A federal appeals court affirmed a lower court ruling Tuesday and said an FCCI Insurance Group must contribute to an Old Republic Insurance Group unit’s defense costs in litigation filed against a commercial driller.

Old Republic unit BITCO General Insurance Corp. and FCCI unit Monroe Guaranty Insurance Co. had both issued commercial general liability insurance policies to San Antonio, Texas-based 5D Drilling & Pump Service Inc., according to the ruling by the 5th U.S. Circuit Court of Appeals in New Orleans in BITCO General Insurance Corp., formerly known as Bituminous Casually Corp. v. Monroe Guaranty Insurance Co., a member of the FCCI Insurance Group.

In summer 2014, David Jones hired 5D to drill a 3,600-foot-deep commercial irrigation well through an aquifer that runs beneath his farm. 5D allegedly failed to drill the well properly and in June 2016 Mr. Jones sued the company for breach of contract and negligence, according to the ruling.

5D provided notice of the lawsuit, which was eventually settled, to the insurers. BITCO agreed to defend 5D, while Monroe refused, asserting the alleged property damage occurred outside the policy period and citing two business risk exclusions in its policy.

BITCO filed suit in U.S. District Court in San Antonio, seeking a declaratory judgment Monroe also had to defend the company, and to recover its share of the defense.  

The district court ruled in BITCO’s favor and was affirmed by a three-judge appeals court panel. After seeking and receiving a determination from the Texas Supreme Court that it could consider extrinsic evidence in the case, the appeals court said the case’s pleading “alleges damage potentially within the Monroe policy period, sufficient to trigger the duty to defend.”

The panel also held that two policy exclusions do not apply.  Monroe “cannot show that either exception unambiguously applies to all the damage alleged,” the panel said, in affirming the lower court ruling.

BITCO attorney William David Farmer, of Farmer, House, Osuna, Jackson & Olvera in San Antonio, said in a statement he was pleased with the Texas Supreme Court and 5th Circuit rulings in the case. FCCI’s attorneys did not respond to a request for comment.