Nat'l Am. Ins. Co. v. New Dominion, LLC

499 P.3d 9

NATIONAL AMERICAN INSURANCE COMPANY, an Oklahoma corporation, Plaintiff/Appellant,

v.NEW DOMINION, LLC, an Oklahoma, limited liability company, Defendant/Appellee.

National American Insurance Company, an Oklahoma corporation, Plaintiff/Appellee,

v.New Dominion, LLC, an Oklahoma, limited liability company, Defendant/Appellant.

No. 118,490

(Companion w/ No. 118,496)

No. 118,496

(Companion w/ No. 118,490)

Supreme Court of Oklahoma.

FILED NOVEMBER 23, 2021

Steven K. Metcalf and William H. Spitler, Metcalf & Spitler, Tulsa, Oklahoma, for Plaintiff National American Insurance Company.

Andrew C. Jayne and Jason McVicker, Baum Glass Jayne & Carwile, Tulsa, Oklahoma, for Defendant New Dominion, LLC.

ROWE, J.:

¶1 The import of these companion cases is to determine whether NAICO is liable to New Dominion for defense and indemnity under the terms of the commercial general liability policies at issue, and if so, to what extent.

I. BACKGROUND

¶2 The present litigation centers around a series of commercial general liability policies and accompanying excess policies, which New Dominion procured from NAICO and which cover four consecutive one-year periods: July 1, 2012, to July 1, 2013 ("Policy Period 1"); July 1, 2013, to July 1, 2014 ("Policy Period 2"); July 1, 2014, to July 1, 2015 ("Policy Period 3"); and July 1, 2015, to July 1, 2016 ("Policy Period 4").

¶3 Each of the NAICO Policies contain a series of exclusions that are relevant to the case. The NAICO Policy for Policy Period 1 contains a Total Pollution Exclusion which precludes coverage for bodily injury and property damage "which would not have occurred in whole or in part but for the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of ‘pollutants’ at any time."¹

¶4 In addition to the Total Pollution Exclusion, the NAICO Policy for Policy Period 1 contains the following Subsidence Exclusion:

This insurance does not apply to "property damage", whether direct or indirect, arising out of, caused by, resulting from, contributed to, or aggravated by the subsidence, settling, expansion, sinking, slipping, falling away, tilting, caving in, shifting, eroding, mud flow, rising or any other movement of land or earth, whether or not any of the foregoing emanate or arise from or are related to the operations of the insured or any other person for whose acts the insured is legally liable.

¶5 On May 31, 2013, Kevin Easley, President and CEO of New Dominion, appointed Mark Tedford of Tedford & Associates, LLC, as New Dominion's insurance agent of record. Shortly after becoming New Dominion's insurance agent, Tedford began the process of renewing New Dominion's coverage with NAICO for Policy Period 2. On July 1, 2013, New Dominion renewed its coverage with NAICO for Policy Period 2. The NAICO Policy for Policy Period 2 contained the same Total Pollution Exclusion and Subsidence Exclusion as Policy Period 1.

¶6 In the latter part of 2013, New Dominion reached out to Tedford inquiring as to whether it currently had any third-party liability coverage for earthquake-related incidents. In response, on December 16, 2013, Tedford sent an email to Fred Buxton, counsel for New Dominion, containing an article about earthquakes and the oil and gas industry in Oklahoma. The email also contained the following message:

I thought you would be interested in this article. I talked to our AIG Energy rep last week about this very topic. The insurance industry's stance is to litigate hard any claim on this so that they never set a precedence [sic] of acknowledging liability. Your policy (as with most GL policies) has unlimited defense cost benefits so if you did have a claim, you would only be exposed if you lost the lawsuit. Right now, the feeling is that in a legal sense it is impossible to prove that the oil and gas industry is causing these. Even if they could, they could not prove which operator is responsible. Hope this is helpful.

The conversation was dormant for several months after this email.

¶7 On June 23, 2014, Buxton again reached out to Tedford via email and requested a copy of any "earthquake insurance" New Dominion had. In his response, Tedford stated, "I don't think there is a specific earthquake coverage [in the commercial general liability policy] but rather if there are allegations that [New Dominion] is liable there is defense cost and if becomes legally liability [sic] for an earthquake there would be coverage." Tedford also indicated that he had prepared a coverage opinion on the issue that he could forward to Buxton. The following day Buxton requested a copy of the coverage opinion, which was not immediately provided.

¶8 On July 1, 2014, New Dominion renewed its commercial general liability coverage with NAICO for Policy Period 3. The NAICO Policy for Policy Period 3 contained the same Total Pollution Exclusion as Policy Periods 1 and 2. Policy Period 3, however, contained the following Subsidence and Earth Movement Exclusion:

This insurance does not apply to "property damage", whether direct or indirect, arising out of, caused by, resulting from, contributed to, or aggravated by the subsidence, settling, expansion, sinking, slipping, falling away, tilting, caving in, shifting, eroding, mud flow, rising, earthquake , or any other movement of land or earth, whether or not any of the foregoing emanate or arise from or are related to the operations of the insured or any other person for whose acts the insured is legally liable.

(emphasis added). This version only differs from the Subsidence Exclusions in Policy Periods 1 and 2 in that it includes the term "earthquake" in the list of non-covered events that result in property damage.

¶9 On July 7, 2014, Tedford attempted to send a copy of his coverage opinion to Buxton, but Tedford attached the wrong document to the email. Buxton informed Tedford of the mistake, but Tedford did not immediately send over the coverage opinion.

¶10 On August 4, 2014, Sandra Ladra filed a lawsuit (the "Ladra Lawsuit") against New Dominion alleging that she was injured as a result of an earthquake in November 2011, which she alleged was caused by New Dominion's use and operation of wastewater injection wells. On August 7, 2014, Buxton forwarded a copy of the petition in the Ladra Lawsuit to Tedford. Tedford then passed the petition along to Dick Harrison, a senior unit claims manager at NAICO, to determine if NAICO would cover the claim. On August 11, 2014, Harrison sent an email to Buxton indicating that NAICO would not provide any coverage for the Ladra Lawsuit because the incidents forming the basis of the claim occurred in November 2011, prior to when New Dominion first obtained coverage through NAICO.

¶11 Following the denial, Tedford contacted Harrison via phone with a hypothetical question as to whether NAICO would have provided coverage for the Ladra Lawsuit if it had occurred during a time when New Dominion had coverage with NAICO. Harrison indicated that the NAICO Policies would provide coverage because the Ladra Lawsuit involved claims for bodily injury exclusively, and the Subsidence and Earth Movement Exclusions² included in the policies only applied to claims for property damage.

¶12 Tedford finally sent Buxton a copy of the coverage opinion via email on August 18, 2014. The coverage opinion contained the following statements regarding coverage for earthquake-related claims under the NAICO Policies:

In my opinion, the general liability policy will defend and pay for 3^rd party [property damage] and [bodily injury] claims for damage caused by earthquake if it is proven that the earthquake was caused by New Dominion's operations. I think the bar is set very high for any third party to prove this and I think the mood of the insurance industry is to vigorously defend these lawsuits as they arise. Because defense cost is unlimited in this policy, I think the coverage is adequate for this exposure.

The coverage opinion did not contain any analysis regarding the potential preclusive effect of the Total Pollution Exclusions or the Subsidence and Earth Movement Exclusions.

¶13 On July 1, 2015, New Dominion renewed its commercial general liability coverage with NAICO for Policy Period 4. Policy Period 4 contained the same Total Pollution Exclusion as Policy Periods 1, 2, and 3. Policy Period 4 also contained the following Subsidence and Earth Movement Exclusion:

This insurance does not apply to any loss , injury , or damage whether direct or indirect, arising out of, caused by, resulting from, contributed to, or aggravated by the subsidence, settling, expansion, sinking, slipping, falling away, tilting, caving in, shifting, eroding, mud flow, rising, earthquake, or any other movement of land or earth, whether or not any of the foregoing emanate or arise from or are related to the operations of the insured or any other person for whose acts the insured is legally liable.

(emphasis added). Notably, this version precludes coverage for any loss or injury, whereas the versions from the first three policy periods only applied to property damage.

¶14 Beginning in January 2016, New Dominion was sued in a series of separate lawsuits (the "Earthquake Lawsuits"). Each of the Earthquake Lawsuits, in essence, alleges that between 2012 and 2016 New Dominion's oil and gas operations resulted in seismic activity that caused bodily injury to the plaintiffs and/or damage to their property. New Dominion sought defense and indemnity under the NAICO Policies for the Earthquake Lawsuits. NAICO denied coverage, citing the Total Pollution Exclusions and the Subsidence and Earth Movement Exclusions.

¶15 On September 16, 2016, NAICO filed a petition in the District Court in and for Lincoln County seeking a declaratory judgment that the NAICO Policies do not provide coverage for the claims asserted in the Earthquake Lawsuits. New Dominion answered with a counterclaim alleging that NAICO's denial amounted to a breach of contract, and an amended...