Monte Christo Drilling Corporation, Appellant, v. Universal Insurance Company et al., Appellees, 376 F.2d 61 (5th Cir. 1967)

Monte Christo Drilling Corporation took out with Universal Insurance Company a policy titled "Special Oil and Gas Drilling Equipment Policy" covering designated oil well drilling equipment against direct physical loss or damage by various perils.¹ 

When Monte Christo suffered the loss here in question its mast or derrrick²  had been raised and put into an upright position and drilling had commenced. At a time when drilling was not in progress (in the sense that the bit was not in the ground and turning) the bail, which is a portion of the hook and bail assembly (a large block and tackle suspended from the mast), was being used to pull pipe out of the hole. The bail broke and caused damage to the rig, its sub-structure and to machinery of the rig. It did not strike the mast, and the mast did not pull in or collapse.

The policy is not a general coverage policy but a specified risk policy, so that any loss must come under a particular coverage for there to be liability. Monte Christo claims there is coverage under Item 7-k, "damage resulting from the raising or lowering operations of the derricks or mast." Universal says 7-k covers only raising of the mast from horizontal to vertical position while being set up in place preparatory to commencement of drilling activities, and lowering of the mast from vertical back to horizontal after drilling activities have terminated. Monte Christo claims 7-k covers any work ("operation") which is in the nature of raising or lowering and done by means of, or with, the mast after it is in place and before it is taken down.

The District Court, in a trial without a jury, held the policy was not ambiguous, that the only meaning it could have was that given it by Universal, and denied liability. We disagree, reverse and remand.

A number of provisions make the policy susceptible of more than one interpretation. We need go no further than 7-k itself, which is subject to different constructions because of the word "operations". If raising and lowering the derrick are the only perils covered by 7-k, "operations" is surplusage. Item 7-m adds to the doubt in meaning of 7-k, covering "damage resulting from loading or unloading the insured property from or onto a transporting vehicle"; the word "operation" is not there included.

A rider was attached to the policy stating warranties and limitations of liability.³  The first paragraph, by referring to operations conducted with a derrick, can be construed as embracing a broader scope of activities than movement of the derrick alone. In determining whether there is an ambiguity the word "including" is not, as Universal claims, to be treated as a matter of law as a word of enlargement used to indicate something added or not otherwise included. It can be construed as a word describing a specific type of operation — i. e., "raising or lowering operations" — within the general class of "operations conducted with the insured mast or derrick."

Universal asserts that the last clause of the first paragraph of the rider, "and specifically that the manufacturers rated load limit of such derrick or mast (excluding safety factor) shall not be exceeded" relates only to 7-l, although the first clause of this warranty refers to 7-k and 7-l. This is not the only possible conclusion; in fact it is a dubious one. The description of duties of care which the insured warrants it will observe, following after the description of operations, is conjunctive throughout, requiring due diligence and accordance with the safe operating practice recommended by the manufacturer, and specifically that the rated load limit of the derrick not be exceeded. Also "rated load limit" appears to us to be relevant to things done with the mast rather than putting it up and taking it down. We see nothing in this paragraph to limit its application to 7-l in the face of its statement that it applies to 7-k as well.

The last paragraph of the rider (see footnote 3) can be construed to be a limitation of damage caused by the traveling block assembly after the derrick is raised and before lowered and having nothing to do with raising or lowering of the derrick. If coverage were not extended by both 7-k and 7-l to damage incurred while the mast is in place there would be no reason for this exclusion from coverage to be applicable to 7-k. Nothing in the paragraph is in terms of raising or lowering. Recognizing the problems this last paragraph raises, Universal suggests it be treated as though the words "7.(k) or" did not appear in the paragraph at all. This is not the way to determine whether or not a contract is ambiguous.

The District Court reasoned that the policy was intended to exclude drilling and that the raising and lowering of pipe is a part of drilling. But the policy is one of specified risks. It nowhere states that drilling is excluded. In fact, other provisions indicate intent that drilling is not excluded.⁴ 

No purpose would be served by referring to portions of the policy that appear to say the loss is not covered. We have referred to sufficient portions to indicate the policy is subject to more than one reasonable interpretation and as such is to be construed under principles applicable to an ambiguous contract; such construction is a matter for the District Court.

Reversed and remanded.

GRIFFIN B. BELL, Circuit Judge (dissenting):

I respectfully dissent. This matter had the careful consideration of the District Court. See Monte Christo Drilling Corporation v. Universal Insurance Company, S.D. Tex., 1966. I agree with the District Court that there was no coverage, and also that the insurance contract was not ambiguous. This was a specific risk contract and it is clear to me under the terms of the contract that appellant simply did not purchase coverage of the kind which forms the subject matter of this suit. We should affirm.