Oklahoma Supreme Court Holds Subsidence And Earth Movement Exclusion Excludes Coverage For Claims Stemming From Seismic Activity Caused By Insured’s Oil And Gas Operations
The Oklahoma Supreme Court held that no coverage exists for bodily injury and property damage resulting from seismic activity allegedly caused by oil and gas operations based on Subsidence and Earth Movement Exclusions reversing a trial court holding that pollution exclusions barred coverage. National American Ins. Co. v. New Dominion, LLC, No. 118,490 and 118,496, 2021 Okla. LEXIS 65, 2021 WL 5459471, at *1 (Okla. Nov. 23, 2021).
Litigation ensued following claims that the insured’s oil and gas operations injecting wastewater underground created seismic activity that caused bodily injury and property damage. The insured sought coverage under its liability policies, which the insurer denied. The insurer then sought a declaratory judgment that no coverage existed. The insured countersued for breach of contract, equitable estoppel and reformation of the contracts. The trial court conducted bifurcated bench trials for the breach-of-contract and equitable claims. The trial court found that the insurer’s Total Pollution and Subsidence and Earth Movement Exclusions unambiguously preclude coverage under each of the liability policies; the trial court found coverage for bodily injury during one of the policy periods.
On appeal, the Oklahoma Supreme Court reversed. The Court held that the phrase “irritant or contaminant” contained in the pollution exclusions is susceptible to more than one interpretation, and that the insured could have reasonably expected that the exclusions barred coverage stemming from a pollutant’s or irritant’s contaminating nature rather than damage caused by a pollutant unrelated to its nature. The bodily injury and property damage allegedly stemmed from seismic events unrelated to the wastewater’s actual contaminating nature.
The Court next addressed the policies’ Subsidence and Earth Movement Exclusions. The Court affirmed the trial court’s findings that these exclusions unambiguously preclude coverage for the claims. Although two of the four policies’ exclusions did not explicitly list an “earthquake” as an excluded event, the Court noted that the exclusions’ list “comprises nearly every event that is commonly associated with an “‘earthquake’.” It reached the same conclusion for the exclusion in a third policy which did identify earthquakes as excluded. The Court held that no coverage exists for property damage under three of the four policies; the parties stipulated that the same exclusion in the insured’s fourth policy indisputably barred coverage based on the exclusion’s additional language related to “any loss, injury or damage” stemming from those identified in the exclusion.
The Court denied the insured’s estoppel claims based on the Court’s analysis of the relevant exclusions and weight of the evidence developed in the trial court. The Court also denied the insured’s reformation argument and remanded the case for proceedings consistent with the Court’s holdings.