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Arcadia Gas Storage, LLC v. Underwriters at Lloyds of London

United States District Court, W.D. Louisiana, Lafayette Division

March 11, 2019




         Pending before the court is the motion to dismiss for failure to state a claim, which was filed on behalf of the defendants, Underwriters at Lloyds of London Syndicates 2987, 3000, 1274, 780, 1221, 1200, and 2121. (Rec. Doc. 7). The motion is opposed. The motion was referred to the undersigned for review, report, and recommendation in accordance with the provisions of 28 U.S.C. § 636 and the standing orders of this Court. Oral argument was held on February 21, 2019. Considering the evidence, the law, and the arguments of the parties, and for the reasons fully explained below, this Court recommends that the motion to dismiss be DENIED.


         This lawsuit is about insurance coverage. The plaintiff, Arcadia Gas Storage, LLC, sued to enforce the contractual obligations allegedly undertaken by the defendants, certain Underwriters at Lloyds of London, under Policy No. NG01119A18, which covered the time period from May 1, 2018 to May 1, 2019.

         The policy is an Operators Extra Expense (“OEE”) Policy, which includes a specific coverage part, designated as “Section 1A, ” affording “Control of Well Insurance.”[1]The following factual summary is based on the allegations set forth in the plaintiff's complaint. For purposes of the pending motion, these facts are assumed to be true.

         The plaintiff owned and operated the Arcadia Storage Facility-GHI Well located in Louisiana. In April 2018, logs performed on the well indicated that the bottom portion of the de-watering string had broken off. In late May, it was decided that a snubbing operation would be undertaken to add new joints of 8 5/8” casing and restore the depth of the de-watering string. This project began on June 1. On June 22, a tight spot was encountered while snubbing the new casing into the hole. The next day, while attempting to work the de-watering string past the obstruction, the snubbing crew started equalizing pressure between blowout preventer (“BOP”) No. 1 and BOP No. 2. Gas began to blow and escape from the top of the casing joint and the access window within the snubbing stack, allowing gas to escape to the surface. The snubbing crew immediately evacuated the snubbing unit. The crew then activated the lower and upper pipe rams (BOP No. 7 and BOP No. 3, respectively), which did not stop the flow. The crew then activated the blind/shear rams (BOP No. 4), which eventually stopped the escape of gas from the well.

         This incident allegedly resulted in damage to the surface equipment and the collapse of the casing string, as well as damage to pipes and other well components. Arcadia submitted a proof of loss to the Underwriters in July 2018 in the amount of $471, 032, submitted a supplemental proof of loss in September in the amount of $3, 218, 131, and submitted a second supplemental proof of loss in the amount of $625, 752 in October, for a total of more than $4 million in losses and expenses that Arcadia claims is covered by the policy. In November 2018, the Underwriters denied coverage, taking the position that the incident did not meet the policy's definition of a “Well Out of Control.” Arcadia filed suit against the Underwriters, seeking to enforce the insurance contract and to recover damages and statutory penalties. In response, the Underwriters filed the instant motion to dismiss, contending that the plaintiff has not stated a claim upon which relief can be granted.

         The Contentions of the Parties

         In support of their motion to dismiss, the defendants argued that the subject well was never “out of control” and, consequently, coverage under the relevant insurance policy was never triggered. The plaintiff contends, to the contrary, that the allegations of the complaint are sufficient to state a cause of action for coverage under the relevant insurance policy.

         Law and Analysis

         A. The Applicable Standard

         A motion to dismiss for failure to state a claim under Fed.R.Civ.P. 12(b)(6) is properly granted when a defendant attacks the complaint because it fails to state a legally cognizable claim.[2] When considering such a motion, a district court must limit itself to the contents of the pleadings, including any attachments thereto, [3]accept all well-pleaded facts as true, and view the facts in a light most favorable to the plaintiff.[4] However, conclusory allegations and unwarranted deductions of fact are not accepted as true, [5] and courts “are not bound to accept as true a legal conclusion couched as a factual allegation.”[6]

         To survive a Rule 12(b)(6) motion, the plaintiff must plead “enough facts to state a claim to relief that is plausible on its face.”[7] The allegations must be sufficient “to raise a right to relief above the speculative level, ”[8] and “the pleading must contain something more. . . than. . . a statement of facts that merely creates a suspicion [of] a legally cognizable right of action.”[9] “While a complaint. . . does not need detailed factual allegations, a plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.”[10] If the plaintiff fails to allege facts sufficient to “nudge[ ][his] claims across the line from conceivable to plausible, [his] complaint must be dismissed.”[11]

         A claim meets the test for facial plausibility “when the plaintiff pleads the factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”[12] “[D]etermining whether a complaint states a plausible claim for relief. . . [is] a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.”[13]

         Therefore, “[t]he complaint (1) on its face (2) must contain enough factual matter (taken as true) (3) to raise a reasonable hope or expectation (4) that discovery will reveal relevant evidence of each element of a claim.”[14]

         B. The Insurance Policy

         The insurance policy, a copy of which was attached to the plaintiff's complaint, states that the Underwriters will “reimburse the insured for actual costs and/or expenses incurred by the insured. . . in regaining control of all well(s) insured hereunder which get out of control. . . [and] for removal of wreckage and/or debris of property” resulting from an insured loss.[15] The policy defines the term “Well Out of Control” as follows:

A well(s) shall be deemed to be out of control when there is a continuous unintended, uncontrolled flow of drilling fluid, oil, gas and/or water from the well, above or below the surface of the earth and/or water bottom or when it is declared to be out of control by the appropriate regulatory authority.[16]

         The policy does not define the terms “continuous, ” “unintended, ” or “uncontrolled.”

         C. The Applicable Law

         A federal court sitting in diversity must apply state substantive law and federal procedural law.[17] Because this is a diversity case, Louisiana's substantive law must be applied.[18] The insurance policy states that it “shall be governed by and construed in accordance with” the laws of Texas.[19] Under Louisiana law, a contractual choice-of-law provision is generally presumed to be valid and enforceable.[20] Furthermore, the parties agree that there are no substantive differences between Louisiana and Texas law with regard to the ...

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