Court Opinion

ID: 6222020
Source: CourtListenerOpinion
Date Created: 2022-02-16 01:00:31.602986+00
Date Added: 2024-06-11T08:57:25.322692
License: Public Domain

Case: 20-50892      Document: 00516203340         Page: 1     Date Filed: 02/15/2022

            United States Court of Appeals
                 for the Fifth Circuit                                   United States Court of Appeals
                                                                                  Fifth Circuit

                                                                                FILED
                                                                         February 14, 2022
                                   No. 20-50892                            Lyle W. Cayce
                                                                                Clerk

   Cimarex Energy Company; St. Paul Fire & Marine
   Insurance Company, as Subrogees of Cimarex Energy Company;
   American Guarantee & Liability Insurance Company, as
   Subrogees of Cimarex Energy Company,

                                                            Plaintiffs—Appellants,

                                       versus

   CP Well Testing, L.L.C.,

                                                            Defendant—Appellee.

                   Appeal from the United States District Court
                        for the Western District of Texas
                                No. 7:19-cv-00068

   Before Owen, Chief Judge, Jones, and Wilson, Circuit Judges.
   Cory T. Wilson, Circuit Judge:
          The Texas Oilfield Anti-Indemnity Act (“TOAIA”) voids indemnity
   agreements that pertain to wells for oil, gas, or water or to mineral mines,
   unless the indemnity agreement is supported by, inter alia, liability insurance.
   Here, pursuant to TOAIA, CP Well Testing, LLC and Cimarex Energy Co.
   agreed in a Master Service Agreement (the “MSA”) to obtain a minimum
   amount of insurance coverage to indemnify one another. CP Well obtained
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   more coverage than the minimum required by the MSA, but its insurance
   policy contains a proviso limiting indemnity coverage. After an accident,
   Cimarex settled with the injured party for an amount above the minimum
   indemnity required by the MSA. In the wake of that settlement, a dispute
   arose between CP Well and Cimarex over CP Well’s indemnification
   obligation. At issue is how much insurance CP Well obtained “for the benefit
   of the other party as indemnitee.” Tex. Civ. Prac. & Rem. Code
   Ann. § 127.005(b). The district court considered the terms of CP Well’s
   insurance policy to answer that question and granted summary judgment for
   CP Well based on the court’s conclusion that CP Well owed Cimarex no
   further indemnity beyond the MSA’s minimum. We AFFIRM.
                                             I.
           The underlying facts are undisputed. In 2010, CP Well and Cimarex
   entered into the MSA. Thereafter, Cimarex hired CP Well to work at an oil
   well in Oklahoma that was owned and operated by Cimarex. CP Well
   assigned Johnny Trent, an employee of one of its subcontractors, to work at
   the well. On April 25, 2015, a flash fire occurred at the well and Trent was
   severely burned.
           On January 8, 2016, Trent sued Cimarex, CP Well, and Cudd Energy
   Services, Inc. in Oklahoma state court for his injuries.1 Cimarex and its
   insurers, St. Paul Fire & Marine Insurance Company and American

           1
            Cudd Energy Services, Inc.’s employees were working on the oil well when Trent
   was injured. Cudd and Cimarex entered into a separate services agreement that included a
   contractual indemnity obligation between the two parties. Cudd is not a party to this
   lawsuit.

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   Guarantee & Liability Insurance Company, (collectively “Cimarex”) settled
   the underlying lawsuit with Trent for $4.5 million.2
           The MSA contains a mutual indemnity provision that required
   Cimarex and CP Well to indemnify each other from “claims arising out of
   performance of [the MSA], regardless of fault, involving: (a) damage to or
   loss of any equipment or property of any member of the contractor group, or
   (b) personal injury, illness, or death of any member of [the] contractor
   group.”     The parties were also required, “[i]n support of the mutual
   indemnity obligations, duties, and liabilities each Party assume[d] in th[e
   MSA], . . . at [their] own cost, to obtain and maintain, for the benefit of the
   other Party . . . as Indemnitees, liability insurance.” CP Well was obligated
   to obtain a minimum of $1 million in commercial general liability (“general
   liability”) insurance and $2 million in umbrella or excess liability (“excess
   liability”) insurance. CP Well obtained a $1 million general liability policy
   and an excess liability policy with coverage limits of $10 million, i.e.,
   $8 million more than the minimum coverage required by the MSA. For its
   part, Cimarex was required to obtain $1 million in general liability insurance
   and $25 million in excess liability insurance, which it did in due course.
           After the Trent settlement, Cimarex sought indemnity from CP Well.
   CP Well paid Cimarex $3 million, but it refused to indemnify Cimarex for the
   remaining $1.5 million, relying on the language of the MSA’s indemnity
   provision. Disagreeing with CP Well’s interpretation of their contract,
   Cimarex brought this action against CP Well for the settlement balance.

           2
              St. Paul wrote Cimarex’s general liability insurance policy. American Guarantee
   wrote a “Commercial Umbrella Liability Policy” that covered Cimarex’s excess liability.
   They sue CP Well here as Cimarex’s subrogees to recoup $1.5 million of the $4.5 million
   paid to Trent to settle the underlying lawsuit. St. Paul separately paid Trent on behalf of
   Cudd as part of the settlement between Cimarex and Trent, but that payment is not at issue
   in this case.

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   Cimarex sought a declaration that CP Well had a contractual duty to defend
   and indemnify Cimarex against Trent’s claims up to $11 million (CP Well’s
   total insurance coverage). After discovery, Cimarex and CP Well filed cross-
   motions for summary judgment.
          Deciphering the indemnity issue, the district court was guided by the
   Texas Supreme Court’s application of TOAIA in Ken Petroleum Corp. v.
   Questor Drilling Corp., 24 S.W.3d 344 (Tex. 2000). See St. Paul Fire & Ins.
   Co. v. CP Well Testing, LLC, 489 F. Supp. 3d 635, 641–42 (W.D. Tex. 2020).
   The district noted that Ken Petroleum held that § 127.005(b) of TOAIA
   “contemplate[d] that the mutual indemnity obligations will be enforceable
   only up to ‘the extent of the coverage and dollar limits of insurance or
   qualified self-insurance each party as indemnitor has agreed to provide in
   equal amounts to the other party as indemnitee.’” Id. at 642 (quoting Ken
   Petroleum, 24 S.W.3d at 350 (discussing then-operative 1991 version of Tex.
   Civ. Prac. & Rem. Code Ann. § 127.005)). “Thus, ‘[w]hen the
   parties agree to provide differing [or unspecified] amounts of coverage, the
   mutual indemnity obligations are limited to the lower amount of insurance.’”
   Id. (quoting Ken Petroleum, 24 S.W.3d at 351) (alterations in original).
          Muddling the issue, Cimarex and CP Well contested “whether the
   MSA included a specific dollar amount of insurance each party was supposed
   to obtain.” Id. In answering this question, the district court concluded that
   in the MSA, “the parties merely agreed to a floor” of indemnity insurance
   that CP Well agreed to obtain—general liability coverage of $1 million and
   excess liability coverage of at least $2 million—and did not set a specific level
   of coverage. Id. at 643. “Because the MSA does not limit the amount of
   coverage the parties agreed to obtain to support their indemnity obligations,”
   the court then looked to TOAIA to determine “the lowest common
   denominator of insurance coverage between the parties.” Id. (internal
   quotation marks and citations omitted). The district court centered that

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   analysis on “the amount of coverage CP Well agreed to obtain for Cimarex’s
   benefit.”     Id. (citing Tex. Civ. Prac. & Rem. Code Ann.
   § 127.005(b)).
          CP Well contended that it only agreed to maintain $1 million in
   general liability insurance and $2 million in excess liability insurance to meet
   its indemnification obligation under the MSA; the remaining coverage in its
   excess liability coverage was thus not for the benefit of Cimarex. In response,
   Cimarex contended that because CP Well obtained a $1 million general
   liability policy and a $10 million excess liability policy, CP Well effectively
   agreed to maintain $11 million in indemnity coverage for Cimarex’s benefit.
          The district court looked to the terms of CP Well’s excess liability
   policy to resolve the dispute. Id. at 644–45. Subsection E of CP Well’s excess
   liability policy states:
          [T]he most [the insurer] will pay for damages under this policy
          on behalf of any person or organization to whom [CP Well] [is]
          obligated by written Insured Contract to provide insurance
          such as is afforded by this policy is the lesser of the Limits of
          Insurance shown in Item 3. of the Declarations [i.e.,
          $10 million,] or the minimum Limits of Insurance [CP Well]
          agreed to procure in such written Insured Contract.
   The policy defines “Insured Contract” as “any contract or agreement
   pertaining to [CP Well’s] business under which any Insured assumes the tort
   liability of another party to pay for Bodily Injury or Property Damage to a
   third person or organization.” The district court noted that the “parties
   agree[d] that the MSA” falls within the policy’s definition of “Insured
   Contract.” Id. at 644. It then determined that the “lesser of the Limits of
   Insurance . . . or the minimum Limits of Insurance” CP Well agreed to
   procure was the MSA’s $3 million minimum total indemnity coverage
   ($2 million of which was encompassed by the excess liability policy

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   coverage). Id. at 644–45. The district court in turn held that CP Well did not
   breach the MSA because CP Well was only required to indemnify Cimarex
   up to $3 million. Id. at 645. Consequently, the district court granted CP Well
   summary judgment and denied Cimarex’s competing motion. Id. at 646.
          Cimarex now appeals.
                                         II.
          “We review de novo the district court’s grant of summary judgment
   on [a] question of contract interpretation.” Ironshore Specialty Ins. Co. v.
   Aspen Underwriting, Ltd., 788 F.3d 456, 459 (5th Cir. 2015). Questions of
   statutory interpretation are also reviewed de novo.          United States v.
   Lauderdale Cnty., 914 F.3d 960, 964 (5th Cir. 2019). In a diversity case like
   this one, we apply state substantive law, i.e., that of Texas. Gasperini v. Ctr.
   for Humans., Inc., 518 U.S. 415, 427 (1996).
                                         A.
          Cimarex contends that TOAIA, as construed by the Texas Supreme
   Court, prohibited the district court from considering the terms of CP Well’s
   insurance policy when it determined the scope of CP Well’s contractual
   indemnity obligation in the MSA. See Ken Petroleum, 24 S.W.3d at 351–55.
   According to Cimarex, Ken Petroleum requires that courts look only to the
   “lower amount of insurance” that both CP Well and Cimarex maintained
   and enforce the indemnity obligation up to that amount, which here is
   $11 million. See id. at 351. We disagree.
          In Texas, “[c]ontract terms are given their plain, ordinary, and
   generally accepted meanings unless the contract itself shows them to be used
   in a technical or different sense.” Valence Operating Co. v. Dorsett, 164
   S.W.3d 656, 662 (Tex. 2005); see also Heritage Res., Inc. v. NationsBank, 939
   S.W.2d 118, 121 (Tex. 1996) (“[The court] give[s] terms their plain,
   ordinary, and generally accepted meaning . . . [and] will enforce the

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   unambiguous document as written.” (citations omitted)). Looking first to
   the MSA, the district court correctly determined that the agreement sets a
   minimum amount of insurance—a “floor”—that CP Well and Cimarex each
   agreed to obtain to support their respective indemnity obligations, consistent
   with TOAIA’s safe harbor provision. CP Well Testing, 489 F. Supp. 3d at
   634; see Tex. Civ. Prac. & Rem. Code Ann. § 127.005. The floor for
   each party is different: CP Well was required to obtain a minimum of
   $1 million of general liability coverage and $2 million of excess liability
   coverage, for at least $3 million in total coverage. Cimarex was required to
   obtain a minimum of $1 million in general liability coverage and $25 million
   in excess liability coverage, for at least $26 million in total coverage. The
   language of the MSA is plain as far as what the parties were required to do.
   And when CP Well obtained its $10 million policy, it clearly met the
   $2 million minimum excess liability coverage specified in the MSA and thus
   complied with its indemnity obligation under the agreement.
          The rub is that the MSA sets the floor, but not the ceiling. While CP
   Well was free to obtain more than $2 million in excess liability coverage,
   voluntarily increasing its indemnification coverage for Cimarex’s benefit, it
   was not required by the MSA to do so. And the MSA does not speak to how
   the parties’ mutual obligations are to be determined when, as here, one party
   or the other obtains more coverage than the MSA’s required minimum.
          Enter TOAIA. The statute states that, “[w]ith respect to a mutual
   indemnity obligation, the indemnity obligation is limited to the extent of the
   coverage and dollar limits of insurance . . . each party as indemnitor has
   agreed to obtain for the benefit of the other party as indemnitee.” Tex.
   Civ. Prac. & Rem. Code Ann. § 127.005(b). Given the MSA’s silence
   on this issue, the operative question is how to determine how much of CP
   Well’s additional $8 million in excess liability coverage was “for the benefit
   of [Cimarex] as indemnitee.” Id. The district court consulted CP Well’s

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   excess liability policy language and concluded that none of the additional
   coverage was procured for Cimarex’s benefit as indemnitee, and therefore
   that CP Well was not required to pay more than $3 million to Cimarex.
           Cimarex contends that the district court improperly conducted a
   “coverage analysis” by considering the terms of CP Well’s insurance policy
   when it answered this question. Cimarex asserts that under Ken Petroleum,
   the district court should only have compared the parties’ respective coverage
   to determine the “lowest common denominator” and enforced the
   indemnity obligation up to that amount. As Cimarex notes, Ken Petroleum
   instructs that “[w]hen the parties agree to provide differing amounts of
   [insurance] coverage, the mutual indemnity obligations are limited to the
   lower amount of insurance.” 24 S.W.3d at 351. Well and good, but that does
   not supply the whole answer for this case.
           First, Ken Petroleum applied an earlier version of § 127.005(b), which
   provided that “a mutual indemnity obligation . . . [was] limited to the extent
   of the coverage and dollar limits of insurance . . . each party as indemnitor . . .
   agreed to provide in equal amounts to the other party as indemnitee.” Id. at 349
   (quoting 1991 version of § 127.005(b)) (emphasis added). The current
   version of § 127.005(b), enacted in 1999, deleted the last clause of the statute
   and instead limited mutual indemnity obligations to the coverage “each party
   as indemnitor has agreed to obtain for the benefit of the other party as
   indemnitee.” Tex. Civ. Prac. & Rem. Code Ann. § 127.005(b)
   (emphasis added). Without addressing how this change might impact Ken
   Petroleum’s analysis, the current text of § 127.005(b) must guide ours.3

           3
              Cimarex contends that the current version of TOAIA is not substantively
   different than the 1991 version. Whether that is true or not is a question for Texas courts
   to answer in the first instance. Regardless, we must adhere to the current statute as it is
   written. E.g., Jaster v. Comet II Constr., Inc., 438 S.W.3d 556, 562 (Tex. 2014) (“We limit

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           Second, Ken Petroleum resolved questions that only took the district
   court so far in this case. Ken Petroleum held that parties to an indemnification
   agreement were not required to obtain equal amounts of insurance in order
   for the underlying agreement to be valid; the court also instructed how to
   determine the amount of mutual indemnity coverage when parties obtained
   different levels of insurance. 24 S.W.3d at 348–51. If anything, the district
   court faithfully followed these guideposts. But because there was no way to
   ascertain via the MSA’s framework the coverage each party here obtained for
   the other’s benefit, the district court quite logically turned to CP Well’s
   insurance policy language.
           The district court’s approach is not just logical; it is consistent with
   our precedent that, applying Texas law, courts in this circuit routinely
   consider the terms of insurance policies to determine whether a party is
   entitled to coverage. E.g., Ironshore, 788 F.3d 456; Forest Oil Corp. v. Strata
   Energy, Inc., 929 F.2d 1039, 1044–45 (5th Cir. 1991); Musgrove v. Southland
   Corp., 898 F.2d 1041, 1043 (5th Cir. 1990); see also In re Deepwater Horizon,
   470 S.W.3d 452, 459–60 (Tex. 2015). We thus find no error in the district
   court’s consideration of CP Well’s excess liability policy language in
   determining how much coverage CP Well obtained “for the benefit of
   [Cimarex] as indemnitee.” Tex. Civ. Prac. & Rem. Code Ann.
   § 127.005(b). And in doing so, it found a ready answer.
           As quoted supra in Part I, Subsection E of CP Well’s excess liability
   policy states:
           [T]he most [the insurer] will pay for damages under this policy
           on behalf of any person or organization to whom [CP Well] [is]

   our analysis to the words of the statute and apply the plain meaning of those words unless
   a different meaning is apparent from the context or the plain meaning leads to absurd or
   nonsensical results.” (citations and internal quotation marks omitted)).

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          obligated by written Insured Contract to provide insurance
          such as is afforded by this policy is the lesser of the Limits of
          Insurance shown in . . . the Declarations or the minimum
          Limits of Insurance [CP Well] agreed to procure in such
          written Insured Contract.

   “Insured Contract,” in turn, is defined as “that part of any contract or
   agreement pertaining to [CP Well’s] business under which any Insured
   assumes the tort liability of another party to pay for Bodily Injury or
   Property Damage to a third person or organization.” The parties rightly
   agree that the MSA is an “Insured Contract.” The MSA’s requirement that
   CP Well indemnify Cimarex “from and against any and all claims arising out
   of performance of [the MSA], regardless of fault, involving: (a) damage to or
   loss of any equipment or property of any member of the contractor group, or
   (b) personal injury, illness, or death of any member of contractor group[,]”
   fits squarely within the policy definition. As an “Insured Contract,” the
   MSA therefore also falls within the coverage limitations articulated in
   Subsection E of the policy.
          All that remains is to determine which is less: “the Limits of Insurance
   shown in . . . the Declarations or the minimum Limits of Insurance [CP Well]
   agreed to procure in [the MSA].” The excess liability policy’s Declarations
   provide that “[t]he Limits of Insurance, subject to the terms of this policy,
   are: A. $10,000,000 [for] Each Occurrence[, and] B. $10,000,000 [in the]
   General Aggregate.” By contrast, in the MSA CP Well agreed to procure
   minimum coverage of “General Liability insurance with limits of
   $1,000,000 . . . per occurrence and [in the] aggregate,” and excess liability
   insurance “with minimum limits of $2,000,000 per occurrence and [in the]
   aggregate.” The effect of CP Well’s excess liability policy, read against the
   MSA under the strictures of TOAIA, is to cap coverage for Cimarex as

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   indemnitee at $3 million (the first $1 million of coverage being drawn from
   CP Well’s general liability policy).
           In basic terms, CP Well’s excess liability policy effectively set the
   indemnity coverage “ceiling” at the same level as the MSA’s “floor.” In
   TOAIA’s terminology, the remaining $8 million of CP Well’s excess liability
   coverage was not obtained for the benefit of Cimarex. And as CP Well
   asserted at oral argument, it was free to obtain additional coverage for its own
   purposes; nothing required it to obtain its agreed indemnification coverage
   via a separate policy from coverage it sought for its own interests. To the
   contrary, irrespective of the additional coverage, CP Well’s excess liability
   policy fulfilled both the terms of the MSA and the requirements of TOAIA,
   to the extent that CP Well and Cimarex were mutually indemnified up to
   $3 million, coincident with CP Well’s minimum requirements under the
   MSA.4 Had Cimarex wanted CP Well to obtain more than the minimum
   coverage in the MSA, the parties could have so fashioned their agreement.
   As the MSA was drafted, though, Cimarex could expect nothing beyond the
   minimum coverage CP Well was required to obtain. In sum, the district court
   did not err by consulting the terms of CP Well’s excess liability policy and
   concluding that CP Well’s indemnity obligation totaled $3 million.
                                             B.
           Cimarex contends that, even if the district court could properly rely
   on the terms of CP Well’s excess liability policy in determining CP Well’s
   indemnity obligation, Subsection E of the policy is inapplicable. In effect,
   Cimarex argues that the terms of Subsection E are used in a “technical or

           4
              To emphasize, if the shoe was on the other foot and CP Well was seeking
   indemnity from Cimarex, Ken Petroleum predicts that CP Well would similarly only be
   entitled to $3 million even though Cimarex had obtained $26 million in insurance coverage
   pursuant to the MSA.

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   different sense” rather than in their “plain, ordinary, and generally accepted
   meanings,” as the district court concluded. Valence Operating, 164 S.W.3d
   at 662. More precisely, Cimarex asserts that the similarity between language
   used in Subsection E and a common definition of “insured” from other
   cases, see, e.g., Ironshore, 788 F.3d at 460; Deepwater Horizon, 470 S.W.3d at
   457, indicates that Subsection E only applies to coverage of named additional
   insureds.
          “Insurance policies are controlled by rules of interpretation and
   construction which are applicable to contracts generally.” Richards v. State
   Farm Lloyds, 597 S.W.3d 492, 497 (Tex. 2020) (internal quotation marks and
   citation omitted). We “examine and consider the entire writing in an effort
   to harmonize and give effect to all the provisions of the contract so that none
   will be rendered meaningless.” Valence Operating, 164 S.W.3d at 662. Thus,
   we give terms “their plain, ordinary, and generally accepted meanings unless
   the contract itself shows them to be used in a technical or different sense.”
   Id.
          Reviewing the text of the excess liability policy, there is no indication
   that Subsection E is limited only to named additional insureds as Cimarex
   contends. None of the policy terms invoked by Cimarex are used in the policy
   in a “technical or different sense.” See id. To the contrary, “Insured
   Contract” is plainly defined to include any “agreement pertaining to [the]
   business under which any Insured assumes the tort liability of another party
   to pay for Bodily Injury or Property Damage to a third person or
   organization”—i.e., to include the MSA. (Emphasis omitted.) In turn, the
   policy defines “Insured” as the “Named Insured,” which is just as plainly
   identified as CP Well. Subsection E thus clearly encompasses the indemnity
   obligation CP Well undertook in favor of Cimarex, consistent with the MSA
   and TOAIA. Cimarex’s restrictive reading of the policy language is at best
   inconsistent with the plain text and at worst contorts straightforward policy

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   terms to render them meaningless. In short, we discern no error in the
   district court’s interpretation of the policy language to limit CP Well’s
   indemnity obligations to the minimum coverage levels set by the MSA.
                                      IV.
         The parties in this case agreed to indemnify each other, consistent
   with TOAIA, by setting a “floor” of required insurance coverage each was
   to obtain. They were free to procure more. CP Well obtained a policy that
   expressly set the “ceiling” of coverage “for the benefit [of Cimarex] as
   indemnitee” at the minimum “floor” provided by the parties’ contract. CP
   Well did not breach its contractual duties to Cimarex in doing so. And the
   district court did not err in construing either the parties’ agreement, or
   TOAIA, or the insurance policy to delimit CP Well’s indemnity obligation to
   Cimarex. It follows that the district court’s summary judgment in favor of
   CP Well was proper.
                                                               AFFIRMED.

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