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Admiral Insurance Co. v. Zadeck Energy Group Inc.

United States District Court, W.D. Louisiana, Lake Charles Division

August 16, 2019





         Before the Court is "Admiral Insurance Company's Motion for Summary Judgment" (Doc. #31) wherein Admiral Insurance Company ("Admiral") maintains that the policies it issued to Zadeck Energy Group, Inc. ("Zadeck") do not provide coverage for the claims brought against Zadeck in the underlying suit, The Parish of Cameron v. Apache Corp. (of Delaware), et al., Civ. Action No. 18-cv-688. Admiral requests that this Court render judgment as prayed for in its Complaint for Declaratory Judgment pursuant to 28 U.S.C. § 2201 and declare that Admiral has no defense or indemnity obligations to Zadeck. For the reasons that follow, the motion will be granted.


         On or about May 7, 1996, Zadeck began operating well serial number 218362 (hereinafter referred to as "Well 1") located in Cameron Parish. Zadeck ceased operating Well 1 on or about June 1, 1998, and Iberia Operating Company ("Iberia") began operating Well 1. Admiral issued and re-issued commercial General Liability policies to Zadeck each year covering the collective period from March 13, 2004, until March 13, 2012. Admiral did not issue any insurance policies to Zadeck in 1996, 1997, or 1998.

         Zadeck is a named defendant in The Parish of Cameron v. Apache Corp. (of Delaware, et al lawsuit. The suit was removed to the United States District Court, Western District of Louisiana. Zadeck tendered a demand for defense and indemnity to Admiral; Admiral agreed to participate in the defense, subject to a full reservation of rights. This action seeks a declaration of the rights and responsibilities of Admiral under the Admiral Policies with respect to Zadeck's request for defense and indemnity in the underlying lawsuit.[1]


         A court should grant a motion for summary judgment when the movant shows "that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." FED. R. Civ. P. 56. The party moving for summary judgment is initially responsible for identifying portions of pleadings and discovery that show the lack of a genuine issue of material fact. Tubacex, Inc. v. M/VRisan, 45 F.3d 951, 954 (5th Cir. 1995). The court must deny the motion for summary judgment if the movant fails to meet this burden. Id.

         If the movant makes this showing, however, the burden then shifts to the non-moving party to "set forth specific facts showing that there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986) (quotations omitted). This requires more than mere allegations or denials of the adverse party's pleadings. Instead, the nonmovant must submit "significant probative evidence" in support of his claim. State Farm Life Ins. Co. v. Gutterman, 896 F.2d 116, 118 (5th Cir. 1990). "If the evidence is merely colorable, or is not significantly probative, summary judgment may be granted." Anderson, 477 U.S. at 249 (citations omitted).

         A court may not make credibility determinations or weigh the evidence in ruling on a motion for summary judgment. Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150 (2000). The court is also required to view all evidence in the light most favorable to the non-moving party and draw all reasonable inferences in that party's favor. Clift v. Clift 210 F.3d 268, 270 (5th Cir. 2000). Under this standard, a genuine issue of material fact exists if a reasonable trier of fact could render a verdict for the nonmoving party. Brumfleld v. Hollins, 551 F.3d 322, 326 (5th Cir. 2008).


         Admiral issued insurance policies to Zadeck more than five (5) years after Zadeck ceased operating Well 1. Admiral filed the instant motion to have the Court declare that these policies do not provide coverage for property damage allegedly attributable to the operation of Well 1. Admiral, along with three (3) other insurers, is presently providing a defense[2] under a reservation of rights to Zadeck in the underlying lawsuit originally filed in Cameron Parish and removed to this Court which is pending on this court's docket as Civ. Action 2:18-688.[3] Cameron Parish alleges that Covey Energy, Inc., ("Covey"), Zadeck and Iberia drilled and/or operated Well 1, and that those operations and activities environmentally damaged land and waterbodies located in the "Coastal Zone," as defined by the State and Local Coastal Resources Management Act of 1978, within Cameron Parish. The Petition implicates a time period between 1978 and 2016 in which all defendants are alleged to have engaged in activities in the Cameron Parish Coastal Zone resulting in property damages up until the suit was filed in 2016.

         Covey operated the well from September 18, 1995, until May 7, 1996. Zadeck operated Well 1 from May 7, 1996, until May 31, 1998, and Iberia began operating Well 1 on June 1, 1998, and remained the operator until the operations ceased and/or Well 1 was abandoned. Specifically, the lawsuit alleges that defendants (1) used unlined earthen waste pits, (2) failed to design the earth pits to prevent the movement of leachate away from the waste facilities, (3) failed to clear, re-vegetate, detoxify and restore the areas to their original condition, causing increasing damage to the Cameron Parish Coastal Zone.[4]The lawsuit further alleges that defendants discharged and/or disposed of oilfield waste in Cameron Parish and/or its Coastal Zone and caused contamination and pollution to the Coastal Zone and waters in the Operational Area.[5] Cameron also alleges that Defendants allowed radioactive materials to accumulate in the soils and ground waters, and Defendants' dredging activities resulted in erosion of marshes, the degradation of terrestrial and aquatic life, and has enabled and/or accelerated saltwater intrusion.[6]

         Cameron Parish demands damages, costs, attorney fees, and administrative penalties which include all or a portion of the abatement or mitigation of damages, payment of restoration costs, and actual restoration.[7] Cameron Parish also demands the costs necessary to clear, re-vegetate, detoxify, and restore the Coastal zone as near as practicable to its original condition.[8]

         As noted above, beginning March 13, 2004, Admiral issued consecutive policies to Zadeck (eight commercial general liability policies and eight umbrella/excess policies). Admiral argues that under the clear and unambiguous policy language, and Louisiana jurisprudence, the Admiral policies issued to Zadeck do not provide coverage for the claims Cameron Parish brings against Zadeck.[9] Zadeck argues that the Petition does not unambiguously exclude the possibility that Zadeck's activities and operations caused property damages during the Admiral 2004-2012 policy periods, which triggered Admiral's obligation to defend Zadeck.

         There are four (4) primary theories that courts apply to determine when an insurance policy is triggered—the exposure theory, the manifestation theory, the continuous trigger theory, and the injury-in-fact theory. Norfolk S. Corp. v. California Union Ins. Co., 859 So.2d 167 (La.App. 1 Cir. 12/19/03), writ denied, 861 So.2d 579 (La. 12/19/03).

         It is proper to consider extrinsic evidence to determine coverage

         First, Zadeck complains that it is improper for this Court to consider a list of oil and gas wells drilled and/or operated by each Defendant, specifically referring to exhibit F. Exhibit F was attached to Cameron Parish's petition as an expansion of ¶ 19 in the underlying lawsuit. Cameron Parish alleges that "[d]efendants drilled and/or operated numerous oil and gas wells within the Operational Area;" that defendant's operations and activities were conducted (or being conducted) to enable or support the drilling and operation of the "oil and gas wells listed on Exhibit F"; and that "[a] list of the oil and gas wells drilled and/or operated by each Defendant" was attached as Exhibit F."[10] Zadeck argues that when evaluating a defense obligation, the court can only consider the four corners of the Petition and the four corners of the insurance policies—otherwise known as the "eight corners rule." Hanover Ins. Co. v. Superior Labor Servs., Inc., 179 F.Supp.3d 656, 676 (E.D. La. 2016) (factual inquiries beyond the petition for damages and the relevant insurance policy are prohibited with respect to the duty to defend); XL Spec. Ins. Co. v. Bollinger Shipyards, Inc., 800 F.3d 178, 182 (5th Cir. 2015).

         Admiral does not contest the eight corner's rule as to an insurer's duty to defend, but remarks that the instant motion for summary judgment seeks to have the Court declare its obligation as to coverage, which could potentially extinguish its duty to defend. Federal Rule of Civil Procedure 10(c) provides that: "[a] copy of a written instrument that is an exhibit to a pleading is a part of the pleading for all purposes." Admiral argues that because Cameron Parish attached the list to its Petition, it is proper for this Court to consider the exhibit because it is a part of and incorporated into the petition. Admiral agrees that under a duty to defend analysis, it cannot rely upon extrinsic documents, but because the list (exhibit F) is incorporated into the Petition, it is properly considered part of the "four corners" of the Petition. The Court agrees and finds that it is proper to consider exhibit F in a duty to defend analysis. However, as noted by Admiral, the instant motion is before the Court to decide if the Admiral's policies provide coverage. Either way, it is proper for this Court to consider exhibit F.

         Zadeck further challenges this Court's consideration of evidence obtained from the Louisiana Office of Conservation in determining Admiral's duty to defend. The Court agrees that if this motion was based on a duty to defend, this extrinsic evidence would not be considered. However, as noted by Admiral, the instant motion is for the Court to determine coverage. Therefore, the evidence is proper summary judgment evidence and will be considered.

         The exposure theory should be applied

         Admiral argues that pursuant to Louisiana jurisprudence, its policies should be interpreted under the "exposure" theory relying on the exclusions in the excess policies which denies coverage for any loss not covered by the underlying insurance.[11] Admiral maintains that its excess insurance policies do not cover the losses because the "property damage" did not occur during any of the Admiral policy periods, noting that Zadeck ceased operating the well prior to March 13, 2004. Conversely, Zadeck argues that Admiral has not only a duty to defend it in the underlying lawsuit, but it also has a duty to indemnify it for any damages it is held liable for, not only under the exposure theory, but also under the manifestation theory.

         The Admiral policies provide excess liability insurance under Coverage A and umbrella liability insurance under Coverage B. Admiral notes that Coverage A is a following-form policy which follows or adopts the conditions and agreements of the underlying primary liability insurance policy. Orleans Parish Sch. Bd. v. Lexington Ins. Co., 99 So.3d 723, 727 (La.App. 4 Cir. 8/22/12); see also Bayou Steel Corp. v. Nat'l Union Fire Ins. Co. of Pittsburgh, PA, 642 F.3d 506, 509 (5th Cir. 2011). The obligations of following-form excess insurers are defined by the language of the underlying policies, except to the extent there is a conflict between the two policies, in which case, absent excess policy language to the contrary, the wording of the excess policy will control. Barry R. Ostrager & Thomas R. Newman, Handbook on Insurance Coverage Disputes § 13.01 [a] (18th ed. 2017) (citing, inter alia, Estate of Bradley v. Royal Surplus Lines Ins. Co. Inc., 647 F.3d 524, 530 n.4).

         Admiral asserts that Coverage A also contains a specific exclusion for any loss not covered by the underlying insurance. Thus, Admiral argues that no losses are covered under the Commercial General Liability ("CGL") policies because under the exposure theory, no "property damage" occurred during the CGL policy periods and therefore, the umbrella and excess policies were not triggered.

         Admiral issued eight consecutive CGL policies from 3/13/2004 through 3/13/2012.[12]

         The insuring agreement in each of the Admiral CGL policies provides:

         1. Insuring Agreement

b. This insurance applies to "bodily injury" and "property damage" only if:
(1) The "bodily injury" or "property damage" is caused by an "occurrence" that takes place in the "coverage territory";
(2) The "bodily injury" or "property damage" occurs during the policy period; and
(3) Prior to the policy period, no insured listed in Paragraph 1. of section II - Who Is An Insured and no "employee" authorized by you to give or receive notice of an "occurrence" or claim, knew that the "bodily injury" or "property damage" had ...

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