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RECENT DEVELOPMENTS

Affecting Petroleum Land Practices

April, 1999

An Oklahoma/Texas Potpourri

By Professor Marla E. Mansfield

The University of Tulsa, College of Law

Among the judicial activities since the last update, three cases from Texas and Oklahoma bear mention. One case comes from each jurisdiction and the third, although a Texas decision, literally straddles the border between the two states.  The cases involve the "pollution exclusion" from insurance policies, the implied covenant to market, and the efficacy of mineral deeds granted pursuant to Oklahoma title when land was declared to be in Texas.

The first case dealt with Texas's interpretation of a common exclusion in insurance policies, which excludes coverage for liability for pollution. The case involved an oil and gas operator, Mesa Operating Company, which was found to have contaminated a fresh water aquifer from a salt disposal well. It paid damages and performed remediation. Its primary insurer, without admitting liability, settled with Mesa within the policy limits. Mesa then sued its umbrella carrier. The carrier was granted a summary judgment based on the trial court's conclusion that the umbrella policy's pollution exclusion applied.

In Mesa Operating Co. v. California Union Insurance Co., 1999 WL 42027 (Tex. App. - Dallas No. 05-96-00986-CV) (Feb. 2, 1999), the Court of Appeals reversed. The court found that two endorsements to the primary policy might have covered the incident, one of which would not have been subject to the primary policy's pollution exclusion. The pollution exclusion of both policies excluded coverage for pollution unless from an occurrence that was "sudden and accidental." No Texas court has previously defined "sudden," and this court held that it includes a temporal element.  Hence, damage from a leak that continued over time would not be covered.  However, the primary policy contained a "Saline Substances Contamination Coverage" endorsement.  Because all such damages would be from "leaks," the pollution exclusion provision of the main policy was not applicable to such damages; the more specific endorsement rules. The primary insurer would have been liable.  The umbrella insurer, despite its pollution exclusion, might be liable for damages under its "continuation of coverage" provision if an "aggregate limit" of the underlying policy had been reached.  Because Mesa had not proven this, it could not have been granted a summary judgment. However, the grant of a summary judgment to the insurance carrier was also improper because it was based solely on the pollution exclusion.

The "purely" Oklahoma case involved a purported breach of the covenant to market.  The trial court canceled a lease for such a breach when gas had not been sold for the 14 to 15 years since the two wells had been drilled. The lessee argued that it had diligently tried to market the gas in the 41 days after demand to market was made and before notice of suit.  The Court of Appeals affirmed in Crain v. Hill Resources, Inc., 1998 WL 941128, 1998 Ok.Civ.App. 193 (No. 89512) (Aug. 31, 1998). The relevant time frame to look at diligence was the entire period from the time the wells were drilled, not merely from the time demand was made. Given the history of these wells, it was not against the weight of the evidence for the trial court to have found that demand was not even required before filing suit because demand would have been futile.  Therefore, the lessee need not be afforded either a reasonable time after notice to market nor an alternative decree to either market within a reasonable time or forfeit the lease.

The last case is literally one with some history involved. The location of the 100th Principle Meridian, the border between the Texas Panhandle and Oklahoma, was in dispute until a Supreme Court decision in 1930. Oklahoma had asserted jurisdiction over an area later determined to be in Texas. It had patented land to Starbuck, who then conveyed mineral interests to others. Texas passed a law allowing those who would have had title to the lands had they been in Oklahoma to seek a patent from Texas. At issue was whether the pre-existing mineral grants were valid and binding.

In Jones v. P.A.W.N. Enterprises, 1999 WL 72192 (Tex.App. Amarillo No. 07-98-0022-CV) (Feb. 10, 1999), the Court of Appeals found that they were. The Texas statutes allowing for new patents only referred to surface ownership and were to be granted to the surface owners.  However, the statutes recognized the Oklahoma chains of title.  Therefore, once the mineral interest owners re-filed their deeds in Texas, future grantees of the Texas chain had notice of these interests because they were locatable in the grantor-grantee indexes even if they pre-dated the grant of Texas title.

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