Insurer’s Settlement of Fracking Blast Case Not “Voluntary Payment” Barring Recovery from Co-Insurer

The Tenth Circuit, applying Wyoming law, held that a commercial auto insurer had no duty to defend or indemnify its insured for a personal injury lawsuit arising out of a fire at a fracking site.  The Tenth Circuit held that the commercial auto insurer was to be reimbursed for the payment it made to settle the personal injury lawsuit, reversing the District Court’s holding to the contrary because it found that the settlement payment was made voluntarily.

RW Trucking, LLC (“RW Trucking”) pumps fracking water from frac tanks at oil-well sites and hauls it away for disposal.  Jason Metz worked as a driver for RW Trucking.  Metz was at a New Mexico well-site pumping fracking water from a frac tank into his truck’s trailer.   According to Metz, when the trailer reached capacity, Metz turned off the pump and disengaged the hose.  Metz then went to the truck of another well-site worker, David Garza.  Metz began walking back to his truck and he flicked his lighter to light a cigarette causing a flash fire that injured Garza.  Garza sued the well-site operator, Metz, and RW Trucking in New Mexico state court alleging premises liability, negligence, and vicarious liability.

During the relevant time frame, Carolina Casualty Insurance Company (“Carolina”) issued a commercial auto policy to RW Trucking.  During that same time frame, Burlington Insurance Company (“Burlington”) issued a commercial general liability policy to RW Trucking.  Burlington defended RW Trucking and Metz in the underlying action under a reservation of rights. Burlington tendered RW Trucking’s defense to Carolina.  Then Metz’s counsel tendered his defense to Carolina.  Carolina notified both RW Trucking and Metz that it was reviewing all coverage issues and reserving all rights.  Carolina also advised that it would attend an upcoming mediation.  At the mediation, the underlying suit settled for $850,00 – Burlington paid $415,000 on behalf of RW Trucking and Metz; Carolina paid $375,000 on behalf of RW Trucking, and the well-site operator paid $60,000 on its own behalf.

After the settlement, Carolina sought a declaration in the District of Wyoming that Burlington, not Carolina, had owed RW Trucking and Metz a duty to defend and indemnify.  Carolina also sought reimbursement of the $375,000 it paid to settle the underlying action.  Burlington counterclaimed, taking an opposite view.  Both parties filed motions for summary judgment. The District Court applied Wyoming’s choice-of-law rules and determined that Wyoming law applied.  The District Court ruled that Carolina had no duty to defend or indemnify but declined to order Burlington to reimburse Carolina for its share of the settlement, holding that Carolina had paid as a volunteer.  On reconsideration, the District Court issued a first amended judgment that Carolina did in fact have a duty to defend, which it breached, but that it had no duty to indemnify.  In a second amended judgment, the District Court awarded Burlington Carolina’s share of defense costs, $66,670.76.

On appeal, the Tenth Circuit noted that Wyoming applies the choice-of-law “approach defined by the [Second Restatement],” if a conflict exists.  Although New Mexico and Wyoming differ in the approach to the duty to defend, the Tenth Circuit found that there was no conflict requiring further analysis because under either state’s law, Carolina would not have a duty to defend in the underlying action.  Thus, the law of Wyoming, the forum state, applied.

The Tenth Circuit held that Garza’s personal-injury claims against RW Trucking and Metz as alleged in the underlying action do not fall within Carolina’s commercial auto coverage.  Carolina’s policy provides coverage for accidental injury or loss “resulting from the ownership, maintenance or use of” an RW Trucking auto.  Under Wyoming law, “resulting from” is synonymous with “arising out of,” and Wyoming applies the “natural consequences” test.  So, for Carolina’s policy to cover Garza’s injuries, the well-site fire must have been “the natural and reasonable incident or consequence” of Metz’s use of the tractor-trailer, with a reasonably apparent causal connection.  The amended complaint blamed the well-site operator for the presence of explosive gas; blamed Metz for flicking his lighter, which ignited the gas; and blamed RW Trucking for failing to “train, supervise, direct or control” Metz.  The court found no causal connection between Metz’s inferred use of the tractor trailer and the fire.   Thus, no duty to defend or obligation to reimburse Burlington for a share of the defense costs.  Moreover, because Carolina did not have a duty to defend RW Trucking and Metz, the Tenth Circuit held that it cannot have a duty to indemnify.

Lastly, the Tenth Circuit addressed the issue of Carolina’s demand for reimbursement of its settlement payment.  The Wyoming Supreme Court has recognized the voluntary-payment doctrine as a defense to an insurer’s claim for legal, or equitable, subrogation.  However, the Tenth Circuit did not believe the Wyoming Supreme Court would apply the voluntary-payment doctrine to the case at hand, a situation where two insurers jointly settled claims against their joint insured under mutual reservations of rights.  Moreover, declining to apply the voluntary-payment doctrine in these circumstances furthered Wyoming’s strong public policy favoring settlement.  “Carolina and Burlington settled Garza’s claims, ending his suit, with the mutual understanding that they would later determine liabilities.  They sought to sort their respective liabilities in a declaratory-judgment action.  Imposing the voluntary-payment doctrine here may well have forced Garza to litigate his claims to a jury verdict.”  Therefore, Carolina was entitled to reimbursement from Burlington for the $375,000 it contributed to the settlement.  Carolina Cas. Ins. Co. v. Burlington Ins. Co., Nos. 18-18071 & 18-8077 (10th Cir. Feb. 27, 2020).