The Fifth Circuit held that under Texas law, conclusory allegations of property damage in the underlying complaint did not trigger the insurer's duty to defend. PPI Tech. Serv., L.P. v. Liberty Mut. Ins. Co., 2012 U.S. App. LEXIS 24571 (5th Cir. Nov. 29, 2012).
Royal Production Company was the lessor and operator of three leases for oil exploration. Royal retained the insured, PPI, as its agent to assist in well-planning and oversee the drilling of wells on the leases.
A well was drilled on one of the three leased areas, but in resulted in a dry hole. It was later discovered that the well had been drilled on the wrong lease. Royal sued PPI for negligence, claiming that PPI caused the drilling rig to be towed to the wrong location, resulting in a dry hole and "property damage."
Liberty Mutual denied coverage under the CGL policy issued to PPI. PPI then sued Liberty Mutual for breach of contract. Liberty Mutual prevailed on summary judgment, contending it had no duty to defend or indemnify PPI because the underlying lawsuit did not contain factual allegations of "property damage" caused by an "occurrence."
The Fifth Circuit affirmed because no specific facts about the type or kind of harm were alleged, and therefore no factual allegations of "property damage" were made.
The relevant allegations were as follows:
PPI caused the drilling rig to be towed to and placed upon the wrong location. Subsequently, towing the rig to the wrong lease resulted in the well being drilled in the wrong location and a dry hole. Drilling in the wrong location caused Royal to expend in excess of $4.2 million for the drilling of the well in the wrong location.
The mere use of the phrase "property damage" and parroted policy language was not sufficient. None of the assertions of "property damage" in the underlying complaint were accompanied by facts illustrating specific harm or damage to tangible property.
The result may have been different under Hawaii law where, when analyzing the duty to defend, the insurer must show it would be impossible for the underlying plaintiffs to prevail against the insured on a claim covered by the policy. Dairy Rd. Partners v. Island Ins. Co., 92 Haw. 398, 412-13, 992, P.2d 93, 107 (2000). Therefore, a Hawaii court may agree that it possible that allegations of "property damage" would be covered.
