Crown Energy Co. v. Mid-Continent Cas. Co.

511 P.3d 1064

CROWN ENERGY COMPANY, Plaintiff/Appellee,

v.MID-CONTINENT CASUALTY CO., Defendant/Appellant.

Case No. 116,989

Supreme Court of Oklahoma.

FILED JUNE 14, 2022

A. Michele Campney, Cheek & Falcone, PLLC, Oklahoma City, Oklahoma, and Kris Ted Ledford, Ledford Law Firm, Owasso, Oklahoma, for Plaintiff/Appellee.

Christopher W. Martin, Martin, Disiere, Jefferson & Wisdom, L.L.P., Houston Texas, and Robert P. Fitz-Patrick, Hall, Estill, Hardwick, Gable, Golden & Nelson, P.C., Tulsa, Oklahoma, for Defendant/Appellant.

ROWE, J.:

I. BACKGROUND

¶1 Appellee, Crown Energy Company ("Crown"), is an Oklahoma City-based oil and gas producer operating in the Payne County formations. In the course of its oil and gas operations, Crown produces a large volume of waste water, which it stores in underground disposal wells.

¶2 In 2015, Crown sought commercial general liability insurance from Appellant, Mid-Continent Casualty Company ("Mid-Continent"). As part of its application, Crown included specific information about the nature of Crown's oil and gas operations. Mid-Continent ultimately issued two commercial general liability policies to Crown, Policy Number 04-GL-943967 and Policy Number 04-GL-963176, which covered two consecutive one-year periods from October 2015 to November 2017 ("the Policies"). Section I of the Policies provides:

1. Insuring Agreement

a. We will pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury" or "property damage" to which this insurance applies. We will have the right and duty to defend the insured against any "suit" seeking those damages. However, we will have no duty to defend the insured against any "suit" seeking damages for "bodily injury" or "property damage" to which this insurance does not apply. [...]

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 [...] knew that the "bodily injury" or "property damage" had occurred, in whole or in part. [...]

Each of the Policies contains a modified Pollution Exclusion in an Oil and Gas Endorsement, which replaces the standard pollution exclusion and states that the insurance does not apply to:

Pollution

To "Bodily Injury" or "Property Damage" arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon the land, the atmosphere or any water course or body of water; but this exclusion does not apply to a "Pollution Incident".¹

¶3 In December 2016, Crown was one of several oil and gas companies named as defendants in a class action suit filed by a group of Payne County residents (the "Reid Lawsuit").² The Reid Lawsuit primarily alleges that increased underground pressure resulting from the use of waste water disposal wells by Crown and other defendants caused seismic activity that damaged the plaintiffs' property. After the Reid Lawsuit was filed, Crown submitted a claim to Mid-Continent requesting defense and indemnity. In a letter dated December 27, 2016, Mid-Continent denied Crown's request, claiming that the damages asserted in the Reid Lawsuit were not caused by an "occurrence" as defined by the policy and citing the Pollution Exclusion in the Oil and Gas Endorsement ("the Pollution Exclusion").

¶4 Crown sought declaratory relief against Mid-Continent in the District Court of Oklahoma County, alleging the claims in the Reid Lawsuit are covered under the Policies. Mid-Continent denied the allegations and filed a counterclaim seeking declaratory judgment that the Policies did not cover the claims in the Reid Lawsuit. In April 2018, the District Court granted Crown's motion for summary judgment in part, finding that Mid-Continent had a duty to defend Crown in the Reid Lawsuit.

¶5 Mid-Continent's appeal of the trial court's order granting Crown's motion for summary judgment was assigned to the Court of Civil Appeals, Division II ("COCA"). COCA issued a published opinion on September 24, 2020, affirming the trial court's order. With respect to the Pollution Exclusion, COCA observed that the seismic activity which prompted the Reid Lawsuit was caused by injection of waste water into the disposal wells at high pressure. Having determined that the pressure generated by the waste water injections was the cause of the seismic activity, COCA found that the Pollution Exclusion did not apply to Crown's activities because it did not include any reference to injection of pollutants into the land "under pressure." In October 2020, Mid-Continent filed a Petition for Rehearing claiming that COCA's emphasis on the pressure at which the waste water was injected amounted to a "new and independent theory of causation" that undermined the effect of the Pollution Exclusion. COCA denied Mid-Continent's Petition for Rehearing.

¶6 Mid-Continent filed its Petition for Certiorari, claiming COCA erred by placing too great an emphasis on the pressure issue in finding that the Pollution Exclusion did not apply. Mid-Continent also claimed that COCA erred in finding that Crown's wastewater disposal activities constituted an "occurrence" under the Policy. We granted certiorari on September 27, 2021.

II. STANDARD OF REVIEW

¶7 We review a trial court's order granting summary judgment de novo. Tiger v. Verdigris Valley Elec. Coop. , 2016 OK 74, ¶ 13, 410 P.3d 1007, 1011. Likewise, the interpretation of an insurance contract presents questions of law, which are subject to de novo review. Dodson v. St. Paul Ins. Co. , 1991 OK 24, ¶ 12, 812 P.2d 372, 376. De novo review involves a plenary, independent, and non-deferential examination of the issues presented. Benedetti v. Cimarex Energy Co. , 2018 OK 21, ¶ 5, 415 P.3d 43, 45.

III. DISCUSSION

¶8 Mid-Continent alleges that COCA erred on two counts in affirming the trial court's order granting summary judgment. First, Mid-Continent claims COCA erred in finding that Crown's wastewater disposal efforts constituted an "occurrence" under the Policies. Second, Mid-Continent claims that COCA erred in finding that the Pollution Exclusion did not bar coverage for the claims in the Reid Lawsuit.

¶9 Parties are free to contract for insurance that covers whatever risks they see fit, and they will be bound by the terms of the contract. Porter v. Oklahoma Farm Bureau Mut. Ins. Co. , 2014 OK 50, ¶ 12, 330 P.3d 511, 515 (citing Cranfill v. Aetna Life Ins. Co. , 2002 OK 26, ¶ 5, 49 P.3d 703, 707 ). Courts are not free to rewrite the terms of an insurance contract. Id . Our primary objective when interpreting a contract is to effectuate the intent of the parties as expressed in the terms of the contract. Walker v. BuildDirect.com Techs. Inc. , 2015 OK 30, ¶ 9, 349 P.3d 549, 552. If the terms of the contract are clear, consistent, and unambiguous, they are accepted in their ordinary sense. Dodson v. St. Paul Ins. Co. , 1991 OK 24, ¶ 12, 812 P.2d 372, 376.

A. The property damage which prompted the Reid Lawsuit was caused by an "occurrence."

¶10 Mid-Continent's first assignment of error is based on the Policies' definition of an "occurrence." Subsection 1(b) under Coverages in the Policies states that the insurance only applies if the damage at issue is, among other things, caused by an "occurrence." According to the Policies, an "occurrence" refers to:

[A]n accident, including continuous or repeated exposure to substantially the same general harmful conditions.

Mid-Continent claims that because Crown was intentionally injecting waste water into the disposal well, its activities could not constitute an accident, and therefore, coverage for the claims in the Reid Lawsuit does not lie.

¶11 In support of its position, Mid-Continent cites to Cranfill v. Aetna Life Ins. Co. , 2002 OK 26, 49 P.3d 703. In Cranfill , we answered two certified questions relating to whether an insured's beneficiary was entitled to accidental death benefits when the insured intentionally consumed alcohol beyond the legal limit to operate a vehicle and subsequently died in a single-vehicle car wreck.³ Relying on a prior case in which we described an accident as an event that is "unexpected, unintended and unforeseen in the eyes of the insured,"⁴ Aetna argued that the insured's death was a reasonably foreseeable consequence of drunk driving and, thus, was not an accident. Id . ¶ 9, 49 P.3d at 706. We rejected that argument, explaining that the principle of reasonable foreseeability, which is applicable in torts, does not apply when analyzing the terms of an insurance contract. Id . ¶ 10, 49 P.3d at 706-07. We went on to explain how foreseeability should factor into determining whether an accident occurs:

Foreseeability has a more specific meaning in the context of life and accident insurance. It is only when the consequences of the act are so natural and probable as to be expected by any reasonable person that the result can be said to be so foreseeable as not to be accidental. The mere fact that an insured's death may have resulted from his or her own negligence, or even gross negligence, does not prevent that death from being accidental under the plain meaning of the word accident.

(Internal citations omitted).

¶12 Relying on Cranfill , Mid-Continent claims that the seismic activity that prompted the Reid Lawsuit was such a natural and probable consequence of Crown's waste water disposal activities that it could not be deemed an accident. We disagree. Mid-Continent offers little to no evidence in support of its position, instead relying on allegations made by the plaintiffs in the Reid Lawsuit.⁵ Self-serving allegations by the Reid plaintiffs in their petition are not sufficient to support Mid-Continent's generalization that "[Crown]...