Court Opinion

ID: 178974
Source: CourtListenerOpinion
Date Created: 2010-11-09 00:25:38+00
Date Added: 2024-06-11T17:25:46.746271
License: Public Domain

Case: 10-30335 Document: 00511287990 Page: 1 Date Filed: 11/08/2010

           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT  United States Court of Appeals
                                                    Fifth Circuit

                                                 FILED
                                                                          November 8, 2010

                                     No. 10-30335                           Lyle W. Cayce
                                   Summary Calendar                              Clerk

ASPEN INSURANCE UK, LIMITED,

                                                   Plaintiff–Appellee,
v.

DUNE ENERGY, INCORPORATED, as successor-in-interest to Goldking
Energy Corporation,

                                                   Defendant–Appellant.

                   Appeal from the United States District Court
                       for the Eastern District of Louisiana
                             USDC No. 2:09-CV-2906

Before WIENER, PRADO, and OWEN, Circuit Judges.
PER CURIAM:*
       In this diversity action, defendant–appellant Dune Energy, Inc., as
successor-in-interest to Goldking Energy Corp. (Dune), appeals from the district
court’s grant of summary judgment for plaintiff–appellee Aspen Insurance UK,
Ltd. (Aspen). Dune argues that the district court erred in reading the language
of an insurance policy Dune purchased from Aspen to exclude coverage for

       *
         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 R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR .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.
    Case: 10-30335 Document: 00511287990 Page: 2 Date Filed: 11/08/2010

                                  No. 10-30335

damage to property covered by Dune’s mineral lease. Concluding that the
language of the policy is clear and unambiguous, and agreeing with the district
court’s application of its plain language, we affirm.
                                         I
      Dune operated several oil and gas wells on a tract of land in Louisiana
known as the Bateman Lake Oilfield (leased property). Dune operated these
wells pursuant to a 1935 Oil and Gas Mining Lease (Mineral Lease or Lease).
While performing routine duties, Dune employees discovered an oil leak caused
by the failure of a flowline operated by Dune. The leak resulted in 146 barrels
of oil being released onto the property covered by the Mineral Lease. Dune spent
approximately $1,200,000 cleaning the property. Dune made a claim for the cost
of the cleanup under an insurance policy issued to Dune by Aspen. Aspen denied
Dune’s claim and sought a declaratory judgment from the district court that the
insurance policy does not afford coverage for the leak.
      The insurance policy from Aspen includes a Seepage and Pollution
Endorsement (Endorsement), which, in relevant part, excludes coverage for
property damage “directly or indirectly caused by or arising out of seepage,
pollution or contamination however caused whenever or wherever happening.”
The exclusion does not apply, however, if the insured can show that it has met
all of five conditions, which are not at issue in this appeal. Even if the insured
meets all five conditions, though, the
      policy does not apply to any actual or alleged liability: . . . for
      seepage, pollution or contamination of property which is or was, at
      any time, owned, leased, rented or occupied by any insured, or
      which is or was, at any time, in the care, custody or control of any
      insured (including the soil, minerals, water or any other substance
      on, in or under such owned, leased, rented or occupied property or
      property in such care, custody or control).

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                                             No. 10-30335

      Aspen filed a motion for summary judgment, arguing that the
Endorsement excluded coverage for the damage claimed because the policy
excluded coverage for property of the insured. Dune argued that the exclusion
in the Endorsement did not apply because Dune leased only mineral rights, and
that the “surface rights to the subject property were not owned, leased or
otherwise in Dune’s possession.” The district court found that Dune’s argument
that the Mineral Lease did not extend to the damaged surface property was of
“no consequence” because the “unambiguous language of the policy exclude[d]
coverage for “the soil, minerals, water or any other substance on, in or under
such owned, leased, rented or occupied property.” The damage occurred on the
physical property that Dune leased. Under the only reasonable interpretation
of the policy, the district court concluded, there was no genuine issue of material
fact as to whether the policy covered the damage. Thus, the district court
granted Aspen’s motion for summary judgment. This appeal followed.
                                                  II
      We review the district court’s grant of summary judgment de novo,
applying the same standards as the district court.1                Summary judgment is
warranted if there is “no genuine issue as to any material fact and
the . . . movant is entitled to judgment as a matter of law,” as supported by
materials in the record such as documents, affidavits, or declarations.2 We
“draw all reasonable inferences in favor of the nonmoving party, and avoid
credibility determinations and weighing of the evidence.”3 We may affirm the
district court’s decision on any grounds supported by the record, even if not

      1
          DePree v. Saunders, 588 F.3d 282, 286 (5th Cir. 2009).
      2
          FED . R. CIV . P. 56(a), (c)(1).
      3
          Sandstad v. CB Richard Ellis, Inc., 309 F.3d 893, 896 (5th Cir. 2002).

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                                            No. 10-30335

relied upon by the district court.4 “Because this is a diversity action, we . . . must
apply Louisiana law in an attempt to rule as a Louisiana court would if
presented with the same issues,”5 looking first to decisions of the Louisiana
Supreme Court.6 If that court “has not spoken on the issue, it is our duty to
determine as best we can what that court would decide.” 7
         Dune argues on appeal that the district court made four errors in granting
summary judgment for Aspen. Dune’s four claims of error actually present only
one argument: the district court erred in finding that the insurance policy
unambiguously excluded coverage for the pollution on the property on which
Dune held the Mineral Lease and operated the leaking flowline. We agree with
the district court in its refusal to “limit” the application of the Endorsement’s
exclusion, its application of the exclusion, and in its finding that coverage was
not owed to Dune. We also agree with the district court’s refusal to consider the
rights of the lessor of the Mineral Lease, as the application of the plain language
of the insurance policy does not require further inquiry into such rights.
         Critically, Dune does not argue that any of the pollution affected property
outside of that covered by its Mineral Lease. Dune does, however, argue that its
Mineral Lease granted Dune the limited right to use the surface as was
reasonably necessary to explore for, drill, and produce oil and gas, but conveyed
no title to the surface of the land. The superior ownership and rights of use of
the surface, Dune continues, remain vested in the owner of the property, who is

         4
             Doctor’s Hosp. of Jefferson, Inc. v. Se. Med. Alliance, Inc., 123 F.3d 301, 307 (5th Cir.
1997).
         5
        Musser Davis Land Co. v. Union Pac. Res., 201 F.3d 561, 563 (5th Cir. 2000) (citing
Erie R.R. Co. v. Tompkins, 304 U.S. 64, 79-80 (1938)).
         6
        Id. (citing Transcon. Gas Pipe Line Corp. v. Transp. Ins. Co., 953 F.2d 985, 988 (5th
Cir. 1992)).
         7
             Id. at 564 (citing Transcon. Gas, 953 F.2d at 988).

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                                        No. 10-30335

not a party to the insurance policy. Therefore, Dune asserts, the coverage it has
requested is for damage to a third party’s property, not to its own property.
Dune argues that it can meet the five specified conditions required for coverage
for pollution of another party’s property.              Therefore, Dune concludes, the
Endorsement cannot exclude coverage for damage to the property affected.
       Dune may be correct that it has no ownership rights or unlimited right to
use the surface of the land on which it has the Mineral Lease, but its argument
is ultimately unavailing. Dune has presented no evidence that would raise a
genuine issue as to whether the insurance policy covers the damage to the
property covered by its Mineral Lease.               The exclusionary provision in the
Endorsement must be strictly construed,8 but in doing so we will not “creat[e] an
ambiguity where none exists.”9 The 1935 Mineral Lease
       grant[ed], lease[d], and let[] exclusively [the property] unto [Dune]
       for the purpose of testing by any method for formations and
       structures and prospecting and drilling for and producing oil and
       gas, laying pipe lines, building tanks, storing oil and building
       power[] stations, telephone lines and other structures thereon
       (including houses for employees), to produce, save, take care of,
       treat and transport said product.
This Lease gives Dune broad authority over the property it covers. Any
subsequent use of the surface of the land by the lessor, or the lessor’s
successors, would be subject to the limitations of Dune’s right to explore
for and produce oil and gas.10 Indeed, Louisiana law permits “concurrent

       8
        Ledbetter v. Concord Gen. Corp., 95-0809 (La. 1/6/96); 665 So. 2d 1166, 1169, judgment
amended by 95-0809 (La. 4/18/96); 671 So. 2d 915; see also Hill v. Shelter Mut. Ins. Co., 2005-
1783 (La. 7/10/06); 935 So. 2d 691, 693 (“An insurance policy is a contract between the parties
and should be construed using the general rules” of contract interpretation.).
       9
        See Grefer v. Travelers Ins. Co., 04-1428 (La. App. 5 Cir. 12/16/05); 919 So. 2d 758, 773
(quoting Ledbetter, 665 So. 2d at 1169).
       10
         See Musser Davis Land Co., 201 F.3d at 568 (applying Louisiana law to conclude that
the holder of a mineral lease had the right to conduct seismic operations to explore for oil and
gas, even under the protestations of the owner of the land and lessor of the mineral lease).

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                                        No. 10-30335

use of the land by the surface owner and the mineral owner with neither
owner deemed to have a paramount right of use.”11 The lessor could not
exercise its ownership rights in a way that interfered with Dune’s rights.
It is no stretch, then, to say that Dune has at least “care, custody or
control” over the land that was damaged by the pollution from its flowline.
       Even if we accept Dune’s argument that its Mineral Lease does not
give it “care, custody or control” over the affected surface property, the
language of the Endorsement is broader than Dune’s representation of it.
The Endorsement also excludes coverage for the “soil, minerals, water or
any other substance on, in or under such owned, leased, rented or occupied
property or property in such care, custody or control.” Dune does not
dispute that it actually occupies some of the affected property; in addition,
under its Mineral Lease, Dune has the right to occupy all of the land
covered by the Lease for the purpose of exploring for and producing oil and
gas. The pollution resulting from the leak affected the soil, minerals,
water, and other substances on that leased and occupied property. Dune
has presented no evidence, and no legal authority, for the premise that its
Lease somehow gives it an intangible right to the minerals without a right
to occupy the property—in fact, the language of the Lease and established
Louisiana law give Dune substantial rights to occupy, care for, take
custody over, and control the property, soil, and minerals polluted by
Dune’s leaking flowline.12

       11
           Caskey v. Kelly Oil Co., 1998-1193 (La. 6/29/99); 737 So. 2d 1257, 1265 (interpreting
LA . REV . STAT . ANN . § 31:11, “The owner of land burdened by a mineral right or rights and the
owner of a mineral right must exercise their respective rights with reasonable regard for those
of the other.”)).
       12
        See LA . REV . STAT . ANN . § 31:11 (Supp. 2010); Musser Davis Land Co., 201 F.3d at
568; Caskey, 373 So. 2d at 1265.

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                                          No. 10-30335

      The language of the insurance policy’s Endorsement is “clear and
explicit and lead[s] to no absurd consequences.”13 Dune has presented no
evidence and no legal authority to support its assertion that the district
court incorrectly interpreted the unambiguous language of the insurance
policy. The district court did not err in granting summary judgment to
Aspen, as there was no evidence that created a genuine issue of material
fact as to whether the insurance policy covered the polluted property.
                                    *       *      *
      The order of the district court is therefore AFFIRMED.

      13
           See Hill, 935 So. 2d at 694.

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