Drilling a Dry Well Is Not an Occurrence Under a CGL Policy


In PPI Technology Services, LP v. Liberty Mut. Ins. Co., 2012 WL 130389 (S.D. Tex. Jan. 17, 2012), the Southern District of Texas held that there was no "occurrence" of covered "property damage" arising from underlying claims that a well was drilled in the wrong location.

Royal Production Company, Inc. retained PPI Technology Services, L.P. to assist in well planning and to oversee the drilling of various wells on the leases. Royal sued PPI, alleging that it caused the drilling rig to be placed in the wrong location. This misplacement resulted in the drilling of a dry hole that was ultimately plugged and abandoned. Royal alleged that it had to maintain three mineral leases in the absence of any production, incurred costs in drilling the well in the wrong location, and incurred property damage to the property where the well was drilled. Liberty Mutual Insurance Company, the commercial general liability insurer for PPI, denied that it owed a defense or indemnity to PPI. PPI then sued Liberty Mutual for breach of the insurance contract, breach of section 541.060 (prompt payment of claims) of the Texas Insurance Code, and breach of the duty of good faith and fair dealing. Liberty Mutual filed a motion for summary judgment, arguing it has no duty to provide a defense.

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