Bernal v. TK Stanley Inc
Filing
111
ORDER granting 96 Motion for Summary Judgment; denying 97 Motion for Summary Judgment, as more fully set out. Signed by Honorable David L. Russell on 10/16/14. (jw)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF OKLAHOMA
ERACLIO BERNAL,
Plaintiff,
v.
TK STANLEY, INC., et al.,
Defendant.
TK STANLEY, INC.,
Plaintiff,
v.
CHAPARRAL ENERGY, LLC.,
Defendant/Third-party
Plaintiff,
v.
FEDERAL INSURANCE
COMPANY,
Third-party Defendant.
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Case No. CIV-12-392-R
ORDER
This matter is before the Court on cross-motions for summary judgment, filed by
Defendant and third-party Plaintiff, Chaparral Energy, L.L.C. ("Chaparral"), and third-party
Defendant Federal Insurance Company ("Federal"). Each motion drew a response in
opposition and the parties filed replies in support of their respective positions. Having
considered the parties' filings, the Court finds as follows.
Chaparral filed a third-party complaint against Federal asserting breach of contract
as a result of Federal's refusal to defend Chaparral in the portion of this action filed by T.K.
Stanley, wherein T.K. Stanley alleged it was entitled to a defense and indemnity from
Chaparral with regard to injuries sustained by Eraclio Bernal, an employee of T.K. Stanley's
subcontractor, Precision Drilling. There is no dispute that Federal had issued a CGL policy
and an Umbrella policy to Chaparral Energy, LLC. Federal contends, however, it was not
obligated to defend Chaparral because the allegations in the underlying complaint combined
with information obtained by Federal with regard to T.K. Stanley's allegations, indicated
there was no coverage or potential coverage for T.K. Stanley's claims. The facts of this case
are largely undisputed and will be discussed herein.
Under Oklahoma law, an insurance company has a duty to defend its insured when
it ascertains facts giving rise to the potential for liability under the policy. First Bank of
Turley v. Fidelity and Deposit Insurance Company of Maryland, 928 P.2d 298, 303 (Okla.
1996)(emphasis added). The duty to defend is broader than, the duty to indemnify, but
nevertheless, an insurer's obligation is not unlimited. Id. The duty to defend is measured by
the types of risks covered by the policy as well as by the reasonable expectations of the
insured. Id. "The insurer's defense duty is determined on the basis of information gleaned
from the petition (and other pleadings), from the insured and from other sources available to
the insurer at the time the defense is demanded (or tendered) rather than by the outcome of
the third-party action." Id. at 303–04.
Generally,
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[I]t does not matter that additional claims are alleged that fall outside the
policy's general coverage or within its exclusionary provisions. If the claims
asserted against the insured could rationally be said to fall within the coverage
of the policy, whatever may later prove to be the limits of the insurer's
responsibility to pay, the insurer has a duty to defend.
Appleman, Insurance Law and Practice § 100.3 (2d ed.1996). Additionally, the insurer's
obligation is considered from the perspective of facts it knew at the time the insured
requested a defense, not from later-acquired facts, such as this Court's decision to grant
summary judgment to Chaparral in the action by T.K. Stanley. See Turley, 928 P.2d at 314,
n. 19. Finally, the insured bears the burden of proving that a loss triggers coverage under an
insurance policy. Pittman v. Blue Cross & Blue Shield of Okla., 217 F.3d 1291, 1298 (10th
Cir.2000).
On May 13, 2013, T.K. Stanley filed its Complaint against Chaparral, which included
the following allegations:
At the time of the accident giving rise to Eraclio Bernal's injuries, TKS was
working for Chaparral.
TKS worked for Chaparral per the terms of the Master Services Agreement
("MSA") drafted by Chaparral.
TKS provided rig moving services to Chaparral, including at the subject well
site, and sent invoices to Chaparral for such work. Chaparral paid TKS the
amounts reflected by such invoices.
The terms of the MSA require Chaparral to defend and indemnify TKS from
the claims of Precision Drilling Company, L.P.'s employee, Eraclio Bernal.
Chaparral drafted the MSA, which is the only agreement between TKS and
Chaparral, and thus the terms of the agreement must be construed against
Chaparral.
TKS accepted the terms of the MSA through performing services. Chaparral
paid TKS for its services without objecting to any lack of agreement.
As a result of Chaparral's breach of the MSA, TKS has incurred damages . . .
.
3
Complaint filed by T.K. Stanley, ¶¶ 8, 10, 11, 12, 15, 16. In that portion of this litigation,
Chaparral denied the existence of an Master Services Agreement and argued it was not
required to defend or indemnify T.K. Stanley. T.K. Stanley argued in return that it first
started work on behalf of Chaparral in 2006, and that in conjunction therewith, it was
provided a Master Services Agreement, which it executed, although it was unable to provide
a copy thereof. There was also a Master Services Agreement sent by Chaparral to T.K.
Stanley in March 2007, which T.K. Stanley redlined and returned, however, the agreement
was never signed by either party. Throughout this time, and until Mr. Bernal's injuries, T.K.
Stanley continued to work for Chaparral and Chaparral paid T.K. Stanley for the work it
completed. T.K. Stanley argued that Chaparral's repeated contracting with T.K. Stanley
resulted in ratification of the Master Services Agreement, which the Court construed as an
argument that the contract was accepted by T.K. Stanley's performance through the years,
as alleged in paragraph 16 of the Complaint.
The question presented at this juncture is whether, in light of the terms of the Policy
and the facts known to Federal when the defense was requested and denied, was there the
potential of a covered claim. If so, Federal owed Chaparral a duty to defend against T.K.
Stanley's allegations. The provisions of the policy at issue include the following:
Subject to all of the terms and conditions of this insurance, we will pay
damages that the insured becomes legally obligated to pay by reason of
liability:
imposed by law; or
assumed in an insured contract;
for bodily injury or property damage caused by an occurrence to which this
coverage applies.
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Policy, p. 3.
Subject to all of the terms and conditions of this insurance, we will have the
right and duty to defend the insured against a suit, even if such suit is false,
fraudulent or groundless.
***
We have no duty to defend any person or organization against any suit seeking
damages to which this insurance does not apply.
Policy, p. 4.
This insurance does not apply to bodily injury or property damage for which
the insured is obligated to pay damages by reason of assumption of liability
in a contract or agreement.
This exclusion does not apply to the liability for damages:
•
that such insured would have in the absence of such contract or
agreement; or
•
assumed in an oral or written contract or agreement that is an
insured contract, provided the bodily injury or property
damage, to which this insurance applies, occurs after the
execution of such contract or agreement.
Policy, p. 10. "Insured Contract " means
6. any other contract or agreement pertaining to your business . . . in which
you assume the tort liability of another person or organization to pay damages,
to which this insurance applies, sustained by a third person or organization.
Policy, p. 24.
In denying the request for defense, on July 15, 2013, Federal stated:
You have provided Federal with a copy of the relevant Master Services
Agreement between Chaparral and TKS and confirmed with us that Chaparral
never entered into the MSA with TKS until after the accident occurred.
***
Under the primary commercial general liability policy, it is Federal's position
that while the insuring agreement is potentially triggered given that TKS seeks
to hold Chaparral liable for the bodily injury of Bernal it claims Chaparral
assumed in a insured contract, the Contracts exclusion precludes any
possibility of coverage. This exclusion precludes coverage for bodily
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injury an insured assumes in an insured contract unless the insured's liability
falls within either of two exceptions. Under the first exception, if an insured
would be liable for damages in the absence of the contract, the exclusion does
not apply. Since TKS's sole claim is for breach of contract under the
indemnity provision of the subject MSA and no other theories of recovery are
sought in the Complaint, this exception does not apply. The second exception
to the exclusion would apply if the damages are assumed by an insured in an
insured contract provided the bodily injury occurs after the execution of the
contract. Because TKS did not execute the contract until, at the earliest,
March 22, 2011, and the injury occurred February 15, 2011, the second
exception to the Contract exclusion would not apply. It is important to note
that Section 19.0 of the MSAA signifies that the contract will be considered
executed upon the date shown by the parties' signatures. It does not appear
that Chaparral ever executed the contract but that TKS executed the contract
after the injury occurred.
Motion for Summary Judgment, Attachment B.1
The Court concludes, as argued by Chaparral, that Federal's interpretation of its own
policy provisions was too narrow. The Court acknowledges the Contracts exclusion, and
concurs with Defendant that the only potential avoidance of the exclusion is via the exception
thereto. However, the exception to the exclusion for a contractual agreement to indemnify
did not require that the insured contract be in writing. Rather, the exclusion expressly
provided that it could be either a contract or agreement, written or oral. Indeed, T.K. Stanley
argued in support of its request for indemnification from Chaparral that the Master Services
Agreement had been incorporated into the parties' relationship by virtue of Chaparral's
decision to utilize T.K. Stanley's services on multiple occasions after 2006. Accordingly, the
1
The initial communication from Federal to Chaparral regarding the claim was via letter dated May 31, 2013,
wherein Federal indicated receipt of the claim and the existence of "significant coverage issues." Chaparral Motion for
Summary Judgment, Attachment 2A. It declined to defend during the pendency of its investigation. Id. On August 26,
2013, coverage counsel sent Chaparral a letter denying a defense for similar reasons, as did a September 11, 2013 letter.
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Court concludes that the absence of allegations or facts regarding a written contract signed
by both T.K. Stanley and Chaparral was not dispositive of Federal's duty to defend Chaparral
at the time the defense was requested.2
Furthermore, Oklahoma law does not mandate contract formation be in any particular
manner, which is suggested by T.K. Stanley's allegations against Chaparral thatChaparral
agreed to indemnify T.K. Stanley by virtue of the series of jobs completed by T.K. Stanley
for Chaparral after the 2006 initiation of their relationship. T.K. Stanley offered more than
a single theory of recovery as to how the Master Services Agreement came to be effective
prior to the February 11, 2011 accident. Because, as noted above, the duty to defend is
broader than the duty to indemnify, the Court finds that the allegations in the petition filed
by TKS against Chaparral were sufficient to give rise to the potential for a covered claim, so
as to create a duty to defend in this action. "[T]he initial burden to request a defense is on
the insured, once that request is receive the insurer bears the burden of investigating the
underlying facts and determining whether they trigger coverage. The duty to defend is
triggered by the facts reasonably available at the time the defense is demanded, not by the
outcome of the lawsuit." Automax Hyundai South, L.L.C. v. Zurich American Ins. Co., 720
F.3d 798, 804 (10th Cir. 2013)(internal citations omitted)(citing Turley, 928 P.2d at 303305).
2
In support of its motion for summary judgment Federal argues the Court should utilize the Oklahoma statutory
definition of executed as set forth in Okla. Stat. tit.15 § 177, which provides that "[a]n executed contract is one, the
object of which is fully performed. All others are executory." Federal argues that unless in writing, a contract is only
executed if fully performed. The Policy, however, does not reference any statute for a definition of execution, nor does
it provide a definition. The Court therefore, will not assume that term execution in the Policy is limited to the Oklahoma
statutory definition.
7
It appears from the Court's review of the evidence, that Federal determined the only
contractual basis upon which T.K. Stanley sought to recover from Chaparral was via a
written Master Services Agreement. As noted, however, this argument ignores the language
of the policy and of T.K. Stanley's allegations, which were that Chaparral and it had either
a written Master Services Agreement, or an oral contract or a contract accepted by
performance. The Court hereby rejects Federal's contention that absent a signed agreement
pre-dating Plaintiff Bernal's injuries, it could not have been required to defend Chaparral
under the Policy.
Finally, although the Policy limited Federal's obligation to defend, excepting suits
"seeking damages to which Federal's insurance does not apply[,]" it undertook the obligation
to defend Chaparral against false or groundless claims, which the Court concludes included
the claims pressed against Chaparral by T.K. Stanley. "[A]n insurer is not obligated to
defend a groundless suit when it would not be liable under the policy for any recovery that
could possibly be obtained therein." Maryland Cas. Co. v. Willsey, 380 P.2d 254, 258 (Okla.
1963). "If there is any doubt as to the matter, it must be resolved in favor of the insured."
Id. The Court finds that Federal could not as a matter of law determine based on the facts
it knew at the time the defense was requested that it could not possibly be liable for any
recovery T.K. Stanley might be able to achieve against Chaparral.
Accordingly, for the reasons set forth herein, the Court finds that Chaparral is entitled
to summary judgment in its favor against Federal and its motion is therefore GRANTED
(Doc. No. 96), and correspondingly, Federal's motion for summary judgment (Doc. No. 97)
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is denied. The parties are hereby ordered to inform the Court within five days regarding how
they intend to proceed with the issue of whether the defense costs incurred by Chaparral were
reasonable and any remaining issues regarding damages.
IT IS SO ORDERED this 16th day of October, 2014.
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