Offshore well owner wins $41.6M in insurance dispute case

A Houston jury awarded Prime Natural Resources Inc. $41.6 million in an insurance breach of contract dispute with certain underwriters at Lloyd’s, London, over offshore oil facilities damaged by Hurricane Rita 12 years ago.

According to a Monday report by the Houston Chronicles, the Houston-based private equity firm Prime Natural Resources owned 50% interest in a well offshore Louisiana, which was destroyed by Hurricane Rita in 2005. The other half was owned by another Houston company acting as the operator, W&T Offshore.

After six weeks of testimony, the state district court jury in Harris County awarded a $27.3 million in punitive damages after finding the insurers not only breached the contract, but also violated the state insurance code. Actual damages were $1.8 million for the insurers’ failure to cover repairs from the 2005 storm and $10.9 million for bad faith. The jury also awarded $1.6 million in legal fees.

The underwriters insured Prime’s oil and gas drilling platform in the Gulf of Mexico under a Wellsure policy, one often used by the energy industry. Following Hurricane Rita, Prime spent millions in repairing its damaged platform, but the underwriters refused to pay.

“The insurers were claiming that they insured the offshore oil well, but they would not pay for any of the individual parts of the oil well that were damaged. It would be like saying your car is insured, but your bumper isn’t. The jury didn’t buy that argument,” said John Zavitsanos, founding partner at AZA who tried the case with associates Sammy Ford IV, Foster Johnson and Edward Goolsby.

Zavitsanos said a Lloyd’s witness acknowledged this was the first jury trial in Texas testing the way insurance companies pay under these Wellsure policies and could thus create a precedent for how these policies are interpreted in the future regarding offshore oil wells.

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