotham from pursuing an equitable subrogation claim.
8
and Gotham is limited to the contract rather than equity when determining liability.11 See id. at
648–49.
Thus, Gotham is limited to its contractual claims unless the contractual provisions on which
it relies violate positive law or offend public policy. Id. When conducting this inquiry, we bear in
mind the strong public policy to preserve freedom of contract. Lawrence v. CDB Servs., Inc., 44
S.W.3d 544, 553 (Tex. 2001). Further, the public policy of the State is reflected in its statutes.
Fortis Benefits, 234 S.W.3d at 649. Thus, we will enforce the parties’ bargain unless it contravenes
some positive statute. Id.
We held in Fortis Benefits that neither contractual subrogation nor reimbursement clauses12
violate public policy. 234 S.W.3d at 649. And we are aware of no statutes that limit the contractual
subrogation or reimbursement clauses at issue here.13 Likewise, we are aware of no applicable
statutes relating to the policy’s reporting clause. The due diligence clause requires Pedeco to
comply with regulations and industry standards. The Texas Railroad Commission, which regulates
oil and gas drilling and production in Texas, promulgated Rule 36 to address blowout prevention
equipment to be used in drilling hydrogen sulfide wells such as the H&O Well. 16 TEX. ADMIN.
CODE. § 3.36. A contractual clause requiring compliance with state regulations generally will not
11
We cannot say, however, that it is appropriate to dismiss Gotham’s equity claims against Pedeco, WRI, and
the Fund at summary judgment. Gotham’s live pleading alleges that Pedeco’s misrepresentations concerning its working
interest could, among other remedies, operate to render the policy void. If Gotham prevails on this theory and elects to
void the policy, its equity claims might operate to secure a return of the approximately $1.8 million it paid under the
claim. Thus, it is premature to dismiss Gotham’s equity claims against Pedeco, WRI, and the Fund.
12
Gotham contends the salvage and recoveries clause functions as a reimbursement clause.
13
The Legislature recently specified (with respect to contractual subrogation clauses in certain health insurance
policies) the recovery insurers may obtain from a settlement between the insured and the responsible third party that
caused the injury. TEX. CIV. PRAC. & REM. CODE § 140.001 et seq.
9
offend public policy. See Fortis Benefits, 234 S.W.3d at 649 (“It is indeed difficult to declare
something contrary to public policy when state law, both statutory and regulatory, actually suggests
approval.”); see also Nafta Traders, Inc. v. Quinn, 339 S.W.3d 84, 96 (Tex. 2011) (enforcing a
contractual agreement when state law did not contravene the agreement).
The remaining clause is the misrepresentation clause. Section 705.003 of the Texas
Insurance Code renders invalid insurance clauses that make policies void or voidable due to
misrepresentations in proofs of loss unless it is shown at trial that the misrepresentation: (1) was
fraudulently made; (2) misrepresented a fact material to the insurer’s liability under the policy; and
(3) misled the insurer into waiving or losing a valid defense to the policy. TEX. INS. CODE
§ 705.003.14 In other words, public policy allows misrepresentation clauses to render insurance
policies void or voidable only for fraudulent, material misrepresentations that mislead insurers into
waiving or losing defenses. Id. Gotham’s live pleading alleges that Pedeco “knowingly and
wrongfully” reported it had a 100% working interest when it purportedly had no interest in the well,
and that Gotham paid claims pursuant to the alleged misrepresentation. The parties do not dispute
that Gotham issued payments based upon Pedeco’s representation that it possessed a 100% working
interest. But the record indicates there are genuine issues of material fact as to whether that
representation was false and fraudulently made.15 If Gotham proves its allegations to be true, the
14
The precodified version of this law was in effect when the policy was signed and the suit was filed, but it is
substantively similar to the present statute. Act of June 7, 1952, 52d Leg., R.S., ch. 491, § 1, sec. 21.19, 1951 Tex. Gen.
Laws 868, 1075, repealed by Act of May 22, 2003, 78th Leg., R.S., ch. 1274, § 26, 2003 Tex. Gen. Laws 3611, 4138.
15
Regarding falsity, Pedeco indicates it held 100% of the working interests that were available under a farmout
agreement with the George R. Brown Company. Gotham asserts that Pedeco would only earn a working interest on the
completion of a successful well and also relies on a title opinion indicating WRI (not Pedeco) held the equitable title to
the working interest. Regarding whether the representation was fraudulent, this is an inquiry typically left to the jury
10
misrepresentation clause does not violate public policy and Gotham is limited to its contract claim.16
In sum, because the policy addresses the matters at issue, Gotham may not proceed on its equity
claim against Pedeco.
Gotham argues that even if it may not pursue its equity claim against Pedeco, it may still
pursue its equity claim against WRI and the Fund because they passively received benefits that
discharged their obligations. We disagree. The policy here addresses the matter of Gotham seeking
a return of payments that benefitted others. Gotham does not claim that it paid sums directly to WRI
and the Fund. Rather, it claims it made payments to Pedeco as well as through an escrow fund that
directly paid third parties that performed services for Pedeco in regaining control of the well.
Gotham contends these payments discharged WRI and the Fund’s obligations as uninsured co-
venturers. Assuming WRI and the Fund were not covered by Pedeco’s policy with Gotham,17 the
salvage and recoveries clause and the subrogation clause address Gotham’s ability to recover an
overpayment that discharged WRI and the Fund’s obligations. Gotham asserts that the salvage and
recoveries clause allows Gotham to seek reimbursement from Pedeco for WRI’s reimbursement of
Pedeco’s expenses in controlling the well. And if WRI and the Fund had made no such payments
as it often involves proof of intent by circumstantial evidence. See Quinn v. Dupree, 303 S.W.2d 769, 774 (Tex. 1957).
16
If Gotham proves its allegations that Pedeco knowingly misrepresented its interest, the misrepresentation
clause will not violate public policy and the clause could operate to, among other remedies, render the insurance policy
void. If Gotham prevails on this theory and elects to void the policy, its equity claim might still allow Gotham to
recover. For this reason, we do not affirm the dismissal of Gotham’s equity claim against Pedeco at this stage of the
proceeding.
17
It is not entirely clear from the record whether WRI and the Fund were uninsured for the blowout. Pedeco’s
policy with Gotham applies to co-venturers if certain procedures are followed. The record does not indicate if those
procedures were followed. If WRI and the Fund were covered under the policy, the policy addresses the matter and
Gotham’s equity claim against them is improper. As addressed below, if WRI and the Fund were not covered by the
policy, the salvage and recoveries clause and the subrogation clause still address the matter.
11
(or if Pedeco returned them), the subrogation clause allows Gotham to pursue Pedeco’s rights and
seek recovery from responsible parties.18 As addressed above, these clauses do not violate public
policy. Because the policy addresses Gotham’s right to recover from Pedeco or responsible third
parties, Gotham may not proceed on its equity claims against Pedeco, WRI, or the Fund.19
B. Gotham’s Contract Claim
In addition to its equity claims, Gotham’s live pleading contains a claim that Pedeco
breached several clauses in the policy, entitling Gotham to recover its overpayment. Pedeco
contends Gotham waived its contract claim by moving for entry of judgment only on its equity
claims following the remands in Gotham I and Gotham II. The court of appeals in Gotham III
concluded that Gotham’s contract claim fails because there is no clause in this policy granting
Gotham a right to reimbursement. 368 S.W.3d at 638. We disagree with Pedeco that Gotham
waived its contract claim and remand for further proceedings.
1. Waiver
In City of Austin v. Whittington, we held that a party may raise an independent ground for
obtaining the same relief awarded in the judgment as an issue on appeal rather than pursuing a cross-
18
The subrogation clause provides that Gotham “shall upon reimbursement hereunder to [Pedeco] of any loss,
damage or expense be subrogated to all [Pedeco’s] rights of recovery against any other person, form or corporation who
may be legally or contractually liable for such loss, damage or expense . . . .” That Gotham omitted its contractual
subrogation claim in its live pleading does not alter the fact that the contract addresses the matter of subrogation. See
supra note 10.
19
Gotham claims in this Court that Pedeco made a false representation (that it was a non-operator) to obtain
coverage under the policy and that this false statement negates the policy. But Gotham did not move for summary
judgment on this ground in the trial court, and we need not consider it here. See Fed. Deposit Ins. Corp. v. Lenk, 361
S.W.3d 602, 609 (Tex. 2012).
12
appeal. 384 S.W.3d 766, 789 (Tex. 2012). Here, Gotham initially moved for summary judgment
in the trial court on both its contract and equity claims. The court of appeals in Gotham I concluded
that Gotham conclusively proved it was entitled to restitution. __ S.W.3d at __. On remand,
Gotham moved for entry of judgment on its equity claims, and the trial court entered judgment in
its favor. Ultimately, the court of appeals in Gotham III reversed, holding that Gotham was not
entitled to any equitable right of reimbursement because it concluded such a right does not exist in
the insurance policy. 368 S.W.3d at 638–39.
In this Court, Gotham contends that its contract claim is an alternate ground to its equity
claims to uphold the trial court’s judgment in its favor. Gotham has sought the same monetary relief
(a return of payments made to or on behalf of Pedeco) under both its equity and contract claims.
Because Gotham has raised on appeal its contract claim as an independent ground for the relief
awarded in the trial court’s judgment, it has not waived its contract claim. Whittington, 384 S.W.3d
at 789.
2. Gotham III
Having determined Gotham did not waive its contract claim, we next address the court of
appeals’ holding in Gotham III that no contract provision allowed Gotham to recover. 368 S.W.3d
at 638. Specifically, the court of appeals held without elaboration that “Pedeco’s policy with
Gotham did not provide for a right to reimbursement for payment of non-covered claims. Therefore,
Gotham has no right to reimbursement from [Pedeco] for payment of the non-covered claims in
question.” Id. We disagree.
13
A reimbursement clause may operate to allow an insurer to recover payments previously
made even if the insured did not breach the policy. See Frank’s Casing, 246 S.W.3d at 43–45
(discussing right to reimbursement of settlement proceeds if it is later determined that coverage did
not exist for reasons unrelated to an insured’s breach). But the absence of a reimbursement clause
does not necessarily foreclose an insurer’s ability to recover if the insured has breached the policy.
The insurer may still pursue a claim that the insured’s breach proximately caused its damages, which
is subject to any applicable defenses and affirmative defenses. As addressed above, this policy
contains clauses requiring Pedeco to comply with all regulations, and potentially rendering the
policy void if Pedeco made a material misrepresentation concerning its interest. Gotham’s live
pleading alleges that Pedeco breached these clauses by: (1) failing to use state-mandated blowout
prevention equipment suitable for the well, and (2) misrepresenting its interest in the well. There
is some evidence supporting both allegations. Regarding due diligence, there is evidence that
Pedeco’s drilling subcontractor violated Railroad Commission Rule 36 by using improper blowout
prevention equipment, despite Pedeco’s contractual obligation to comply with all regulations.
Regarding misrepresentations, there is some evidence that Pedeco was drilling the well under a
farmout agreement that would only grant Pedeco a working interest once it completed a successful
well. Thus, there is some evidence that Pedeco breached the contract in the manner Gotham alleged.
In addition to proving breach, Gotham must also prove the breach proximately caused its
damages20 and must overcome any applicable defense or affirmative defense.21 The parties’ briefing
20
If Gotham prevails on its due diligence theory, Gotham must prove Pedeco’s alleged failure to use due
diligence caused its damages. If Gotham prevails on its misrepresentation theory, Gotham could elect the remedy of
voiding the policy and seek restitution of its payments under its equitable theories. See supra notes 11, 16. And as
14
before us and the Gotham III court of appeals fails to indicate that Gotham conclusively proved
breach or damages or the conclusive application of a defense or affirmative defense. Therefore, we
disagree with the court of appeals in Gotham III that there is no basis for Gotham’s contract claims
at this stage of the proceeding. See 368 S.W.3d at 638.
3. Gotham I
The only remaining holding regarding the contract claims in this trilogy of appeals is the
court of appeals’ holding in Gotham I that Pedeco suffered no loss because WRI reimbursed its
expenses and was therefore not entitled to reimbursement under its indemnity insurance policy. __
S.W.3d at __. In light of our holding that Gotham may not pursue its equity claims, we may
consider this prior holding regarding Gotham’s contract claims, as Pedeco requests that we do. See
Paradigm Oil, Inc. v. Retamco Operating, Inc., 372 S.W.3d 177, 182–83 (Tex. 2012) (considering
an issue raised in the first appeal after the petition from the third appeal); TEX. R. APP. P.
53.3(c)(2).22
In arriving at its conclusion that Pedeco suffered no loss because WRI reimbursed it, the only
authority on which the court of appeals relied is our opinion from Paramount Fire Insurance Co.
addressed below, Gotham contends that regardless of the manner of Pedeco’s breach, WRI reimbursed Pedeco’s
expenses and Pedeco thus suffered no loss for which insurance would reimburse it. As Gotham has yet to prevail on the
liability aspect of its contract claim in this Court, we cannot yet assess the measure of recovery.
21
For example, Pedeco raised in its motion for summary judgment that Gotham gave Pedeco no notice of its
refusal to be bound by the policy within 90 days of learning full information regarding due diligence and Pedeco’s
working interest, as required by former article 21.17 of the Texas Insurance Code. See TEX. INS. CODE § 705.005. Other
than the holding in Gotham I that Pedeco suffered no loss, see infra Part II.B.3, the parties’ briefing here does not address
any of the defenses they raised in Gotham I.
22
Under docket equalization principles, our disposition of the issues in Gotham III indicates that we “stand[]
in the shoes” of the Gotham I court of appeals and may consider its holdings that are challenged in this appeal. See TEX.
R. APP. P. 41.3 cmt.
15
v. Aetna Casualty & Surety Co., 353 S.W.2d 841, 844–45 (Tex. 1962), where we held that an
insured seller of a home that caught fire before closing suffered no loss because the buyer paid the
seller the full contract price. __ S.W.3d at __. Regardless of the court of appeals’ conclusion that
Paramount applies here, we disagree with the court of appeals’ analysis of the summary judgment
record.
Our standards for reviewing summary judgments are familiar. Because the court of appeals
affirmed summary judgment in favor of Gotham, we must examine the entire record in the light most
favorable to Pedeco, indulging every reasonable inference and resolving any doubts in Pedeco’s
favor. See City of Keller v. Wilson, 168 S.W.3d 802, 824 (Tex. 2005). If there is a genuine issue
of material fact, summary judgment is inappropriate. TEX. R. CIV. P. 166a(c).
Here, the court of appeals in Gotham I held Pedeco suffered no loss based upon testimony
from Pedeco’s president and WRI’s CEO that WRI had reimbursed Pedeco for its expenses in
controlling the well—testimony the court of appeals viewed as unequivocal. __ S.W.3d at __.
While this testimony may well be unequivocal, it was not the only testimony in the matter. WRI’s
CEO also testified that Pedeco and WRI had a series of agreements (covering matters not addressed
by the joint venture agreements or joint operating agreements) under which WRI “would share with
[Pedeco] in any drilling profits or drilling losses in the aggregate at the end of the year, based on
turnkey prices.” As to the expenses for controlling the H&O Well, he testified that under the
arrangement between WRI and Pedeco, WRI “would be entitled to recover . . . 50 percent of the
cost” of expenses incurred in controlling the H&O Well. This testimony is sufficient to raise a
genuine issue of material fact as to whether Pedeco suffered a loss and was entitled to
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reimbursement under its indemnity policy with Gotham. See TEX. R. CIV. P. 166a(c). Accordingly,
summary judgment in favor of Gotham on Gotham and Pedeco’s contract claims cannot be
supported on the ground that Pedeco suffered no loss. Because the parties raised additional
arguments in their first appeal regarding summary judgment on their contract claims, we remand to
the court of appeals for further proceedings.
III. Conclusion
Gotham filed equity and contract claims, seeking a return of payments made to or on behalf
of Pedeco because Pedeco allegedly failed to use due diligence and made misrepresentations
regarding its working interest. Because several clauses in the policy address these matters, Gotham
must proceed on its contract claim and may only rely on its equity claims if it prevails on its
misrepresentation theory and elects the remedy of voiding the policy. We further hold that Gotham
preserved its contract claim by raising it as an independent ground on appeal to affirm the same
relief it had obtained in the trial court’s judgment. We disagree with the court of appeals in Gotham
III that the contract precludes Gotham from a recovery because several clauses address Gotham’s
ability to recover. And because we conclude genuine issues of material fact exist concerning any
loss suffered by Pedeco, we remand for the court of appeals to consider the remaining grounds
regarding Gotham and Pedeco’s contract claims.
____________________________________
Eva M. Guzman
Justice
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OPINION DELIVERED: March 21, 2014
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