No Duty to Defend Well Blow-Out Suit Based on Professional Services Exclusion

Case: Nicklos Drilling Co. v. ACE American Insurance Co.
U.S. District Court for the Southern District of Texas
2014 U.S. Dist. LEXIS 156585 (S.D. Tex. 11/5/2014)

In a declaratory judgment action, a Texas federal court granted ACE American Insurance Co.’s Motion for Summary Judgment, finding it had no duty to defend an oil and gas contractor in the underlying lawsuit asserting breach of contract arising out of a well blow-out based on the Professional Services exclusion of a CGL policy. The court reasoned that because the underlying suit was based solely on the contractor’s failure to utilize its allegedly specialized knowledge to prevent the well blowout, the exclusion applied.

After the well blew out, Miramar sued Nicklos (and others) for breach of contract in a Texas state court, alleging that Nicklos “should have recognized that the well was on the verge of blowing out and that the mud weight was insufficient.” Miramar further alleged that Nicklos had experienced well operators on site who should have recognized that the pressure in the well exceeded the weight of the mud and that, if it had, the blow out could have been avoided.

Nicklos sought defense and indemnity from ACE as an additional insured under a CGL Policy, but ACE denied coverage, relying on the Designated Professional Services exclusion. The Professional Services excluded were described as “preparing, approving, or failure to prepare or approve maps, shop drawings, opinions, reports, surveys, field orders, change orders or drawing and specifications and supervisory, inspection, architectural or engineering activities” and “. . . it must be necessary for the professional to use his specialized knowledge or training.”

Although Nicklos denied that it was responsible for monitoring the pressure and weight of the mud, the court noted its decision regarding the applicability of the exclusion was based on the allegations of the underlying suit, without regard to whether those allegations proved accurate. This decision, however, contained no discussion or analysis of whether the allegations contained in the suit fell within the assumed definition of professional services; i.e., whether the task actually being performed by the contractor at the time of the alleged blowout were particular to specialized vocation or whether such work could have been preformed by a non-professional. In the end, the court held that Miramar did not sue Nicklos in the underlying suit based on any conduct other than Nicklos’ failure to utilize its allegedly specialized knowledge to prevent a well blowout. Consequently, even if not proven, the allegations fell within the Professional Services Exclusion and ACE was entitled to summary judgment that it owed Nicklos no duty to defend.