Umbrella Coverage Is Available to Oklahoma Land Drilling Company for Lawsuits over Worker Deaths

In November 2009, two employees of a domestic land drilling contractor died while conducting modifications to an oil/gas well drilling rig involving a crane.  In response to lawsuits brought by the families of the deceased workers, the drilling company made requests to the insurer of its workers’ compensation policy and to the insurer of an umbrella liability policy to defend or indemnify the company.  The workers’ compensation insurer indemnified the company up to the limit of that policy, but the umbrella insurer argued that the umbrella policy did not provide coverage for this incident.

At the time of the incident, Oklahoma law allowed employees to sue their employer for workplace injuries when the injury was “substantially certain to result from the employer’s conduct.”  The umbrella insurer contended that the policy unambiguously excluded substantial certainty torts as a matter of law.  The drilling company’s original policy purchased from the umbrella insurer included an endorsement only applicable to five designated states not including Oklahoma that excluded “Bodily Injury intentionally caused or aggravated by you, or Bodily Injury resulting from an act which is determined to have been committed by you with the belief that an injury is substantially certain to occur.” Subsequent policies issued to the drilling company did not contain that endorsement but did not generally exclude “bodily injury … expected or intended” from the standpoint of the insured without any limitation to certain states.

Last week, in granting the drilling company’s partial summary judgment motion, an Oklahoma federal court found that it was ambiguous whether that by creating the endorsement that specifically excluded bodily injuries resulting from the insured’s intentional or substantial certainty acts and omitting Oklahoma from the list of designated states meant that substantial certainty claims were not excluded in Oklahoma.  Construing the ambiguity in favor of the insured, the court concluded that the drilling company had a reasonable expectation of coverage for substantial certainty claims for its Oklahoma employees.  The court also found that the endorsement contained in the original umbrella policy had to be read as part of the policy that existed at the time of the incident even though the umbrella insurer had dropped that endorsement because the insurer failed to provide adequate notice that the endorsement was being removed, which was required when a reduction in coverage occurred.