Nearly 12 years after Hurricane Rita ripped through the Gulf of Mexico, a Texas jury last week ordered an insurer to pay over $41 million to an oil company that lost an offshore oil-drilling platform and well, including $28 million in punitive damages and more than $1.6 million in attorney fees.
The six-week trial revolved around claims by Houston-based equity firm Prime Natural Resources that the well’s insurer, Lloyd’s of London, improperly refused to reimburse some of the expenses it incurred to repair and replace it.
Prime was seeking $1.8 million in damages and more than $1 million in attorney fees; lead plaintiffs attorney John Zavitsanos of Houston’s Ahmad, Zavitsanos, Anaipakos, Alavi & Mensing said that, once interest and statutory penalties are factored in, he expects the award to climb by a few million dollars more.
No settlement offer from Lloyd's
Lloyd’s offered “absolutely nothing” to settle the case prior to trial, he said.
Zavitsanos, who tried the case with firm colleagues Sammy Ford IV, Foster Johnson and Ward Goolsby, said the case involved issues of first impression for Texas courts regarding insurers’ duties under the Texas Insurance Code and is particularly important for smaller companies such as Prime.
According to Zavitsanos and court filings, the case involved a policy Prime and its partner in the well, W&T Offshore Inc., purchased in April 2005.
It was not a good year to insure oil wells in the Gulf of Mexico with Hurricane Katrina ravaging the Gulf before laying waste to New Orleans and the Louisiana coast in August 2006. Rita struck less than a month later. Hundreds of wells were damaged or destroyed, Zavitsanos said.
Wellsure insurance policies
The Prime well, like the majority of the others, was covered by Wellsure insurance policies, a package that includes preventive services provided by well-control firm Boots & Coots as well as insurance for various well components.
As Zavitsanos explained, the policy package divides coverage into “silos” of coverage available for purchase: one for the well, one for the platform, one for environmental contamination and so forth.
“It’s like a cafeteria,” he said. “Most energy companies purchase a lot of coverage for the oil well and very little for the platform.”
“We believe that Lloyd's at some point began concocting a way to avoid coverage under these policies … and that this was sort of a test case for them,” he said.
The actual cost to replace the well and platform and remove the debris was more than $17 million, with Prime responsible for half.
While Prime was being stiff-armed as it demanded coverage for its losses, its partner–the much larger W&T — “was paid 99 cents on the dollar for the exact same expenses on the exact same policy by the same vendor,” Zavitsanos said.
Breach of contract, unfair acts, breach of good faith & fair dealing
In 2015, Prime sued Lloyd’s in Harris County’s 129th Judicial District, asserting claims for breach of contract, unfair or deceptive acts under Texas’ Insurance Code, failure to promptly pay claims under the code and breach of the common law duty of good faith and fair dealing.
During the six-week trial before Judge Michael Gomez, Zavitsanos said the jury was clearly put off by the insurer’s arguments that the claim was for parts of the drilling platform — whose coverage had already been exhausted — rather than for parts of the well itself.
“For example, they took the position that the wellhead [the portion of the well containing the casing and valve mechanisms] is not part of the oil well, that it was actually part of the platform,” he said. “They said the conductor — the outer part of the pipe — was actually part of the platform.”
Zavitsanos said the jurors took about a day and a half to reach its verdict.
In conversation afterwards, he said the jurors indicated that “they took their duty about being the conscience of the community and sending a message to insurers very seriously.”
Greg Land is a reporter for the Texas Lawyer, an ALM Media property. He can be reached at firstname.lastname@example.org.
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