89 F. Supp. 3d 1015
D.N.D.2015Background
- July 25, 2011 explosion at a Continental Resources well in North Dakota injured three Cyclone Drilling employees; underlying tort claims have been settled. Star Insurance (insurer of Cyclone) filed this declaratory-judgment action over coverage/indemnity obligations among Cyclone, Continental Resources (operator), M‑I and Plaster & Wald (consultants), and multiple insurers.
- Cyclone had an IADC Drilling Contract (Dec. 15, 2010) with Continental that (1) superseded an earlier master service contract, (2) required Cyclone to name Continental as additional insured, and (3) contained broad, "without limit" indemnity provisions (¶¶ 14.8, 14.13).
- Star issued Cyclone a $1M primary and $5M umbrella (excess) policy; Continental had a $1M primary policy with Zurich and a $25M umbrella with National Union; M‑I had a Travelers $1M primary policy.
- Star has paid $2M toward defense/settlement for Continental (satisfying Star’s $1M primary and $1M of umbrella). Continental defended/indemnified M‑I after Cyclone/Star declined.
- Earlier (Jan. 23, 2014) order: IADC contract controls; Cyclone obligated to provide Continental minimum $2M insurance; Plaster & Wald is a "consultant" under ¶14.13 and entitled to indemnity.
Issues
| Issue | Plaintiff's Argument (Star / movant) | Defendant's Argument | Held |
|---|---|---|---|
| Scope of Cyclone’s contractual indemnity to Continental | Cyclone’s indemnity should be capped at $2M (insurance amount argued as cap) | Continental: indemnity is unlimited per IADC ¶¶14.8 & 14.13 | Indemnity is without limit per the contract’s unambiguous "without limit" language; Rupp inapplicable because contract did not specify insurance limits |
| Amount of coverage owed to Continental as additional insured under Star policies | Star: additional‑insured coverage is limited to amount required by contract (argues $2M) | Continental: entitled to full Cyclone coverage ($1M primary + $5M umbrella = $6M) | Continental entitled to full $6M available under Star policies as additional insured; Star already satisfied $1M primary and $1M umbrella payments |
| Priority between insurers (which policies are primary/excess) | Star: policy “other insurance” clauses make other carriers share or be primary | Zurich/National Union/Travelers: indemnity agreement controls priority, so Star’s coverage should be excess | Indemnity agreement controls priority (following Wal‑Mart Stores); Star policies are primary and must bear loss up to $6M before Zurich/National Union/Travelers are implicated |
| Whether Cyclone’s indemnity extends to Continental’s insurers (subrogation/reimbursement) | Star/Cyclone: insurers like Zurich are not indemnitees and Cyclone did not agree to indemnify insurers directly | Zurich: insurers are included among the broad list in ¶14.13 and are entitled to reimbursement/subrogation | Insurers (Zurich/National Union) are subrogated to Continental’s rights against Cyclone; but Cyclone’s indemnity clause is limited to claims "on account of bodily injury" so direct contractual indemnity to insurers is not plain—subrogation available as practical remedy |
| Whether Continental (subrogee of M‑I) can recover defense costs it paid for M‑I | Continental: equitable subrogation/reimbursement because Cyclone/Star should have defended M‑I as a "consultant" under the IADC contract | Cyclone/Star: dispute that M‑I demanded defense or that reimbursement issue is properly before the court; contend obligations limited | Court grants reimbursement to Continental under equitable subrogation: Cyclone owed M‑I defense/indemnity as "consultant"; Continental entitled to be indemnified by Cyclone and/or Star for reasonable M‑I defense costs |
| Whether Travelers/M‑I must defend or indemnify Continental | Star: Travelers (as M‑I’s insurer) must defend Continental as additional insured under M‑I policy | Travelers/M‑I: master service addendum and contract language mean M‑I/Travelers have no obligation here | Court holds M‑I and Travelers have no obligation to defend or contribute to Continental’s defense; master service addendum places that obligation on Continental or Cyclone depending on contract terms |
Key Cases Cited
- Wal‑Mart Stores, Inc. v. RLI Ins. Co., 292 F.3d 583 (8th Cir. 2002) (indemnity agreement controls insurer priority over "other insurance" clauses)
- Rupp v. American Crystal Sugar Co., 465 N.W.2d 614 (N.D. 1991) (court declined indemnity recovery above minimum contractually required insurance limits where contract specified limits)
- Clarendon Nat. Ins. Co. v. United Fire & Cas. Co., 571 F.3d 749 (8th Cir. 2009) (coverage dispute among insurers creating an actual controversy supports declaratory relief; applying Wal‑Mart allocation principles)
- Specialized Contracting, Inc. v. St. Paul Fire & Marine Ins. Co., 825 N.W.2d 872 (N.D. 2012) (principles for interpreting indemnity contracts; ambiguities construed against indemnitee)
- St. Paul Fire & Marine Ins. Co. v. Amerada Hess Corp., 275 N.W.2d 304 (N.D. 1979) (equitable subrogation described as remedy to prevent unjust enrichment)