February 2, 2015
By Miriam Rozen
What are the responsibilities of oil well owners for the care of a well if they want to recover damages from insurance carriers in the event of a blowup?
Thousands of oil wells are operated in Texas, but Michael Orlando said the courts had never ruled on that specific question until his well-owning corporate clients, including Eagle Oil & Gas Co., raised it in federal court in Waxahachie. The well owners won a $10.8 million award, including $2.52 million in attorney fees and costs in a Jan. 22 order, against Travelers Property Casualty Co. of America.
“The problem with this case from the beginning was that there was almost no law on oil and gas well insurance policies,” said Orlando of Houston’s Meyer Orlando.
According to a Dec. 8, 2014 court memorandum and opinion, Eagle Oil attempted in 2011 to open a stuck port sleeve on a well when a casing ruptured, allowing a flow of gas and well fluid that could not be controlled, and the blowup ensued. One year later, Travelers denied coverage on the basis of Eagle Oil’s alleged engineering decision to exceed maximum safe fracturing pressure. The insurance carrier argued that engineering decision violated a due care and diligence clause in the insurance policy. Orlando’s clients sued for damages citing breach of contract and Texas Deceptive Trade Practices Act claims, among others. Following a three-day trial, a jury issued on Aug. 8, 2014, a verdict that Travelers did not “prove by a preponderance of the evidence that Eagle Oil failed to exercise due care and diligence in its well operations.” On the basis of that verdict, the court issued a final judgment on Aug. 20, 2014, awarding $8,553,000 in damages and interest.
“Everything we did was so we could make sure the insurance policy clauses were plainly interpreted,” Orlando said about his pretrial motion strategy.
He said his opposing counsel proposed interpretations that “left out words and assigned designations,” and “the judge didn’t buy into that.”
After pretrial rulings, Orlando said, the only remaining fact question before the jury was what was required by his clients to have done to show due care and diligence of the well.
“We tried to keep it simple,” Orlando said, despite the complex engineering.
In the Dec. 8, 2012, memorandum and opinion, the court denied Travelers’ motion for reconsideration of a final judgment. But the company filed a notice of appeal on Jan. 6. George Lugrin, a partner in Houston’s Hall Maines Lugrin who represents Travelers, did not return a call seeking comment.