|Crown Energy Company v. Mid-Continent Casualty Company, 2022 OK 60
|June 14, 2022
|District Court of Oklahoma County; Judge Timmons
|Route to this Court:
|Appeal from Order Granting Summary Judgment; Assigned to COCA, Division II; Petition for Certiorari Granted
|In December 2016, Crown was one of several oil and gas companies named as defendants in a class action suit filed by a group of Payne County residents. The Reid Lawsuit primarily alleged that increased underground pressure resulting from the use of wastewater disposal wells by Crown and other defendants caused seismic activity that damaged the plaintiffs’ property. After the Reid Lawsuit was filed, Crown submitted a claim to Mid-Continent requesting defense and indemnity. In a letter dated December 27, 2016, Mid-Continent denied Crown’s request, claiming that the damages asserted in the Reid Lawsuit were not caused by an “occurrence” as defined by the policy and citing the Pollution Exclusion in the Oil and Gas Endorsement. Crown sought declaratory relief against Mid-Continent in the District Court of Oklahoma County, alleging the claims in the Reid Lawsuit are covered under the Policies. Mid-Continent denied the allegations and filed a counterclaim seeking declaratory judgment that the Policies did not cover the claims in the Reid Lawsuit. In April 2018, the District Court granted Crown’s motion for summary judgment in part, finding that Mid-Continent had a duty to defend Crown in the Reid Lawsuit. Mid-Continent appealed. COCA affirmed, and Mid-Continent petitioned for certiorari review.
|Standard of Review:
|Trial Court’s order granting summary judgment is reviewed de novo.
|Subsection 1(b) under Coverages in the Policies states that the insurance only applies if the damage at issue is, among other things, caused by an “occurrence.” According to the Policies, an “occurrence” refers to:[A]n accident, including continuous or repeated exposure to substantially the same general harmful conditions.Mid-Continent claimed that because Crown was intentionally injecting wastewater into the disposal well, its activities could not constitute an accident, and therefore, the Reid lawsuit claims were not covered.Relying on Cranfill, Mid-Continent claimed that the seismic activity that prompted the Reid Lawsuit was such a natural and probable consequence of Crown’s waste water disposal activities that it could not be deemed an accident. But Mid-Continent offered little to no evidence in support of its position, instead relying on allegations made by the plaintiffs in the Reid Lawsuit. Self-serving allegations by the Reid plaintiffs in their petition were not sufficient to support Mid-Continent’s generalization that “[Crown] and the oil and gas industry had actual (or at least constructive) notice that it[s] wastewater disposal activities could cause seismic activity and earthquakes, and that [Crown] continued those activities in spite of such knowledge.” The fact that there is some risk of seismic activity associated with Crown’s waste water disposal activities does not mean that seismic activity is such a natural and probable consequence of those activities that it should be expected. The earthquakes which prompted the Reid Lawsuit were accidental and, thus, constituted an “occurrence” under the Policies.
Mid-Continent also argued that, even if the earthquakes at issue constituted an occurrence, the claims in the Reid Lawsuit are barred from coverage based on the Pollution Exclusion: To “Bodily Injury” or “Property Damage” arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon the land, the atmosphere or any water course or body of water; but this exclusion does not apply to a “Pollution Incident”. After the Court’s decision in New Dominion, the operative question in this appeal was whether any terms unique to this Pollution Exclusion expand its scope to such an extent that it would preclude coverage for the underlying claims. Mid-Continent failed to explain how the inclusion of the “arising out of ” language so drastically expands the scope of the Pollution Exclusion that it bars coverage for the Reid Lawsuit claims. Although the “arising out of ” language may arguably expand the scope of the exclusion, it fails to resolve the underlying ambiguity–whether the Pollution Exclusion applies in instances where the damage at issue is not attributable to the waste water’s toxic or polluting nature. Interpreting the “arising out of language in the light most favorable to Mid-Continent, affording it the broadest possible meaning, it still fails to clarify whether the Pollution Exclusion should apply in those instances. Accordingly, the Court cannot find that the “arising out of” language in the Pollution Exclusion serves to bar coverage.
|Trial Court’s Judgment Affirmed; Court of Civil Appeals Opinion Vacated.
|8-0. Darby, C.J., Kauger, Winchester, Edmondson, Combs, Gurich, Rowe,(author), and Kuehn, JJ., concur.Kane, V.C.J., not participating.
|Companion case with 2021 OK 62 issued in December of 2021.