In Pioneer Exploration, Limited Liability Company v. Steadfast Insurance Company, F.3d , No. 13-30802, 2014 WL 4693789 (5th Cir. Sept. 22, 2014), the Fifth Circuit, applying Louisiana law, affirmed the trial court’s summary judgment holding that there was no coverage for the policyholder’s damages under their umbrella policy.
The policyholder in Pioneer filed a lawsuit seeking coverage, costs and expenses for remediation, defense and indemnify for two lawsuits. Pioneer also alleged the insurer violated its good faith duty. Id. at *2. The court affirmed the district court’s five holdings. First, the Fifth Circuit affirmed that there was no coverage for the costs and expenses of remediation to the policyholder’s property because both the Property Damage exclusion and Blended Pollution exclusion precluded coverage for damage to property that was “owned, rented, or occupied,” and the policyholder “rented”, “occupied”, and “had the right to occupy all of the land” subject to the mineral lease. Id. at *6-10. Second, the court also affirmed that the costs and expenses from the remediation that the policyholder alleged were containment costs were not covered, even though case law supports coverage for costs incurred when there is an actual harm to a third-party. See id. at * 10. Pioneer’s costs and expenses were not covered because the Property Damage exclusion and Blended Pollution exclusion precluded coverage for “prevention of injury to a person or damage to another’s property” and costs for “containment,” respectively. Id. at *11. Next, the court affirmed that the costs for remediating a third-party’s property were unavailable because of the policyholder’s inability to allocate remediation costs between that property and its own, and there was no coverage for remediation of the policyholder’s own property. See id. at *12. Fourth, the court affirmed that there was no coverage for settlements Pioneer had entered, because the settlements had not exceeded Pioneer’s retention. Under the Blended Pollution endorsement, the policyholder was responsible for the first $1 million of covered costs. See id. The policyholder provided evidence that it paid $56,354.16, the costs of the settlements, and thus did not prove that it met the retained limit. See id. Lastly, the court affirmed “that the costs of plugging the well were precluded by the OIL endorsement,” which explicitly excluded such costs. Id. at *13.
The Pioneer case is important for two main reasons. First, the case reiterated that the holders of a mineral lease will be subject to an “owned property” exclusion in their insurance policies. See id. at *6-10. This concept was taken up in Aspen Insurnace UK, Limited v. Dune Energy, Incorporated, 400 Fed.Appx. 960 (5th Cir. 2010) (per curiam), and now confirmed in Pioneer. The court reasoned that the pollution affected the land that the policyholder had the right to occupy under the lease. Pioneer at *8. Excluding coverage for property damage to land that is leased for the owners of the mineral lease could alter how many companies purchase their insurance. Secondly, the case is a reminder of why a policyholder should be aware of what is covered. Here, the policyholder combined the costs of remediating their own property and a third-party’s property. This decision caused the policyholder not to meet the requirements for coverage of the costs for the remediation of the third-party’s property because it was combined with non-covered costs.