IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 15-30874

SOLSTICE OIL & GAS I, L.L.C.,

 Plaintiff - Appellant

v.

 

 

SENECA INSURANCE COMPANY, named as Seneca Insurance Company, 

Incorporated; COMMERCE AND INDUSTRY INSURANCE COMPANY, 

 Defendants - Appellees

v.

OBES, INCORPORATED, doing business as Ole Brook Directional Services, 

 

 Defendant – Appellant

Appeals from the United States District Court

for the Eastern District of Louisiana

USDC No. 2:12-CV-2417

Before REAVLEY, HAYNES, and HIGGINSON, Circuit Judges.

PER CURIAM:*

 

* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not 

be published and is not precedent except under the limited circumstances set forth in 5TH 

CIR. R. 47.5.4.

United States Court of Appeals

Fifth Circuit

FILED

July 21, 2016

Lyle W. Cayce

Clerk

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This appeal arises from an insurance coverage dispute related to a failed 

oil drilling operation. As the district court prematurely addressed whether the 

insurers had a duty to indemnify, we VACATE and REMAND for further 

proceedings. 

I. Background

After identifying an oil prospect near Avondale, Louisiana, Solstice Oil

& Gas I, L.L.C. (Solstice) and JAM Petroleum, LLC (JAM) entered into an 

agreement under which Solstice would provide financing as the nonoperating 

interest holder, while JAM would act as operator of the leases and supervise

drilling operations. JAM then contracted with a Texas corporation, Obes, 

Incorporated (Ole Brook), to provide directional drilling services and create a

well that would eventually lead to the oil prospect. Directional drilling is the 

practice of controlling the direction and deviation of a nonvertical wellbore to 

a predetermined underground target—in other words, drilling diagonally.

After Ole Brook began its directional drilling work in November of 2011, 

the project experienced significant difficulties. Ole Brook’s directional drilling

tools malfunctioned, resulting in the well deviating from its planned course by 

more than 400 feet. After unsuccessfully attempting to correct the deviation, 

Ole Brook subcontracted with PinPoint Drilling and Directional Services, LLC 

to provide directional drilling tools and survey data for the remainder of the 

drilling project. After experiencing additional complications, Ole Brook was 

officially discharged from the project on December 27, 2011. 

Surveys in January showed that the well was even farther off-course 

than initially thought, and JAM subsequently concluded that the well could no 

longer be used and abandoned it. JAM then attempted to drill a second sidetrack well to reach the oil prospect, but this well was determined to be a dry 

hole and the project was abandoned. 

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Thereafter, Solstice sued Ole Brook in the Eastern District of Louisiana, 

alleging that Ole Brook’s actions resulted in a misshaped well that caused 

“physical injury to the well and to the integrity of the wellbore.” Solstice also 

sued Ole Brook’s insurers, Seneca Insurance Company (Seneca) and Commerce 

and Industry Insurance Company (C&I), under Louisiana’s Direct Action 

Statute. Ole Brook subsequently filed counterclaims against Solstice and 

crossclaims against Seneca and C&I. Seneca agreed to defend Ole Brook in its 

litigation with Solstice, pursuant to a reservation of rights to deny coverage. 

Seneca had provided Ole Brook with a $1 million commercial general 

liability policy, while C&I had provided a $2 million follow-form excess policy. 

Both policies contained substantially identical language that provided

coverage in the event that Ole Brook “becomes legally obligated to pay as 

damages” as a result of “property damage.”1 

Not all witnesses listed on Ole Brook’s witness list were deposed during 

discovery. Nonetheless, Seneca and C&I filed separate motions for summary

judgment arguing that they were entitled to summary judgment on the claims 

and crossclaims against them because their insurance contracts with Ole 

Brook did not cover, or specifically excluded from coverage, the damages 

allegedly suffered by Solstice as a result of Ole Brook’s conduct. In particular, 

both insurers argued that Solstice could not show that Ole Brook damaged any 

property, and, in the alternative, that their insurance policies contained a 

number of exclusions that foreclosed any duty to indemnify Ole Brook. In their

opposition to summary judgment, Solstice and Ole Brook pointed to testimony 

 

1 Both policies define “property damage” as:

a. Physical injury to tangible property, including all resulting 

loss of use of that property. . . . ; or

b. Loss of use of tangible property that is not physically injured. 

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indicating that the well was drilled in a crooked way2 and contended that 

property damage occurred. 

The district court granted Seneca’s and C&I’s motions for summary 

judgment, concluding that the insurers did not have a duty to indemnify Ole 

Brook, and entered final judgment under Rule 54(b). This appeal followed. 

II. Standard of Review

We review a choice of law determination de novo. Nat’l Union Fire Ins. 

Co. of Pittsburgh v. Am. Eurocopter Corp., 692 F.3d 405, 408 (5th Cir. 2012). 

Questions of subject matter jurisdiction and grants of summary judgment are 

likewise reviewed de novo. Borden v. Allstate Ins. Co., 589 F.3d 168, 170 (5th 

Cir. 2009). We “have an independent obligation to determine whether subjectmatter jurisdiction exists, even in the absence of a challenge from any party.” 

Arbaugh v. Y&H Corp., 546 U.S. 500, 514 (2006). 

III. Discussion

A. Choice of law

We deem Texas law to apply to this case.3 “In a diversity case such as 

this one, federal courts must apply the choice of law rules in the forum state in 

which the court sits.” Am. Int’l Specialty Lines Ins. Co. v. Canal Indem. Co., 

 

2 For example, Solstice’s Ryan Stevenson called the well “a bad hole” because it “bent 

back and forth” and was over 750 feet off-target. Solstice manager Gordon Samson stated 

that the whole wellbore was damaged, stating: “We were aware that some tools were lost . . . 

what was damaged specifically was the entire wellbore.” JAM’s onsite representative, 

Thomas Dirks, testified that a survey showed “a very irregular hole” with “doglegs and turns 

and twists that shouldn’t have been there.” Solstice’s expert, Bill Griffin, stated in his 

affidavit that a survey showed “pronounced dogleg severity indicating significant and abrupt

bends in the wellbore.” JAM’s company man, Eddie Bond testified that the well was damaged 

due to “having the formations open . . . to the drilling fluids,” which would lead to the hole 

“deteriorating on its own.” 

3 The district court concluded that any distinctions between Texas and Louisiana law 

were not outcome determinative. Following our request for supplemental briefing on the 

justiciability question, however, some of the parties argued that Texas law and Louisiana 

law would differ in their approaches to prematurity. Because it is clear that Texas law 

applies, we need not address in detail the differences between the two.

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352 F.3d 254, 260 (5th Cir. 2003). This case was filed in the Eastern District 

of Louisiana. We therefore apply Louisiana’s choice of law rules, which 

generally dictate that the laws of the state where an insurance policy was 

issued—here, Texas—should govern. See Abraham v. State Farm Mut. Auto. 

Ins. Co., 465 F.3d 609, 610, 614 (5th Cir. 2006) (applying Mississippi law in a 

direct action claim related to a Louisiana car accident because Mississippi was 

“the state where the insurance policy was negotiated and formed”); 

Champagne v. Ward, 893 So. 2d 773, 789 (La. 2005) (applying Mississippi law

in a direct action claim because the policy was negotiated and formed in 

Mississippi, even though defendant was a Louisiana resident and accident 

occurred in Louisiana); Harrison v. R.R. Morrison & Son, Inc., 862 So. 2d 1065, 

1070 (La. Ct. App. 2003) (collecting cases and concluding that “Louisiana 

courts have often interpreted insurance policies according to the law of the 

state where the policy was issued”); Palm v. Stewart, 858 So. 2d 790, 795 (La. 

Ct. App. 2003) (applying Texas law in a direct action claim and noting that 

Texas has a “compelling interest . . . in regulating insurance contracts written 

in Texas and issued to Texas residents”). 

None of the parties involved in this suit is a citizen or resident of 

Louisiana. The insurers, Seneca and C&I, are both New York corporations, 

while Solstice is a Delaware limited liability corporation. Most importantly, 

the insurance policies were issued to Ole Brook, a Texas corporation with its 

principal place of business in Texas. In fact, the policies themselves indicate 

the parties’ intent for Texas law to apply: the Seneca policy includes changes 

to the policies to comply with Texas law, while the C&I policy includes a Texas 

policy disclosure notice and a Texas amendatory endorsement. The only 

significant connection to Louisiana is that the failed drilling operations took 

place there. Therefore, Texas law applies to this case. 

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B. Texas law

“In liability insurance policies generally, an insurer assumes both the 

duty to indemnify the insured, that is, to pay all covered claims and judgments 

against an insured, and the duty to defend any lawsuit brought against the 

insured that alleges and seeks damages for an event potentially covered by the 

policy . . . .” D.R. Horton-Texas, Ltd. v. Markel Int’l Ins. Co., 300 S.W.3d 740, 

743 (Tex. 2009) (citation omitted). “Texas law only considers the duty-toindemnify question justiciable after the underlying suit is concluded, unless 

‘the same reasons that negate the duty to defend likewise negate any possibility 

the insurer will ever have a duty to indemnify.’” Northfield Ins. Co. v. Loving 

Home Care, Inc., 363 F.3d 523, 529 (5th Cir. 2004) (quoting Farmers Tex. Cty. 

Mut. Ins. Co. v. Griffin, 955 S.W.2d 81, 84 (Tex. 1997)). Thus, we may only 

reach the merits of the insurers’ duty to indemnify if “[n]o facts can be 

developed” in the liability case between Solstice and Ole Brook that could 

create a possibility of insurance coverage. See Griffin, 955 S.W.2d at 84.

“Accordingly, the duty to indemnify typically cannot be adjudicated until there 

has been a judgment in the underlying suit because facts proven at trial may 

differ slightly from the allegations.”4 Hartford Cas. Ins. Co. v. DP Eng’g, 

L.L.C., ___ F.3d ____, 2016 WL 3552312, at *6 (5th Cir. June 29, 2016) (citing 

Griffin, 955 S.W.2d at 83–84). 

We have held that justiciability is a federal law question even when state 

substantive law applies. Home Ins. Co., of Ind. v. Moffitt, 990 F.2d 625, 1993 

WL 117762, at *3 (5th Cir. 1993). We have nonetheless adopted the Griffin 

framework in addressing justiciability where the insurance policy is governed 

 

4 In granting the insurers’ motion for summary judgment, the district court relied

primarily upon our unpublished decision in PPI Tech Servs., L.P. v. Liberty Mut. Ins. Co., 515 

F. App’x 310, 314 (5th Cir. 2013). However, that case did not address the justiciability of 

duty to indemnify because, by the time of appeal, all parties acknowledged that the indemnity 

question was moot. See id.

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by Texas law.5 See, e.g., Hartford Cas., 2016 WL 3552312, at *6 (affirming 

summary judgment for insurer on duty to defend but reversing district court’s 

grant of summary judgment because “[t]he factual allegations do not negate 

any possibility that [the insurer] will ever have a duty to indemnify”); Willbros 

RPI, Inc. v. Constr. Cas. Co., 601 F.3d 306, 313 (5th Cir. 2010) (noting, in an 

insurance case related to a directional drilling project gone awry, that the duty 

to indemnify was nonjusticiable because the “defendants in the underlying suit 

might be liable for mistakes in drilling, for negligently approving the plans, or 

for nothing at all. In such a case, facts necessary to determine whether a duty 

to indemnify arises cannot be known until after liability is determined”). Thus, 

we refer to the Griffin framework to decide justiciability.6 

Here, the duty to indemnify is nonjusticiable because Seneca’s actions 

foreclose any argument that the “same reasons that negate the duty to defend 

likewise negate any possibility [Seneca] will ever have a duty to indemnify.” 

Griffin, 955 S.W. 2d at 84 (emphasis omitted). Seneca has made no attempt to

argue that it had or has no duty to defend; to the contrary, it conceded at oral 

argument that the amended complaint’s allegations require a defense and it 

has, therefore, defended this case under a reservation of rights letter.7 The 

 

5 The justiciability principle outlined in Griffin is derived from the Texas 

Constitution’s prohibition on advisory opinions, see 955 S.W.2d at 83, which are also 

prohibited under federal law, see Rivera v. PNS Stores, Inc., 647 F.3d 188, 198 (5th Cir. 2011).

Thus, federal and Texas law are consistent in this regard.

6 Cf. Flagg v. Stryker Corp., 819 F.3d 132, 137 (5th Cir. 2016) (en banc) (looking to 

state law to determine whether the district court properly exercised diversity jurisdiction in 

the improper joinder context); F. Andrew Hessick, Cases, Controversies, and Diversity, 109 

NW. U. L. REV. 57, 77–90 (2014) (arguing that federal courts sitting in diversity should 

employ state justiciability doctrines, as doing so would be consistent with the text of Article 

III and would promote the goal of providing an alternative federal forum for the resolution of 

state law claims).

7 Specifically, Seneca’s counsel pointed out that a defense was denied under the 

original complaint, which alleged only a breach of contract. Counsel then stated: “The 

complaint was amended; it tracked the language of the underground resources and 

equipment hazard endorsement. Look at the eight corners: there was a duty to defend. We 

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fact that the pleadings support coverage under the policy suggests that there 

is at least some “possibility [it] will . . . have the duty to indemnify.” Id.; see 

also Westport Ins. Corp. v. Atchley, Russell, Waldrop & Hlavinka, L.L.P., 267 

F. Supp. 2d 601, 626 (E.D. Tex. 2003) (“The Court has found no Texas case in 

which the Court announced that, applying Texas state law, the duty to defend 

was triggered, and simultaneously decided that the duty to indemnify could 

not arise for lack of coverage.”). Of course, it is also possible that the facts will 

develop in such a way that a duty to indemnify will not exist because of one of 

the following: (1) there is no need for indemnity due to no liability being found 

on the part of Ole Brook; (2) the facts found do not support a conclusion that 

property damage within the policy definition occurred; or (3) the trial findings 

demonstrate that one of the exclusions apply.

C&I argues that the duty to indemnify is justiciable at this juncture 

because the plaintiff, insured defendant, and insurers are joined in the same 

proceedings by way of Louisiana’s Direct Action Statute. Despite this 

procedural posture, however, it is readily apparent that “facts can be 

developed” at trial that would support a finding that at least some of Ole 

Brook’s conduct related to the failed directional drilling project triggered

coverage under the relevant policies. Griffin, 955 S.W. 2d at 84. Beyond the 

already existing testimony indicating that the well was drilled in a crooked 

fashion, Ole Brook also points to a number of witnesses who were not deposed 

but who could testify at trial on relevant issues such as subcontractors, 

surveyors, and consultants. The summary judgment evidence does “not 

conclusively foreclose that facts adduced at trial” may emerge that could create 

 

reserved rights because some things were covered, some things were not covered.” For its 

part, C&I’s counsel stated that, at the point of the summary judgment motion, the duty to 

defend was a “foregone conclusion.” The duty to defend is not before us, and we in no way 

imply that Seneca should not have defended or continue to defend this case.

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a duty to indemnify by the insurers. Hartford Casualty, 2016 WL 3552312, at 

*6. 

In sum, whether the insurers have a duty to indemnify is nonjusticiable

at the current stage of the litigation.8 We therefore VACATE the district 

court’s grant of summary judgment and REMAND for further proceedings. 

 

8 The applicability of any exclusions in the Seneca and C&I policies are likewise 

nonjusticiable at this juncture, as none of them have been conclusively proven. 

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