ZaZa Energy LLC v. C&J Spec-Rent Services, Inc.

May 17, 2024

Nathan Ochsner, Clerk

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE SOUTHERN DISTRICT OF TEXAS

HOUSTON DIVISION

IN RE: §

§ CASE NO: 16-33590

CJ HOLDING CO., et al., §

§ CHAPTER 11

Debtors. §

§

ZAZA ENERGY LLC, §

§

Plaintiff, §

§

VS. § ADVERSARY NO. 19-3570

§

C&J SPEC-RENT SERVICES, §

INC., et al., §

§

Defendants. §

MEMORANDUM OPINION

This adversary proceeding concerns whether certain insurance

policies obtained by C&J Spec-Rent Services, Inc. require coverage of

Zaza Energy LLC for costs incurred in a wrongful death lawsuit brought

by the heirs and estate of a deceased C&J employee.

Zaza claims that provisions in a master service agreement

between Zaza and C&J require C&J to indemnify Zaza for loss

associated with bodily injury and death to C&J employees, with that

indemnification supported by insurance procured to cover those losses.

Zaza alleges that this indemnification and insurance provides coverage

for the wrongful death lawsuit. After Certain Underwriters at Lloyd’s,

London refused Zaza’s claims for coverage following settlement of the

lawsuit, Zaza sued C&J and Underwriters. Zaza claims that

Underwriters breached their duty to defend Zaza by failing to provide

the coverage. Zaza also claims that C&J tortiously interfered with the

Lloyd’s policies by influencing Underwriters to refuse to provide the

contracted-for coverage. C&J and Underwriters move for summary

judgment. The Court dismisses the tortious interference claim against

C&J but finds that Zaza is an additional insured under the insurance

policies. Underwriters’ motion for summary judgment is denied because

Underwriters had a duty to indemnify Zaza for the Barglsey litigation.

Zaza also moves for leave to file an untimely amended complaint.

The motion is denied.

BACKGROUND

I. FACTUAL HISTORY

A. The Master Service Agreement

C&J Spec-Rent Services, Inc. is an operator in the energy

industry. On February 11, 2011, C&J and Zaza Energy LLC entered

into a master service agreement (the “MSA”). ECF No. 87-1 at 1. Under

the MSA, C&J and its affiliates agreed to perform oilfield services for

Zaza. ECF No. 87-1 at 2. The MSA specifies that Zaza is generally

responsible for providing and controlling an oil site while C&J is

generally responsible for its operation. ECF No. 87-1 at 2.

The MSA contains certain mutual indemnity obligations for both

C&J and Zaza. ECF No. 87-1 at 4–5. At issue is the tort liability

indemnity provided by C&J for Zaza’s benefit. The indemnity contains

the following language:

Contractor hereby agrees to release Zaza, and to defend,

indemnify and hold the Zaza Group harmless from and

against any and all loss, cost, damage or expense of every

kind and nature (including, without limitation, fines,

penalties, remedial obligations, court costs and expenses

and reasonable attorneys' fees, including attorneys' fees

incurred in the enforcement of this indemnity provision

(hereinafter referred to collectively as "Indemnifiable

Claims")), arising out of bodily injury (including sickness to

or death of persons and losses therefrom to relatives or

dependents) to the Contractor Group, or loss or destruction

of property or interests in property of the Contractor

Group, in any manner caused by, directly or indirectly

resulting from, incident to, connected with or arising out of

performance of the Work, WHETHER OR NOT

RESULTING IN WHOLE OR IN PART FROM THE

SOLE, CONCURRENT, OR COMPARATIVE

NEGLIGENCE, OR STRICT LIABILITY OF THE ZAZ.A

GROUP, OR ANY DEFECT IN THE PREMISES,

EQUIPMENT OR TOOLS OWNED, OPERATED OR

CONTROLLED BY THE ZAZA GROUP. Contractor

agrees that this voluntary and mutual indemnity

agreement will be supported by insurance of the types and

in at least the minimum amounts required in Section 11,

and shall be primary to any other insurance provided by

the Zaza Group.

ECF No. 87-1 at 4–5. “Contractor Group” is defined to include

“Contractor [C&J Spec-Rent Services Inc.], its Affiliates and

Subcontractors, and their respective directors, officers, employees,

representatives and agents.” ECF No. 87-1 at 1. Section 11 of the MSA

contains an insurance obligation stating that C&J “shall secure and

maintain, and shall require its Subcontractors to secure and maintain,

during the term of this Agreement, the insurance coverage set forth in

Section I.” ECF No. 87-1 at 7. The language further provides:

ALL LIABILITY COVERAGE (INCLUDING

EMPLOYER'S LEGAL LIABILITY) CARRIED BY

CONTRACTOR WITH RESPECT TO THE LIABILTIES

ASSUMED BY CONTRACTOR HEREUNDER SHALL

EXTEND TO AND PROTECT THE ZAZA GROUP TO

THE FULL EXTENT AND AMOUNT OF SUCH

COVERAGE, INCLUDING EXCESS OR UMBRELLA

INSURANCES, AND SHALL BE PRIMARY TO, AND

RECEIVE NO CONTRIBUTION FROM, ANY OTHER

INSURANCE OR SELF-INSURANCE PROGRAMS

MAINTAINED BY OR ON BEHALF OF OR BENEFITING

THE ZAZA GROUP. THE LIMITS AND COVERAGES OF

THE INSURANCE OBTAINED BY CONTRACTOR,

EXCEPT TO THE EXTENT PROHIBITED OR

REQUIRED BY LAW OR STATUTE, SHALL IN NO WAY

LIMIT THE LIABILITIES OR OBLIGATIONS ASSUMED

BY CONTRACTOR. ALL OF CONTRACTOR'S

LIABILITY INSURANCE POLICIES (EXCEPT FOR

WORKER'S COMPENSATION OR EMPLOYER'S

LIABILITY POLICIES) SHALL NAME THE ZAZA

GROUP AS AN ADDITIONAL INSURED AND CONTAIN

A WAIVER ON THE PART OF THE INSURER, BY

SUBROGATION OR OTHERWISE, OF ALL RIGHTS

AGAINST THE ZAZA GROUP.

ECF No. 87-1 at 7. The provision also states that it “shall be

independent of any obligations Contractor or Zaza have under Section

10 hereof. Each party’s insurance carrier(s) will provide the other party,

as evidence that the required insurance coverage has been obtained,

with a certificate of insurance reflecting the amount of any deductibles.”

ECF No. 87-1 at 8.

Schedule I sets the policies and minimum limits of liability the

parties agreed C&J would obtain. ECF No. 87-3 at 1. Notably, on the

form, the parties marked boxes for automobile liability insurance and

worker’s compensation insurance but failed to mark the box for

commercial general liability insurance. ECF No. 87-3 at 1.

One June 18, 2015, C&J and Zaza entered into a Services

Agreement. ECF No. 87-2. Exhibit C of the Services Agreement

contains an amendment to the MSA. ECF No. 87-2 at 6. The

amendment modifies language of the MSA’s insurance provision. It

provides that “[t]he parties agree that with regards to naming the other

party as an additional insured or granting waivers of subrogation, such

additional insured status or waiver of subrogation shall only be to the

extent of the obligations and liabilities assumed by the insured party

under the MSA.” ECF No. 87-2 at 6.

B. The Insurance Policies

Lloyd’s, London issued C&J primary and excess general liability

policies with effective dates of March 24, 2015, through April 1, 2016.

ECF Nos. 87-4 at 1; 87-5 at 1.

The primary insurance policy has a $1,000,000 limit for each

occurrence, subject to a $250,000 deductible. ECF No. 87-4 at 1. The

policy states that it “will pay those sums that the insured and any

‘additional insured’ as far as applicable becomes legally obligated to pay

as damages because of ‘bodily injury’ or ‘property damage’ to which the

insurance applies.” ECF No. 87-4 at 11. The policy defines an

“additional insured” as

any person or entity to whom the “insured” is obliged by an

“insured contract” entered into before any relevant

“occurrence” to provide insurance such as is afforded by

this policy with respect to “bodily injury” or “property

damage” arising out of operations conducted by the

“insured” but only to the extent required by any indemnity

given by the “insured” in said “insured contract” to the

“additional insured.”

ECF No. 87-4 at 11. An “insured contract” is defined, as applicable to

this case, as

[t]hat part of any other contract or agreement pertaining

to your business (including an indemnification of a

municipality in connection with worked performed for a

municipality) under which you assume the tort liability of

another party to pay for “bodily injury” or “property

damage” to a third person or organization. Tort liability

means a liability that would be imposed by law in the

absence of any contract or agreement.

ECF No. 87-4 at 63. Bodily injured includes death “if directly resulting

from bodily injury.” ECF No. 87-4 at 9.

The excess insurance policy provides an additional $10,000,000

coverage above a $5,000,000 self-insurance layer. ECF No. 87-5 at 1.

The coverage of the excess policy states:

In consideration of the payment of the premium set out in

Item 7 of the Declarations and in reliance upon the

proposal for this policy (hereinafter Policy), statements

made, and any supplementary information pertaining to

the proposal which are all incorporated herein,

Underwriters agree, subject to the Insuring Agreements,

Conditions, Exclusions, Definitions and Declarations

contained in this Policy, to indemnify the “Insured” in

respect of its operations anywhere in the World, and any

“Additional Insured” as far as applicable for “Ultimate Net

Loss” by reason of liability:

(a) imposed upon the “Insured” by law or

(b) assumed by the “Insured” under an “Insured Contract”,

for damages in respect of:

(i) “Bodily Injury”

(ii) “Personal Injury”

(iii) “Property Damage”

(iv) “Advertising Injury”,

caused by or arising out of an “Occurrence” during the

Policy Period as set out in Item 5 of the Declarations.

Nothing contained in this Policy shall make this Policy

subject to the terms of any other insurance.

ECF No. 87-5 at 11. “Bodily injury” includes death “if directly resulting

from bodily injury.” ECF No. 87-5 at 23. An “additional insured” is

defined as:

The words “Additional Insured”, wherever used in this

Policy, shall mean any person or entity to whom the

“Insured” is obliged by an “Insured Contract” entered into

before any relevant “Occurrence” and/or “Claim” to provide

insurance such as is afforded by this Policy with respect to

“Bodily Injury” or “Property Damage” arising out of

operations conducted by the “Insured” but only to the

extent required by any indemnity given by the “Insured” in

said “Insured Contract” to the “Additional Insured.”

ECF No. 87-5 at 22. An “insured contract” is defined as:

The words "Insured Contract", wherever used in this

Policy, shall mean any written contract entered into by the

"Insured" where the "Insured" assumes the tort liability of

another party to pay for "Bodily Injury" or "Property

Damage" to which this Policy applies to a "Third Party".

Tort liability means a liability that would be imposed by

law in the absence of any written contract. Written

contract includes any written indemnity agreement

entered into by the "Insured" with a "Third Party".

ECF No. 87-5 at 25.

A Certificate of Insurance was issued to Zaza stating that C&J is

insured under a $1,000,000 general liability policy and $10,000,000

excess liability policy.1 ECF Nos. 87-6 at 1. The certificate also provides:

1 The Court notes that the policy numbers and effective dates reflected on the

certificate are different than those listed on the primary and excess liability policies

issued to C&J. ECF Nos. 87-4 at 1; 87-5 at 1; 87-6 at 1. There is nothing in the record

to suggest that the certificate is referring to policies different than those at issue. The

certificate reflects commercial liability and excess liability coverage with the same

ALL POLICIES (EXCEPT WORKERS'

COMPENSATION/EL) INCLUDE A BLANKET

AUTOMATIC ADDITIONAL INSURED

ENDORSEMENT [PROVISION] THAT CONFERS

ADDITIONAL INSURED STATUS TO THE

CERTIFICATE HOLDER ONLY IF THERE IS A

WRITTEN CONTRACT BETWEEN THE NAMED

INSURED AND THE CERTIFICATE HOLDER THAT

REQUIRES THE NAMED INSURED TO NAME THE

CERTIFICATE HOLDER AS AN ADDITIONAL

INSURED. IN THE ABSENCE OF SUCH A

CONTRACTUAL OBLIGATION ON THE PART OF THE

NAMED INSURED, THE CERTIFICATE HOLDER IS

NOT AN ADDITIONAL INSURED UNDER THE POLICY.

ECF No. 87-6 at 2.

C. The Bargsley Litigation

In July 2015, an accident occurred on a well site owned by Zaza

Energy Corporation, a Zaza affiliate, while C&J or its affiliates were

performing work on the site. ECF No. 88-4 at 4–5. The accident resulted

in the death of Alton Bargsley, a former employee of C&J. ECF No. 88-

4 at 4–5. Bargsley’s estate, heirs, and certain intervening plaintiffs

commenced a wrongful death lawsuit in Texas state court in Gregg

County, Texas against Zaza and others. The litigation was eventually

settled. ECF No. 88-13 at 7.

In an answer to C&J’s interrogatories, Zaza claims that the “Zaza

Group settled the claims against them for $1,900,000.” ECF No. 88-13

at 7. Zaza also answered an Underwriters interrogatory stating that

there has been no allocation of settlement payments between any of the

defendants in the settlement. ECF No. 87-7 at 3. Zaza also stated that

terms as the policies. The certificate was also issued to Zaza as required by the MSA.

ECF Nos. 87-1 at 8; 87-6 at 1.

the total spent “through 01/31/24 on defense costs/expenses/attorney

fees is $353,779.51, plus interest.” ECF No. 87-7 at 3–4.

The merits of the Bargsley litigation are not before the court.

ECF No. 67 at 2.

II. PROCEDURAL HISTORY

On July 20, 2016, C&J Holdings and related entities filed

voluntary petitions for relief under chapter 11 of the Bankruptcy Code.

An order directing joint administration of the cases was entered on July

21, 2016. Case No. 16-33590, ECF No. 32. On December 16, 2016, the

Court confirmed C&J Holdings’ second amended joint plan of

reorganization. Case No. 16-33590, ECF No. 1057.

On April 16, 2019, Zaza filed a lawsuit against C&J and Certain

Underwriters at Lloyd’s, London in Texas state court in Gregg County,

Texas. ECF Nos. 1 at 6; 1-2 at 1; 1-3 at 1–2. On March 30, 2019, C&J

removed the suit to the United States Bankruptcy Court for the Eastern

District of Texas. ECF Nos. 1; 2. On June 19, 2019, Underwriters moved

to transfer venue to this Court. ECF No. 3. The motion was granted on

July 8, 2019. ECF No. 4.

The removed complaint is the current operative complaint. Zaza

asserts multiple claims for relief. Zaza’s first claim seeks declarations

that “(1) ZaZa and ZEC/Total/Goff are Additional Insureds; (2)

Underwriters has a duty to defend and indemnify ZaZa and

ZEC/Total/Goff in the Underlying Suit; (3) the Policies Provide ZaZa and

ZEC/Total/Goff with the primary insurance; and (4) Defendant C&J

negligently and/or intentionally interfered with Defendant

Underwriters’ contractual obligation to defend and indemnity ZaZa and

ZEC/Total/Goff in the Underlying Suit.” ECF No. 1-3 at 11–12. Zaza’s

second claim alleges against Underwriters a breach of their underlying

duty to defend “by failing to pay the attorneys’ fees and defense expenses

(‘defense costs’) of ZaZa/ZEC/Total/Goff in the Underlying Suit” and

“failing to indemnify ZaZa and the ZaZa Group.” ECF No. 1-3 at 12–13.

Zaza’s third claim alleges against C&J a tortious interference with

contract. ECF No. 1-3 at 13–14. Zaza alleges C&J “had actual

knowledge of the insurance relationship, including both the amounts of

required coverage and the nature of required coverage but C&J refused

to allow Underwriters to treat ZaZa as a separate insured and provide

the contracted for coverage.” ECF No. 1-3 at 13–14.

On August 7, 2020, the Court entered an agreed order bifurcating

this adversary proceeding. ECF No. 31. C&J initially alleged that its

plan of reorganization assumed and cured the MSA, thereby satisfying

and releasing C&J’s obligation to indemnify Zaza in connection with the

Bargsley litigation. ECF No. 1-7 at 2. The parties agreed that this issue

would be litigated first, and if C&J succeeded, that the claims involving

C&J would be dismissed. ECF No. 31 at 2. If C&J failed, an amended

scheduling order would be entered, and the claims would be addressed

on their merits. ECF No. 31 at 2.

On May 13, 2022, Zaza and C&J filed motions for summary

judgment on this first issue. On August 9, 2022, the Court entered an

order denying the motions. ECF No. 67. In the order, the Court held

that “a bankruptcy discharge does not affect a third-party insurer’s

obligation to pay for claims that a discharged debtor was liable for prior

to discharge.” ECF No. 67 at 2. The Court also held that “[u]nder 11

U.S.C. § 365(b), the cure cost is that which is owed under the contract at

the time of assumption. The payment of the cure cost and assumption

does not limit a future obligation under the assumed contract.” ECF No.

67 at 2.

Pursuant to the bifurcation order, the Court signed an agreed

amended scheduling order on September 5, 2023. ECF No. 76. The

order sets the schedule for litigating Zaza’s claims on their merits. ECF

No. 76 at 2. C&J and Underwriters have now filed motions for summary

judgment on Zaza’s claims for relief. ECF Nos. 87; 88.

On April 15, 2024, Zaza filed a motion for leave to amend its

complaint. ECF No. 91.

JURISDICTION

The District Court has jurisdiction over this proceeding under 28

U.S.C. § 1334(a). Venue is proper in this District pursuant to 28 U.S.C.

§ 1409. This is a core proceeding under 28 U.S.C. § 157(b)(2). The

dispute has been referred to the Bankruptcy Court under General Order

2012-6.

LEGAL STANDARD

“The court shall grant summary judgment if the movant shows

that there is no genuine dispute as to any material fact and that the

movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a).

A genuine dispute of material fact means that evidence is such that a

reasonable fact finder “could return a verdict for the nonmoving party.”

Gorman v. Verizon Wireless Tex., L.L.C., 753 F.3d 165, 170 (5th Cir.

2014) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248

(1986)). It is the movant’s burden to establish that no genuine issue of

material fact exists. Sossamon v. Lone Star State of Tex., 560 F.3d 316,

326 (5th Cir. 2009) (citing Condrey v. SunTrust Bank of Ga., 429 F.3d

556, 562 (5th Cir. 2005)). A party asserting that a fact cannot be or is

not genuinely disputed must support that assertion by citing to

particular parts of materials in the record, showing that the materials

cited do not establish the absence or presence of a genuine dispute, or

showing that an adverse party cannot produce admissible evidence to

support that fact. Fed. R. Civ. P. 56(c)(1). If the movant establishes “the

absence of evidence supporting an essential element of the non-movant’s

case,” the burden shifts to the non-movant to establish a genuine dispute

of material fact. Sossamon, 560 F.3d at 326 (citing Condrey, 429 F.3d at

562).

In ruling on a motion for summary judgment, a court should view

the facts and evidence in light most favorable to the non-moving party.

Plumhoff v. Rickard, 572 U.S. 765, 768 (2014). Nevertheless, the court

is not obligated to search the record for the non-moving party’s evidence.

Keen v. Miller Env’t. Grp., Inc., 702 F.3d 239, 249 (5th Cir. 2012).

“Summary judgment may not be thwarted by conclusional allegations,

unsupported assertions, or presentation of only a scintilla of evidence.”

Hemphill v. State Farm Mut. Auto. Ins. Co., 805 F.3d 535, 538 (5th Cir.

2015). The Court need only consider the cited materials, but it may

consider other materials in the record. Fed. R. Civ. P. 56(c)(3). The

Court should not weigh the evidence. Aubrey v. Sch. Bd. of Lafayette

Par., 92 F.3d 316, 318 (5th Cir. 1996). A credibility determination may

not be part of the summary judgment analysis. E.E.O.C. v. LHC Grp.,

Inc., 773 F.3d 688, 694 (5th Cir. 2014).

DISCUSSION

Zaza raises multiple claims for relief against C&J and

Underwriters. Zaza’s claim against C&J for tortious interference with

contract is dismissed with prejudice. Underwriters’ motion for summary

judgment is denied. Zaza moves for leave to amend its complaint. The

motion for leave is denied.

I. THE COURT DOES NOT ADDRESS THE CLAIMS OF

ZEC/TOTAL/GOFF

The claims for relief in Zaza’s complaint seek judicial findings for

not only Zaza, but also Zaza Energy Corporation, Total Energy Services,

LLC, and Donald Goff. Zaza’s claims allege that C&J and Underwriters

breached their duties to these parties to the same extent as to Zaza.

ECF No. 1-3 at 11–14.

Zaza is the only plaintiff in this action. No party in this case has

made any effort to join these additional parties, and no party alleges

that their joinder is necessary. See Fed. R. Civ. P. 19, 20 (required and

permissive joinder). The Court makes no findings as to the rights of

parties not before the Court. See Hansberry v. Lee, 311 U.S. 32, 40

(1940) (“It is a principle of general application in Anglo-American

jurisprudence that one is not bound by a judgment in personam in a

litigation in which he is not designated as a party or to which he has not

been made a party by service of process.”).

Because Zaza Energy Corporation, Total Energy Services, LLC,

and Donald Goff are not parties to this adversary proceeding, the Court

makes no findings as to their rights.

II. ZAZA’S TORTIOUS INTERFERENCE CLAIM AGAINST C&J IS

DISMISSED WITH PREJUDICE

Zaza’s first claim for relief seeks a declaration that C&J

“negligently and/or intentionally interfered with Defendant

Underwriters’ contractual obligations to defend and indemnify ZaZa and

ZEC/Total/Goff in the Underlying suit.” ECF No. 1-3 at 12. Zaza’s third

claim for relief asserts against C&J a cause of action for tortious

interference with contract. ECF No. 1-3 at 13. Zaza alleges that C&J

interfered with Zaza’s rights to indemnity as an additional insured

under the insurance policies by “refus[ing] to allow Underwriters to

treat ZaZa as a separate insured and provide the contracted for

coverage.” ECF No. 1-3 at 12. Zaza argues that Underwriters had

initially stated they would indemnify Zaza for the Bargsley litigation,

but they later refused the indemnification after C&J instructed

Underwriters that they had no duty to indemnify Zaza. ECF No. 1-3 at

10–11.

“To establish a claim for tortious interference with a contract, a

plaintiff must establish: (1) the existence of a valid contract subject to

interference; (2) that the defendant willfully and intentionally interfered

with the contract; (3) that the interference proximately caused the

plaintiff’s injury; and (4) that the plaintiff incurred actual damage or

loss.” Cmty. Health Sys. Pro. Servs. Corp. v. Hansen, 525 S.W.3d 671,

689 (Tex. 2017). It is well settled that “[t]o be legally capable of tortious

interference, the defendant must be a stranger to the contract with

which he allegedly interfered.” Id. at 690. “By definition, the person

who induces the breach cannot be a contracting party.” Holloway v.

Skinner, 898 S.W.2d 793, 795 (Tex. 1995).

Zaza alleges that C&J interfered with its rights to

indemnification under the primary and excess insurance policies. Zaza

is not a named insured under the policies. Its only rights under those

policies would be as an additional insured. Moreover, C&J is a named

insured and is thereby a party to those insurance policies. See Loda

Agency, Inc. v. Nationwide Ins. Co., No. 3:001750, 2000 WL 1849865, at

*1, 4 (D. Conn. Oct. 10, 2000); ECF Nos. 87-4 at 1, 5; 87-5 at 1, 5. By

definition, as a contracting party, C&J is not able to interfere with its

own contract.

Zaza claims the general rule should not apply because C&J is only

“nominally a party to the Policies which were procured as a substitute

for Debtor’s liability under the MSA.” ECF No. 90 at 2–3. Zaza also

claims that the general rule should not apply when a contracting party

interferes with a third-party beneficiary’s rights under the contract.

ECF No. 90 at 3–4. Neither of these arguments justify departing from

the general rule. As a matter of law, the obligation not to interfere with

existing contracts is not an obligation imposed on parties to a contract.

In re Vesta Ins. Grp., Inc., 192 S.W.3d 759, 761–62 (Tex. 2006). This rule

applies regardless of a contracting party’s role in a contract or whether

the party interfered with the rights of a third-party beneficiary. See

Bramlett v. The Med. Protective Co. of Fort Wayne, Ind., No. 3:10-CV-

2048-D, 2011 WL 248849, at *3–4 (N.D. Tex. Jan. 26, 2011).

Zaza’s first claim for relief for a declaration of tortious

interference and its third claim for relief are dismissed with prejudice.

III. UNDERWRITERS’ MOTION FOR SUMMARY JUDGMENT IS DENIED

The remainder of Zaza’s claims require the interpretation of the

MSA and insurance policies to determine whether Zaza is insured under

those policies. If Zaza was insured under the policies, the Court must

determine whether Underwriters had a duty to indemnify Zaza for the

costs it incurred in the Bargsley litigation.

A. New York Law Applies to the Interpretation of the

Policies and Texas Law Applies to the Interpretation

of the MSA

The parties dispute whether New York law applies to the

interpretation of the primary and excess insurance policies. Both the

primary and excess insurance policies state that the “policy is governed

by the laws of the State of New York.” ECF Nos. 87-4 at 2; 87-5 at 2.

There are no ambiguities in the choice of law provisions. Per the terms

of the policies, New York law applies to their interpretation.

On the other hand, the MSA is governed by “the laws of the State

of Texas.” ECF No. 87-1 at 11. Texas law governs the interpretation of

the MSA.

B. The MSA Requires Indemnification of Zaza

Supported by the Insurance Policies

Under Texas law, determining whether a contract is ambiguous

“is a question of law that we decide by examining the contract as a whole

in light of the circumstances present when the contract was entered.”

Park v. Escalera Ranch Owners' Ass'n, Inc., 457 S.W.3d 571, 592 (Tex.

App. 2015). “An unambiguous contract is worded in a way that can be

given a certain or definite legal meaning or interpretation . . . .” Id. “An

ambiguous contract is one that is subject to two or more reasonable

interpretations after applying the pertinent rules of construction.” Id.

“We consider the parties’ interpretations and admit extraneous evidence

to determine the true meaning of the contract only when a contract is

ambiguous.” Id.

The parties dispute whether the MSA requires Zaza to be listed

as an additional insured under the Lloyd’s policies. Under Section 10.a

of the MSA, C&J agrees to “release Zaza, and to defend, indemnify and

hold the Zaza Group harmless from and against any and all loss, cost,

damage or expense of every kind and nature . . . arising out of bodily

injury . . . to the Contractor Group . . . , in any manner caused by, directly

or indirectly resulting from, incident to, connected with or arising out of

performance of the Work.” ECF No. 87-1 at 4. Contractor Group

includes the employees of C&J. ECF No. 87-4 at 1. Bodily injury

includes death. ECF No. 87-4 at 5. C&J also agreed that this indemnity

“will be supported by insurance of the types and in at least the minimum

amounts required in Section 11, and shall be primary to any other

insurance provided by the Zaza Group.” ECF No. 87-4 at 5.

Section 10.a plainly requires C&J to indemnify Zaza for any loss

resulting from a suit for bodily injury or death of a C&J employee arising

out of C&J’s operations, and it requires that this indemnity be supported

by insurance of the types and at least the minimum amounts provided

under Section 11.

Section 11 contains the insurance obligation. Per its terms, it

requires C&J to “secure and maintain . . . the insurance coverage set

forth in Schedule I.” ECF No. 87-1 at 7. Section 11 further expands the

requirement, stating

ALL LIABILITY COVERAGE (INCLUDING

EMPLOYER'S LEGAL LIABILITY) CARRIED BY

CONTRACTOR WITH RESPECT TO THE LIABILTIES

ASSUMED BY CONTRACTOR HEREUNDER SHALL

EXTEND TO AND PROTECT THE ZAZA GROUP TO

THE FULL EXTENT AND AMOUNT OF SUCH

COVERAGE, INCLUDING EXCESS OR UMBRELLA

INSURANCES, AND SHALL BE PRIMARY TO, AND

RECEIVE NO CONTRIBUTION FROM, ANY OTHER

INSURANCE OR SELF-INSURANCE PROGRAMS

MAINTAINED BY OR ON BEHALF OF OR BENEFITING

THE ZAZA GROUP. . . . ALL OF CONTRACTOR’S

LIABILITY INSURANCE POLICIES (EXCEPT FOR

WORKER’S COMPENSATION OR EMPLOYER’S

LIABILITY POLICIES) SHALL NAME THE ZAZA

GROUP AS AN ADDITIONAL INSURED.

ECF No. 87-1 at 7. Further, “[e]ach party’s insurance carrier(s) will

provide the other party, as evidence that the required insurance

coverage has been obtained, with a certificate of insurance reflecting the

amount of any deductibles.” ECF No. 87-1 at 8.

Under the amendment to the MSA, “[t]he parties agree that with

regards to naming the other party as additional insured . . . , such

additional insured status . . . shall only be to the extent of the obligations

and liabilities assumed by the insured party under the MSA.” ECF No.

87-2 at 6. The amendment, on its face, makes Section 11’s “additional

insured” provision dependent on the Section 10.a indemnity, as this is

an “obligation” assumed by C&J under the MSA. The amendment

essentially revised the original Section 11 language, which stated that

the insurance obligations “shall be independent of any obligations

Contractor or Zaza have under Section 10 hereof.” ECF No. 87-1 at 8.

Under Section 10.a, C&J agreed to indemnify Zaza for “any and

all loss, cost, damage or expense” arising out of bodily injury or death to

a C&J employee arising out of C&J’s operations. Read together, Section

10’s indemnity obligations covering “any and all loss” must be supported

by the insurance obligations set forth in Section 11, which both require

C&J to obtain minimum coverage under Schedule I and name Zaza as

an additional insured under any liability insurance policy except for

worker’s compensation and employer’s liability.

In summary, C&J was required to obtain the policies listed in

Schedule I and name Zaza as an additional insured under those policies.

Schedule I lists the policies that Zaza and C&J agreed C&J would

obtain. Under Schedule I, the parties selected automobile liability

insurance with a $2,000,000 minimum limit and worker’s compensation

insurance. ECF No. 87-3 at 1. Schedule I provides two options for

commercial general liability insurance: one option with a $1,000,000

limit and another with a $2,000,000 limit. ECF No. 87-3 at 1. Neither

is selected. ECF No. 87-3 at 1. Underwriters argue this indicates that

C&J was not required to obtain any commercial general liability

insurance, and as a result, “Zaza would not be an additional insured on

any commercial general liability policy issued to C&J.” ECF No. 87 at

10.

The Court disagrees with this reading. Section 11 is plainly read

as requiring Zaza to be named as an additional insured under all of

C&J’s liability insurance policies except for worker’s compensation or

employer’s liability policies. This requirement goes beyond the policies

set forth in Section I and applies to “ALL LIABILITY COVERAGE . . .

CARRIED BY CONTRACTOR WITH RESPECT TO THE LIABILITIES

ASSUMED BY CONTRACTOR.” The Section 10.a indemnity obligation

is a liability assumed by C&J. Section 10.a also falls under the

“additional insured” requirement through the amendment to the MSA.

Even if C&J was not required to obtain any commercial general liability

insurance under Schedule I, it nevertheless obtained primary and excess

general liability insurance policies that cover the tort liabilities assumed

under Section 10.a.

The MSA requires Zaza to be named as an additional insured

under the policies.

C. TOAIA Does Not Limit the Commercial General

Liability Insurance to $0

Underwriters assert that the Texas Oilfield Anti-Indemnity Act

requires their indemnity obligation to Zaza to be $0. ECF No. 87 at 13–

14. They argue that Schedule I does not require either party to maintain

commercial general liability insurance. ECF No. 87 at 14. And they

argue, because the MSA amendment states that additional insured

status “shall only be to the extent of the obligations and liabilities

assumed by the insured party under the MSA,” the amendment limits

the amount to which Zaza would be an additional insured for commercial

general liability to Schedule I’s minimum limits, which are $0. ECF No.

87 at 4.

“The TOAIA generally voids indemnity provisions which purport

to indemnify a party against liability caused by the indemnitee’s

negligence and arising from personal injury, death, or property

damage.” Mid-Continent Cas. Co. v. Swift Energy Co., 206 F.3d 487, 493

(5th Cir. 2000) (citing Tex. Civ. Prac. And Rem. Code Ann. § 127.003).

“However, the TOAIA contains an exception permitting indemnity

provisions supported by liability insurance satisfying section 127.005.”

Id. Under § 127.005(a), the exception applies to “an agreement that

provides for indemnity if the parties agree in writing that the indemnity

obligation will be supported by liability insurance coverage to be

furnished by the indemnitor subject to the limitations specified in

Subsection (b) or (c).” In this case, the indemnity obligation under the

MSA is a mutual indemnity supported by liability insurance coverage.

ECF No. 87-1 at 4–5. The indemnity falls under subsection (b). Under

§ 127.005(b), “[w]ith respect to a mutual indemnity obligation, the

indemnity obligation is limited to the extent of the coverage and dollar

limits of insurance or qualified self-insurance each party as indemnitor

has agreed to obtain for the benefit of the other party as indemnitee.”

TOAIA limits an indemnity obligation to the amount of insurance

that an indemnitor has agreed to obtain for an indemnitee’s benefit.

Cimarex Energy Co. v. CP Well Testing, L.L.C., 26 F.4th 683, 688–690

(5th Cir. 2022). TOAIA does not prevent parties from agreeing to

provide coverage beyond the minimum amount required by their MSA,

so long as the court is able to find that the additional coverage is for the

indemnitee’s benefit. See id. at 688.

In Cimarex, the court was tasked with determining the amount

of coverage CP Well provided as indemnitor to its indemnitee, Cimarex.

There, under the parties’ MSA, “CP Well was required to obtain a

minimum of $1 million of general liability coverage and $2 million of

excess liability coverage, for at least $3 million in total coverage.” Id.

CP Well actually obtained “a $1 million general liability policy and an

excess liability policy with coverage limits of $10 million, i.e., $8 million

more than the minimum coverage required by the MSA.” Id. at 686.

The court had to determine “how much of CP Well’s additional $8 million

in excess liability coverage was ‘for the benefit of [Cimarex] as

indemnitee.’” Id. at 688. The court found that there was no way to

answer this question through the terms of the parties’ MSA, so it turned

to the terms of the insurance policies. Id. at 689. Subsection E of CP

Well’s excess policy provided the following:

[T]he most [the insurer] will pay for damages under this

policy on behalf of any person or organization to whom [CP

Well] [is] obligated by written Insured Contract to provide

insurance such as is afforded by this policy is the lesser of

the Limits of Insurance shown in . . . the Declarations or

the minimum Limits of Insurance [CP Well] agreed to

procure in such written Insured Contract.

Id. at 689. The court first found that the MSA fell within the policy’s

definition of an “Insured Contract” through the MSA’s indemnification

provision. Id. The court accordingly determined that “[a]s an ‘Insured

Contract’, the MSA therefore falls within the coverage limitations

articulated in Subsection E of the policy.” Id. Under Subsection E,

coverage was limited to the lesser of the Limits of Insurance or the

minimum Limits of Insurance agreed in the MSA. Id. Because the

MSA’s minimum limits of $3 million were less than the insurance

policies’ minimum limits, the MSA’s limits controlled and were the

amount of coverage obtained for Cimarex’s benefit. Id. at 689–90.

In the MSA between C&J and Zaza, even assuming the parties’

failure to check the box in Schedule I for minimum commercial liability

insurance sets the minimum agreed amount to $0,2 the Lloyd’s

insurance policies do not contain the same language that require

coverage to be limited to this amount. The Lloyd’s primary insurance

2 The Court also notes that, even if the minimum amount of indemnity the parties

agreed to under the MSA is $0, this does not void the indemnity under TOAIA. The

amount of coverage need not be specified in the writing containing the indemnity

agreement. Ken Petroleum Corp. v. Questor Drilling Corp., 24 S.W.3d 344, 351 (Tex.

2000). TOAIA also does not void an indemnity agreement retroactively if the coverage

does not exist, so long as the parties “agreed in writing that the indemnity obligation

will be supported by liability insurance coverage.” Nabors Corp. Servs., Inc. v.

Northfield Ins. Co., 132 S.W.3d 90, 96–97 (Tex. App. 2004) (quoting Tex. Civ. Prac. &

Rem. Code § 127.005(a)).

policy states that it “will pay those sums that the insured and any

‘additional insured’ as far as applicable becomes legally obligated to pay

as damages because of ‘bodily injury’ or ‘property damage’ to which the

insurance applies.” ECF No. 87-4 at 11. The policy defines an

“additional insured” as

any person or entity to whom the “insured” is obliged by an

“insured contract” entered into before any relevant

“occurrence” to provide insurance such as is afforded by

this policy with respect to “bodily injury” or “property

damage” arising out of operations conducted by the

“insured” but only to the extent required by any indemnity

given by the “insured” in said “insured contract” to the

“additional insured.”

ECF No. 87-4 at 11. An “insured contract” is defined, as applicable to

this case, as

That part of any other contract or agreement pertaining to

your business (including an indemnification of a

municipality in connection with worked performed for a

municipality) under which you assume the tort liability of

another party to pay for “bodily injury” or “property

damage” to a third person or organization. Tort liability

means a liability that would be imposed by law in the

absence of any contract or agreement.

ECF No. 87-4 at 63.

The MSA clearly falls within the definition of an “Insured

Contract.” Section 10.a requires C&J to indemnify Zaza for losses due

to liability for bodily injury to a C&J employee, which includes death

resulting from bodily injury. ECF No. 87-1 at 4. The indemnity

provision is within the policy’s language covering an assumption of tort

liability arising out of bodily injury. ECF No. 87-4 at 9 (defining “bodily

injury” to include death directly resulting from bodily injury). Zaza also

meets the definition of an additional insured. Zaza is an entity to whom

C&J is obliged by the MSA to provide insurance in connection with this

liability.

With respect to the amount of coverage, the policy contains two

limitations. The first is the limitation that it will pay the amounts that

C&J and Zaza become “legally obligated to pay as damages because of

‘bodily injury’ . . . to which the insurance applies.” ECF No. 87-4 at 11.

The next is that Zaza maintains its additional insured status “only to

the extent required by any indemnity given by the ‘insured’ in said

‘insured contract’ to the ‘additional insured.’” ECF No. 87-4 at 11.

Under the MSA, the extent of indemnity given to Zaza is “any and all

loss, cost, damage or expense of every kind and nature . . . arising out of

bodily injury . . . to the Contractor Group.” ECF No. 87-1 at 4.

Accordingly, under the primary policy, the amount of coverage C&J

obtained for Zaza’s benefit is “any and all loss” arising out of a legal

obligation to pay damages for bodily injury up to the $1,000,000 policy

limit, subject to other potential limitations in the policy. ECF No. 87-4

at 1.

The result is no different with respect to the excess policy. The

policy provides essentially the same definition of bodily injury coverage

for additional insureds. ECF No. 87-5 at 11. It also defines an

“additional insured” and “insured contract” in substantially the same

manner. ECF No. 87-5 at 22, 25. Zaza is also an additional insured

under the excess policy. The amount of coverage C&J obtained for

Zaza’s benefit is “any and all loss” arising out of a legal obligation to pay

damages for bodily injury up to the $10,000,000 policy limit, subject to

other potential limitations in the policy. ECF No. 87-5 at 1.

This reading of the policies is also supported by the Certificate of

Insurance. Although the certificate states that it does not confer any

rights upon Zaza as certificate holder, it nevertheless provides an

explanation of additional insured status that supports the Court’s

interpretation of the policies. ECF No. 87-6 at 1. The certificate states

that C&J holds a $1,000,000 primary policy and $10,000,000 excess

policy. ECF No. 87-6 at 1. It also states:

ALL POLICIES (EXCEPT WORKERS'

COMPENSATION/EL) INCLUDE A BLANKET

AUTOMATIC ADDITIONAL INSURED

ENDORSEMENT [PROVISION] THAT CONFERS

ADDITIONAL INSURED STATUS TO THE

CERTIFICATE HOLDER ONLY IF THERE IS A

WRITTEN CONTRACT BETWEEN THE NAMED

INSURED AND THE CERTIFICATE HOLDER THAT

REQUIRES THE NAMED INSURED TO NAME THE

CERTIFICATE HOLDER AS AN ADDITIONAL

INSURED. IN THE ABSENCE OF SUCH A

CONTRACTUAL OBLIGATION ON THE PART OF THE

NAMED INSURED, THE CERTIFICATE HOLDER IS

NOT AN ADDITIONAL INSURED UNDER THE POLICY.

ECF No. 87-6 at 2. Section 11 of the MSA requires C&J as the

named insured to list Zaza as an additional insured for insurance

policies covering the Section 10.a indemnity obligation. ECF No. 87-1

at 7. The primary and excess policies fall within this requirement.

Zaza is an additional insured under both the primary and excess

insurance policies, with coverage up to the policy limits.

D. Underwriters Had a Duty to Indemnify Zaza for the

Bargsley Litigation

Because Zaza is an additional insured under the insurance

policies, Underwriters had a duty to indemnify Zaza for losses that fall

within the coverage provided in the policies. The amount of coverage is

set by the policy limits.

As a result of the Bargsley litigation, Zaza has suffered losses

caused by the death of a C&J employee arising out of C&J’s operations.

These losses fall within the coverage provided in the insurance policies.

Because Underwriters had an unambiguous duty to indemnify

Zaza for the Bargsley litigation, Underwriters’ motion for summary

judgment is denied.

IV. ZAZA’S MOTION TO AMEND IS DENIED

On April 15, 2024, Zaza moved to file an untimely amended

complaint. ECF No. 91. The motion was filed after the entry of an

amended scheduling order and after the deadlines for amended

pleadings, dispositive motions, and fact discovery. ECF No. 76 at 2.

The proposed amended complaint adds a breach of contract claim

against C&J. ECF No. 91 at 20–21. The claim alleges that “the failure

of C&J to procure policies consistent with the MSA and the Servicing

Agreement is a breach of contract and voids the release provisions

provided therein.” ECF No. 91 at 21.

“Federal Rule of Civil Procedure 16(b) governs amendment of

pleadings once a scheduling order has been issued . . . .” S&W

Enterprises, L.L.C. v. SouthTrust Bank of Alabama, NA, 315 F.3d 533,

535 (5th Cir. 2003). Rule 16 applies in adversary proceedings through

Federal Rule of Bankruptcy Procedure 7016(a). “Rule 16(b) provides

that a scheduling order ‘shall not be modified except upon a showing of

good cause and by leave of the district judge.’” S&W Enterprises, 315

F.3d at 535. “The good cause standard requires the ‘party seeking relief

to show that the deadlines cannot reasonably be met despite the

diligence of the party needing the extension.’” Id. (quoting 6A Charles

Alan Wright et al., Federal Practice and Procedure § 1522.1 (2d ed.

1990)). Courts consider four factors in determining good cause: “(1) the

explanation for the failure to timely move for leave to amend; (2) the

importance of the amendment; (3) potential prejudice in allowing the

amendment; and (4) the availability of a continuance to cure such

prejudice.” Sw. Bell Tel. Co. v. City of El Paso, 346 F.3d 541, 546 (5th

Cir. 2003) (quoting S&W Enterprises, 315 F.3d at 536).

With respect to the second factor, “[w]hat is called for in assessing

the importance of the amendment is not just the theoretical effect of

success on the claims being asserted, but a pragmatic judgment as to

the likelihood that the newly asserted claims or defenses will succeed.”

Allergan, Inc. v. Teva Pharms. USA, Inc., No. 2:15-CV-1455, 2017 WL

1196338, at *6 (E.D. Tex. Jan. 12, 2017). Zaza’s proposed breach of

contract claim is based on the assertion that C&J did not procure

insurance policies that list Zaza as an additional insured as mandated

under the MSA. The claim will not succeed in light of this memorandum

opinion. C&J did secure the insurance called for in the agreement. This

factor is conclusive against permitting Zaza’s amendment.

Zaza’s motion to amend its complaint is denied.

CONCLUSION

The Court will enter an order consistent with this memorandum

opinion.

SIGNED 05/17/2024

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_S/—4—

Marvin Isgur

United States Bankruptcy Judge

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