Eagle Oil & Gas Company et al v. Travelers Property Casualty Company of America et al

Filing 263

Memorandum Opinion and Order. Based on the forgoing, the Court denies Travelers Motion for Reconsideration of Partial Summary Judgment Rulings on Redrill and P&A. (Ordered by Judge Reed C O'Connor on 7/29/2014) (trt)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
WICHITA FALLS DIVISION

EAGLE OIL & GAS CO. et al.,
Plaintiffs,
v.
TRAVELERS PROPERTY CASUALTY
COMPANY OF AMERICA et al.,
Defendants.

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Civil Action No. 7:12-cv-00133-O

MEMORANDUM OPINION AND ORDER
Before the Court is Travelers’ Motion for Reconsideration of Partial Summary Judgment
Rulings on Redrill and P&A, filed July 18, 2014 (ECF No. 241). Having considered the motion,
response, reply, summary judgment record, prior rulings, and applicable law, Travelers’ motion is
denied.
I.

Relevant Background
The Court assumes the parties’ familiarity with the memorandum opinion and order dated

July 14, 2014 (ECF No. 211), and only sets forth facts and procedural history pertinent to Travelers’
motion. This is an insurance coverage dispute between policyholder plaintiffs and their insurer
under a well-control policy following a September 22, 2011 well blowout in Reeves County, Texas.
The lawsuit arises out of a claim under Control of Well Policy Number VI04200283 (the “policy”)
issued by Travelers Property Casualty Company of America (“Travelers”) to Plaintiff Eagle Oil and
Gas Company (“Eagle Oil”), the operator and a working-interest owner in the Monroe 39 #2H Well

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(the “Well”). Plaintiffs Eagle Wolfbone Energy Partners, LP and Eagle Oil and Gas Partners, LLC
were non-operating working-interest owners in the Well and were additional insureds under the
policy. Among other things, the policy provided protection to the insured against oil well blowouts,
and reimbursement for costs and expenses reasonably incurred by the insured in bringing the well
under control. The policy also contained a due care and diligence clause requiring the insured to
exercise due care and diligence in the conduct of all operations with respect to any insured well and
to use all safety practices and equipment generally considered prudent for such operations.
On September 22, 2011, while Eagle Oil was attempting to open a stuck frac port sleeve by
applying various levels of pressure, a 7-inch piece of casing ruptured downhole in the Well, causing
the top casing joints and wellhead to be ejected into the air, and allowing a flow of gas and well
fluids to the surface that could not be controlled. The parties dispute whether the 7-inch casing
broke apart because Eagle Oil exceeded the maximum allowable casing pressure for this operation.
Wild Well Control was dispatched to the location and, following clean-up and snubbing, Plaintiffs
later plugged and abandoned the Well, and ultimately redrilled the Monroe 39 #2R replacement well.
Plaintiffs incurred costs and expenses: (1) in attempting to regain control of the Well, including
plugging and abandonment (“P&A”) costs; (2) in redrilling a replacement well; (3) in cleaning up
pollution resulting from the blowout; and (4) in regard to oil field equipment owned by others that
was damaged.

Plaintiffs gave proper notice and submitted their losses to Travelers for

reimbursement under the policy.
On July 5, 2012, Travelers denied coverage stating, among other things, that Eagle Oil’s
engineering decision to exceed maximum safe fracturing pressure violated the due care and diligence
clause in the policy. Following coverage denial, Plaintiffs sued Travelers for: (1) breach of contract
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for denial of claim coverage under the policy, (2) breach of the common law duty of good faith and
fair dealing, (3) violations of sections 541 and 542 of the Texas Insurance Code, and (4) violations
of section 17.46(b) of the Texas Deceptive Trade Practices Act (“DTPA”) and resultant penalties.
See Pl. Third Am. Compl. ¶¶ 29(a) - 31(b), ECF No. 68.
On April 14, 2014, Plaintiffs and Travelers each filed a motion for partial summary
judgment. Among other things, Plaintiffs sought summary judgment on their breach of contract
claims arising from Travelers’ denial of coverage for P&A costs and costs to redrill the Monroe 39
#2R replacement well.1 Travelers sought partial summary judgment as to Plaintiffs’ extracontractual claims, and also filed a cross-motion for summary judgment on the redrill claims. On
July 14, 2014, the Court granted Plaintiffs’ motion for partial summary judgment on the breach of
contract claims based on Travelers’ denial of coverage for costs of P&A and redrill, denied
Travelers’ cross-motion for summary judgment on the redrill claim, and granted Travelers’ motion
for partial summary judgment on Plaintiffs’ extra-contractual claims.2 See Mem. Op., ECF No. 211.3

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Plaintiffs also sought a summary judgment ruling that the due care and diligence clause was not a
condition precedent to coverage (as Travelers asserted), but a covenant made to Travelers to act in a certain
manner while conducting well-related activities. Plaintiffs further argued that compliance with that covenant
was enforced by the policy’s Common Condition 5.c, which excludes coverage for breach of the due care
and diligence clause. The Court agreed with Plaintiffs and held that Travelers would have the burden of
proving that Plaintiffs failed to exercise due care and diligence. The Court rejected Plaintiffs’ motion,
however, insofar as Plaintiffs sought to incorporate a “gross negligence” standard, extrinsic to the contract,
to define the standard of care by which due diligence should be measured. These rulings have not been
challenged.
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The Court dismissed with prejudice Plaintiffs’ causes of action for breach of the common law duty
of good faith and fair dealing, violations of section 541 of the Texas Insurance Code, and violations of
section 17.46(b) of the Texas Deceptive Trade Practices Act, and request for punitive damages. This ruling
has not been challenged.
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The Court also granted Plaintiffs’ summary judgment motion with regard to certain affirmative
defenses, and dismissed other affirmative defenses as moot or because Travelers had agreed to withdraw
them. These rulings have not been challenged.

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Travelers has filed a motion for reconsideration arguing that the policy does not cover
Plaintiffs’ P&A and redrill claims. The motion has been fully briefed and is ripe for determination.
II.

Legal Standard
A request that the Court reconsider an interlocutory order is governed by Rule 54(b) of the

Federal Rules of Civil Procedure. Fed. R. Civ. P. 54(b). “Although the precise standard for
evaluating a motion to reconsider under Rule 54(b) is unclear, whether to grant such a motion rests
within the discretion of the court.” Dos Santos v. Bell Helicopter Textron, Inc. District, 651 F.
Supp. 2d 550, 553 (N.D. Tex. 2009 ) (Means, J.). Such a motion requires the Court to determine
“whether reconsideration is necessary under the circumstances.” Rotella v. Mid-Continent Casualty
Co., 2010 WL 1330449, at *5 (N.D. Tex. Apr. 5, 2010) (Fish, J.) (quoting Judicial Watch v.
Department of the Army, 466 F. Supp. 2d 112, 123 (D.D.C. 2006) (citation and internal quotation
marks omitted)). “Even though the standard for evaluating a motion to reconsider under Rule 54(b)
‘would appear to be less exacting than that imposed by Rules 59 and 60 . . ., considerations similar
to those under Rules 59 and 60 inform the Court’s analysis.’” Id. (quoting Dos Santos, 651 F. Supp.
2d at 553). It is clear under Rules 59 and 60 that “[m]otions for reconsideration have a narrow
purpose and are only appropriate to allow a party to correct a manifest error of law or fact or to
present newly discovered evidence.” Arrista v. Yellow Transportation, Inc., 2009 WL 129731, at
*1 (N.D. Tex. Jan. 20, 2009) (Fitzwater, C.J.) (citation and internal quotation marks omitted); see
also Templet v. HydroChem Inc., 367 F.3d 473, 478-79 (5th Cir. 2004) (citation omitted) (under
Rule 59(e), relief may be granted “to correct manifest errors of law or fact or to present newly
discovered evidence[]” and Rule 59(e) “is not the proper vehicle for rehashing evidence, legal
theories, or arguments that could have been offered or raised before the entry of judgment.”).
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III.

Discussion
Travelers has filed a motion for reconsideration arguing that the policy does not cover

Plaintiffs’ P&A and redrill claims. Plaintiffs oppose the motion. The Court first addresses the P&A
claims.
A.

P&A Claims

Travelers moves the Court to reconsider its decision granting Plaintiffs’ motion for partial
summary judgment on their breach of contract claim based on Travelers’ denial of coverage for P&A
costs. The relevant portion of the policy provides as follows:
SECTION IA – CONTROL OF WELL INSURANCE
1.

COVERAGE
The Company agrees, subject to the Combined Single Limit of Insurance
shown in Item 7.A. of the DECLARATIONS, and other terms and conditions
of this Policy, to reimburse the Insured for actual costs and expenses
reasonably incurred by the Insured:
a.

To regain or attempt to regain control of any “well insured”
which becomes a Well Out Of Control as defined in
Paragraph 2.a. below, including any other “well” that
becomes a Well Out Of Control as a direct result of a “well
insured” becoming a Well Out Of Control, but only such costs
or expenses that are incurred until the “well” becomes a Well
Brought Under Control as defined in Paragraph 2.b. below[].
..
***

2.

DEFINITIONS
a.

Well Out Of Control

For purposes of this Policy, a “well” will be deemed to be a Well Out
Of Control only when there is an unintended flow of drilling fluid,
oil, gas or water above the surface of the ground, or water bottom in
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case of a “well” located in water, which cannot be controlled by the
blowout preventer, storm choke, “wellhead equipment” or other
equipment [required in the policy], or when declared by the
appropriate United States, Canada or other governmental regulatory
authority.
***
b.

Well Brought Under Control

For the purposes of this Policy, a “well” deemed to be a Well Out Of Control
in accordance with Paragraph 2.a. above will be deemed to be a Well Brought
Under Control at the time that the flow giving rise to a claim under this
SECTION IA stops, or is stopped and:
(1) The drilling, deepening or “workover”, or other similar operation
taking place in the “well” immediately prior to the “occurrence”
giving rise to such claim is resumed, or can be resumed;
(2) The “well” is or can be returned to the same producing, shut-in or
other similar status that existed immediately prior to the “occurrence”
giving rise to such claim; or
(3) When the “well” is permanently plugged and abandoned in
accordance with procedures approved by the appropriate United
States, Canada or other governmental regulatory authority;
whichever comes first[.]
c.

Costs or Expenses

Costs or expenses covered under this Policy includes costs of
materials and supplies required, the services of individuals or firms
specializing in controlling “wells” and directional drilling and
similar operations necessary to bring the Well Out Of Control under
control including costs and expenses incurred at the direction of
regulatory authorities to bring the Well Out Of Control under control,
and other expenses included within Paragraph 1, of this Section 1A.
Policy Section IA.1(a) & IA.2(a)-2(c) (emphasis added). Much of the parties’ dispute centers on this
final subsection, Costs or Expenses.

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In opposing Plaintiffs’ motion for summary judgment on the P&A claim, Travelers initially
argued:
To recover well-control costs under Section IA of the policy, Plaintiffs must establish
(1) that the well went out of control, per policy definition, requiring “unintended flow
[] above the surface of the ground, [] which cannot be controlled by the blowout
preventer [] or other equipment,” (2) that they incurred actual costs and expenses to
control the well before the well was “brought under control” as defined by the policy,
and (3) that the costs and expenses were both “reasonably incurred” and “necessary
to bring the well [] under control.”
ECF No. 132, at 19-20. Applying Texas law regarding insurance policy construction, the Court
rejected Travelers’ argument that coverage of P&A costs and expenses was only triggered if the
insured could prove costs and expenses were “necessary to bring the well under control.” Mem. Op.
at 25, ECF No. 11. The Court agreed, however, that fact issues rendered summary judgment
inappropriate on the question of whether Plaintiffs had demonstrated that costs and expenses for
P&A were “reasonably incurred.” See id. at 27. The Court arrived at its ruling based on a plain
reading of the policy language:
Unlike Section IA, subsection 1, Coverage, where “reasonably incurred,”
directly modifies reimbursable “costs and expenses,” the clause “necessary to bring
the Well Out of Control under control” is in a separate subsection of the policy,
which provides a non-exclusive list of costs allowable. See Policy, Section IA,
subsection 2.c, Definitions. Further, the clause “necessary to bring the Well Out of
Control under control” modifies the word “operations,” and not costs and expenses.
In short, based on a reading of the plain language of the policy, the Court concludes
that nothing in Section IA expressly states or implies that costs shall only be
reimbursed if the insured can prove the costs were “necessary to bring the well under
control[.]”
In its motion to reconsider, Travelers argues that the definition of costs and expenses should
be interpreted as requiring that for a cost to be covered, “it must be for an operation necessary to

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bring the well under control.” Brief in Supp. of Mot. to Reconsider at 12, ECF No. 242.
Specifically, Travelers states:
Paragraph 2.c under the “Definitions” section describes the covered
costs and expenses for controlling a well as “costs of materials and
supplies required,[] and [] operations necessary to bring the Well Out
of Control under control.
Id. (Travelers’ emphasis). In response, Plaintiffs first note that Travelers “presents no new evidence
that would cause the Court to rethink its plain reading of the policy.” Pl. Response Brief at 12-13,
ECF No. 252. Plaintiffs further argue that:
This Policy covers the cost of a firm’s services, such as Wild Well Control, in
controlling wells; those services include directional drilling and similar operations
necessary to bring the well under control. These costs are only limited by the “actual
costs and expenses reasonably incurred” language of Section IA, 1, Coverage. Any
contrary reading ignores the plain language of the Policy.
Id. at 13. The Court agrees.
It is a basic rule of grammar that”modifiers should come, if possible, next to the words they
modify.” William Strunk, Jr., & E.B. White, The Elements of Style 30 (4th ed. 2000). Here, as the
Court previously noted, the correct grammatical reading is that “necessary” modifies the phrase
immediately preceding it. Travelers omits a crucial portion of the phrase immediately preceding
“necessary,” namely, “the services of individuals or firms specializing in controlling ‘wells’ and
directional drilling and similar operations necessary to bring the Well Out Of Control under
control[.]” “Necessary,” when read in relation to what it modifies, is a descriptor of the type of
services that firms specializing in well control provide, not a requirement for P&A coverage.
Further, that subsection 2.c, Definitions, is a non-exhaustive list describing the type of costs
and expenses covered under the policy, and not a coverage grant or limitation on coverage, is

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supported by the definition of “include” in Black’s Law Dictionary: “To contain as part of
something. The participle including typically indicates a partial list[.]” See Black’s Law Dictionary
880 (10th ed. 2014); see also Merriam-Webster’s Collegiate Dictionary 629-30 (11th ed. 2014)
(“‘Include’ suggests the containment of something as a constituent, component, or subordinate part
of a larger whole[.]”). Travelers’ interpretation is also inconsistent with the catch-all provision at
the end of subsection 2.c, which provides that “costs or expenses include” “other expenses included
within Paragraph 1 of this Section 1A.”
In sum, based on a plain reading of the policy language, and applying general rules of
grammar, the Court denies Travelers’ motion to reconsider the Court’s prior ruling granting
summary judgment in Plaintiffs’ favor on its breach of contract claim based on Travelers’ denial of
coverage on P&A costs.4
B.

Redrill Claims

Travelers also moves the Court to reconsider its ruling on the parties’ cross-motions for
summary judgment on redrill coverage, where the Court granted Plaintiffs’ motion and denied
Travelers’ motion. Plaintiffs oppose the motion for reconsideration on redrill coverage. The
relevant portion of the policy provides as follows:
SECTION IB – REDRILL/EXTRA EXPENSE
1.

COVERAGE
The Company agrees, subject to the Combined Single Limit of Insurance
shown in Item 7.A. of the DECLARATIONS, and other terms and conditions
of this Policy, to reimburse the Insured for actual costs and expenses

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The Court notes that it also found that whether the P&A costs were reasonably incurred was a fact
issue for the jury, as the Court had insufficient evidence in the summary judgment record to determine
reasonableness. This ruling has not been challenged. See Mem. Op. at 27, ECF No. 211.

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reasonably incurred by the Insured to restore or redrill a “well”, or any part
of such “well”, which has been lost or otherwise damaged as a result of a
“crater” or other “occurrence” that gives rise to a claim which would be
recoverable under SECTION IA of this Policy….
Policy Section IB.1(emphasis added). Much of the parties’ dispute concerns the meaning of
“occurrence,” which the policy defines as follows:
“Occurrence” means one accident, loss, disaster or casualty or series of accidents, losses,
disasters or casualties arising out of one event.
a.

With respect to windstorms, all tornadoes, cyclones, hurricanes, similar storms and
systems of winds of a violent or destructive nature arising out of the same
atmospheric disturbance occurring within any period of 72 consecutive hours will be
deemed to be one event.

b.

With respect to earthquake shocks or volcanic eruptions, all earthquake shocks or
volcanic eruptions occurring within any period of 72 consecutive hours will be
deemed to be one event.

Policy, Section I, Definitions.
In support of its motion for reconsideration, Travelers once again argues that the
“occurrence” under the policy is the well out of control, not the casing failure, that the policy is a
named-perils policy, and that the Court’s interpretation of the policy contravenes “industry”
interpretation of well control policy coverage. See Brief in Supp. of Mot. to Reconsider at 1-11, ECF
No. 242. In opposition, Plaintiffs argue that “Travelers’ motion does not add any new evidence and
simply rehashes arguments it made or could have made in its three previous filings on this issue.”
Pl. Resp. Brief at 5, ECF No. 252. The Court agrees.
In initial summary judgment briefing, Plaintiffs argued that Section IB covers costs of
redrilling a well lost or damaged as a result of an “occurrence” leading up to the uncontrolled flow.
Plaintiffs further argued that the “occurrence” in this case is the failure of the 7-inch casing in the

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Well, which ultimately caused the loss of the Well. In support of its cross-motion for summary
judgment on redrill coverage, Travelers argued it was entitled to summary judgment because redrill
coverage does not apply unless the well was lost or damaged as a result of unintended and
uncontrolled flow. In denying Travelers’ cross-motion for summary judgment on redrill coverage,
the Court concluded:
Based on a plain reading of the policy language, the Court rejects Travelers’
argument that the policy only pays to redrill a well lost or damaged as a result of
uncontrolled flow, rather than lost due to pressure operations. The policy clearly
covers costs or expenses to redrill a well which has been lost as a result of an
“occurrence” (defined as an accident, loss, disaster or casualty, or series of such
arising out of one event, including but not limited to windstorms, tornados, and
earthquakes) that gives rise to a claim that would be recoverable under Section IA.
In this case, the “occurrence” is the casing failure. Travelers’ interpretation skips
over the word “occurrence,” or interprets “well out of control” as synonymous with
“occurrence,” even though each is already a defined term. Additionally, the case law
upon which Travelers relies is not persuasive, as the cases contain different redrill
coverages than Section IB of Travelers’ policy and do not include a broad definition
of “occurrence.”
Mem. Op. at 29, ECF No.211.
Having carefully considered Travelers’ motion to reconsider and the cases and authorities
upon which it relies, the Court concludes that reconsideration of its ruling on redrill coverage is not
warranted. Travelers has not shown a manifest error or presented newly discovered evidence
supporting its interpretation of the policy’s relevant terms.

Travelers’ brief supporting

reconsideration is replete with arguments previously made in its earlier opposition to Plaintiffs’
motion for partial summary judgment, and in support of its own cross-motion for summary
judgment. The Court already decided this issue in its July 14, 2014 memorandum opinion and order
where it carefully considered the parties’ respective arguments and the extensive record presented
on summary judgment, as well as applicable law. The Court set forth its reasoning in its
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memorandum opinion and order, and the Court is satisfied that it correctly denied Travelers’ crossmotion for summary judgment on Plaintiffs’ redrill claims. No argument advanced by Travelers in
its motion to reconsider persuades the Court that its prior decision is incorrect. In addition, a review
of the Court’s reasoning in its memorandum opinion and order shows the Court did not commit a
manifest error of law in rejecting Travelers’ position, but applied well-established rules governing
construction of insurance contracts.
Accordingly, the Court denies Travelers’ motion to reconsider the Court’s ruling on redrill
coverage.
IV.

Conclusion
Based on the forgoing, the Court denies Travelers’ Motion for Reconsideration of Partial

Summary Judgment Rulings on Redrill and P&A.
SO ORDERED this 29th day of July, 2014.

_____________________________________
Reed O’Connor
UNITED STATES DISTRICT JUDGE

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