A Harris County, Texas jury awarded damages to a policyholder against its insurer on a claim for damage to an offshore drilling rig. Prime Natural Resources, Inc. v. Certain Underwriters at Lloyd’s London, Harris County District Court, Case No. 2015-51137 (May 12, 2017).

The insured’s offshore drilling rig consisted of a well and an adjacent well platform. The policyholder submitted a claim under its energy package policy and the insurer accepted coverage for physical damage to the rig platform and for debris removal. The insurer also paid for pipeline damage and debris removal, as well as well-redrill operations. The parties disputed whether the policy’s well-related damages/expenses coverage required reimbursement of what the insured spent to repair the wellhead and piping above the wellbore. The insurer claimed these damages did not constitute damages to the “well,” and that the insured was seeking to characterize platform-related damage (for which policy limits had been exhausted under the physical damage coverage) as well-related damage to recover under a separate policy limit. The insured argued that the wellhead (and the piping supporting the wellhead) constituted part of the “well” and, thus, fell within the portion of the well-related damages/expenses coverage. The trial court denied the insurer’s summary judgment on this issue and the case proceeded to trial.

This matter is all but certain to be appealed, which will be the second appeal. In March of 2015, the First District Court of Appeals affirmed the trial court’s order granting summary judgment in favor of the insurer, holding that the insurer’s payments under the physical damage and well-redrill operations coverages were appropriate. The opinion the court, in dicta, adopted a somewhat restricted meaning of the term “well,” which seems to contradict the position taken by the insured. Ultimately, the eventual appellate decision on this issue could have a significant impact upon similar energy policies as the distinction between well damage versus well equipment damage could, as seen in this case, result in vastly different policy limits for a loss.