Case:   Performance Drilling Co., LLC, et al. v. Nat'l Union Fire Ins. Co., of Pittsburgh, PA, et al.
             United States District Court for the Southern District of Mississippi
             Civil Action No. 3:14-cv-00254, 2016 U.S. Dist. LEXIS 104961 (S.D. Miss. July 28, 2016)

The Insured in Performance Drilling sought coverage under an "all risks" insurance policy for two mud pumps which were removed from a drilling rig and later stolen from the Insured's storage yard under suspicious circumstances. The policy at issue defined "property insured" as equipment "per Schedule." While the rig from which the mud pumps were removed was identified on the Schedule of Property, the stolen mud pumps were not separately scheduled. Upon denial of its claim for coverage, the Insured filed suit against its Insurers asserting breach of contract, negligence and bad faith, among other claims.

After the close of discovery, the Court summarily dismissed the Plaintiff's claims, concluding the two mud pumps were covered items while installed on the drilling Rig, but lost their coverage after being removed and placed into storage. In ruling, the Court found the policy terms showed no intent to insure component parts once they were removed from a scheduled item. Had the Plaintiff wanted the coverage to travel with the mud pumps after removal from the drilling rig, the Court reasoned, it could have separately scheduled those items, as it did other equipment such as drill pipes and drill collars. Because the Plaintiff failed to separately schedule the mud pumps, no coverage was afforded for the pumps once removed from the drilling rig.

In so holding, the Court rejected the Plaintiff's attempts to refute this construction of the policy wording. First, the Court dismissed the Plaintiff's argument that the mud pumps did not have to be scheduled based on alternate policy wording providing coverage for "oil and/or gas well drilling and/or workover equipment for which the Assured may be legally or contractually liable." Looking to other jurisdictions, the Court determined this provision covered property the insured holds as a custodian or bailor for a third party; the provision did not address the insured's property. The Court also found the Plaintiff's arguments that other policy wording, including a permanent storage exclusion, contemplated the continuation of coverage upon removal lacked merit, noting the permanently stored items were covered only if "specifically scheduled." Because the mud pumps were not specifically scheduled as either covered property or property in permanent storage, no coverage existed. Finally, the Court rejected contentions by the Plaintiff that retroactive coverage provided for the replacement mud pumps confirmed coverage for the stolen mud pumps, reasoning the offering of retroactive coverage for unknown losses to the replacement pumps in no way confirmed coverage for the known loss of the stolen mud pumps.

In sum, the Court held the policy's plain language dictated that it covered only scheduled items and no coverage was afforded for the stolen mud pumps which were not separately scheduled. The Court alternatively found that even if coverage existed, the unexplained-loss and/or mysterious disappearance exclusion would apply to bar coverage based on the circumstances of the mud pumps disappearance. As such, the Insurers' summary judgment motion was granted, dismissing the Plaintiff's claims with prejudice.

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