Performance Drilling Company, LLC and O & G Leasing, LLC, Plaintiffs v. National Union Fire Insurance Company of Pittsburgh, PA, et al

United States District Court,

S.D. Mississippi,

Northern Division.

Performance Drilling Company, LLC and O & G Leasing, LLC, Plaintiffs

National Union Fire Insurance Company of Pittsburgh, PA, et al., Defendants.

CIVIL ACTION NO. 3:14cv254-DPJ-FKB

Signed 07/28/2016

Attorneys and Law Firms

Sean R. Guy, Douglas C. Noble, W. Thomas McCraney, III, McCraney, Montagnet, Quin & Noble, PLLC, Ridgeland, MS, for Plaintiffs.

Christopher H. Coleman, James L. Warren, III, Lee Ann C. Thigpen, Margaret M. Nasif, Carroll, Warren & Parker, PLLC, Jackson, MS, for Defendants.

ORDER

Daniel P. Jordan, III, UNITED STATES DISTRICT JUDGE

*1 This insurance-coverage dispute regarding allegedly stolen property is before the Court on the Motion for Summary Judgment [112] filed by Defendants National Union Fire Insurance Company of Pittsburgh, PA (“National Union”), Berkley Offshore Underwriting Managers, LLC (“Berkley”), StarNet Insurance Company (“StarNet”), Navigators Insurance Company (“Navigators”), AGCS Marine Insurance Company (“AGCS”), and AIG Property Casualty U.S., Inc. (“AIG”). The main issue this Order considers is whether component parts of a scheduled piece of equipment retain coverage when removed from that equipment. Having fully considered the parties’ memoranda, the record evidence, and the relevant authorities, the Court finds that no coverage existed and that an exclusion otherwise applies. Therefore, Defendants’ Motion should be granted and Plaintiffs’ claims should be dismissed with prejudice.

Facts and Procedural History

Plaintiff Performance Drilling Company, LLC (“Performance Drilling”) is a business that owns and operates five mobile, land-based oil-drilling rigs, primarily in Texas. Pls.’ Mem. [116] at 2. Performance Drilling and O & G Leasing, LLC (“O & G Leasing”)1 purchased an “all risks” inland marine insurance policy (“the Policy”) from Defendants effective from September 26, 2011, to September 26, 2012. Policy [112-1] at 2 3 (ECF pagination). The Policy, which was issued by National Union, was a “quota share” that was underwritten by three additional insurers who shared the risk in various percentages.2 See id.; Percentages of Risk [112-2].

The Policy explicitly provided for coverage of “[o]il and/or gas well drilling and/or workover equipment as per Schedule, the property of the Assured, or oil and/or gas well drilling and/or workover equipment for which the Assured may be legally or contractually liable.” Policy [112-1] at 11. The property schedule, which was included as an endorsement to the Policy, listed seven items, including five drilling rigs (labeled as Rigs 3, 14, 22, 28, and 48), drill pipe, and drill collars. Id. at 35. The amount of coverage under the Policy was tied to the “replacement cost value” of each listed item, all of which were “deemed to be separately insured.” Id. In the case of the drilling rigs, the amount was determined by the appraised value of the rig as a whole operating unit, including all component parts. See Farmer Dep. [115-5] at 196 98; McSweeney Dep. [112-5] at 57, 63. Among other components, each drilling rig operates with two “mud pump” packages, which, in turn, are comprised of an engine and pump. Farmer Dep. [112-6] at 53, 87.

At some point during 2011, Plaintiffs ordered two new 1,600 horsepower mud-pump packages known as F-1600 pumps. According to Performance Drilling’s President and CEO, David “Grumpy” Farmer, Performance Drilling’s ultimate intention was to install them on Rig 14. Farmer Dep. [115-5] at 136 37. But before it could, on or about November 21, 2011, one of the existing F-1000 mud pumps installed on Rig 14 had a mechanical failure; it was removed from the rig several days later to be replaced with a rental pump. Farmer Dep. [112 6] at 123; 149 52. Then, in January 2012, the two new F-1600 mud pumps were installed on Rig 14 and the two F-1000 pumps (including the broken pump) were relocated to Performance Drilling’s storage yard in Big Spring, Texas. Id. at 154. No changes to the Policy Schedule were made at that time.

*2 On February 25, 2012, the F-1000 pumps removed from Rig 14 were allegedly stolen from the storage yard. Id. at 155 56. The circumstances were suspicious. During the time period of the alleged theft, Performance Drilling was facing financial difficulties and ultimately filed for protection in bankruptcy the following year. Also, John Hosey, Performance Drilling’s warehouse manager, was the only employee stationed at the storage yard from which the pumps were taken. Hosey Dep. [112-8] at 6, 13. Hosey ordinarily worked seven days a week and had not taken a day off in months. Nevertheless, his superior, Billy Bunch, instructed him to take the February 25 26 weekend off. Id. at 13 14, 16. When Hosey returned, he noticed the pumps were missing and asked Bunch what happened. Bunch directed Hosey to say he “knew nothing” about the disappearance. Id. at 15. Hosey also gave testimony that Plaintiffs have not contradicted stating that he was offered $50,000 to give scripted testimony about the loss and was later contacted just before his deposition in this civil action and told that Farmer would consider it a “personal favor” if Hosey “would not say anything about what [he] knew or what [he] didn’t know of the pumps.” Id. at 20.

More than two weeks after discovering the lost pumps, Performance Drilling reported the incident to law enforcement. Police Report [112-10]. And one month later, on April 9, 2012, Plaintiffs notified Defendants of the loss by submitting a claim for the missing pumps. Property Loss Notice [112-11].

Following this notice, Defendants hired an independent adjuster to investigate and adjust the claim. The adjuster issued an initial report on May 22, 2012, which noted that the pumps were removed from Rig 14 and “were to be overhauled and placed into inventory for use as necessary on any of the rigs in the Performance Drilling rig fleet.” Adjusting Report No. 1 [112-13] at 8. The report also noted that the F-1000 pumps were not separately scheduled in the Policy and were otherwise subject to the following exclusions from coverage: (1) property in “permanent storage”; (2) losses resulting from “want of due diligence by the Insured”; and (3) damage caused by “[i]nfidelity or any dishonest act on the part of the Assured or their employees.” Id. at 9 10.

After receiving this report indicating that the removed pumps were not covered, Plaintiffs informed the adjuster that they actually intended to return the F-1000 pumps to Rig 14 and that they should therefore be considered a part of that rig. Email [115-8]. But this position contradicts statements Performance Drilling made before and after the loss indicating that it intended to keep the new pumps on Rig 14 and repurpose the F-1000 pumps it sent to storage. See Farmer Dep. [115-5] at 208; Farmer Email [112-14]; Second Am. Disclosure Statement [112-18] at 25 26.

The coverage question is complicated by steps taken approximately three months after the loss. In June 2012, Plaintiffs requested separate coverage for the new F-1600 pumps they had installed on Rig 14. On June 25, 2012, Defendants Navigators and AGCS issued retroactive endorsements that covered the two F-1600 pumps effective February 2, 2012 the month the F-1000 pumps were allegedly stolen, but one month after the new pumps were actually put into use. Endorsement [115-10]; Endorsement [115-11]. These facts were reflected in the adjuster’s second report, which also indicated that the missing F-1000 pumps might have been acquired by Oklahoma Rig Fabricators, the company responsible for building the F-1600 pumps. Adjusting Report No. 2 [112-15] at 6 7.

After further investigation, Defendants denied Plaintiffs’ claim in a letter dated September 14, 2012. Denial Letter [112-16]. The letter reasoned that the F-1000 pumps were not covered because they “had been deliberately detached from the Rig and placed away from the Rig site at what is seen to be a totally unsecured storage yard.” Id. Aggrieved by the denial of their claim, Plaintiffs filed suit in this Court on March 25, 2014, asserting claims for: (1) breach of contract; (2) negligence and/or gross negligence; (3) bad faith; (4) unjust enrichment; and (5) breach of the implied duty of good faith and fair dealing. See Compl. [1]. After the close of discovery, Defendants moved for summary judgment as to all claims. See Defs.’ Mot. [112]. Briefing on the motion is now complete, personal and subject-matter jurisdiction exist, and the Court is prepared to rule.

Standard

*3 Summary judgment is warranted under Rule 56(a) of the Federal Rules of Civil Procedure when the evidence reveals no genuine dispute regarding any material fact and that the moving party is entitled to judgment as a matter of law. The rule “mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party’s case, and on which that party will bear the burden of proof at trial.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).

The party moving for summary judgment “bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact.” Id. at 323. The non-moving party must then “go beyond the pleadings” and “designate ‘specific facts showing that there is a genuine issue for trial.’ ” Id. at 324. In reviewing the evidence, factual controversies are to be resolved in favor of the nonmovant, “but only when … both parties have submitted evidence of contradictory facts.” Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (en banc) (per curiam). When such contradictory facts exist, the court may “not make credibility determinations or weigh the evidence.” Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150 (2000). Conclusory allegations, speculation, unsubstantiated assertions, and legalistic arguments are not an adequate substitute for specific facts showing a genuine issue for trial. TIG Ins. Co. v. Sedgwick James of Wash., 276 F.3d 754, 759 (5th Cir. 2002); Little, 37 F.3d at 1075; SEC v. Recile, 10 F.3d 1093, 1097 (5th Cir. 1993) (per curiam).

III. Analysis

Plaintiffs contend that Defendants’ denial of their insurance claim for the replacement value of the missing F-1000 mud pumps was “incorrect and inconsistent with the known facts.” Pls.’ Mem. [116] at 2. Although the five Counts in the Complaint are legally distinct, the same threshold issue underlies each whether Plaintiffs’ F-1000 pumps were covered under Performance Drilling’s insurance policy at the time they went missing. As such, the Court will follow the parties’ lead and consider this issue before addressing the specific claims.

Breach-of-Contract Claim

In Count One of the Amended Complaint, Plaintiffs claim that Defendants “breached a contractual duty to pay insurance proceeds to the Plaintiffs” when they denied coverage for the missing F-1000 pumps. Pls.’ Compl. ¶¶ 52 53. But Defendants counter that the Policy only covers scheduled items, and because the F-1000 were never scheduled, they ceased to be insured once removed from the scheduled Rig 14. Defs.’ Mem. [113] at 2. They further argue that even if the pumps remained within the scope of the Policy after removal from Rig 14, four exclusions apply: (1) property in permanent storage; (2) unexplained loss/mysterious disappearance; (3) employee dishonesty; and (4) lack of due diligence. Id.3

Coverage of the F-1000 Mud Pumps After Removal From Rig 14

*4 Under Mississippi law, “the plaintiff bears the burden of proving his right to recover under an insurance policy.” Tuepker v. State Farm Fire & Cas. Co., 507 F.3d 346, 356 (5th Cir. 2007). Furthermore, the “language and provisions of insurance policies are viewed as contracts and are subject to the same rules of interpretation as other contracts.” Hayne v. The Doctors Co., 145 So. 3d 1175, 1180 (Miss. 2014). Of particular note, “Mississippi courts give effect to the plain meaning of an insurance policy’s clear and unambiguous language.” Leonard v. Nationwide Mut. Ins. Co., 499 F.3d 419, 429 (5th Cir. 2007) (citing Robley v. Blue Cross/Blue Shield of Miss., 935 So. 2d 990, 996 (Miss. 2006)). Finally, in interpreting a policy, courts “should look at the policy as a whole, consider all relevant portions together and, whenever possible, give operative effect to every provision in order to reach a reasonable overall result.” J & W Foods Corp. v. State Farm Mut. Auto. Ins. Co., 723 So. 2d 550, 552 (Miss. 1998).

Section one of Performance Drilling’s “all risks” insurance policy defines the scope of coverage. See Policy [112-1] at 1. That section reads as follows:

PROPERTY INSURED

Oil and/or gas well drilling and/or workover equipment as per Schedule, the property of the Assured, or oil and/or gas well drilling and/or workover equipment for which the Assured may be legally or contractually liable. Each item or rig shall be deemed a separate insurance.

Id. As the insured, Performance Drilling has the burden of proving that the F-1000 mud pumps were within the reach of this provision at the time they disappeared from the storage yard. Tuepker, 507 F.3d at 356.

The plain language of the Policy defines “property insured” as equipment “per Schedule.” Id. So absent other provisions, this language plainly limits coverage to property the insured lists on the schedule. See, e.g., Dep’t of Transp. & Dev. v. La. Towing Co., 692 F.2d 18, 22 (5th Cir. 1982) (finding “no justification in the terms of the [ ] insurance policy to extend liability coverage to a vessel not listed in the schedule”); cf. S. Surgery Ctr., LLC v. Fidelity & Guar. Ins. Co., No. 2:07-cv-181-KS-MTP, 2008 WL 4549871, at *7 (S.D. Miss. Oct. 10, 2008) (strictly interpreting coverage provisions associated with property schedule because less rigid interpretations would render the triggering clause in the policy “meaningless”).

Here, the subject pumps have never been separately listed in the “Schedule of Property,” but when the Policy first issued, they were part of “Rig # 14,” which was scheduled. See Policy [112-1] at 35; Property Schedule [112-4]. So there is no question the F-1000 pumps were covered while part of Rig 14. The question is whether they remained covered after the insured removed them from the scheduled rig.

Mississippi courts have not considered whether component parts of scheduled property can be insured against a loss suffered after removal from the scheduled item. Consequently, the Court is left to make an “Erie guess” in interpreting the instant Policy.4 In so doing, the Court is guided by ordinary principles of contract law, as well as the plain meaning of the Policy’s unambiguous provisions. Hayne, 145 So. 3d at 1180; Leonard, 499 F.3d 419 at 429.

In this case, the plain meaning of the terms and the Policy as a whole show no intent to insure component parts after they are removed from a scheduled item or rig. To begin, the Policy covers equipment “as per Schedule,” and later states that “[e]ach item or rig shall be deemed a separate insurance.” See Policy [112-1] at 11. Similarly, the schedule states that “[e]ach item scheduled is deemed to be separately insured.” Id. at 35. Neither of these provisions says each “item and its components.” The plain construction is that the parties agreed to insure the scheduled items or rigs as units rather than individual components.

*5 Had Plaintiffs wanted the coverage to travel with the F-1000 pumps after removal from the Rig 14, they could have separately scheduled those items. Indeed, they separately scheduled drill pipe and drill collars in their initial schedule and later added the F-1600 pumps as individually scheduled and thus “separately insured” property. See id.; Endorsement [115-10]; Endorsement [115-11]. They did not do so with the F-1000 pumps, and there is simply nothing on the face of the Policy indicating a mutual intent to continue insuring component parts once removed from a scheduled item.5

Plaintiffs refute this construction, however, and offer three primary arguments to support their position that “coverage was still being provided for the [pumps] at the time they were stolen.” Pls.’ Mem. [116] at 14. First, they assert that the F-1000 pumps did not have to be scheduled to be covered because the Policy’s language alternatively provides for coverage of “oil and/or gas well drilling and/or workover equipment for which the Assured may be legally or contractually liable.” Pls.’ Mem. [116] at 12; Policy [112-1] at 1.

Plaintiffs fail to support this argument with legal authority, but Mississippi and other jurisdictions have construed similar provisions as covering property the insured holds as a custodian or bailor for a third party (i.e., the provision does not address the insured’s property). See, e.g., Penn v. Commercial Union Fire Ins. Co. of N.Y., 101 So. 2d 535, 536 37 (Miss. 1958) (holding that provision extending coverage to “property for which the insured is liable” refers to the “present and existing general liability of the insured as bailee of the property”); Globe & Rutgers Fire Ins. Co. v. United States, 202 F.2d 696, 697 (5th Cir. 1953) (“[T]he phrase ‘provided the insured is legally liable therefor’ … should be considered to refer to the present and existing liability of the custodian generally ….”). Here, Performance Drilling purchased the F-1000 pumps as part of Rig 14 in September 2007 and therefore held them as an owner, not a custodian or bailor. Farmer Dep. [115-5] at 117.

Next, Plaintiffs argue that because Performance Drilling employed mobile rigs with interchangeable parts, the rigs “were insured against all risks regardless of whether they were connected and operating as a single unit.” Id. To support this position, Plaintiffs rely on language from other sections of the Policy, including the permanent-storage exclusion (Exclusion “J”) and the stacked-rigs endorsement, which provide for separate or alternative coverage of rigs and specified rig components while idle or disconnected from an operating rig. Id. at 15; see also Policy [112-1] at 12, 40. According to Plaintiffs, because these provisions contemplate the continuation of coverage upon removal or temporary disuse of rig components, the removal and storage of the F-1000 pumps in this case could not have terminated coverage. Pls.’ Mem. [116] at 16. This argument is without merit.

*6 Starting with Exclusion J, the Policy excludes from coverage “[p]roperty while in permanent storage … unless specifically scheduled herein.” Policy [112-1] at 12. As Plaintiffs correctly note, this provision proves that elements of a particular rig can, under the right circumstances, remain covered despite being disconnected from the rig. But Plaintiffs ignore that permanently stored items are covered only if “specifically scheduled” in the Policy as stored property. Id. (emphasis added). Read as a whole, this scheduling requirement further supports the conclusion that the Policy covered scheduled property. And it is undisputed that the F-1000 pumps were not specifically scheduled as either covered property or property in permanent storage. See id. at 35; Property Schedule [112-4].

Similarly, the stacked rigs endorsement provides that “idle and ‘stacked’ rigs and/or units shall be covered hereunder at specified rates(s) [sic] as shown in the Declarations.” Policy [112-1] at 40. As Plaintiffs acknowledge, this endorsement “allows an insured to apply for a cheaper premium if the rig is ‘stacked,’ ” Pls.’ Mem. [116] at 15, meaning the rig as an entire unit is idle or non-operational. Here, there is no dispute that Rig 14 remained in operation after the F-1000 pumps were removed, replaced, and sent to storage, making the “stacked” endorsement inapplicable. See Farmer Dep. [112-6] at 148 54, 214. Regardless, the provision fails to show an intent to insure component parts once removed from a scheduled rig.

Finally, Plaintiffs contend that by issuing a retroactive endorsement that added coverage for the F-1600 pumps, “Defendants constructively admitted that coverage still existed for the F[-]1000 mud pumps.” Pls.’ Mem. [116] at 17. Specifically, Plaintiffs refer to the June 25, 2012 policy endorsement that retroactively added the F-1600 pumps to the property schedule effective February 2, 2012, for an additional premium of $1,015. Endorsement [115-10]. Plaintiffs argue that by issuing this endorsement, Defendants “affirmatively confirmed that there was coverage for the F-1000 pumps.” Pls.’ Mem. [116] at 17.

The decision by some not all insurers to retroactively cover the F-1600 pumps as separate items does muddy the waters a bit but ultimately fails as a backdoor attempt to obtain coverage for a loss that had already occurred. See Port of Olympia v. Lexington Ins. Co., 73 Fed.Appx. 949, 951 (9th Cir. 2003) (denying coverage where insured attempted to pay premium after suffering a loss). The disputed endorsement states: “THERE HAVE BEEN NO KNOWN OR REPORTED LOSSES ON THE 2 [F-1600] MUD PUMPS BEING ADDED.” Endorsement [115-10] at 2. This provision was required because the endorsement applied retroactively and the insurers did not intend to cover any known losses to the F-1600 pumps. Yet Plaintiffs suggest that by offering retroactive coverage for unknown losses to the F-1600 pumps, Defendants “confirmed” coverage for the known and already disputed loss of the F-1000 pumps. This could not reflect the parties’ mutual intent. And in any event, the endorsement forecloses Plaintiffs’ construction. The endorsement plainly states: “ALL OTHER TERMS AND CONDITIONS REMAIN THE SAME.” Id. The June 2012 endorsement did not establish coverage for the known and disputed loss in February 2012.6

*7 Ultimately, the Policy’s plain language dictates that it covered only scheduled items or rigs. Had Plaintiffs wished to insure the F-1000 pumps as separate items, they could have scheduled them as they did with other equipment, including the F-1600 pumps. They did not. And because Plaintiffs have failed to meet their burden of demonstrating coverage, Defendants’ motion is due to be granted.

Applicability of Coverage Exclusions

Defendants contend that exclusions apply even if coverage exists. Specifically, they argue that the F-1000 pumps are excluded from coverage under the exceptions for: (1) property in “permanent storage”; (2) “lack of due diligence” by the insured; (3) losses caused by “unexplained loss and/or mysterious disappearance”; and (4) “infidelity and/or dishonest acts” by the insured or its employees. See Defs.’ Mem. [113] at 11 22.

Contrary to Plaintiffs’ argument, Defendants did not waive any of these exclusions. See Sobley v. S. Nat. Gas Co., 210 F.3d 561, 564 (5th Cir. 2000) (“Under Mississippi law, an insurer may rely on any exclusion in the policy to show that no coverage existed, whether or not that exclusion was the stated basis for denial.”). But because no coverage exists, the exclusions were never implicated. Though the Court could stop here, it will, for purposes of the record and for the parties’ benefit, offer summary holdings.

Based on the legal standards explained in Broussard v. State Farm Fire & Casualty Co., three exclusions provide no basis for summary judgment. 523 F.3d 618, 625 26 (5th Cir. 2008). First, the permanent-storage exclusion is ambiguous because it is unclear whether the term “permanent” modifies “property” or “storage,” and viewed in a light most favorable to the insured, the F-1000 pumps were not permanently stored. Second, the lack-of-due-diligence and infidelity exclusions raise questions of fact.

That said, the unexplained-loss/mysterious-disappearance exclusion would apply. Mississippi has not addressed this precise exclusion in this context. But there is a substantial and sometimes conflicting body of law addressing this and similarly worded exclusions. Compare Sylvan Paper Corp. v. R. Horizon Warehouse, No. 04-3179 (JAP), 2005 WL 7853502, at *3 (D.N.J. Nov. 23, 2005) (applying exclusion as a matter of law where it was unclear whether property was stolen by a third party, stolen by the insured’s employees, or simply lost), with Mid S. Sales Co. v. Cont’l Cas. Ins. Co., No. 06-6382, 2007 WL 3273451, at *6 7 (E.D. La. Nov. 5, 2007) (finding question of fact whether exclusion applied where the insured presented circumstantial evidence of theft, including “widespread looting” in the vicinity of its property).

The parties have not explored this law in their memoranda, and the Court is reluctant to dig too deeply sua sponte. Regardless, the exception would apply. First, Sylvan Paper Corp. is factually similar and, if correct, would dictate summary judgment. Second, even under the standards applied in cases that found questions of fact, summary judgment is still appropriate on this record under Rule 56(c).

Defendants have offered a substantial record that the pumps either remained somewhere within Performance Drilling or were taken by its agents (if not purposely or mistakenly sold). Setting aside the possibility of an inside job which would trigger the infidelity exclusion the loss was otherwise unexplained. In their response, Plaintiffs merely contend that there is no mystery because someone saw the pumps being loaded onto a truck, indicating they were stolen. But Farmer testified that the witnesses “thought it was one of our trucks.” Farmer Dep. [112-6] at 163. And in any event, the presence of a truck offers nothing more than speculation because it would be consistent with all reasonable explanations for the loss. Indeed, Performance Drilling’s own safety representative, who investigated the loss on behalf of the company, conceded, “The circumstances of their disappearance would be the mystery.” James Dep. [112-9] at 56; see also id. (acknowledging “a long list of possibilities [and that he would] probably grant most of them”). Though Defendants have the burden of proving an exclusion, they met it, and Plaintiffs did not create a question of fact under Rule 56(c).

Remaining Claims

*8 In addition to the breach-of-contract claim, Plaintiffs claim that Defendants were negligent in failing to investigate, process, and pay Performance Drilling’s claims. Am. Compl. [11] ¶¶ 51 59. Plaintiffs also seek recovery for bad faith, unjust enrichment, and breach of the implied duty of good faith and fair dealing due to Defendants’ denial of their claims “without any arguable basis.” Id. at ¶¶ 60 70. Having found no question of material fact as to the underlying breach-of-contract claim, the Court concludes that these remaining claims which stem from the allegedly improper denial of Plaintiffs’ claims are also subject to dismissal. As stated previously, absent a showing that Defendants denied Plaintiffs’ claim for the F-1000 pumps without a legitimate basis, Plaintiffs cannot demonstrate a genuine dispute for trial as to the remaining claims. Consequently, they are dismissed with prejudice.

Conclusion

The Court has considered the parties’ arguments. Those not specifically addressed would not have changed the outcome. For the foregoing reasons, Defendants’ Motion for Summary Judgment [112] is granted, and Plaintiffs’ claims are hereby dismissed with prejudice. A separate final judgment will be entered in accordance with Rule 58 of the Federal Rules of Civil Procedure.

SO ORDERED AND ADJUDGED this the 28th day of July, 2016.

All Citations

Slip Copy, 2016 WL 4132088

Footnotes

O & G Leasing was a related company that shared the same parent company as Performance Drilling, but it ceased to exist after the businesses went through a Chapter 11 bankruptcy restructuring in 2014. See Farmer Dep. [112-6] at 12 14.

For simplicity, the four insurers are referred to herein as “Defendants.”

A federal court sitting in diversity applies the choice-of-law principles of the forum state to determine which substantive law should apply. Ellis v. Trustmark Builders, Inc., 625 F.3d 222, 225 (5th Cir. 2010). Here, the parties do not dispute that Mississippi law governs this action, see Defs.’ Mem. [113] at 7; Pls.’ Mem. [116] at 11, and the Court finds no reason to conclude otherwise.

“In the absence of a final decision by the state’s highest court on the issue at hand, it is the duty of the federal court to determine, in its best judgment, how the highest court of the state would resolve the issue if presented with the same case.” Am. Int’l Specialty Lines Ins. Co. v. Canal Indem. Co., 352 F.3d 254, 260 (5th Cir. 2003).

Farmer testified that the pump packages are “interchangeable” and could be moved around to different rigs. Farmer Dep. [112-6] at 87. So, for example, he stated that it was Performance Drilling’s intent to rotate the subject F-1000 pumps through various rigs other than Rig 14. Id. at 208 09. It is hard to imagine under the current Policy how the parties could track which components were insured if all components from the five scheduled rigs remained covered after removal from those rigs, even when inactive. It seems far more reasonable that the parties would have separately scheduled any components i.e., “items” they wished to cover beyond their use with a scheduled rig. In fact, this is what they did with the drill pipe, drill collars, and ultimately the F-1600 pumps.

Though the issue is not directly addressed in the argument section of their memorandum, Plaintiffs indicate that the F-1000 pumps remained part of Rig 14 because it was their intent to return them to that rig. Defendants convincingly respond that this professed intent does not change the fact that at the time of the loss, the pumps were in storage and Rig 14 was equipped with different pumps. Nevertheless, no reasonable jury could find that Performance Drilling intended to return the old pumps to that rig. Before the loss, Performance Drilling’s President and CEO, Farmer, sent an email stating that the new pumps would replace the old pumps on Rig 14. Farmer Email [112-14]. After the loss, the adjustor reported that the pumps were “to be refurbished and were to be used as spare replacement pumps for the rig fleet,” and therefore no longer part of Rig 14. Adjusting Report No. 1 [112-13] at 5, 9. Only after learning that the pumps might not be covered did Performance Drilling instruct the carrier that it intended to return the pumps to Rig 14. See Letter [115-8] at 2. But despite that letter, Farmer gave sworn testimony consistent with the adjustor’s report, stating that the company intended “to repair [the F-1000s] and put them on another rig.” Farmer Dep. [112-6] at 209 (emphasis added). Finally, Performance Drilling made a judicial admission in the course of its 2013 bankruptcy action that it purchased the F-1600 pumps for use on Rig 14 as part of a series of “capital improvements” to that rig. Second Am. Disclosure Statement [112-18] at 25 26.