A jury in Harris County, Texas, has returned a $41.6 million verdict in favor of Prime Natural Resources in its lawsuit involving a coverage dispute with insurer Lloyd’s of London. The dispute was over damage caused to a drilling rig in the Gulf of Mexico during Hurricane Rita in 2005. The jury awarded Prime damages, first on six findings of bad faith by Lloyd’s of London in adjusting and handling the claims and for bad faith knowingly committed by the insurer. The total verdict was about $41.6 million, including $1.6 million in attorney’s fees.

Ward Goolsby, who represented Prime, told Law360 that the case was one of first impression. He said no lawsuit regarding this specific type of policy had ever been tried to a jury before. Goolsby said this case centered on a dispute between Prime and the insurer over whether the costs it was trying to recoup were related to damage to the well or damage to the platform. He said the jury’s verdict sends a clear message to the energy industry that it can rely on these policies to be made whole following hurricanes and storms that regularly strike in the Gulf of Mexico.

John Zavitsanos, a lawyer who also represented Prime, said during trial that the argument of Lloyd’s – that certain parts of the well were not actually part of the well – was akin to saying the bumper is not part of a car, or that icing is not part of a cake. “It was those kind of common, every day sort of metaphors that helped the jury clue in that they’re selling a story that just doesn’t add up,” Goolsby said, explaining the jury adopted Prime’s argument that the well included more than Lloyd’s interpretation.

Goolsby also said at least five of the jurors worked in the energy industry, and some had experience in well completion. That background knowledge, he said, also helped in the jurors’ reaching the verdict in Prime’s favor because the jurors believed their “intelligence was being insulted” on the issue of what constitutes a well.

In March 2015, Texas’ First Court of Appeals held that Lloyd’s of London could withhold nearly $5 million in coverage from Prime, after finding the policy insuring the offshore drilling assets damaged during 2005’s Hurricane Rita did not cover “platform repair” or “debris cleanup costs.” In this lawsuit, Prime was not seeking platform-related costs. Prime had asked an appellate court to decide whether the trial court erred in granting summary judgment to a group of Lloyd’s underwriters and declaring that certain sections of the policy didn’t provide coverage. The appellate court declined to overturn the lower court’s judgment, finding that neither of the two policy sections cited by Prime covered the costs to replace, repair or refurbish the platform or platform equipment, or to remove platform debris.

Prime alleged that the insurer issued a one-year policy in April 2005 covering a Prime well and platform. Months later, Hurricane Rita struck, bending the well at a more than 90-degree angle, toppling the platform and damaging the attached pipeline. Repair costs exceeded $17 million, which Prime said was “unambiguously covered” under the policy. The trial court granted Lloyd’s summary judgment after the insurer said it paid coverage limits on the platform it deemed to be a total loss. Lloyd argued that Prime was attempting to recover additional costs not covered by the policy. The trial court agreed and ruled for Lloyd.

Prime later appealed, contending that although Lloyd’s had paid about $4 million in repair and cleanup costs, maxing out the limits of coverage available under a provision of the policy covering the drilling platform, Prime was entitled to the additional $4.7 million for restoring the damaged well. But Lloyd’s argued those policy provisions were never triggered because there was no evidence that the wells posed a danger. Lloyd’s argument was:

  • Safety valves closed off the flow of hydrocarbons when the disaster struck, and Prime was later able to temporarily seal off the wells while repair and cleanup operations were ongoing
  • The policy offered coverage only for repairs needed to wells spilling out of control.
  • Prime underinsured its own platform and was trying to improperly recharacterize platform debris removal as being insurable under the policy’s well restoration provisions.

The jury rejected these arguments and found for Prime, finding that Lloyd acted in bad faith. Prime Natural is represented by John Zavitsanos, Foster C. Johnson, Sammy Ford IV and Edward Goolsby of Ahmad Zavitsanos Anaipakos Alavi & Mensing PC and Randy Roach of Roach & Newton LLP. The case is Prime Natural Resources Inc. v. Certain Underwriters at Lloyd’s, London Syndicate (case number 2015-51137) in the 129th District Court in Harris County, Texas.

Source: Law360.com

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