St. Paul Fire & Marine Insurance Company and St. Paul Surplus Lines Insurance Company v. Petroplex Energy, Inc. , 2015 Tex. App. LEXIS 9308 ( 2015 )

Opinion filed August 31, 2015
In The
Eleventh Court of Appeals
__________
No. 11-13-00104-CV
__________
ST. PAUL FIRE & MARINE INSURANCE COMPANY AND
ST. PAUL SURPLUS LINES INSURANCE COMPANY,
Appellants
V.
PETROPLEX ENERGY, INC., Appellee
On Appeal from the 142nd District Court
Midland County, Texas
Trial Court Cause No. CV46262
OPINION
This appeal involves whether Petroplex Energy, Inc. (Petroplex), which
claimed it owned 100% of the working interest in a gas well, the Quinn 1-6H Well
in Reeves County, Texas (Quinn Well or Well), can recover, under two policies of
insurance,1 the expenses, damages, and costs that occurred as a result of a blowout
1
One policy is a well-control policy, No. MU05509373, while the second is a commercial general
liability policy (CGL), No. VK04203298. The former was issued by St. Paul Surplus Lines Insurance
Company, while the latter was issued by St. Paul Fire & Marine Insurance Company. The respective limits
of liability were $3,000,000 and $2,000,000.
on that Well. The trial court granted the motions for partial summary judgment filed
by Petroplex and denied the cross-motions for summary judgment filed by St. Paul
Surplus Lines Insurance Company (St. Paul Surplus) and St. Paul Fire & Marine
Insurance Company (St. Paul). The parties agreed to an interlocutory appeal of the
partial summary judgment orders.2 We affirm because the trial court correctly ruled
on each of the motions and cross-motions for partial summary judgment.
I. Background Facts
The events involved in this appeal surround the blowout of the Quinn Well.
Petroplex sought to recover “insured” or “covered” expenses, damages, and costs
incurred from the blowout and related litigation in Reeves County, while St. Paul
Surplus and St. Paul asserted they were not obligated to pay under either the well-
control policy or the CGL policy.3
A. Petroplex’s and Endeavor’s Arrangements
The summary judgment evidence indicated that Petroplex and Endeavor
Energy Resources, LP4 (Endeavor) had many oil and gas deals together. Stephens,
on behalf of Endeavor, and the president of Petroplex, S. Javaid Anwar, orally agreed
to partner on the Quinn Well. Anwar explained that Endeavor provided the rig and
technical help. Petroplex reentered the Quinn Well and completed it in 2006.
Petroplex agreed to assign 80% of the working interest in the Quinn Well to
Endeavor, while Petroplex would retain 20% of the working interest; Petroplex
would be the operator. Petroplex executed a partial assignment (Partial Assignment)
2
As provided for in a prior version of Section 51.014(d) of the Texas Civil Practice and Remedies
Code, the trial court entered an agreed order in which it granted permission to file this appeal. Former TEX.
CIV. PRAC. & REM. CODE § 51.014(d) (2005) (Act of May 27, 2005, 79th Leg., R.S., ch. 1051, 2005 Tex.
Gen. Laws 3512). As a result, we have jurisdiction.
3
St. Paul Surplus and St. Paul highlighted that the well-control policy was an indemnity policy and
that the CGL policy did not cover legal liability or costs incurred and satisfied by others.
4
Endeavor Petroleum, LLC (Endeavor Petroleum) is the general partner of Endeavor Energy
Resources, LP, and Autry C. Stephens is the sole member of Endeavor Petroleum.
2
on July 11, 2006, and proposed a joint operating agreement (JOA), but because
disagreements over blowout insurance and a few other things arose, Petroplex and
Endeavor never signed the JOA. As a result, Endeavor reassigned the 80% interest
back to Petroplex (Endeavor Assignment) on July 25, 2006, effective July 11, 2006.
The Endeavor Assignment identified the property on which the Quinn Well was
located, and it was executed, notarized, and delivered, but never recorded.
In return for the Endeavor Assignment, Petroplex orally agreed to assign to
Endeavor interests that Petroplex owned in comparable wells in Midland County and
Martin County. While drilling continued, and until the relative value of all wells
was known, the parties agreed to account for the wells, including the Quinn Well, as
if nothing had changed. Petroplex and Endeavor agreed that they both exchanged
expenses for wells on behalf of each other, and Petroplex asserted that, although title
to the Midland County and Martin County wells had not yet transferred, Endeavor
was firmly entitled to those interests. In addition, both Petroplex and Endeavor
agreed that they would account to each other for the expenses exchanged the Quinn
Well and the Midland County and Martin County wells on behalf of each other and
would make adjustments, as needed, on a dollar-for-dollar basis.
B. Blowout on Quinn Well
Pressure from a buildup of gas developed in the annulus between the
production tubing and the production casing (the backside). When Petroplex
discovered the increased pressure, it initially installed a relief valve on the backside
that tied into the sales line. When the pressure increased to a certain level, the relief
valve activated and allowed Petroplex to capture and sell the gas collected from the
backside. Later, as workers removed the test tubing in an effort to find and repair
the cause of the problem, the Well “took a kick.” A blowout preventer installed on
the Well failed; the Well blew out; and Petroplex, the operator of record, lost control
of the Well on September 14, 2007.
3
Among other things, the blowout polluted the area and resulted in damage to
equipment owned by third parties. Various third-party claims were subsequently
filed, both by and against Petroplex, in connection with the damages that arose from
the blowout of the Well.5 Petroplex was invoiced for various expenses related to the
blowout of the Quinn Well. Petroplex paid those expenses and also settled some
claims. In addition, Endeavor advanced blowout expenses for the Quinn Well to
Petroplex, as did Anwar’s mother, Tahira Khatoon.6
C. Insurance Policies
On June 29, 2007, St. Paul Surplus issued a well-control policy to Petroplex
that covered the Quinn Well, well number “16” on a list of forty-nine wells, while
St. Paul issued a commercial liability policy to Petroplex that went into effect on
May 10, 2007. Petroplex paid the premiums for both polices. For the well-control
policy, for which St. Paul Surplus billed up front, Petroplex timely paid its total up-
front premium of $39,479, which included a charge of $1,728.92 attributable to the
Quinn Well.7 Within thirty days following the end of the quarter, Petroplex made
quarterly reports of well activity, and the underwriter for St. Paul Surplus billed
Petroplex additional premiums due for reported activity in that quarter. St. Paul
Surplus acknowledged that the rate schedule in the well-control policy included rates
for the Quinn Well and that the Quinn Well was a “well insured,” as a “producing
well,” at the inception of the policy. Before the end of the quarterly reporting period
5
In a separate suit, Pop’s Lift Tech, Inc. sued Petroplex in Cause No. 08-10-19210-CVR in the
143rd District Court of Reeves County, Texas (the Reeves County Suit). Pop’s Lift Tech sought damages
from Petroplex for damage to Pop’s Lift Tech’s equipment that was damaged in the Quinn Well blowout.
One issue in that suit was whether Petroplex owned 100% of the working interest in the Quinn Well.
Judge Bob Parks ruled that Petroplex owned 100% of the working interest. Petroplex retained independent
counsel in the Reeves County Suit and incurred defense costs that it asserted were recoverable under the
policies.
6
Khatoon was named as an insured on the well-control policy, and she was named as an additional
protected person on the CGL policy.
7
The total cost for the insurance plus fees and taxes was $52,348.01, which Petroplex timely paid.
4
for the well-control policy, the Quinn Well suffered a blowout during the coverage
periods for both policies. St. Paul Surplus contends the Well was not “producing”
at that time but was in a “workover.”
D. Procedural History
The dispute between the parties to this appeal arises under the well-control
and the CGL policies of insurance. St. Paul Surplus issued a reservation-of-rights
letter and asserted that the well was not insured. Later, St. Paul Surplus and St. Paul
claimed Petroplex was not the working interest owner. When St. Paul Surplus and
St. Paul failed to pay Petroplex’s claims under the two policies, Petroplex filed suit.
The parties filed multiple motions and cross-motions for partial summary judgment
on several issues. Those contested issues included the following: (1) Who was the
working interest owner? (2) Was the Quinn Well insured? (3) Were there “insured”
or “covered” losses under the two policies? (4) Did Petroplex incur “insured” or
“covered” losses? (5) Could Petroplex recover any “insured” or “covered” losses
under the two policies where Petroplex’s partner, Endeavor, or others, paid for the
expenses, damages, and costs on the Quinn Well?
E. Rulings of the Trial Court
The trial court ruled that Petroplex owned 100% of the working interest in the
Quinn Well at the inception of the well-control policy and at the time of the blowout.
The trial court also ruled that Petroplex had an insurable interest in the Well at the
time of the blowout. The trial court ruled that the Well was insured and that no event
took place to change the status of the Well or to terminate, modify, alter, or amend
the insurance coverage of the Well. The trial court further ruled that Petroplex had
no reporting requirements, other than to report the loss of control of the Well.
The trial court also ruled that, contrary to Appellants’ assertions, Petroplex
suffered covered losses under the well-control policy and that insured losses
exceeded the limits of the policy. Regarding the CGL policy, the trial court ruled
5
that, again contrary to Appellants’ assertions, Petroplex sustained an insured loss
when it incurred and paid defense costs and third-party expenses for the blowout of
the Quinn Well.
II. Issues Presented
St. Paul Surplus and St. Paul argued three issues on appeal. They argued in
their first issue that Petroplex, which they claimed was not the working interest
owner, cannot recover under the well-control policy because Petroplex did not
sustain an actual, out-of-pocket loss that is indemnifiable under the well-control
policy. They asserted all costs that arose from the blowout of the Quinn Well were
sustained and paid by Petroplex’s partners or others, without reimbursement from
Petroplex.
St. Paul Surplus and St. Paul argued in their second issue that Petroplex cannot
recover under the CGL policy because Petroplex did not incur legal liability payable
under the CGL policy for third-party settlements, pollution cleanup, or defense costs.
They asserted that any liability was satisfied and that all claims and costs were paid
by Petroplex’s partners or others, without reimbursement from Petroplex.
St. Paul Surplus and St. Paul argued in their third issue that, when the blowout
occurred, the Quinn Well was not insured under the well-control policy. They
argued that, although Petroplex had paid insurance premiums for “producing”
activity on the Well, it had not paid insurance premiums for the increased hazard of
a “workover” or “reconditioning” of the Well. They also asserted that, when the
blowout occurred, the Well was in a “workover” or “reconditioning” status. As a
result, they claimed Petroplex could not recover losses incurred from the blowout
because the Well was in a “workover” or “reconditioning” status, but Petroplex had
only paid insurance premiums for “producing” activity.
In response, Petroplex argued that it owns 100% of the working interest in the
Quinn Well; that the Quinn Well was insured; that it could recover expenses,
6
damages, and costs that were incurred as a result of the blowout; and that it could
recover defense costs from the lawsuit in Reeves County as part of its claim under
the CGL policy.
III. Standard of Review
We review a trial court’s grant of summary judgment de novo. Valence
Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005). When we review a
summary judgment, we take as true evidence favorable to the nonmovant. Id. A
trial court must grant a traditional motion for summary judgment if the moving party
establishes that no genuine issue of material fact exists and that the movant is entitled
to judgment as a matter of law. TEX. R. CIV. P. 166a(c); Lear Siegler, Inc. v. Perez,
819 S.W.2d 470, 471 (Tex. 1991); City of Houston v. Clear Creek Basin Auth., 589
S.W.2d 671, 678 (Tex. 1979). The nonmovant is not required to file a response to
defeat the movant’s summary judgment motion; however, once the movant
establishes a right to judgment as a matter of law, the nonmovant must come forward
with evidence or law that precludes summary judgment. Clear Creek, 589 S.W.2d
at 678–79.
To determine if a fact question exists, we must consider whether reasonable
and fair-minded jurors could differ in their conclusions in light of all the evidence
presented. Goodyear Tire & Rubber Co. v. Mayes, 236 S.W.3d 754, 755–56 (Tex.
2007). We must consider all the evidence in the light most favorable to the
nonmovant, indulging all reasonable inferences in favor of the nonmovant, and
determine whether the movant proved that there were no genuine issues of material
fact and that it was entitled to judgment as a matter of law. Nixon v. Mr. Prop. Mgmt.
Co., 690 S.W.2d 546, 548–49 (Tex. 1985); Clear Creek, 589 S.W.2d at 678.
When cross-motions are filed and the trial court grants one and denies the
other, we review all issues presented and enter the judgment that the trial court
should have entered. Bradley v. State ex rel. White, 990 S.W.2d 245, 247 (Tex.
7
1999); Moon Royalty, LLC v. Boldrick Partners, 244 S.W.3d 391, 394 (Tex. App.—
Eastland 2007, no pet.).
IV. Analysis
Although the record in this case is voluminous, the issues presented to us are
quite narrow and involve three questions:
A. Did Petroplex own 100% of the working interest in the Quinn Well?
B. Was the Quinn Well an insured well at the time of the blowout?
C. Can Petroplex recover, as insured losses under either or both policies, the
expenses, damages, and defense costs incurred as a result of the blowout
of the Quinn Well?
As we explain below, the answer to all three questions is “Yes,” and we will address
each question in turn.
A. Question One: Working Interest Owner in the Quinn Well
Petroplex asserts it is the owner and operator of the Quinn Well. In June
2005, Petroplex acquired its working interest in the Quinn Well from Carroll M.
Thomas by his assignment of 100% of the oil and gas lease covering the Quinn Well
(Thomas Assignment). By statute, a deed must be in writing and must be subscribed
or delivered by the conveyor or the conveyor’s agent. TEX. PROP. CODE ANN.
§ 5.021 (West 2014). For a deed or instrument to effect conveyance of real property,
it is not necessary to have all the formal parts of a deed formerly recognized at
common law or to contain technical words. If, from the whole instrument, a grantor
and grantee can be ascertained, if there are operative words or words of grant
showing an intention of the grantor to convey title to a real property interest to the
grantee, and if the instrument is signed and acknowledged by the grantor, it is a deed
that is legally effective as a conveyance. Harlan v. Vetter, 732 S.W.2d 390, 392
(Tex. App.—Eastland 1987, writ ref’d n.r.e.).
Whether an assignment is ambiguous is a question of law. Moon Royalty, 244
S.W.3d at 394. A document is ambiguous when the application of the pertinent rules
8
of interpretation to the face of the instrument leaves the court genuinely uncertain
which one of two or more meanings is the proper meaning. Id. (citing Universal
C. I. T. Credit Corp. v. Daniel, 243 S.W.2d 154, 157 (Tex. 1951)). A lack of clarity
will not create an ambiguity. Masgas v. Anderson, 310 S.W.3d 567, 573 (Tex.
App.—Eastland 2010, pet. denied); Moon Royalty, 244 S.W.3d at 394 (citing
Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 134 (Tex. 1994)).
Three assignments address the issue of who owns the working interest in the
Quinn Well: (1) the Thomas Assignment; (2) the Partial Assignment; and the
Endeavor Assignment. No other conveyances are in the summary judgment record.
Under Texas law, an assignment of interest in real property must be in writing and
subscribed or delivered by the conveyor or its agent. Masgas, 310 S.W.3d at 570
(citing PROP. § 5.021). The Endeavor Assignment (1) is in writing, (2) contains
unambiguous words of grant, (3) was executed by Endeavor and Petroplex, and
(4) was delivered to Petroplex.
Stephens asserted, in his affidavit, that the assignment of all of Endeavor’s
interest in the Quinn leasehold included the Quinn Well even though it did not
mention the Quinn Well specifically. And both Stephens and Anwar testified that
they intended for the Endeavor Assignment to transfer the entire interest to
Petroplex. The Endeavor Assignment is legally effective, and it conveyed title to
Petroplex regardless of whether it was recorded. Thornton v. Rains, 299 S.W.2d
287, 288 (Tex. 1957); Chicago Title Ins. Co. v. Alford, 3 S.W.3d 164, 168 (Tex.
App.—Eastland 1999, pet. denied). Petroplex owned 100% of the working interest
in the Quinn Well. Expenses advanced by others for the blowout of the Quinn Well
did not affect Petroplex’s ownership in the Quinn Well. Masgas, 310 S.W.3d at 570.
9
B. Question Two: Was the Quinn Well Insured at the Time of the
Blowout?
Appellants assert in their third issue that the well-control policy, which was
issued to Petroplex by St. Paul Surplus, did not cover the Quinn Well because
St. Paul Surplus had insured the well only as a producing well, not as a well upon
which Petroplex was performing workover or reconditioning activities at the time of
the blowout. St. Paul Surplus does not dispute that the Quinn Well was an “insured
well” at the inception of the well-control policy. But St. Paul Surplus maintains that
the Quinn Well ceased to be an “insured well” when Petroplex began the activities
that changed the status of the Quinn Well and ultimately resulted in the loss of
control over the Well.
1. Construction of Insurance Policies
Insurance policies are interpreted according to the same principles that govern
contract interpretation. See Utica Nat’l Ins. Co. of Tex. v. Am. Indem. Co., 141
S.W.3d 198, 202 (Tex. 2004). The construction of an unambiguous contract is a
question of law for the court and is reviewed on appeal de novo, with little or no
deference to the trial court’s legal conclusions. See Chrysler Ins. Co. v. Greenspoint
Dodge of Houston, Inc., 297 S.W.3d 248, 252 (Tex. 2009).
When we interpret an insurance policy, this court’s primary duty is to give
effect to the parties’ intent based on what the policy actually says. “As with any
other contract, the parties’ intent is governed by what they said, not by what they
intended to say but did not.” Fiess v. State Farm Lloyds, 202 S.W.3d 744, 746 (Tex.
2006) (citing Balandran v. Safeco Ins. Co. of Am., 972 S.W.2d 738, 741 (Tex. 1998)
(“Our primary goal, therefore, is to give effect to the written expression of the
parties’ intent.”)). Ambiguities are resolved in favor of the insured. Id. at 745.
10
We are to construe insurance policies in Texas according to the general rules
governing contract construction. Am. Mfrs. Mut. Ins. Co. v. Schaefer, 124 S.W.3d
154, 157 (Tex. 2003); Tex. Farmers Ins. Co. v. Murphy, 996 S.W.2d 873, 879 (Tex.
1999). Our primary purpose is to determine the intent of the parties as expressed in
the contract under review. Providence Land Servs., LLC v. Jones, 353 S.W.3d 538,
541 (Tex. App.—Eastland 2011, no pet.). If a policy of insurance is such that its
language can be given a certain or definite legal meaning, it is not ambiguous.
Schaefer, 124 S.W.3d at 157; Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983).
Neither St. Paul Surplus nor Petroplex claim that the well-control policy is
ambiguous, although each argues for a different interpretation. An ambiguity does
not arise merely because the parties offer conflicting interpretations of the policy
language. Schaefer, 124 S.W.3d at 157; Kelley–Coppedge, Inc. v. Highlands Ins.
Co., 980 S.W.2d 462, 464 (Tex. 1998). St. Paul Surplus takes the position that the
well-control policy “unambiguously defines a ‘well insured’ as a well for ‘which a
rate is shown on the schedule of rates’ in the Declarations, and [that] no rate is
provided for workover activity on the Quinn [W]ell.” The policy contains a rate
schedule, a portion of which bears the heading: “SCHEDULE OF
DRILLING/PRODUCING RATES.” Under that heading, the policy provides,
“Rates herein are payable on each foot drilled/producing depth, each well.” Shown
thereafter are various categories of vertical well depth and a corresponding
drilling/producing rate. For instance, the drilling/producing rate for a well with a
vertical depth of 0 to 5,000 feet is “$.250/.025,” indicating that the rate for a well
being drilled at that depth is $.250 per foot and that the rate for a well producing at
that depth is $.025. At the depth applicable to the Quinn Well (“12,501 - 17,500”
feet), the rate shown is “$ - /.098.”
The well-control policy also provides “RATES FOR OTHER THAN
DRILLING/PRODUCING” and contains provisions for what those “others” are.
11
The policy also provides a method for rate calculation in connection with those
“others.” One such designation of “other” is: “Reworking, Reconditioning,
Recompletion and Workover Wells.” The rate for “Reworking, Reconditioning,
Recompletion and Workover Wells” is a function of the “applicable drilling rate.”
It is St. Paul Surplus’s position that the activities in which Petroplex was engaged at
the time of the blowout were reworking or workover activities. St. Paul Surplus
argues that, because of the “-” shown for the drilling rate for the Quinn Well, the
only rate negotiated was for producing activities only “and not any other activity,
including workovers.”
Petroplex, on the other hand, argues that the Quinn Well was an insured well
at the inception of the policy—a fact that St. Paul Surplus does not dispute—and that
nothing changed to trigger an interruption in that status. Petroplex asserts the policy
covers wells, not activities. Petroplex additionally asserts that coverage for a “well
insured” attaches at the inception of the policy and that the policy contains express
provisions for changes in the status of a “well insured.”
2. Termination of Coverage Provisions
First, the well-control policy contains terms for termination of coverage under
five circumstances. None of those circumstances apply here. Second, the policy
contains provisions that address a change in the status of an insured well. Rates are
initially figured, and premiums paid up front, based on well status at the inception
of the policy. Additional premiums are computed and paid each quarter based upon
reports by the insured showing change in activity or status of the well during the
policy period. Thus, posits Petroplex, “the parties chose to deal with any changes in
activity on a quarterly basis, after the fact, through the reporting clause and true-up
of any additional premiums.” Petroplex maintains that it was the normal course of
conduct for it and St. Paul Surplus to operate in that manner and that it immediately
12
reported the blowout during the appropriate quarter as required under the policy
provisions.
Based upon our review of the well-control policy, we agree with the position
taken by Petroplex and found by the trial court that the Quinn Well was a “well
insured” or “covered” at the inception of the policy and that there were no
circumstances that had caused the well to drop out of coverage at the time that
Petroplex lost control of the well. Under the unambiguous terms of the policy, a rate
was provided for the Quinn Well, and it was, therefore, a “well insured.” None of
the termination circumstances provided for in the policy apply to the facts of this
case. The policy, in unambiguous terms, provided for an after-the-fact, quarterly
true-up to account for any changes in the status of an insured well, a provision with
which Petroplex timely complied.
C. Question Three: Can Petroplex Recover under the Policies?
St. Paul Surplus and St. Paul refused to pay for Petroplex’s losses because
they claimed that (1) Petroplex did not actually sustain the blowout loss,
(2) Petroplex did not bear legal liability to defend suits or pay claims, and (3) all
costs were incurred or satisfied by Endeavor or others. The summary judgment
evidence shows that, prior to the time that the policies were issued, Petroplex
acquired 100% of the working interest in the Quinn Well by assignment of a lease
that covered the property upon which the Well was located.
1. Summary Judgment Evidence
The record contains evidence that the blowout on the Quinn Well occurred
after the 80% interest in the well was reassigned to Petroplex. When the blowout
occurred, Endeavor advanced funds to Petroplex to pay for blowout expenses.
As a result, Petroplex had to provide a dollar-for-dollar credit to Endeavor on the
Midland County and Martin County properties. Petroplex expended funds on
Endeavor’s behalf in both the Midland County and Martin County wells. Endeavor
13
continued to advance expenses for the Quinn Well on Petroplex’s behalf; Petroplex,
in turn, continued to fund expenses on the Midland County and Martin County
properties on Endeavor’s behalf. The two parties accounted for expenses and
attendant credits and agreed there would be a final settling up through a “swap”
of properties or leases.
2. Gotham IV Decision
While this case was pending in this court, the Texas Supreme Court handed
down its opinion in Gotham Insurance Co. v. Warren E & P, Inc., 455 S.W.3d 558
(Tex. 2014) (Gotham IV). All parties to this appeal have filed supplemental
discussions of the opinion in Gotham IV and its application, which have guided our
review of the case. In Gotham IV, Pedeco, Inc. (known at the time of the appeal as
Warren E & P, Inc.) entered into a joint venture agreement with Warren Resources,
Inc. and Oil Technology Fund 1996–Series D, L.P. to drill a series of wells, including
a well known as the H & O Well. 455 S.W.3d at 560. The JOA covered the wells
after they went into production. Id. However, during the drilling of the H & O Well,
circulation pressure was lost and formation gas rose to the surface. Id. A blowout
preventer failed to work properly, and the gas ignited. Id. Previously, Gotham had
issued a policy of insurance to Pedeco under which Gotham agreed to pay Pedeco,
to the extent of its working interest in the well, for actual expenses incurred in
regaining or attempting to regain control of the well. Id. at 560–61.
When Pedeco notified Gotham of the loss, it claimed that it was the owner of
100% of the working interest in the well. Id. Gotham paid Pedeco claims of over
$1.8 million. Id. at 561. Later, Gotham discovered that Pedeco owned 100% of the
equitable interest in the well, but Pedeco had been reimbursed by Warren Resources,
Inc. for the well-control expenses. Id. When Gotham made that discovery, it sued
to recover proceeds that it had paid to Pedeco. Id. There are several appeals
involved in Gotham’s legal battle with Pedeco, but we will confine our consideration
14
to the Gotham IV court’s opinion as to whether Pedeco suffered a loss under the
policy if it did not incur expenses related to the blowout. See id. at 561–62.
The supreme court in Gotham IV noted that Warren Resources reimbursed
Pedeco for the money that was spent to control the well. Id. at 561. However, the
evidence there also showed that, in accordance with an agreement between Warren
Resources and Pedeco, the two companies were to share evenly in “aggregate”
profits and losses at the end of each year. Id. The court of appeals had held in an
earlier appeal that Pedeco had not suffered a loss because Warren Resources had
reimbursed Pedeco for any losses related to the blowout and that Pedeco was not
therefore entitled to be reimbursed by Gotham.8 Id. at 561–62.
The supreme court disagreed. Id. at 562–63. The Gotham IV court noted that,
although there was evidence in the record that Warren Resources paid the expenses
related to the blowout, there was also summary judgment evidence in the record that
Warren Resources and Pedeco had an agreement to share in the aggregate profits
and losses at the end of each year. Id. at 567–68. The court held that the evidence
regarding the end-of-year settling of accounts was sufficient to raise a fact issue as
to whether Pedeco suffered a loss and was therefore entitled to the insurance
proceeds. Id. at 568. That evidence raised a fact issue precluding summary
judgment for Gotham, and the summary judgment could not be supported on the
ground that Pedeco suffered no loss.9 Id.
8
Gotham Ins. Co. v. Petroleum Dev. Corp., 442 S.W.3d 351, 353 (Tex. App.—San Antonio 2003,
pet. denied) (Gotham I); Warren E & P, Inc. v. Gotham Ins. Co., 442 S.W.3d 360, 362 (Tex. App.—San
Antonio 2006, pet. denied) (Gotham II); Warren E & P, Inc. v. Gotham Ins. Co., 368 S.W.3d 633, 634 n.1
(Tex. App.—El Paso 2012) (Gotham III), rev’d, Gotham Ins. Co. v. Warren E & P, Inc., 455 S.W.3d 558
(Tex. 2014) (Gotham IV).
9
Because there were other issues raised by the parties in connection with the summary judgment,
the supreme court remanded the case to the court of appeals for consideration of those other issues.
15
Gotham presented arguments—like those presented by St. Paul Surplus and
St. Paul here—that Pedeco had suffered no loss because it did not actually pay any
expenses that occurred as a result of the blowout. Id. at 567–68. We find the holding
in Gotham IV to be instructive in our consideration of the issues in this appeal.
As in Gotham IV, there is no controversy over the fact that parties other than
Petroplex initially paid for the expenses related to the blowout of the Quinn Well.
Further, there is nothing to contradict Petroplex’s claim that it would be charged
with those expenses when there was a later true-up of accounts between it and
Endeavor. Furthermore, the summary judgment record shows that, after the
reconveyance of the 80% interest from Endeavor to Petroplex, Petroplex owned
100% of the working interest in the Quinn Well, as the trial court found. Therefore,
upon this record, and in the posture in which this case reaches us, under the familiar
standards of review that we have set forth above, we hold that the trial court did not
err when it granted summary judgment to Petroplex on the issue of whether it had
suffered an insured loss under the policies and could recover for such losses.
V. Conclusion
We hold that the trial court did not err when it granted the motions for partial
summary judgment filed by Petroplex. We also hold that the trial court did not err
when it denied the cross-motions for partial summary judgment filed by St. Paul
Surplus and St. Paul. We overrule all of Appellants’ issues.
VI. This Court’s Ruling
We affirm the partial summary judgment orders of the trial court.
August 31, 2015 MIKE WILLSON
Panel consists of: Wright, C.J., JUSTICE
Willson, J., and Bailey, J.
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