Superior Well Services is one of the large companies being investigated by the U.S. House Energy and Commerce Committee to see if the gas extraction method known as hydraulic fracturing, or fracking, is a hazard to groundwater drinking supplies.
Superior Well Services, Inc. board faces investor investigation.
After the announcement to take over Superior Well Services, Inc. (NASDAQ:SWSI) by Nabors Industries Ltd. an investigation on behalf of current investors of Superior Well Services, Inc. (Public, NASDAQ:SWSI) over possible shareholder claims based on breach of fiduciary duty by certain members of the Superior Well Services board of directors in connection with their attempt to sell Superior Well Services, Inc. (NASDAQ:SWSI) was announced.
(Editor’s Note. 5 Dec 2023.) See also: Mitchell Williams Law firm. Hydraulic fracking services/commercial general liability policy: federal appellate court addresses coverage for faulty workmanship. 22 Jun 2023.
June 22, 2023
By: Walter G. Wright
Category: Arkansas Environmental, Energy, and Water Law
Co-Author: Jenna Davidson
The United States Court of Appeals for the Third Circuit (“Appellate Court”) addressed in a May 31st Opinion an insurance coverage question arising out of hydraulic fracking services being employed to extract natural gas. See American Home Insurance Co. v. Superior Well Services, Inc., No. 22-1498.
The issue addressed was whether certain Commercial General Liability (“CGL”) policies provided coverage to a contractor that allegedly damaged certain wells through faulty workmanship.
U.S. Energy Development Corporation (“U.S. Energy”) alleged that Superior Well Services, Inc. (“Superior”) damaged 97 of its wells through its improper use of certain chemical mixtures during fracking.
Fracking fluid contains different chemicals for different purposes such as dissolving minerals, eliminating bacteria, and slowing corrosion. The United States Environmental Protection Agency (“EPA”) has previously identified over 1,084 chemicals present in fracking fluids. States typically require disclosure of chemicals. However, exclusions are sometimes provided for “confidential business information” (“CBI”).A focus of the CBI may be the chemical identity. U.S. EPA, Hydraulic Fracturing for Oil and Gas. Dec. 2016, at 16, https://www.epa.gov/sites/default/files/2016-12/documents/hfdwa_executive_summary.pdf.
A jury awarded U.S. Energy $6.16 million in May 2018 after determining that Superior had damaged 53 of the 97 wells. This was deemed a breach of contract.
Superior held CGL policies from American Home. An Underground Resources and Equipment Coverage (“UREC”) endorsement had also been obtained which amended the CGLs. This endorsement added coverage with respect to property damage associated with well-servicing operations.
American Home sought a declaratory judgment that it was not required to indemnify (i.e., provide coverage) for any damages awarded to U.S .Energy. It argued that property damage caused by a failure to perform a contract “in a workman like manner” is not an “occurrence” under the policy. The contract defined “occurrence” as “an accident…” but it did not define “accident.”
U.S. energy intervened as a defendant arguing that the plain text of the endorsement expressly covered the judgment.
The District Court also considered whether the 53 damaged wells were each a separate occurrence or a single occurrence. It concluded that each damaged well constituted a separate occurrence. This triggered an independent coverage limit for each well.
Summary judgment was granted in favor of Superior and U.S. Energy. The term “occurrence” was held to cause “failing to perform a contract in a workman like manner” distinguishing the language from “faulty workmanship.” The Pennsylvania Supreme Court had previously held that the term “occurrence” does not cover “faulty workmanship.”
The Appellate Court reversed. It held that Superior’s use of an unsuitable product that resulted in damage did not constitute an “occurrence” because the insurance policy defined it as an “accident.” Precedential cases (Kvaerner and Sapa) were cited that indicated poor workmanship is too “foreseeable to be considered an accident.” An accident was described as unexpected or occurring unintentionally. This was held to not coincide with faulty workmanship. The Appellate Court opined that the phrases “faulty workmanship” and “failure to perform in a workman like manner” are equivalent in this case.
The Appellate Court also analyzed how the UREC endorsement impacted the underlying CGL. It concluded that they are best read together, were not in conflict, and incorporated the “occurrence” requirement through the “property damage” requirement. It did not reach the question regarding the 53 separate occurrences since there was no occurrence.
The case was reversed and remanded with directions to enter judgment for American Home.
A copy of the Opinion can be downloaded here.
The Between the Lines blog is made available by Mitchell, Williams, Selig, Gates & Woodyard, P.L.L.C. and the law firm publisher. The blog site is for educational purposes only, as well as to give general information and a general understanding of the law. This blog is not intended to provide specific legal advice. Use of this blog site does not create an attorney client relationship between you and Mitchell Williams or the blog site publisher. The Between the Lines blog site should not be used as a substitute for legal advice from a licensed professional attorney in your state.
Mitchell Williams Law firm. Hydraulic fracking services/commercial general liability policy: federal appellate court addresses coverage for faulty workmanship. 22 Jun 2023.
If you are a current investor in Superior Well Services, Inc. (NASDAQ:SWSI) shares, who purchased your SWSI stock prior to Monday, August 09, 2010, and/or have information relating to the investigation, you have certain options and you should contact the Shareholders Foundation, Inc by email at https://www.shareholdersfoundation.com/ or call +1 (858) 779 – 1554.
Fracturing Systems: Hydraulic fracturing is a process of pumping water, oil, and/or gases with a proppant at sufficient pressure to create a fracture in a chosen formation. The goal is to create and prop open the fracture.
See: Universal Well Services, Inc.
See: Sanjel Corporation
See: Energy & Commerce Committee Investigates Potential Impacts of Hydraulic Fracturing
See: Hydraulic Fracturing: History of an Enduring Technology
See: Natural gas: the commodity world’s ugly duckling
See: Chevron Human Energy Stories | Addressing Climate Change
See: Halliburton
See: BJ Services
See: Schlumberger
See: EPA Findings on Hydraulic Fracturing Deemed “Unsupportable”
See: Coalbed Methane Development: The Costs and Benefits of an Emerging Energy Resource
See: Natural gas: the commodity world’s ugly duckling
See: This Website is a Crash Course In Fracking
See: Affirming Gasland
