warren-e-p-inc-fka-petroleum-development-corporation-dba-pedeco ( 2012 )

COURT OF APPEALS
EIGHTH DISTRICT OF TEXAS
EL PASO, TEXAS
WARREN E & P, INC., f/k/a '
PETROLEUM DEVELOPMENT No. 08-10-00198-CV
CORPORATION d/b/a PEDECO, INC., '
WARREN RESOURCES, INC., and OIL Appeal from the
TECHNOLOGY FUND 1996 – SERIES D, '
L. P., 81st District Court
'
Appellants/Cross-Appellees, of Frio County, Texas
'
v. ' (TC# 98-02-00039CVF)
GOTHAM INSURANCE COMPANY,
Appellee/Cross-Appellant.
OPINION
This is the third appeal that has arisen from a dispute relating to the payment of insurance
proceeds following an oil well blow-out.1 The first appeal was resolved in Gotham Ins. Co. v.
Petroleum Development Corp., No. 04-01-00375-CV, 2003 WL 21696625 (Tex. App.--San
Antonio, July 23, 2003, pet. denied) (mem. op.) (Gotham I). The second appeal was resolved in
Warren E & P, Inc.,f/k/a Petroleum Development Corp. d/b/a Pedeco, Inc., et al. v. Gotham Ins.
Co., No. 04-05-00186-CV, 2006 WL 1080246 (Tex. App.--San Antonio, April 26, 2006, pet.
denied) (mem. op.) (Gotham II). In this third appeal, 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., appeal from the trial court’s summary judgment in favor of Gotham
Insurance Company. Gotham cross-appeals. We reverse.
1
The record reflects that the Texas Supreme Court transferred this case from the Fourth Court of Appeals to this
Court. See TEX. GOV’T CODE ANN. § 73.001 (West 2005).
BACKGROUND
In April of 1996, Pedeco, Inc., a New Mexico oil and gas concern, decided to operate in
Texas and sought assistance from a Texas company, R. W. Dirks Petroleum Engineers, Inc.
Pedeco and Dirks entered into a business agreement, under which Dirks agreed to serve as the
record operator of Pedeco’s Texas wells until Pedeco obtained its official Texas registration. The
agreement also charged Dirks with obtaining well-control insurance.
In May of 1996, Dirks obtained from Gotham Insurance Company a $2,000,000
well-control insurance policy. Dirks was the named insured (or “assured”) in the policy. Under
the terms of the policy, Gotham agreed to:
[R]eimburse the Assured for actual costs and/or expenses incurred by the Assured
[in proportion to the Assured’s ownership interest] (a) in regaining or attempting to
regain control of any and all well(s) insured hereunder which get(s) out of control .
. . and (b) in extinguishing or attempting to extinguish . . . fires . . . which may
endanger the well(s) insured hereunder.
The insurance policy also contained a “care, custody, and control” endorsement, under
which Gotham agreed to:
[C]over the Assured’s legal or contractual liability as oil lease operator(s) (or
Co-Venturer(s) where applicable) [in proportion to the Assured’s ownership
interest] for physical loss or damage to, or expenses of salvage of, oil field
equipment . . . leased or rented by the Assured or in its care, custody and control at
the site.
In December of 1996, Pedeco entered into a joint operating agreement (“JOA”) with
Warren Resources, Inc. (“WRI”), a New York company that solicited investors to create limited
partnerships to fund oil well drilling and then acted as the limited partnerships’ managing general
partner. Also party to the JOA was one of WRI’s limited partnerships, Oil Technology Fund
1996 -- Series D, L. P. (“the Fund”). According to Norman Swanton, WRI’s chief executive
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officer, the Fund took “the responsibility to drill the wells,” while WRI and Pedeco “agree[d] to
supply the tangible equipment and costs on those wells.” Among the oil and gas leases listed in
the JOA was the Halff-Oppenheimer Well (“H & O Well”) in Frio County.
In January of 1997, Dirks asked Gotham to add Pedeco as an additional insured in the
well-control insurance policy because, according to Dirks, Pedeco owned a non-operating working
interest in 22 of Dirks’ wells. Based on that information, Gotham added an endorsement to the
policy naming Pedeco as an additional insured. Unlike Dirks and Pedeco, WRI and the Fund did
not obtain well-control insurance.
On July 21, 1997, Pedeco filed a drilling permit with the Texas Railroad Commission,
listing Pedeco as the operator of record of the H & O Well. On July 27, 1997, the H & O Well
blew out and caught fire, destroying Stricker Drilling Company’s drilling rig, third-party
contractors’ equipment, and neighboring landowners’ crops and fences. That same day, Gotham
received notice of the blow-out and assigned adjusters from Rush Johnson Associates to
investigate. Rush Johnson later reported to Gotham that the losses from the blow-out would
exceed the policy limits. Rush Johnson also reported to Gotham that Pedeco representatives had
advised one of the Rush Johnson adjusters that Pedeco owned a 100 percent working interest in the
H & O Well and was operating it at the time of the blow-out. That representation regarding
Pedeco’s 100 percent working interest was repeated in 1997 in the sworn proofs of loss submitted
by Dirks and Pedeco to Gotham. Based on those and other representations, Gotham’s attorneys
recommended that it pay Pedeco’s claims.
To facilitate payment, the parties entered into an escrow agreement, under which Gotham
paid the policy benefits into Rush Johnson’s escrow account “to be held in escrow for R. W. Dirks
3
Petroleum Engineers, Inc. and Pedeco, Inc. for payment direct to vendors of adjusted and approved
claim amounts.”
In March or April of 1998, an adjuster from Rush Johnson advised Gotham’s attorneys that
Stricker Drilling Company and several third-party contractors had filed a lawsuit (“the Frio
County lawsuit”) alleging that Pedeco had not acted as a reasonably prudent operator and had used
substandard blow-out prevention equipment. After learning of the allegations in the Frio County
lawsuit, Gotham commenced an investigation, ultimately stopped payment on Pedeco’s unpaid
claims, notified Pedeco of its decision, and then, in May of 1999, intervened in the Frio County
lawsuit with claims against Pedeco, WRI, and the Fund, seeking equitable restitution of the
insurance benefits paid on behalf of Pedeco. Pedeco counterclaimed for breach of contract, bad
faith, and violations of the Texas Insurance Code.
Each of the parties moved for summary judgment on each of the claims and counterclaims.
The trial court granted summary judgment in favor of Pedeco, WRI, and the Fund on Gotham’s
reimbursement claim, in favor of Gotham on Pedeco’s counterclaims for bad faith and violations
of the Texas Insurance Code, and in favor of Pedeco on its counterclaim for breach of contract,
rendering judgment in Pedeco’s favor for $271,741.88, attorney’s fees, and interest. Gotham
appealed, and Pedeco cross-appealed. The Fourth Court of Appeals affirmed the trial court’s
summary judgment in favor of Gotham on Pedeco’s counterclaims for bad faith and violations of
the Texas Insurance Code, reversed the trial court’s summary judgment in all other respects, and
remanded the case for further proceedings. The Fourth Court explained its decision, in part, as
follows:
Gotham argues the trial court erred in denying its motion for summary
judgment on Pedeco’s breach of contract claim and instead granting Pedeco’s,
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because the summary judgment record conclusively establishes that Pedeco did not
sustain an actual loss from the blow-out of the H & O Well and therefore was not
entitled to recover under the indemnity policy. We agree.
. . .
[The summary judgment evidence conclusively shows that] although
Pedeco may have paid blowout costs, the funds were advanced to Pedeco by WRI;
and WRI was not reimbursed by Pedeco for any of the funds advanced.
Consequently, any loss that Pedeco suffered as a result of the blowout was made
good by WRI.
. . .
We therefore hold that, because Pedeco did not suffer a “legal loss,” it was
not entitled to benefits under the well control policy.
. . .
Because Pedeco was not entitled to policy benefits, Gotham argues it is
entitled to restitution of the policy benefits it paid under an erroneous belief or
mistake of fact. We again agree.
. . .
Because the evidence conclusively establishes that Gotham paid Pedeco’s
claims under the mistaken belief that the claims were covered by the [well-control]
indemnity policy, and because there is no evidence tending to establish that
restitution would be inequitable, we hold Gotham is entitled to restitution of the
benefits paid to Pedeco. Therefore, the trial court erred in denying Gotham’s
motion for summary judgment on its restitution claim against Pedeco.
. . .
Gotham also argues the trial court erred in denying its motion for summary
judgment on its restitution claims against WRI and the Fund, because Gotham’s
payments extinguished the valid claims of vendors and thereby discharged WRI
and the Fund from debts [they] owed under the JOA; consequently, Gotham argues,
WRI [and the Fund were] unjustly enriched by Gotham’s payments. We agree.
. . .
We affirm the trial court’s summary judgment against Pedeco and in favor
of Gotham on Pedeco’s counterclaims for bad faith and violations of the Texas
Insurance Code. In all other respects, the trial court’s judgment is reversed. We
render judgment in favor of Gotham that Pedeco take nothing on its breach of
contract counterclaims. Gotham asks that we render judgment in its favor on its
restitution claims as well. However, it gives no particulars; and the judgment that
should have been rendered is not at all obvious. We therefore exercise our
discretion to simply remand Gotham’s restitution claims to the trial court for
further proceedings consistent with this opinion.
Gotham I, 2003 WL 21696625, at *3-*8.
On remand, Gotham filed a “motion to enter final judgment,” seeking $1,823,156.27 in
5
restitution plus interest, and a motion for attorney’s fees. The trial court, without receiving
additional evidence, granted both of Gotham’s motions. Warren E & P, Inc. (f/k/a Pedeco), WRI,
and the Fund appealed. The Fourth Court reversed the portion of the trial court’s judgment
awarding restitution in the amount of $1,823,156.27 plus interest, and remanded the case to the
trial court with instructions that it proceed with a new trial on the amount of restitution to be
awarded to Gotham. Gotham II, 2006 WL 1080246, at *3. In its opinion, the Fourth Court noted
that the parties were in dispute as to the amount that Gotham, as opposed to Gotham’s
underwriters, actually paid in policy benefits. Id. at *2. The Fourth Court also reversed the
portion of the trial court’s judgment awarding attorney’s fees to Gotham and rendered judgment
that Gotham take nothing in that regard. Id. at *3.
On the second remand, Gotham filed a motion for summary judgment on the amount owed
in restitution, as did Warren E & P, Inc., WRI, and the Fund. The trial court granted Gotham’s
motion and denied the motion filed by Warren E & P, Inc., WRI, and the Fund. The trial court’s
judgment stated in relevant part:
The court hereby RENDERS judgment for Plaintiff Gotham Insurance
Company, and ORDERS that:
1. Plaintiff, Gotham Insurance Company, recover damages from
Defendants 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., in the sum of $1,823,156.27, prejudgment interest on the sum of
$1,823,156.27 at the annual rate of 5.00% running from the date Gotham filed suit
on May 21, 1999 until the day before judgment is rendered in the sum of
$989,497.61, and taxable court costs in the amount of $13,127.32.
THE ISSUES
In their first issue, Appellants Warren E & P, Inc., WRI, and the Fund argue that the trial
court erred in granting Gotham’s motion for summary judgment because, contrary to the opinions
6
in Gotham I and Gotham II, “Texas law [does] not recognize any equitable right to reimbursement
for an insurer that fails to obtain a contractual right to reimbursement.” Appellants cite Excess
Underwriters at Lloyd’s, London v. Frank’s Casing Crew & Rental Tools, Inc., 246 S.W.3d 42
(Tex. 2008), in support of their argument.
Under the law-of-the-case doctrine, a court of appeals is ordinarily bound by its initial
decision if, as in this case, there is a subsequent appeal. Briscoe v. Goodmark Corp., 102 S.W.3d
714, 716 (Tex. 2003). That doctrine is based on public policy and is aimed at putting an end to
litigation. Id. However, a court of appeals is not bound by its initial decision if there has been a
change in the governing law. City of Dallas v. Jones, 331 S.W.3d 781, 785 (Tex. App.--Dallas
2010, pet. dism’d).
As we noted above, the Fourth Court, in Gotham I, held that Gotham was entitled to
equitable restitution from Pedeco, WRI, and the Fund because those three entities were unjustly
enriched at Gotham’s expense. The Fourth Court considered the rule announced in TAC v.
Matagorda County, 52 S.W.3d 128 (Tex. 2000), that abolished the equitable right of restitution of
insurance companies against their insureds but reasoned that Matagorda did not apply to the issues
before it. However, in Gotham I, the Fourth Court did not have the benefit of the Texas Supreme
Court’s analysis in Frank’s Casing, which clarified the holding in Matagorda expressly rejecting
the remedy of equitable reimbursement and refusing to recognize any exceptions to the rule. The
Supreme Court reasoned that distinctions in the facts raised did not alleviate the contractual based
concerns that drove the Court’s decision in Matagorda eliminating an insurer’s equitable right to
reimbursement. The Court expressly held that an insurer can seek reimbursement only when that
right is included in the policy or there is a clear and unequivocal contractual agreement reached to
7
that effect. As a matter of law, an insurer may not seek equitable restitution against an insured for
erroneous payment of a non-covered claim if the insurance policy does not provide for such a
remedy. Frank’s Casing, 246 S.W.3d at 45-47. The Court explained that the rights of the parties
to the insurance policy must be found in the policy itself, and if the insurer wants the right to
reimbursement for erroneous payment of non-covered claims, the insurer must include such a right
in the policy, which might yield a lower premium than a policy that does not contain such a right.
Id. at 46, 50. To recognize an equitable right to reimbursement, where the policy does not provide
for that right, would require us to rewrite the parties’ contract or add to its language. Id. at 50.
In the instant case, 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 Warren E & P, Inc. (f/k/a Pedeco) for payment of the non-covered claims in
question.
Gotham seeks reimbursement from WRI and the Fund under the theory of unjust
enrichment, claiming that Gotham’s payments extinguished the valid claims of vendors and
thereby discharged WRI and the Fund from debts they owed. Where, as here, the parties to an
insurance contract have spelled out their respective remedies and the policy addresses
reimbursement issues, equity cannot give Gotham rights of recovery that the parties did not agree
to in their contract. Frank’s Casing restated the bright-line rule disallowing reimbursement on an
equitable unjust enrichment theory because insurers are in a superior position to evaluate the risks
stemming from a coverage dispute and can expressly allocate that risk by delineating
reimbursement rights in their policies. Gotham could have included a clause in the policy that
would have provided for credit against loss payments to the insured in any amounts due to Pedeco
8
by third parties not responsible for the loss. Prevailing Texas Supreme Court authority prohibits
granting Gotham an equitable right of reimbursement that does not exist in the insurance policy.
The Supreme Court has recognized the “‘strong public policy in favor of preserving the freedom of
contract’” and has warned that courts “‘should not by judicial fiat insert non-existent language . . .
into parties’ agreed-to contracts.’” Id. at 51 (quoting Fortis Benefits v. Cantu, 234 S.W.3d 642,
649 n.41 (Tex. 2007)). Therefore, Gotham has no right to reimbursement from WRI and the Fund
for unjust enrichment.
Given our disposition of Appellants’ first issue, we need not reach their second and third
issues or Gotham’s cross-issue.
CONCLUSION
We reverse the judgment of the trial court and render judgment that Gotham take nothing in
its claims against Warren E & P, Inc., WRI, and the Fund.
GUADALUPE RIVERA, Justice
April 18, 2012
Before McClure, C.J., Rivera, J., and Antcliff, J.
Antcliff, J., dissenting
DISSENTING OPINION
In 2003, the San Antonio Court of Appeals held, as a matter of law, that “Gotham is
entitled to restitution of the benefits paid to Pedeco.” See Gotham Ins. Co. v. Petroleum Dev.
Corp., No. 04-01-00375-CV, 2003 WL 21696625, at *7 (Tex. App.--San Antonio July 23, 2003,
9
pet. denied) (mem. op.) (hereafter “Gotham I”). The court also held that Gotham is entitled to
restitution from WRI and the Fund. Id. In 2006, the San Antonio Court re-affirmed these
holdings to be the law of the case. Warren E & P, Inc. v. Gotham Ins. Co., No. 04-05-00186-CV,
2006 WL 1080246, at *2 (Tex. App.--San Antonio April 26, 2006, pet. denied) (mem. op.)
(hereafter Gotham II) (“Gotham I unequivocally held Gotham was entitled to restitution making it
the law of the case . . . .”).
“Under the law of the case doctrine, a question of law previously decided on appeal
governs a case throughout its subsequent stages.” Jones & Gonzalez, P.C. v. Trinh, 340 S.W.3d
830, 836 (Tex. App.--San Antonio 2011, no pet.). The doctrine applies even when a case is
transferred to us from another court of appeals. See, e.g., Caplinger v. Allstate Ins. Co., 140
S.W.3d 927, 929-30 (Tex. App.--Dallas 2004, pet. denied); see also Thomas v. Collins, 860
S.W.2d 500, 502 (Tex. App.--Houston [1st Dist.] 1993, writ denied) (treating prior decision of this
Court as law of the case). We are required to decide a transferred case in accordance with the
precedent of the transferor court, regardless of whether we might have decided the case differently
if it had arisen in our own district. See TEX. R. APP. P. 41.3. We must follow the transferor
court’s precedent “unless it appears that the transferor court itself would not be bound by that
precedent.” Id. cmt.
Therefore, the issue before us is whether there is any basis for departing from the San
Antonio Court’s ruling. My colleagues have concluded that we need not follow Gotham I
because an intervening decision by the Texas Supreme Court changed the law. Because I
disagree with this conclusion, I respectfully dissent.
In Matagorda, Matagorda County demanded that its insurer defend and indemnify it
10
against a third-party claim. Tex. Ass’n of Counties County Gov’t Risk Mgmt. Pool v. Matagorda
County, 52 S.W.3d 128, 129 (Tex. 2000). Believing that the claim fell within a policy exclusion,
the insurer filed a declaratory judgment action to determine whether the claim was covered. Id.
The plaintiffs in the underlying suit offered to settle within policy limits, and the County’s lawyer
determined that the proposed settlement was reasonable and prudent. Id. The County, however,
refused to contribute any money to the settlement, asserting that the claim was not excluded from
coverage and therefore the insurer should pay. Id. at 130.
The policy allowed the insurer to settle claims at its own discretion without the County’s
consent. Id. Accordingly, the insurer went forward with the settlement and paid the entire
settlement amount. Id. But the insurer sent the County a letter in which it reserved its rights to
deny coverage and to seek reimbursement of the settlement funds if it prevailed on the coverage
issue in the declaratory judgment action. The County did not respond to the letter. Id. The
insurer then amended its declaratory judgment petition to seek reimbursement of the settlement
funds. Id. The insurer prevailed on the coverage issue and obtained a judgment for the full
amount of the settlement. Id.
The Texas Supreme Court concluded that the County’s silence in response to the
reservation-of-rights letter, combined with its acknowledgement that the settlement was
reasonable, did not create an implied contractual reimbursement obligation. Id. at 131. The
court reached this conclusion by applying ordinary, black-letter contract principles. See id. at
131-33.
The court then considered whether the insurer had an equitable right to reimbursement
under the quasi-contractual theories of quantum meruit and unjust enrichment. The court held
11
that these theories did not apply “in the circumstances presented.” Id. at 134. In reaching this
conclusion, the court focused on the potential for unfairness to the insured. If the insurer could
seek reimbursement under the circumstances presented in the case, the insured would be “forced to
choose between rejecting a settlement within policy limits or accepting a possible financial
obligation to pay an amount that may be beyond its means, at a time when the insured is most
vulnerable.” Id. at 135. Moreover, the insurer is in the best position to determine whether
coverage exists. Id. The Supreme Court thus held “that, when coverage is disputed and the
insurer is presented with a reasonable settlement demand within policy limits, the insurer may fund
the settlement and seek reimbursement only if it obtains the insured’s clear and unequivocal
consent to the settlement and the insurer’s right to seek reimbursement.” Id.
In Gotham I, Pedeco argued that Matagorda abolished any extra-contractual right of
restitution that an insurer might have had against its insured. See 2003 WL 21696625, at *6.
The San Antonio Court of Appeals concluded that Matagorda was distinguishable because it
involved an insurer’s suit against its insured for reimbursement of settlement funds paid to a
third-party claimant under a reservation of rights after the third party’s claim was adjudicated to be
excluded from coverage under a comprehensive general liability policy. Id. By contrast, the
issue presented in this case is “whether an insurer is entitled to restitution from its insured when, in
reliance upon its insured’s representations, it pays an alleged loss that was in fact ‘no loss’
because it was ‘made good’ by a third party.” Id. (emphasis added). We should follow the San
Antonio Court’s ruling in Gotham I unless it was clearly erroneous or a subsequent decision
changed the law. Briscoe v. Goodmark Corp., 102 S.W.3d 714, 716 (Tex. 2003); City of Dallas v.
Jones, 331 S.W.3d 781, 785 (Tex. App.--Dallas 2010, pet. dism’d).
12
Although I have not found a case defining “clearly erroneous” for law-of-the-case
purposes, I believe that it must refer to something more than a mere disagreement with the prior
decision. We apply the law-of-the-case doctrine to narrow the issues in successive stages of
litigation, to achieve uniformity, and to promote judicial economy and efficiency. Briscoe, 102
S.W.3d at 716. The doctrine is based on public policy and is aimed at putting an end to litigation.
Id. It discourages parties from relitigating an issue in the hope of finding a more favorably
disposed tribunal. See LeBlanc v. State, 826 S.W.2d 640, 644 (Tex. App.--Houston [14th Dist.]
1992, pet. ref’d) (“Without application of this doctrine, appellant would be able to gamble that
between two court of appeals’ decisions he would have a better chance of obtaining a favorable
ruling by one of them.”).
In my view, Gotham I drew a perfectly reasonable distinction between this case and
Matagorda. Whereas Matagorda involved the settlement of a third-party claim, this case
involves a first-party claim. The public policy rationales undergirding Matagorda do not apply
outside the settlement context.
Moreover, the Texas Supreme Court denied review in both Gotham I and Gotham II. This
demonstrates that, at least as of 2006, the San Antonio Court’s interpretation of Matagorda was
not clearly erroneous.1 See Caplinger, 140 S.W.3d at 930 (“Where the supreme court declines an
opportunity to review a court of appeals’s opinion, that opinion is not clearly erroneous.”); see also
Hurd Enters. v. Bruni, 828 S.W.2d 101, 106 (Tex. App.--San Antonio 1992, writ denied); Am.
Trading & Prod. Corp. v. Phillips Petroleum Co., 449 S.W.2d 794, 801 (Tex. Civ. App.--El Paso
1969, writ ref’d n.r.e.).
1
Indeed, the San Antonio Court in Gotham I and Gotham II issued memorandum opinions pursuant to Rule 47.4 of the
Texas Rules of Appellate Procedure, a clear indication that the Court considered the issues raised “settled” even in
light of the Supreme Court’s holding in Matagorda.
13
In 2008, the Texas Supreme Court issued its final decision in Frank’s Casing. Like
Matagorda, Frank’s Casing again involved settlement of a third-party claim. See Excess
Underwriters at Lloyd’s, London v. Frank’s Casing Crew & Rental Tools, Inc., 246 S.W.3d 42,
43-45 (Tex. 2008). The Supreme Court noted that, at least in some respects, the two cases had
“indistinguishable facts.” Id. at 51; see also id. at 45 (noting that Matagorda involved “similar,
though not identical, circumstances”).
The court reviewed its Matagorda holding and declined to overrule it. See id. at 45-48.
In addition to the public policy rationales discussed in Matagorda, the court found other reasons to
deny an implied right to reimbursement. As in Matagorda, these reasons derive from the unique
circumstances surrounding settlement of a third-party claim. If the insurer had a right to
reimbursement, defense counsel might face a conflict of interest during settlement discussions.
Id. at 47. A right to reimbursement would also weaken the insurer’s incentive to negotiate a
settlement most favorable to the insured. The insurer might seek to limit its litigation expenses by
negotiating a quick settlement, all the while knowing that its insured would likely bear the ultimate
burden of paying the settlement. Id. These concerns “portend significant distrust in the
insurer/insured relationship during the settlement process should an equitable reimbursement right
be implied.” Id.
The court next considered the insurers’ attempts to distinguish Matagorda. The insurers
argued that Matagorda did not control because the insured sought a settlement demand from the
plaintiff and then insisted that the insurers pay it. Id. at 50. The insurers further asserted that
Matagorda was distinguishable because they were excess insurers with no duty to defend. Id.
The Supreme Court held that these distinctions were irrelevant. Id. The court also stated:
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“There is an additional reason that the excess underwriters are not entitled to a reimbursement
right. That is, ‘[w]hen a valid agreement already addresses the matter, recovery under an
equitable theory is generally inconsistent with the express agreement.’” Id. (quoting Fortune
Prod. Co. v. Conoco, 52 S.W.3d 671, 684 (Tex. 2000)).
This review of the opinion demonstrates that Frank’s Casing did not change the law.
Presented with virtually identical facts as in Matagorda, the court simply adhered to its prior
decision. And, again as in Matagorda, the court’s reasoning demonstrates that it was concerned
with potential unfairness to an insured who has an opportunity to settle a third-party claim.
These concerns do not apply here. No conflict of interest has been suggested. Unlike the
scenarios envisioned in Matagorda and Frank’s Casing, here Gotham was not in a position to take
advantage of Pedeco or to settle a claim for an unreasonable amount, knowing that Pedeco would
bear the ultimate responsibility. Instead, Pedeco was the party with superior knowledge and
Pedeco made representations to Gotham, which were relied upon by Gotham, about its ownership
interest and as to which entity was paying the blow-out costs. See Gotham I, No.
04-01-00375-CV, 2003 WL 21696625, at *2.
Although Frank’s Casing indicates that equitable remedies generally cannot supplant or
add terms to a contract, it does not preclude all equitable remedies in every situation. The court
cited Fortune Production, which held, “Generally speaking, when a valid, express contract covers
the subject matter of the parties’ dispute, there can be no recovery under a quasi-contract theory,
with certain exceptions not relevant here . . . .” 52 S.W.3d at 684 (emphasis added & citations
omitted). One well-recognized exception to this general rule is that a party may recover under the
equitable theory of restitution for payments made due to a mistake of fact. “It is [a] settled rule of
15
law that an insurance company which makes payment under a policy because of an erroneous
belief induced by a mistake of fact that the terms of the insurance contract required such payment
is entitled to restitution from the person receiving such payment, unless it has agreed to assume the
risk of mistake, or unless there is some reason which makes it inequitable or inexpedient for
restitution to be granted.” Int’l Ins. Co. v. Jataine, 495 S.W.2d 309, 320-21 (Tex. Civ.
App.--Corpus Christi 1973, writ ref’d n.r.e.); accord Community Mut. Ins. Co. v. Owen, 804
S.W.2d 602, 605 (Tex. App.--Houston [1st Dist.] 1991, writ denied); Singer v. St. Paul Mercury
Ins. Co., 478 S.W.2d 579, 583 (Tex. Civ. App.--San Antonio 1972, writ ref’d n.r.e.). The San
Antonio Court of Appeals relied on this exception in Gotham I, and there is nothing in Frank’s
Casing to suggest that the exception is no longer valid. See Gotham I, 2003 WL 21696625, at *6.
As a result of Pedeco’s representations, Gotham erroneously believed that Pedeco’s claim
was covered by the policy. Thus, Gotham made payments under a mistake of fact. By contrast,
the insurers in Frank’s Casing and Matagorda made payments under a mistake of law. Unlike
Gotham, they did not believe that the claims were covered, but they paid the claims under the
assumption that they could obtain reimbursement if they ultimately prevailed on the coverage
issues. See Owen, 804 S.W.2d at 605 (“A mistake of law means a mistake as to the legal
consequences of an assumed state of facts.”); see also Pennell v. United Ins. Co., 243 S.W.2d 572,
576 (Tex. 1951) (“There is no suggestion in the record that there was a mistake of fact as to the
kind of automobile in which petitioner was riding when injured or any other mistake of fact. The
question whether the double indemnity provision of the policy applied to the jeep, the answer to
which determined respondent’s liability or nonliability for double indemnity, was one of law.”).
Finally, even if Frank’s Casing changed the law as to Gotham’s claim against Pedeco, it
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certainly does not foreclose Gotham’s claim for restitution from WRI and the Fund. Neither WRI
nor the Fund were parties to the insurance policy. As discussed above, Frank’s Casing and
Matagorda were based on the existence of an insurer/insured relationship and on the existence of a
contract. Neither of these facts apply to WRI and the Fund.
Because Frank’s Casing did not change the law as announced in Matagorda, I would
affirm the judgment of the trial court, and I respectfully dissent.
April 18, 2012 CHRISTOPHER ANTCLIFF, Justice
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