A Texas appeals court reduced by $ 13.6 million a jury award against the Lloyds of London unions to the owner of a Gulf of Mexico oil well and rig that have destroyed by Hurricane Rita in 2005.
Houston 1st District Court of Appeals ruled that evidence presented at trial did not support a jury’s finding that Lloyd’s violated the state’s Prompt Payment Act and erased $ 9,932,726.87 penalties. The court also overturned the jury’s finding that Lloyd’s had committed unfair or deceptive acts, imposing $ 3,640,351.84 in penalties.
The court did not change the jury’s award of $ 1,820,180.92 in actual damages and $ 1,463,586.46 in legal fees.
Hurricane Rita caused “catastrophic damage” to an oil rig and oil well in the Gulf of Mexico 75 miles off the coast of Louisiana that was owned by Prime Natural Resources and W&T Offshore Inc. An aerial survey found that the platform was no longer visible above the surface, and the pipeline that connected the well to the platform was curved at a 90 degree angle.
A Lloyd’s Wellsure Energy Package policy covered Prime’s interest in the rig and well. Lloyd’s paid the policy limit of $ 1,125,000 for the rig, but was reluctant to pay well repair costs that exceeded $ 17.5 million. Wells was paid for half the costs through a 2007 comprehensive settlement with Lloyd’s that included all of the Gulf of Mexico oil wells it owned, which had been damaged by Hurricanes Katrina and Rita.
Lloyd’s only paid Prime $ 2,820,866 for its share of the loss, although Prime said it submitted the exact same documents as W&T. Prime filed a lawsuit in September 2007 seeking recovery of an additional $ 4.7 million in unpaid well replacement costs.
The lawsuit resolved the rig damage claims, but Prime still had unpaid claims related to the cost of replacing the well and filed a second lawsuit. After a lengthy trial, a jury ruled that Prime owed $ 1,820,180.92 in damages. Further, the jury found that Lloyd’s engaged in unfair and deceptive practices and violated the Texas Prompt Payment Act.
Lloyd’s appealed the jury’s award of actual damages and surcharges for prompt failure to pay and for allegedly deceptive and unfair acts.
The appeals court found no reason to overturn the jury’s award of actual damages, but overturned other findings.
The appeals court said that in order to support an award of treble damages for unfair and deceptive practices, a jury must find that the insurer knowingly refused to pay the claims covered by its policy. The court said the evidence showed there was disagreement among Lloyds staff over the costs covered by the well replacement policy. While there was evidence of claim mismanagement or even negligence, this is not enough to conclude that Lloyd’s knew its actions were unfair and deceptive.
The jury found that Lloyd’s violated the Prompt Payment Act because it made only a partial payment of $ 2.7 million on the claim provided it was accepted as full payment. The appeals court said that in fact Lloyd’s never claimed his payment was conditional. Prime accepted the money and was free to spend it, the court said. Lloyd’s went through a decade of litigation without ever claiming that Prime closed the deal by accepting partial payment.
The court of appeal sent the case back to the court of first instance to recalculate the amount of interest due on the actual damages.
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