TEXAS SUPREME COURT REJECTS EQUITABLE REIMBURSEMENT CLAIMS AGAINST INSURED IN WELL BLOW OUT COVERAGE CASE

The Supreme Court of Texas recently reemphasized its ruling in Fortis Benefits v. Cantu, 234 S.W.3d 647 (Tex. 2007), by rejecting claims by an insurer based on equity because the insurer had contractual remedies under the policy.  In Gotham Insurance Co. v. Warren E&P, Inc., 2014 WL 1190049 (Tex. March 21, 2014), the insurance policy provided coverage for costs incurred to regain control of an oil well in the event of a blow out.  The insured represented that it owned a 100% interest in the well.  A blow out occurred and Gotham paid under the policy but later learned that the insured had only a partial interest in the well and others shared in the loss. Gotham sued the insured seeking return of its payments under both breach of contract and equity theories.

Reemphasizing its holding in Fortis Benefits, the Court noted that "an insurer is limited to contractual claims when the policy addresses the matter at issue.  Here the policy contains several clauses addressing misrepresentations, reporting, salvage and recoveries, subrogation and due diligence."  The court discussed issues related to the contractual remedies and after finding some evidence in support of Gotham's contract claims, held that they could not rely on their equitable claims for recovery.  Accordingly, the judgment of the court of appeals was reversed and the case was remanded to that court to address the contract claims.

[Editor’s Note: Gotham recently filed a motion for reconsideration and is seeking possible amicus support from other carriers with an interest in energy insurance coverage.  Any carrier seeking more information on this issue should contact Chris Martin of our office at martin@mdjwlaw.com or at 713-416-1731.]