Chalmers, Collins & Alwell, Inc. v. Burnett & Company, Inc.

STATE OF LOUISIANA
COURT OF APPEAL, THIRD CIRCUIT

15-249

CHALMERS, COLLINS & ALWELL, INC.

VERSUS

BURNETT & COMPANY, INC., ET AL.

**********

APPEAL FROM THE
FIFTEENTH JUDICIAL DISTRICT COURT
PARISH OF LAFAYETTE, NO. C-20143893
HONORABLE JULES D. EDWARDS, III, DISTRICT JUDGE

**********

SHANNON J. GREMILLION
JUDGE

**********

Court composed of Jimmie C. Peters, Billy Howard Ezell, and Shannon J.
Gremillion, Judges.

AFFIRMED.

Randall K. Theunissen
Michael E. Parker
Allen & Gooch
P. O. Box 81129
Lafayette, LA 70598-1129
(337) 291-1350
COUNSEL FOR PLAINTIFF/APPELLANT:
Chalmers, Collins & Alwell, Inc.

Jennifer E. Michel
Jamie F. Landry
Lewis, Brisbois, Bisgaard & Smith
100 E. Vermilion St., #300
Lafayette, LA 70501
(337) 326-5777
COUNSEL FOR DEFENDANT/APPELLEE:
Certain Underwriters

GREMILLION, Judge.

Chalmers, Collins & Alwell, Inc. (Chalmers), appeals the summary

judgment granted in favor of Certain Underwriters at Lloyd’s (Underwriters). This

judgment involves coverage under a commercial liability policy issued by

Underwriters to Chalmers and Underwriters’ duty to defend. For the reasons that

follow, we affirm.

FACTS AND PROCEDURAL HISTORY

Chalmers contracted with Haland Operating Services, LLC (Haland), to

undertake engineering consultancy services in the drilling of a well. A number of

problems with the drilling resulted in Haland retaining another engineering firm to

complete the well.

Chalmers pursued arbitration against Haland. Haland responded to the

arbitration dispute with allegations of its own and asserted a reconventional

demand in the arbitration proceedings. Chalmers made demand on Underwriters to

defend it in arbitration against Haland’s reconventional demand.

When Underwriters declined to undertake Chalmers’ defense, Chalmers

filed a petition entitled, “Complaint for Breach of Contract, Declaratory Relief, and

Breach of Implied Covenant of Good Faith and Fair Dealing,” against

Underwriters and Burnett and Company, Inc., its insurance agent. Underwriters

denied the allegations in the petition. Both parties filed motions for summary

judgment; Chalmers asserting Underwriters should be ordered to defend it in the

arbitration and Underwriters asserting that there was no coverage under its policy.

The trial court denied Chalmers’ motion and granted Underwriters’ motion. This

devolutive appeal followed.

ASSIGNMENTS OF ERROR

Chalmers asserts that the trial court erred in denying its motion for summary

judgment and in granting Underwriters’ motion.

ANALYSIS

The obligation of the insurer to defend its insured is broader than its

obligation to indemnify its insured against liability. Am. Home Assurance Co. v.

Czarniecki, 255 La. 251, 230 So.2d 253 (1969). Whether the insurer owes its

insured a defense is usually determined within the allegations of the claimant’s

petition. Id. “[U]nless the petition unambiguously excludes coverage” under those

allegations, the insured is owed a defense. Id. at 259. Further, even when the

petition discloses many acts or omissions for which there would be no coverage,

“the duty to defend may nonetheless exist if there is at least a single allegation”

that would not unambiguously be excluded. Duhon v. Nitrogen Pumping & Coiled

Tubing Specialists, Inc., 611 So.2d 158, 161 (La.App. 3 Cir. 1992). Courts look to

the factual allegations of the petition, rather than conclusory allegations, in

determining whether the insurer must defend the insured. Id.

Logic dictates that if the policy unambiguously excludes coverage for

purposes of the insurer’s duty to defend, the insurer owes no duty to pay sums its

insured is legally obligated to pay.

The policy issued by Underwriters contains an insuring agreement whereby

Underwriters provides:

We will pay those sums that that insured becomes legally
obligated to pay as damages because of “bodily injury” or “property
damage” to which this Insurance applies. We will have the right and
duty to defend the insured against any “suit” seeking those damages.
However, we will have no duty to defend the insured against any
“suit” seeking damages for “bodily injury” or “property damage” to
which this Insurance does not apply. . . .

2

The policy also contains a number of exclusions, including, pertinently,

“[b]odily injury” or “properly damage” for which the insured is obligated to pay

damages by reason of the assumption of liability in a contract or agreement. There

are a number of exceptions to the exclusion for contractual liability.

Underwriters maintain that the reconventional demand of Haland against

Chalmers asserts facts that constitute liability under the contract. Acts of

negligence against Chalmers, Underwriters argues, constitute acts for which the

policy excludes coverage. The trial court agreed. We agree.

Haland’s reconventional demand begins at paragraph 12 of its answer to the

arbitration demand. Paragraphs 12 through 26 do discuss the terms of the Master

Service Agreement (MSA) between Haland and Chalmers, including the parties’

respective obligations regarding performance of work, warrantying that work,

payment and billing, termination of the agreement, reporting, dispute resolution,

indemnity and insurance, and choice of laws. Paragraphs 27 through 32 discuss

the circumstances under which Chalmers was retained to work on the well at issue.

They also discuss the technical demands this particular well posed. These

paragraphs allege that the sands through which the well was bored were “tight.”

These sands, therefore, required specific equipment suited for those drilling

conditions.

The facts of the incident in dispute begin at paragraph 33 of the

reconventional demand, and it is with these that we must focus our analysis.

Difficulties arose when the drill bit lost several cones in the hole. Those had to be

cleaned out. According to paragraphs 41 through 43:

3

41.
Chalmers reported they thought the hole was clean after the first
mill. However, the second mill locked up essentially right away. For
an unexplained reason, the rig Chalmers had specifically
recommended Haland to choose for these conditions did not have a
torque meter on it. Consequently, Chalmers failed to realize the mill
had locked up and high torque was developing.

42.
As a result, about 2,400 feet of drill pipe twisted apart inside
the casing.

43.
Chalmers tried to fish the drill pipe out using several fishing
tools, such as overshots and spears. Apparently the spears could
successfully grip the pipe, but the rig— again strangely— was not
capable of producing enough strength to pull it out.

After several attempts to retrieve the pipe, a chemical charge was used to

sever the pipe below the casing, and the pipe was retrieved. This severing of the

pipe allegedly resulted in Haland losing valuable lease rights for deeper minerals.

Haland alleged that the rig recommended by Chalmers was “singularly unsuited to

perform cleaning or fishing operations,” and the geological conditions the well

presented “made fishing and cleaning operations a reasonably likely outcome.”

These acts resulted in Haland losing certain rights in the well conferred by its lease.

The policy contains and amendatory endorsement that provides:

In consideration of the premium charged and notwithstanding
anything to the contrary contained in this policy, it is understood and
agreed that form CO 00 01 12 04, COMMERCIAL GENERAL
LIABILITY COVERAGE FORM SECTION I - COVERAGES,
COVERAGE A., BODILY INJURY AND PROPERTY DAMAGE
LIABILITY, 2., Exclusions, is amended to include:
....

Liability for:

(1) loss of or damage to any well or hole,

(a) which is being drilled or worked over by or on behalf
of the Insured, or

4

(b) which is in the care, custody or control of the Insured,
or

c) in connection with which the Insured has provided
services, equipment or materials.

(2) any cost or expense incurred in redrilling or restoring any
such well or hole or any substitute well or hole.

This provision effectively and unambiguously excludes coverage for the

allegations contained in Haland’s reconventional demand resulting from the

damage to the well.

Paragraphs 47 through 54 outline the “objective evidence” Haland maintains

supports it claims against Chalmers. Those allegations add nothing essential to

Haland’s demands in terms of asserting negligence on Chalmers’ part. The acts

alleged therein are the same as addressed above and would be excluded.

Paragraphs 55 through 67 allege the costs and damages attendant to the acts

of negligence alleged in paragraphs 33 et seq. They also allege that Chalmers

failed to pay certain contractors and other acts that led to Haland retaining another

engineering services contractor. Those acts are excluded by the amendatory

endorsement mentioned above and/or by the exclusion of contractual liability.

That amendatory endorsement also excludes from coverage liability for “removal

or recovery of any drilling tool, pipe, collar, casing, bit, pump, drilling or well

servicing machinery or any other equipment while it is below the surface of the

earth in any well or hole.”

Paragraphs 68 through 93 allege various damages to third parties’ equipment

caused by Chalmers’ alleged negligence, all of which is similarly excluded, and

credits and offsets Haland contends it is entitled to, should it be found to owe

Chalmers anything under the MSA. Paragraphs 94 through 99 allege that

5

Chalmers is also liable to it and third parties by virtue of the indemnity clause

established in the MSA. The contractual liability exclusion would preclude

coverage for those losses.

Paragraphs 100 through 106 allege that Chalmers agreed with Baker Hughes,

Inc., to procure a type of insurance on equipment leased from it, known as a “lost

equipment indemnity buy-back” or “LEIB.” Haland alleges that the MSA

precluded Chalmers from entering into a LEIB, yet Chalmers allowed Baker

Hughes to bill Haland over $53,000 for the premiums charged on the LEIB. The

cost of this LEIB constitutes liability for breach of contract and not negligence, and

would not be covered. Similarly excluded as contractually-incurred liability would

be the costs of restocking fees billed to Haland, as outlined in paragraphs 107

through 112.

Loss and damage to the well, as alleged in paragraphs 113 through 119, are

excluded by the amendatory endorsement already quoted above. Paragraph 120

represents a catch-all:

120.

CLAIM FOR OTHER DAMAGES AND RELIEF

Haland claims for the above monetary damages based on the
present claims against it, and invoices it has received, by and from
third party vendors and contractors.

To the extent Chalmers is liable for various categories of
damages that may grow after this arbitration— including claims by
third parties for property lost or damages in the incident— Haland
prays for a general declaration of Chalmers[’] liability for these costs
going forward, and that Chalmers shall indemnify, or indemnify and
defend, as appropriate, Haland for any such claims or invoices
received in the future.

Haland also claims any other relief to which it is entitled in law
or in equity, in tort or in contract, including all damages, attorneys’
fees, costs, and interest, as appropriate and without limitation, and all

6

findings and declarations of Haland’s rights vis-à-vis Chalmers, in the
Chalmers MSA and otherwise, discussed above.

Chalmers maintains that this “other relief” allegation precludes a finding that

coverage was not unambiguously excluded. We disagree. Again, we are to look

at the factual allegations of the demand. Duhon, 611 So.2d 158. No new facts are

alleged in this paragraph.

For the foregoing reasons, we affirm the trial court’s grant of summary

judgment to Certain Underwriters. The assignment of error asserting that the trial

court erred in denying Chalmers’ motion for summary judgment is rendered moot.

All costs of this appeal are taxed to plaintiff/appellant, Chalmers, Collins & Alwell,

Inc.

AFFIRMED.

7