Appeals court rules for insurer in Texas gas well blowout case

A federal appeals court on Friday affirmed a lower court ruling in favor of a Great American Insurance Group unit in a case in which a policyholder charged it had been misled as to whether it had coverage for a natural gas well blowout.

Castroville, Texas-based Finger Oil & Gas Inc. was insured under a policy issued by Great American unit Mid-Continent Casualty Co., according to Friday’s ruling by the 5th U.S. Circuit Court of Appeals in New Orleans in Finger Oil & Gas Inc. vs Mid-Continent Casualty Co.

In July 2019, the company was drilling at its own natural gas well when a valve failed and the well blew out. In response, it asked its commercial lines account manager at Marsh USA Inc. to inquire whether it was covered for the blowout.

The agent reached out to a Mid-Continent underwriter on the issue, which confirmed the insured had blowout and cratering coverage, and this information was passed on to Finger Oil.

Subsequently, Mid-Continent informed Finger Oil it would be reviewing the policy regarding coverage.  Relying on the Marsh agent’s email as confirmation it was covered for the incident, the company hired several contractors to work on the well and incurred bills totaling $641,590.

Mid-Continent, however, subsequently denied Finger Oil’s claim, based on an ownership exclusion in its policy and an “oil & gas endorsement.”

Finger Oil sued Mid-Continent and Marsh charging claims misrepresentation, breach of contract and failure to timely investigate a claim.

The U.S. District Court in San Antonio ruled in the insurer’s and Marsh’s favor. The oil company appealed the ruling.  Marsh was not a party in the appeal.

A three-judge appeals court panel ruled in the insurer’s favor. “We agree with the magistrate judge’s conclusion that Mid-Continent’s statement does not amount to an actionable misrepresentation under the circumstances presented here,” it said.

“Finger Oil’s agent asked Mid-Continent whether it had blowout and cratering coverage, to which Mid-Continent correctly replied that it did.

“Mid-Continent’s statement was more akin to a general statement that the policy included such coverage, rather than it was to a misrepresentation of specific policy terms,” the panel said, in affirming the lower court ruling.

Attorneys in the case did not respond to requests for comment.