Pogo Res., LLC v. St. Paul Fire & Marine Ins. Co.

POGO RESOURCES, LLC, Plaintiff, v. ST. PAUL FIRE AND MARINE INSURANCE COMPANY,A MEMBER COMPANY OF THE TRAVELERS GROUP OF INSURERS, Defendant.

Civil Action No. 3:19-CV-2682-BH

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS DALLAS DIVISION

May 13, 2021

Consent Case¹

MEMORANDUM OPINION AND ORDER

Before the Court is Plaintiff's Motion for Leave to File Second Amended Complaint and Brief in Support, filed January 22, 2021 (doc. 56). Based upon the relevant filings and applicable law, the motion for leave is GRANTED.

I. BACKGROUND

St. Paul Fire and Marine Insurance Company (Defendant) issued Pogo Resources, LLC (Plaintiff), a Texas oil & gas company, commercial general liability policies for its oil & gas operations, effective March 1, 2016 to March 1, 2017 (collectively Pogo Policies). (See doc. 9 at 6;² docs. 14-1-14-11.) Plaintiff sues for mutual mistake/reformation, waiver, estoppel, tortious interference, breach of contract, bad faith, and deceptive trade practices. (Id. at 2.)

A. Factual Background

Paladin Energy Corporation (Paladin) was a Dallas-based oil & gas company that owned and operated oil and gas assets in Texas and New Mexico. (Id. at 2.) It obtained commercial generalliability and umbrella excess protection insurance policies, effective from July 1, 2016 through July 1, 2017 (collectively Paladin Policies), which provided liability coverage for property damage caused by certain incidents, as well as limited pollution clean-up coverage and limited pollution bodily injury/property damage coverage, from Defendant. (Id. at 5-6; doc. 14-1 at 1.) That coverage was altered, in part, by two endorsements. (docs. 9 at 11-12; 14-7 at 4; 14-10 at 13-14.)

The "Total Pollution Injury or Damage and Pollution Clean-Up Cost Exclusion Endorsement - Oil and Gas Commercial General Liability" (GL Endorsement) provides, in relevant part:

2. The following replaces the Pollution clean-up costs that result from your products exclusion.

Pollution clean-up costs. We won't cover pollution clean-up costs.

3. The following replaces the Pollution injury or damage exclusion.

Pollution injury or damage. We won't cover injury or damage or medical expenses that result from pollution.

4. The following replaces the Pollution work loss, cost, or expense exclusion. Pollution work loss, cost, or expense. We won't cover any:

• loss, cost, or expense that results from any request, demand, order, or statutory or regulatory requirement that any protected person or others perform pollution work;

• cost or expense that's for pollution work; or

• loss, cost, or expense that results from any claim or suit by or for any governmental authority because of the performance of pollution work.

(doc. 14-7 at 4 (formatting original).)

The "Total Pollution Injury or Damage and Pollution Clean-Up Costs Exclusion Endorsement - With Exception for Certain Bodily Injury, Property Damage, or Pollution Cost or Expense Related to Autos - Oil and Gas Umbrella Excess Liability" (Umbrella Endorsement)provides, in relevant part:

2. The following replaces the Pollution clean-up costs for underground water pollutants exclusion. This change excludes coverage.

Pollution clean-up costs. We won't cover pollution clean-up costs.

* * *

3. The following replaces the Pollution injury or damage exclusion. This change excludes coverage.

Pollution injury or damage. We won't cover injury or damage that results from pollution.

* * *

4. The following replaces the Pollution work loss, cost, or expense exclusion. This change excludes coverage.

Pollution work loss, cost, or expense. We won't cover any:

• loss, cost, or expense that results from any request, demand, order, or statutory or regulatory requirement that any protected person or others perform pollution work;

• cost or expense that's for pollution work; or

• loss, cost, or expense that results from any claim or suit by or for any governmental authority because of the performance of pollution work.

(doc. 14-10 at 13-14 (formatting original).)³

On April 21, 2016, Paladin filed for Chapter 11 bankruptcy in the United States Bankruptcy Court for the Northern District of Texas. See In re Paladin Energy Corp., No. 16-31590-bjh-11 (N.D. Tex. Bank.) (Paladin Bankruptcy). It continued to operate its business and to manage its bankruptcy estate as debtor-in-possession throughout the bankruptcy. (See Paladin Bankr., doc. 1.)In February 2017, saltwater spills occurred at two of its well sites in New Mexico (collectively Spill A). (docs. 9. at 3; 9-4.) The New Mexico Oil Conservation Division (NMOCD) assigned a release remediation permit for Spill A, and Paladin filed a claim with Defendant for coverage under the Paladin Policies. (doc. 9 at 3.)

On February 23, 2017, the bankruptcy court granted a motion to approve bidding procedures for the sale of Paladin's assets. (See Paladin Bankr., doc. 213.) On May 15, 2017, Paladin and Plaintiff executed a Stalking Horse Purchase and Sale Agreement (PSA), effective May 1, 2017, for the purchase of substantially all of Paladin's oil and gas property (collectively the Property). (doc. 9 at 2; doc. 9-1.) The PSA provided that "Seller shall sell, convey and assign to Buyer and Buyer shall purchase, pay for, and accept all of Seller's right and title to, and interest in, and all privileges and obligations appurtenant to" the Property, including, among other things, "any interests related to insurance policies that may be in place to cover any liability outlined in or related to Buyer's obligations as set forth in Section 9.2, Section 9.3 and Section 9.4." (doc. 9-1 at 17-18.) It also included the following provision, entitled "Buyer's Environmental Obligations:"

Upon and after Closing, and subject to Downward Adjustments as outlined herein, Buyer assumes full responsibility and liability for all occurrences, events, conditions, and activities on or related to the Property (the "Environmental Obligations"), regardless of whether arising from the ownership or operation of the Property before, on or after the Effective Date, and regardless of whether resulting from any acts or omissions of Seller (INCLUDING THOSE ARISING FROM SELLER'S SOLE, JOINT, CONCURRENT, OR COMPARATIVE NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT) or the condition of the Property when acquired, including but not limited to the following:

(a) Environmental pollution or contamination, including pollution or contamination of the soil, groundwater or air by Hydrocarbons, drilling fluid or other chemicals, brine, produced water, NORM, or any other substance;

(b) Underground injection activities and waste disposal on the Property;(c) Clean-up responses, and the cost of remediation, control, assessment or compliance with respect to surface and subsurface pollution caused by spills, pits, ponds, lagoons or subsurface storage tanks;

(d) Non-compliance with applicable land use, surface disturbance, licensing or notification Laws or Orders;

(e) Disposal on the Property of any hazardous substances, wastes, materials and products generated by or used in connection with the ownership or operation of the Property before, on or after the Effective Date; and

(f) Non-compliance with Environmental Laws.

(Id. at 45-46 (capitalization original).) As reflected in Exhibit G to the PSA, entitled "Certain Environmental Matters," Paladin provided Plaintiff notice of Spill A. (Id. at 95.)

On June 11, 2017, a spill occurred at another Paladin well site in New Mexico (Spill B), and Paladin notified Plaintiff of Spill B on June 14, 2017. (doc. 9 at 3-4.) It also notified Defendant and filed a claim for coverage under the Paladin Policies for the costs associated with Spill B, and the NMOCD assigned a release remediation permit for Spill B. (Id. at 4.)

On or about July 13, 2017, Plaintiff's insurance broker sent Defendant a schedule of the Paladin wells Plaintiff had acquired, and reminded it of the outstanding pollution claims for Spills A and B. (Id. at 3.) On the same day, a claims adjuster for Defendant confirmed that it "would be paying for both claims." (Id.) An email dated July 14, 2017, from the adjuster to Paladin stated that she had reviewed the Paladin Policies and did not see a deductible under Defendant's general liability policy. (Id. at 3; doc. 9-3 at 1-2.)

On July 21, 2017, the bankruptcy court approved the sale of substantially all of Paladin's assets to Plaintiff under the PSA, and issued an order authorizing the assumption and assignment or negation of executory contracts and unexpired leases, if necessary. (See Paladin Bankr., doc. 266.)The sale closed on August 18, 2017. (doc. 9 at 2.) On September 7, 2017, Defendant sent Paladin two letters stating that it had "settled the property damage claim filed against your St. Paul Fire And Marine policy" in connection with Spill A. (Id. at 3; doc. 9-4.)⁴

In October 2017, Plaintiff, Paladin, and EeTradeco, LLC (EeTradeco) entered into a Transition Agreement "to vest EeTradeco with the power and authority to assist in effectuating the orderly transitions of the rights and responsibilities relating to" Spills A and B and to certain properties assigned to Plaintiff under the PSA. (doc. 9-2 at 2.) On November 29, 2017, Defendant's adjuster emailed EeTradeco requesting "information on the status of [NMOCD's] approval of the completed clean-up on Spill A, and the proposed remediation plan on Spill B." (doc. 9 at 4.) On the same day, EeTradeco notified the adjuster that Plaintiff "had been operating the assets since mid-August and forwarded the environmental consulting invoices for reimbursement." (Id.) On June 11, 2018, NMOCD emailed Plaintiff, Defendant, and a third-party remediation contractor that the proposed remediation plan for Spill B was approved. (Id. at 4, doc. at 9-6.)

On January 19, 2018, the bankruptcy court issued an order confirming the Chapter 11 liquidation of Paladin. (See Paladin Bankr., doc. 301.) On or about February 28, 2019, a conference call was conducted between Defendant, Plaintiff, the...