Texas Court Erases $13M From Jury Award for Offshore Oil Well Claim

A Texas appellate court shaved $13.6 million off of a jury’s award against Lloyds’ of London syndicates to the owner of a Gulf of Mexico oil well and platform that was destroyed by Hurricane Rita in 2005.

The 1st District Court of Appeals in Houston ruled that the evidence presented at trial did not support a jury’s finding that Lloyd’s had violated the state’s Prompt Payment Act and erased $9,932,726.87 in penalties. The court also reversed the jury’s finding that Lloyd’s had committed unfair or deceptive acts, striking $3,640,351.84 in penalties.

The court did not disturb the jury’s award of $1,820,180.92 in actual damages and $1,463,586.46 in attorney fees.

Hurricane Rita caused “catastrophic damage” to a platform and oil well in the Gulf of Mexico 75 miles off the coast of Louisiana that was owned by Prime Natural Resources and W&T Offshore Inc. An aerial survey revealed that the platform was no longer visible above the surface, and the pipeline that connected the well to the platform was bent at a 90-degree angle.

A Lloyd’s “Wellsure Energy Package” policy covered Prime’s interest in the platform and well. Lloyd’s paid the policy limit of $1,125,000 for the platform, but balked at paying costs to repair the well that exceeded $17.5 million. Wells was paid for its half of the costs through a 2007 global settlement with Llloyd’s that included all of the Gulf of Mexico oil wells that it owned, which had been damaged by Hurricane’s Katrina and Rita.

Lloyd’s paid only $2,820,866 to Prime for its share of the loss, even though Prime said had submitted the exact same documentation as W&T. Prime filed suit in September 2007, seeking recovery of an additional $4.7 million in unpaid well replacement costs.

The lawsuit resolved claims for damages to the platform, but Prime still had unpaid claims related to the cost of replacing the well and filed a second lawsuit. After a lengthy trial, a jury ruled that Prime was owed $1,820,180.92 in damages. Furtrhermore, the jury found that Lloyd’s had engaged in unfair and deceptive practices and that it had violated Texas’ Prompt Payment Act.

Lloyd’s appealed the jury’s award of actual damages and the add-ons for failing to pay promptly and for alleged deceptive and unfair acts.

The appellate court found no reason to overrule the jury’s award of actual damages, but it did overturn other findings.

The appellate court said to support an award of treble damages for unfair and deceptive practices, a jury must find that the insurer knowingly refused to pay claims that were covered by its policy. The court said the evidence showed that there were disagreements among Lloyds staff as to what costs were covered under the well-replacement policy. While there was evidence of mismanagement of the claim or even negligence, that isn’t enough to conclude that Lloyd’s knew that its actions were unfair and deceptive.

The jury found that Lloyd’s violated the Prompt Payment Act because it had made only a partial $2.7 million payment on the claim under the condition that it be accepted as full payment. The appellate court said actually Lloyd’s never asserted that its payment was conditional. Prime accepted the money and was free to spend it, the court’s said. Lloyd’s went through a decade of litigation without ever asserting that it had Prime had concluded the case by accepting the partial payment.

The appellate court remanded the case back to the trial court to recalculate the amount of interest owed on actual damages.