Insurer Must Defend Energy Company’s Role In Earthquake Lawsuit: Court

Sep. 29--An insurance company policy's boilerplate exclusionary language is the latest victim of salt-water induced earthquakes in Oklahoma.

That's the result of a ruling handed down this month by Oklahoma's Court of Civil Appeals, and that ruling could impact many dozens of energy companies being targeted by class action lawsuits over the issue and the insurance companies that cover their liabilities.

In an appeal brought to the court by Mid-Continent Casualty Co., judges ruled it must honor a client's request to defend it as part of a class-action lawsuit related to the earthquakes that was filed in Payne County.

An initial ruling requiring it to defend Oklahoma City-based Crown Energy in the litigation was issued by a district court judge in Oklahoma County.

Crown sued Mid-Continent after it had denied the producer's requests to defend it under two general liability policies that were in force over the period of time the Payne County lawsuit covers. Crown Energy, established in 1995, operates production and disposal wells and provides various other energy-related services to well and mineral owners across parts of Oklahoma, Texas and Kansas.

That case, filed in 2016 by plaintiffs David and Myra Reid and others, targeted not only Crown, but White Star Petroleum, Petrowarrior, FHA Investments, Cher Oil Co. and other, unnamed firms and individuals.

All of the companies with the exception of White Star were voluntarily dismissed by the plaintiffs from the lawsuit in November 2018.

Nothing, however, was filed with the court in that case that shows why those defendants were dismissed.

Appeals court decision

In the appeal, judges evaluated Mid-Continent's claims that it didn't have to honor Crown Energy's request for providing defense in the case because its exclusionary language stated there had to be an occurrence for a claim to be valid -- its attorney argued that the routine injection of saltwater into disposal wells failed to meet that standard -- and because the policies' pollution exclusionary language absolved it from having to defend any claim related to a pollution-causing activity.

In writing for the court, Judge Keith Rapp said he and fellow appeals court judges believed Mid-Continent is on the hook under the policies it had with Crown to defend the energy company in the class-action case.

The original court did not take up the question whether the insurer would be required to indemnify Crown for liabilities it might have faced as a result of the Reid case, and the appeals court opinion didn't address that issue, either.

Crown's arguments

To obtain defense from its insurer, Crown had to show that it had a policy in force, that an occurrence defined as an "accident" happened, that a claim for property damage had been made, that the the claim fell within a geographical area the policy covered, that the accident (or accidents) happened while the policy was in effect and that no Crown employee was aware of the claim before the policy had been obtained.

Judge Rapp wrote that Crown legally had met those obligations.

Mid-Continent's responses

Mid-Continent argued that Crown's injection of saltwater was an intentional act that was part of its efforts to produce oil and natural gas.

However, Rapp noted the Oklahoma Supreme Court ruled in a 2002 case that intentional acts are accidental in situations in cases where something unexpected happened that was never part of the original intent behind those acts.

Mid-Continent also argued that they were not required to defend Crown because the claim "arise(s) out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gasses, waste materials or other irritants, contaminants or pollutants into or upon land," language included in the exclusionary clause of the contracts that were involved.

But, because the exclusionary language did not include a provision for a claim that might arise out of "injection at pressure," Mid-Continent is obligated to defend, Rapp wrote.

Oklahoma Court of Civil Appeal Judges P.J. Barnes and John Fischer concurred.

David A. Walls, Crown Energy's general counsel, said Mid-Continent and Crown are litigating their disagreements handled by the appeals court ruling in numerous other cases. Crown, meanwhile, is a defendant in multiple cases that claim injection-induced earthquakes damaged Oklahomans' properties.

Walls described the appeals court ruling as "pretty strong stuff," noting that it could shake general tenets many insurance companies might be using to sidestep the issue to their very core.

"Their failure to step up and do their job has ruined our company," Walls said. "We are virtually bankrupt. We have told them that, and they don't care, and that is where we are."

Walls said Mid-Continent could appeal this latest ruling to Oklahoma's Supreme Court. The attorney representing Mid-Continent in the appeal didn't respond to a request for comment or answer the question about a subsequent appeal.

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