Opinion ID: 152248
Heading Depth: 3
Heading Rank: 3

Heading: Exclusions 2.j.(5) and 2.j.(6) in the CGL Policy

Text: Mid-Continent argues that exclusions 2.j.(5) and 2.j.(6) in the CGL Policy exclude from coverage all the damages at issue. The district court found that these exclusions were inapplicable because they were superseded by the CGL Policy's Oil & Gas Endorsement. We review the district court's interpretation of the policy de novo. Finger Furniture Co. Inc., 404 F.3d at 314. After reviewing the terms of the policy, we conclude that these exclusions do not negate coverage here. [8] Endorsements to a policy generally supersede and control over conflicting printed terms within the main policy; however, the provisions found in the main policy and endorsement should be construed together unless doing so would negate or render superfluous the additional coverage afforded in the endorsement. See Mesa Operating Co. v. Cal. Union Ins. Co., 986 S.W.2d 749, 754-55 (Tex.App.-Dallas 1999, pet. denied). Exclusion 2.j.(5) excludes all property damage to real property that is the subject of Bay Rock's drilling operations. The Oil & Gas Endorsement provided Bay Rock with additional coverage for property damage to [a]ny formation strata or area in or through which exploration for or production of any substance is carried on. The application of exclusion 2.j.(5) would eliminate the additional coverage that Bay Rock purchased with the Oil & Gas Endorsement. Accordingly, we conclude that the district court did not err in finding that exclusion 2.j.(5) was superseded. Exclusion 2.j.(6) removes from coverage property damage to that particular part of any property that must be restored, repaired or replaced because [Bay Rock's] work was incorrectly performed on it. Exclusion 2.j.(6) has been interpreted to apply only to property damage to parts of a property that were themselves the subject of defective work by [an] insured. Mid-Continent Cas. Co. v. JHP Dev., Inc., 557 F.3d 207, 215 (5th Cir.2009). As a result, the exclusion does not bar coverage for damage to parts of a property that were the subject of only nondefective work by the insured and were damaged as a result of the defective work by the insured on other parts of the property. Id. Given this interpretation of the exclusion, we will first address whether exclusion 2.j.(6) even applies to the damages at issue. Mid-Continent argues that Bay Rock was contracted to supervise the drilling of Striebeck No. 1 as a whole, and, because the damages at issue resulted from Bay Rock's defective supervision, all property damage related to the well is excluded by 2.j.(6). Mid-Continent's argument is inconsistent with the case law and the terms of the exclusion, which restricts the exclusion to property damage to that particular part of Striebeck No. 1 that was the subject of Bay Rock's defective work. The state liability suit established that the damages at issue were incurred as a result of Bay Rock's negligent decision to drill ahead without running a true formation integrity test (`FIT'), also known as a `shoe test' or `casing seat test,' to ensure that the intermediate casing seat and surrounding formation could withstand the anticipated higher pressures as they drilled further down-hole. Bay Rock Operating Co., 298 S.W.3d at 227, 230. The state court suit shows that the intermediate casing seat and the surrounding formation were the property that was the subject of Bay Rock's defective work, and, as a result, exclusion 2.j.(6) only applies to property damage to that property; the exclusion does not apply to any resulting damage to other property. Mid-Continent does not point to any evidence that any of the costs awarded were specifically for property damage to the intermediate casing seat or the surrounding formation. [9] Consequently, we hold that exclusion 2.j.(6) does not apply to any of the damages at issue. If we accepted Mid-Continent's interpretation of 2.j.(6), as applying to any and all property damage to Striebeck No. 1, we would still find 2.j.(6) inapplicable because Mid-Continent's interpretation would cause an irreconcilable conflict between the exclusion and the additional coverage purchased by Bay Rock in the Oil & Gas Endorsement. In the Oil & Gas Endorsement, Bay Rock purchased coverage for any damage to the formation, strata, or area in which it worked, as well as coverage for all surface and subsurface property damage from a blowout. [10] The application of exclusion 2.j.(6), as interpreted by Mid-Continent, would exclude from coverage all the additional property damage coverage described within the Oil & Gas Endorsement. Accordingly, even if we accepted Mid-Continent's interpretation, we would still find exclusion 2.j.(6) inapplicable because Mid-Continent's interpretation would lead us to conclude that the exclusion was superseded. In summary, we find that the district court did not err in finding that exclusions 2.j.(5) and 2.j.(6) did not remove from coverage the damages awarded against Bay Rock.