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Finger Oil & Gas, Inc. (“Finger Oil”), the insured and Mid-Continent Casualty Company (“Mid-Continent”) contested coverage and the judge granted Mid-Continent’s motion for summary judgment, and Finger Oil appealed the dismissal of its misrepresentation and breach of contract claims.
IN Finger Oil & Gas, Incorporated v. Mid-Continent Casualty Company, no. 22-50432, United States Court of Appeals, Fifth Circuit (January 27, 2023) Finger Oil sought coverage for its property because it was told it had coverage for third-party damage. The Fifth Circuit settled the dispute.
Finger Oil is an insured under a policy issued by Mid-Continent, which provides general liability insurance. On July 19, 2019, Finger Oil was drilling at its own natural gas well, called Drushel #1, located in Jackson County, Texas when a valve failed and the well blew out. In response, Finger Oil contacted Desiree Scrimger, the commercial account manager at Marsh USA, Inc. (“Marsh”), Finger Oil’s insurance agent, to inquire whether it was covered for the blowout. Unfamiliar with the policy, Scrimger contacted an insurer at Mid-Continent and asked that it “confirm that this insured has Blow Out and Cratering coverage and give advice to limit.” Mid-Continent’s insurers responded in an email stating, “The ML1419 Oil & Gas Endorsement IV Blow-Out and Cratering policy has a box to X if coverage is excluded. The ML1419 for this policy is not X’d. …”
Based on this response, Scrimger emailed Finger Oil as follows: “Per the insurer’s coverage, the blowout and cratering are included within the policy limit. The limits are $1 million occurrence/$2 million aggregate. Note that each claim is based on its own merit and this is only a verification of coverage in place.”
Finger Oil, without reading the policy or seeking advice to interpret the coverage, relied on Scrimger’s email as confirmation that it was covered for the incident, hired several contractors to work on the well, and incurred bills for those services to a amount of $641,590.90.
Mid-Continent subsequently denied Finger Oil’s insurance claim, which related to expenses to repair property from the well and the costs of bringing the well under control. Mid-Continent determined that there was no coverage under the policy for these damages based on two exclusions. First, Mid-Continent stated that the policy included an exclusion for damage to property owned by the insured that excluded from the policy “property damage” to: “property you own, rent or occupy, including any costs or expenses incurred by you, or any other person , organization or entity, for the repair, replacement, improvement, restoration or maintenance of such property for any reason, including the prevention of injury to a person or damage to the property of another.”
The policy also excludes “any loss, cost or expense incurred by you or at your request or by or at the request of any ‘Co-Owner of the Working Interest’ in connection with controlling or gaining control of any oil, gas or water well.”
Finger Oil sued Mid-Continent. Eventually, Mid-Continent filed a motion for summary judgment, which the judge granted in part. It dismissed all of Finger Oil’s claims, except the breach of contract claim to the extent it involved Mid-Continent’s failure to pay costs and expenses for repairing the well. The magistrate judge granted Mid-Continent’s motion for reconsideration and denied Finger Oil’s motion for reconsideration.
Finger Oil appealed the judge’s dismissal of its misrepresentation and breach of contract claims.
The Fifth Circuit agreed with the magistrate that MidContinent’s statement that blowout coverage existed did not amount to a misstatement. Finger Oil’s agent asked MidContinent if it had blowout and crater coverage, to which MidContinent correctly responded that it did. MidContinent’s statement was more like a general statement that the policy included such coverage, rather than a misrepresentation of specific policy terms. In fact, Finger Oil was warned in the same email to “[p]lease note that each claim is based on its own merits and” that the statement “was only to verify coverage in place.” The summary judgment therefore did not support Finger Oil’s misrepresentation claims.
In Texas, insurance policies are contracts subject to the rules of contract construction. As with other contracts, courts interpret and enforce them according to established rules of construction and must give the words of the policy their plain meaning, without inserting additional provisions into the contract. Accordingly, courts must begin their analysis with the terms of the policy because they assume that the parties intended what the words of their contract say. The words in the policy are given their ordinary and generally accepted meaning unless the policy shows that the words were intended in a technical or other sense.
The Fifth Circuit concluded that the trial judge did not err in dismissing Finger Oil’s breach of contract claim. Recovery of costs and expenses for the repair of Finger Oil’s well were expressly excluded from the policy. The insurance only provides liability insurance for third parties, i.e. coverage for property not owned or controlled by Finger Oil.
The purpose of owned property exclusions in general liability policies is to carry out the intent that liability insurance is designed to provide compensation for damage to property not owned or controlled by the insured.
It does not, and cannot, provide first-party coverage for damages suffered by the insured on their own property. Finger Oil provided no basis for the court to question the express terms of the exclusion, nor does it dispute that it owned the well in question.
This case should never have reached the court let alone the Fifth Circuit. If someone representing Finger Oil had read the entire policy, it would have been clear that a third-party liability policy only provides coverage for damage to property owned or controlled by others and is not a first-party policy that protects the insured’s property. The Fifth Circuit and the judge before the appeal read the entire policy and reached the only available decision.
(c) 2023 Barry Zalma & ClaimSchool, Inc.
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Barry Zalma, Esq., CFE, now limits his practice to serving as an insurance consultant specializing in insurance coverage, insurance claims management, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims attorney and more than 54 years in the insurance industry. He can be reached at http://www.zalma.com and firstname.lastname@example.org
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