November 03, 2014 Articles

"Right to Occupy" Surface Estate Bars Coverage for Property Damage

Legal right to occupy property suffices for property damage and blended pollution exclusions to bar coverage for well blowout

by M. Kaylan Dunn, Courtney E. Ervin and J. Wiley George

In its September 22, 2014 opinion in Pioneer Exploration, L.L.C. v. Steadfast Insurance Co. 767 F.3d 503 (5th Cir. 2014), the Fifth Circuit denied coverage for damages resulting from a well blowout, concluding that the insured’s legal right to occupy property was sufficient to exclude coverage under the property damage and blended pollution exclusions relating to property owned, rented or occupied by the insured. Justice Higginbotham’s opinion suggests that an insured’s legal right to occupy the property, as opposed to its physical occupancy of the property, may be sufficient to preclude coverage under an owned-property-type exclusion.

The suit arose from a blowout at a gas well operated by insured, Pioneer Exploration, L.L.C. in Cameron Parish, Louisiana. Pioneer was operating the well pursuant to a 1958 mineral lease. The well was located on a half-acre of the property covered by the mineral lease. In 2008, the well suffered a blowout causing property damage to approximately 12 acres of the property, including damage to neighboring property. At the time of the blowout, Pioneer was insured under three separate policies including an umbrella policy at issue in the lawsuit. The insurer, Steadfast, denied coverage under the policy arguing that coverage was expressly excluded.

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