Preview
6/4/2021 3:44 PM
Marilyn Burgess - District Clerk Harris County
Envelope No. 54123320
2021-33760 / Court: 151 By: Courtni Gilbert
Filed: 6/4/2021 3:44 PM
CAUSE NO.
HALLMARK SPECIALTY IN THE DISTRICT COURT
INSURANCE COMPANY
Plaintiff,
Vv.
OF HARRIS COUNTY, TEXAS
LESSLEY SERVICES, LLC, ACE
AMERICAN INSURANCE COMPANY,
and CERTAIN UNDERWRITERS AT
LLOYD’S, LONDON SUBSCRIBING
TO POLICY NO. SCT 1011119,
Defendants. _____ JUDICIAL DISTRICT
PLAINTIFF’S ORIGINAL PETITION
Plaintiff Hallmark Specialty Insurance Company (“Plaintiff’ or “Hallmark”) files its
Original Petition against Defendants Lessley Services, LLC, ACE American Insurance
Company, and Certain Underwriters at Lloyd’s, London, subscribing to Policy No. SCT 1011119
(collectively “Defendants”), and respectfully shows the Court as follows:
I
DISCOVERY CONTROL PLAN
1 Hallmark intends for discovery to be conducted under Level 2 pursuant to Rule
190.3 of the Texas Rules of Civil Procedure.
Ii.
RULE 47 STATEMENT
2 Hallmark seeks nonmonetary relief.
1 As set forth below, and among other things, Hallmark seeks a judicial declaration that it owes no duty to indemnify
Lessley from or against liability it sustained in the underlying Domatti M.A. Management Trust, et al, vs. Lessley
Services, LLC, et al., lawsuit; however, should the Court determine that Hallmark owes Lessley insurance coverage,
Hallmark will seek to recover from defendant ACE American Insurance Company and possibly other defendants all
sums the Court determines is owed by Hallmark to Lessley, which could exceed $1,700,000.
{00296916.DOCX}
Ti.
PARTIES
3 Hallmark Specialty Insurance Company is a corporation organized under the laws
of the State of Oklahoma and conducts business in the State of Texas.
4 Lessley Services, LLC (“Lessley”) is a Texas limited liability company with its
principal office in Houston, Texas. Lessley may be served through its registered agent, Vivian
Lessley, at 104 N Thomas Road, White Oak, Texas 75693, or wherever she may be found.
5 ACE American Insurance Company (“ACE”) is a corporation organized under the
laws of the State of Pennsylvania that is authorized to, and does, conduct business in Texas
ACE may be served with process via its registered agent, CT Corporation, at 1999 Bryan Street,
Suite 900, Dallas, Texas, 75201 or wherever ACE may be found.
6 Certain Underwriters at Lloyd’s, London, subscribing to Policy Number
SCT1011119, are members of the following Lloyd’s syndicate: Syndicate 2987, Brit Syndicates,
Ltd. (“Underwriters”). Underwriters is a foreign insurance syndicate issuing surplus line
coverage in Texas that may be served with process by serving the Texas Commissioner of
Insurance at the Texas Department of Insurance, 333 Guadalupe, Austin, Texas 78701 who shall
then serve Walker Wilcox Matousek, LLP at One North Franklin, Suite 3200, Chicago, Illinois
60606.
Iv.
JURISDICTION AND VENUE
7 The damages sought are within the jurisdictional limits of this Court.
8 Lessley is subject to personal jurisdiction in Texas because it is a Texas limited
liability company.
9 ACE is subject to personal jurisdiction in Texas because it conducts business in
Texas, and the claims in this action arise out of or relate to its purposeful contacts with Texas,
{00296916.DOCX}
including but not limited to, issuing an insurance policy to Lessley that is the subject of this
lawsuit.
10. Underwriters is subject to personal jurisdiction in Texas because it conducts
business in Texas, and the claims in this action arise out of or relate to its purposeful contacts
with Texas, including but not limited to, issuing an insurance policy to Lessley that is the subject
of this lawsuit.
11. Venue is proper in Harris County because Lessley’s principal office is in Harris
County, Texas.
Vv
BACKGROUND FACTS
A. Introduction and Summary
12. Hallmark issued an excess liability policy to Lessley, which, subject to all of its
terms, conditions, exclusions and limits, sits above two underlying policies—a primary
automobile liability policy issued by ACE and an excess policy issued by Underwriters. On or
about November 23, 2019, a truck driver allegedly performing operations on behalf of Lessley
fell asleep while loading crude oil into his truck and, as a result, 193 barrels of crude oil
overflowed and spilled onto the ground. ACE admits that initially, it wrongfully denied
Lessley’s claim for the clean-up and remediation of the spill. As a result, the contractor hired to
remediate the spill was not paid and all remediation efforts were prematurely terminated. On
February 10, 2020, the property owner filed a lawsuit against Lessley, and later named ACE,
among others (defined below as the “Underlying Lawsuit”). ACE’s defense of Lessley, however
was grossly inadequate from the outset, when it denied coverage, to ACE’s retention of a single
lawyer to jointly represent ACE and Lessley, to the stipulation to liability and other
{00296916.DOCX}
mismanagement of the defense and trial of the case; all culminating in a verdict and judgment
exceeding $4.7 million being entered against Lessley
13. Because of the excessive verdict and judgment against Lessley, Hallmark files
this action seeking to declare all parties’ rights and obligations under the relevant insurance
policies and, in the unlikely event it is determined that Hallmark owes any coverage at all to
Lessley for its liability in the Underlying Lawsuit, finding that Hallmark is equitably subrogated
to all rights and causes of action Lessley possesses and acquires against ACE for its failure,
among other things, to adequately investigate, defend, conduct trial of, and/or settle, the
Underlying Action, and against each other defendant for their intention and negligent misconduct
causing or contributing to Lessley’s liability, according to proof.
B. The Hallmark Policy
14 Hallmark issued an Excess Liability Policy to Lessley Services, LLC, as the
Named Insured, covering the period from April 1, 2019 to April 1, 2020 under Policy Number
77HX19525E (the “Hallmark Policy”). A true and correct copy of the Hallmark Policy is
attached hereto as Exhibit A.
15. The Hallmark Policy provides, in relevant part, that:
WE, the Company named in the Declarations, relying upon the
statements shown on the Declarations page and in the Schedule of
UNDERLYING INSURANCE attached to this policy, and in return for
the payment of the premium and subject to the terms, conditions,
exclusions, and limits of insurance of this policy, agree with YOU as
follows:
SECTION I
INSURING AGREEMENTS
A. COVERAGE
This insurance only applies to injury or damage covered by the
UNDERLYING INSURANCE, and that takes place during OUR policy
{00296916.DOCX}
period. WE will pay on YOUR behalf the ULTIMATE NET LOSS in
excess of the applicable limits of the UNDERLYING INSURANCE
listed in the attached Schedule of UNDERLYING INSURANCE
(whether such insurance is collectible or not). If the UNDERLYING
INSURANCE does not pay a loss for reasons other than the exhaustion
of any aggregate limit of insurance, then WE shall not pay such loss.
The Definitions, Terms, Conditions, Limitations, and Exclusions of the
UNDERLYING INSURANCE, in effect at the inception date of this
policy, apply to this coverage unless they are inconsistent with
provisions of this policy, or relate to premium, subrogation, any
obligation to defend, the payment of expenses, limits of insurance,
cancellation or any renewal agreement.
16. The Schedule of Underlying Insurance lists, in relevant part, the following two
policies: (1) a Commercial Auto Liability policy issued by ACE to Lessley covering the period
from April 1, 2019 to April 1, 2020 under Policy Number H08456872, with a bodily injury and
property damage combined single limit for each accident of $1,000,000 (the “ACE Policy”)? and
(2) an Excess Liability policy issued by Underwriters to Lessley covering the period from April
1, 2019 to April 1, 2020 under Policy Number SCT1011119, with an each occurrence and
general aggregate limit of $2,000,000 (the “Underwriters Policy”).
17. The Limits of Insurance provision in the Hallmark Policy provides, in relevant
part, that:
B. LIMITS OF INSURANCE
The Limit of Insurance stated in the Declarations as applicable to “each
OCCURRENCE?” [$2,000,000] shall be the total limit of OUR liability
for all covered damages sustained as the result of any one
OCCURRENCE.
The Limit of Insurance stated in the Declarations as “aggregate”
[$2,000.000] shall be the total limit of OUR liability for all covered
damages sustained during each annual period of this policy; and for
which any UNDERLYING INSURANCE provides coverage that is
2 A copy of the ACE Policy is attached as Exhibit B.
3 A copy of the Underwriters Policy is attached as Exhibit C.
{00296916.DOCX}
subject to an aggregate limit. If the UNDERLYING INSURANCE limit
has been reduced or exhausted solely by reason of losses paid thereunder
arising out of OCCURRENCES which take place during OUR policy
period, then this policy shall
1 in the event of reduction, pay the excess of the reduced underlying
limit;
2 in the event of exhaustion continue in force as UNDERLYING
INSURANCE.
18 The Policy’s Unimpaired Aggregate Provision endorsement provides:
The Limits of Insurance of this policy shall not apply in excess of any
reduced or exhausted underlying aggregate limit of liability to the extent
that such reduction or exhaustion is the result of any injury, damage,
expense, cost, loss, liability, or legal obligation which is not covered by
this policy.
19. Among other things, the Hallmark Policy expressly excludes coverage for
pollution and provides in relevant part:
SECTION II (EXCLUSIONS)
WHAT IS NOT COVERED BY THIS POLICY
This insurance does not apply:
H.1. To any injury, damage, cost, loss, liability or legal obligation arising
out of or in any way related to pollution, however caused.
Pollution includes the actual, alleged or potential presence in or
introduction into the environment of any substance, including pollutants,
if such substance has or is alleged to have the effect of making the
environment impure, harmful, or dangerous. Environment includes any
air, land, structure or the air therein, watercourse or water, including
underground water.
Pollutants include any solid, liquid, gaseous, or thermal irritant or
contaminant including smoke, vapor, soot, fumes, acids, alkalis,
chemicals and waste Waste includes material to be recycled,
reconditioned or reclaimed.
{00296916.DOCX}
We shall have no duty or obligation to provide or pay for the
investigation or defense of any SUIT excluded in this section, and in
connection therewith Defense Provisions and Supplemental Payments
shall not apply
20. As discussed below, the Policy’s Pollution Exclusion bars coverage for the
Underlying Lawsuit. Certain Policy Conditions were also materially breached by Lessley, which
Conditions include duties in the event of occurrence, offense, claim or suit, and related to other
insurance, as follows:
SECTION IV
CONDITIONS
F DUTIES IN THE EVENT OF OCCURRENCE, OFFENSE,
CLAIM OR SUIT
1 YOU must see to it that WE receive prompt written notice
of an OCCURRENCE or an offense which may result in a
claim. Notice should include:
a. How, when and where the OCCURRENCE or offense
took place;
b. The names and addresses of any injured persons and
witnesses
If a claim is made or SUIT is brought against any
INSURED, YOU must see to it that WE receive written
notice of the claim or SUIT as soon as practicable.
YOU and any other involved INSURED must:
a. Immediately send US copies of any demands, notices, summons
or legal papers received in connection with the claim or SUIT
b. Authorize US to obtain records and other information;
c. Cooperate with US in the investigation, settlement or defense of
the claim or SUIT;
{00296916.DOCX}
d. Assist US, upon OUR request, in the enforcement of any right
against any person or organization which may be liable to the
INSURED because of injury or damage to which this policy may
also apply.
No INSUREDS shall make or authorize an admission of
liability or attempt to settle or otherwise dispose of any
claim or SUIT without OUR written consent.
J. OTHER INSURANCE
IF OTHER INSURANCE, whether collectible or not, is available to the
INSURED covering a loss also covered by this policy, other than a policy that is
specifically written to apply in excess of this policy, the insurance afforded by this
policy shall apply in excess of and shall not contribute with such OTHER
INSURANCE.
WE have no duty to provide coverage under this policy unless YOU and any other
involved INSUREDS have fully complied with the conditions of this policy.
Cc The Claim and Underlying Lawsuit
21 On or about February 10, 2020, Lessley was sued by Domatti M.A. Management
Trust in a lawsuit styled Domatti M.A. Management Trust vs. Lessley Services, LLC, No. 10-
20432, in the 38th Judicial District Court for the Parish of Cameron, State of Louisiana (the
“Underlying Lawsuit”). Two additional plaintiffs and three additional defendants—ACE, the
driver of the vehicle and the driver’s employer—were later added to the Underlying Lawsuit.
22. Unbeknownst to Hallmark, the relevant facts establishing liability were stipulated
to by Lessley and ACE, who were represented by the same defense lawyer retained and paid for
by ACE. See Joint Stipulation, a true and correct copy of which is attached hereto as Exhibit Dt
* As discussed below, Hallmark was not provided notice of, and certainly did not provide written consent to, this
joint stipulation, as required by the Hallmark Policy.
{00296916.DOCX}
23. The underlying plaintiff owned property located in Cameron Parish, Louisiana
(the “Domatti Property”), which had been in the Domatti family for generations. On or about
November 23, 2019, at approximately 4:20 AM, Blaise St. Clair (“St. Clair”), also a defendant in
the Underlying Lawsuit, pulled his trailer up to an LACT transfer of custody unit to load crude
oil into it from a storage tank. Despite his employment elsewhere, Lessley stipulated that St.
Clair was “an operator working in the course and scope of his employment with Lessley” /d. at J
3. During the transfer of crude oil from the storage tank to the trailer, St. Clair waited inside the
cab where he “fell asleep for four (4) hours.” /d. “While asleep, the LACT unit continued to
pump crude oil into the tanker trailer, resulting in approximately 193 barrels of crude oil
overflowing onto property owned by the Domatti Property.” /d. At approximately 9:00 AM, St.
Clair was awakened and learned that there was an ongoing crude oil spill. At approximately
9:10 AM, St. Clair notified Lessley, through its owner, Jimmy Lessley, that there was an oil spill
24. The Joint Stipulation attached nine photographs, which were stipulated to show
“the scene of the oil spill after the release,” that all the product shown on the ground was crude
oil that overflowed from the trailer, and standing oil moving from the area of the spill onto the
road where the Domatti Property is located. /d. at §4. Lessley further stipulated that, “[a]s a
result of the oil spill, 193 barrels of crude oil were released onto the Domatti Property. Of the
193 barrels released onto the Domatti property, 62 barrels were recovered.” /d. at J5.
25 Prior to entering into the Joint Stipulation, counsel for ACE and Lessley entered
into a Consent Judgment that ordered, adjudged and decreed that SLLD Transport Company,
LLC, “the general employer of Blaise St. Clair at the time of the incident” was “not the
‘employer’ for vicarious liability purposes.” Instead, it was ruled by consent that Lessley was
“the Special Employer, who is liable for the alleged incident involving Blaise St. Clair.” See
{00296916.DOCX}
Consent Judgment, a true and correct copy of which is attached hereto as Exhibit E. In other
words, prior to any trial on the merits, counsel for ACE and Lessley consented or otherwise
stipulated that Lessley was liable for any acts or omissions of the truck driver, for contamination
of Domatti Property, and for the failure to promptly remediate the contamination.
26. On information and belief, following the crude oil spill described above, OMI
Environmental Solutions (“OMI”) was hired by Lessley to perform environmental cleanup and
remediation at the Domatti Property. Lessley also sought insurance coverage from ACE in
connection with the oil spill under the ACE Policy, which ACE admits was owed but was
wrongfully denied for “approximately six months.” Joint Stipulation at§ 6. After ACE denied
the claim, OMI was not paid for its services, and “[a]s a result, the contractor (OMI) that was
performing the environmental cleanup stopped working.” Jd. The cleanup or remediation of the
crude oil spill was never completed, and as a result, the Underlying Lawsuit was filed against
Lessley and ACE.
27. The Underlying Lawsuit, sought, among other things, recovery from Lessley to
“conduct scientific analysis of the extent and nature of the contamination of the Property” and
the “cost to restore the Property to their pre-polluted original condition.” The Underlying
Lawsuit alleged that, as a result of the overflow and release of over 193 barrels of crude oil onto
the Domatti Property, there was extensive soil and groundwater contamination, including toxic
brines and salt, toxic heavy metals (including chromium, lead, mercury, arsenic, barium and
zinc), radioactive materials, (including redium226 and radium228), volatile hydrocarbon
compounds (including benzene, toluene, xylene and ethyl benzene), Polynuclear Aromatic
Hydrocarbons (including naphthalene, fluorine and phenanthrene), mercury, lead based
compounds, chromium based algicides, hydrochloric acid, caustic soda, and various corrosion
{00296916.DOCX} 10
inhibitors, as well as other toxic and hazardous materials. The Underlying Lawsuit further
alleged that Lessley’s and the other defendants’ failure to responsibly and timely remove or
remediate the pollution on the surface and in the subsurface and groundwater caused by the
crude oil spill allowed the pollution to migrate and spread throughout the Domatti Property.
28. ACE hired a single lawyer, John P. Guillory of Preis PLC, to jointly represent
both ACE and Lessley in the Underlying Lawsuit. On information and belief, Mr. Guillory had a
conflict of interest in representing both Lessley and ACE, and moreover, ACE and Guillory
placed the defense of ACE over the defense of Lessley to the detriment of Lessley. For example,
while ACE stipulated that it wrongfully denied coverage and allowed facts to be established at
trial that, but for ACE’s wrongful denial and the resulting delay in remediating the oil spill on the
Domatti Property, the remediation costs would have been far less because the oil would not have
migrated or extensively damaged the Domatti Property, ACE failed to secure a finding of what
amount of the verdict was properly apportioned and allocated solely to ACE, and not to Lessley,
ACE’s named insured.
29. On May 18, 2021, after a two-day jury trial and only thirty minutes of
deliberations, a verdict was rendered for $4,751,594, to “remediate the property.” The judgment
entered based on the jury’s verdict exceeds the limits of both the ACE Policy and the
Underwriters Policy. Therefore, Hallmark brings this lawsuit to, among other things, (i) declare
the rights and obligations of the parties under the ACE, Underwriters and Hallmark Policies, and
all other applicable insurance, with respect to the judgment; and (ii) to declare that Hallmark
owes no indemnity obligations to Lessley and is not liable for payment of any amounts owed by
ACE and/or Lessley under the judgment.
{00296916.DOCX} 11
D. There is no coverage for the Underlying Lawsuit under the Hallmark Policy
30. There is no coverage under the terms, conditions, and exclusions of the Hallmark
Policy for the judgment in the Underlying Lawsuit for the following, non-exhaustive, reasons.
31 There is no coverage under the Hallmark Policy unless and until the limits of the
ACE Policy and Underwriters Policy have been exhausted. That has not occurred
32. In addition, Lessley materially breached the Hallmark Policy Conditions of
coverage in at least the following ways. Lessley failed to provide notice of the crude oil spill,
which it first learned about at 9:10 AM on November 23, 2019. See Joint Stipulation at { 3.
Lessley also failed to provide notice of, or to forward copies of, any demands, notices, summons
or legal papers, received in connection with the Underlying Lawsuit Most egregiously, ACE
and Lessley prejudiced Hallmark’s rights by entering into the Consent Judgment and the Joint
Stipulation without notifying Hallmark or giving Hallmark a chance to object, and certainly did
not obtain Hallmark’s written consent to Lessley’s admissions to liability in the Underlying
Lawsuit, in material breach of the Hallmark Policy’s Conditions which provide in part: “No
INSUREDS shall make or authorize an admission of liability without OUR written consent”
and Hallmark has no duty to provide coverage unless Lessley has “fully complied with the
conditions of this policy.”
33. The Hallmark Policy also excludes coverage for any damages or liability arising
out of or in any way related to pollution, however caused.
This insurance does not apply ... to any injury, damage, expense, cost,
loss, liability or legal obligation arising out of or in any way related to
pollution, however caused.
Pollution includes the actual, alleged or potential presence in or
introduction into the environment of any substance, including pollutants,
if such substance has or is alleged to have the effect of making the
{00296916.DOCX} 12
environment impure, harmful, or dangerous. Environment includes any
air, land, structure or the air therein, watercourse or water, including
underground water.
Pollutants include any solid, liquid, gaseous, or thermal irritant or
contaminant including smoke, vapor, soot, fumes, acids, alkalis,
chemicals and waste. Waste includes material to be recycled,
reconditioned or reclaimed. (Emphasis added.)
34. At the conclusion of the Underlying Lawsuit, a verdict was rendered for
$4,751,594, “to remediate the property.” Because Lessley’s liability in the Underlying Lawsuit
arises out of and is directly related to the pollution event, the Hallmark Policy’s Pollution
Exclusion bars coverage for all liability arising from, or in any way connected with, the
Underlying Lawsuit
35 In addition to the foregoing, there is no coverage, or coverage is otherwise
limited, for the Underlying Lawsuit under the Hallmark Policy because Lessley failed to mitigate
or otherwise limit the extent of the pollution and consequent damages caused by the oil spill.
When ACE denied coverage, Lessley should have continued funding the remediation efforts
begun by OMI (at ACE’s expense) instead of allowing OMI to discontinue its remediation work
because of the non-payment of invoices. Instead, Lessley and/or ACE allowed the spilled crude
oil to migrate and pollute and contaminate the Domatti Property, thereby greatly increasing the
overall cost to remediate the Domatti Property and, thus, the amount of the verdict and judgment.
36. There is also no coverage for the Underlying Lawsuit to the extent that the
judgment is for punitive or exemplary damages or for declaratory, injunctive, or other equitable
relief.
37. Coverage also may not be afforded to Lessley under the Hallmark Policy with
respect to the Underlying Lawsuit based upon additional language of the Hallmark Policy,
statutes, common law or equity
{00296916.DOCX} 13
38. For the foregoing reasons, there is no coverage under the terms, conditions
exclusions and limitations of the Hallmark Policy for the judgment in the Underlying Lawsuit.
E. ACE and Underwriters
39. For the reasons set forth above, there is no duty to indemnify Lessley under the
Hallmark Policy for the judgment entered in the Underlying Lawsuit. However, should it be
determined that Hallmark owes any duty to indemnify Lessley for any part of the judgment, or
otherwise owes Lessley any coverage obligations with regard to the Underlying Lawsuit (which
Hallmark denies), then Hallmark seeks and is entitled to a declaration that any coverage provided
by the Hallmark Policy is in excess of the limits of the coverage provided by the ACE Policy and
Underwriters Policy, and Hallmark has no duty to defend or indemnify Lessley unless and until
ACE has paid or otherwise exhausted its policy limits under the ACE Policy and Underwriters
has paid or otherwise exhausted its policy limits under the Underwriters Policy. Hallmark is also
entitled to equitable subrogation of all rights and causes of action Lessley possesses and acquires
against ACE for its failure, among other things, to adequately investigate, defend, conduct trial
of, and/or settle, the Underlying Lawsuit, and against each other defendant for their intention and
negligent misconduct causing or contributing to Lessley’s liability, according to proof.
VI.
CAUSES OF ACTION
Count One: Declaratory Judgment Against Lessley
40. Plaintiff incorporates by reference the allegations contained in Paragraphs 1
through 39 as if set forth herein in full.
41 A justiciable controversy exists between Hallmark and Lessley regarding the
availability, if any, of insurance coverage for the judgment in the Underlying Lawsuit under the
Hallmark Policy. Specifically, Hallmark seeks the following declarations
{00296916.DOCX} 14
There is no coverage under the Hallmark Policy unless and until ACE and
Underwriters have each exhausted their policy limits under the ACE Policy and
Underwriters Policy, respectively, in payment of a claim that would be covered
under the Hallmark Policy
i There is no coverage available to Lessley because it breached the Hallmark Policy
Conditions to coverage including, but not limited to, failing to timely provide
notice of suit, failing to furnish documentation, and by agreeing to a consent
judgment and stipulations of fact effectively conceding liability, without
Hallmark’s knowledge or consent;
ili The Exclusion Pollution of the Hallmark Policy, as well as the Policy’s other
terms, conditions, exclusions and limitations, bars coverage for all liability
Lessley sustains arising from or in any way connected with the Underlying
Lawsuit;
Vv, In the alternative, even if Hallmark has a duty to indemnify Lessley for the
judgment in the Underlying Lawsuit, Hallmark’s liability shall be reduced by the
amount of the judgment attributable to Lessley’s failure to take reasonable steps
to avoid its legal liability and to minimize the amount of its legal liability,
including its failure to mitigate any damages caused by the crude oil spill
Count Two: Declaratory Judgment Against ACE and Underwriter:
42. Plaintiff incorporates by reference the allegations contained in Paragraphs 1
through 41 as if set forth herein in full.
43 In the alternative, if the Court finds that Hallmark owes a duty to indemnify
Lessley for the judgment in the Underlying Lawsuit, then an actual case or controversy exists
between Hallmark, ACE, Underwriters, and all other insurers regarding the scope and
availability of insurance coverage for Lessley under each insurer’s policy for the judgment in the
Underlying Lawsuit.
44, In such an event, Hallmark is entitled to, and seeks, a declaration that there is no
coverage under the Hallmark Policy unless and until ACE and Underwriters have each exhausted
their policy limits under the ACE Policy and Underwriters Policy, respectively, and all other
insurance is likewise reduced or exhausted, in payment of one or more claims that are covered
under the Hallmark Policy
{00296916.DOCX} 15
Count Three: Equitable Subrogation against ACE
45 Plaintiff incorporates by reference the allegations contained in Paragraphs 1
through 44 as if set forth herein in full.
46. To the extent that Hallmark is found liable to Lessley for any judgment entered in
the Underlying Lawsuit, Hallmark is entitled to equitable subrogation against ACE to the extent
any such liability was caused by ACE’s negligent or wrongful claim investigation, trial defense,
and/or failure to settle the Underlying Lawsuit. By way of example only, ACE was negligent in
its handling of the claim investigation, including admittedly wrongfully denying the claim, which
is alleged to have caused all remediation work to cease and the resulting pollution and
environmental contamination to increase. But for ACE’s negligence and misconduct and
resulting wrongful denial, the amount of any judgment against Lessley in the Underlying
Lawsuit would not have exceeded the combined limits of the ACE Policy and the Underwriters
Policy
47. Hallmark is also entitled to equitable subrogation against ACE to the extent its
negligent handling of the defense of Lessley in the Underlying Lawsuit, including the negligence
of defense counsel who ACE retained to jointly defend Lessley and ACE in the Underlying
Lawsuit, caused the amount of any judgment against Lessley in the Underlying Lawsuit to
exceed the available limits of the ACE Policy and the Underwriters Policy.
VIL.
ATTORNEYS’ FEES AND COSTS
48. Hallmark further requests an award of reasonable and necessary attorneys’ fees
and costs as are equitable and just pursuant to section 37.009 of the Texas Civil Practice &
Remedies Code.
{00296916.DOCX} 16
VIL.
PRAYER
WHEREFORE, Hallmark respectfully prays that the Court
1 Declare that there is no coverage available to Lessley because the underlying
limits of the ACE Policy and Underwriters Policy have not been exhausted,
including by payment of a claim that is covered under the Hallmark Policy.
il Declare that there is no coverage available to Lessley because it breached
onditions to coverage under the Hallmark Policy, including notice of suit and
obtaining written consent from Hallmark prior to making admissions of liability
iti Declare that there is no coverage available to Lessley for the Underlying Lawsuit
because coverage is excluded under the Pollution Exclusion in the Hallmark
Policy.
1V. In the event that it is determined that Hallmark has a duty to indemnify Lessley
for the judgment in the Underlying Lawsuit under the Hallmark Policy, declare
that Hallmark’s liability shall be reduced by the amount of the judgment
attributable to Lessley’s failure to take reasonable steps to avoid legal liability or
to minimize the amount of its legal liability, including its failure to mitigate the
pollution and all resulting damages by not paying the remediation company to
continue their environmental cleanup work or to timely retain a suitable
replacement;
In the event that it is determined that Hallmark has a duty to indemnify Lessley
for any portion of the judgment in the Underlying Lawsuit under the Hallmark
Policy, declare that there is no coverage unless and until Lessley has exhausted all
available limits of any underlying, primary, or other insurance coverage,
including the ACE and Underwriters Policies;
vi Otherwise declare all of the rights and obligations of the parties with regard to the
ACE Policy, Underwriters Policy, Hallmark Policy, and all other applicable
insurance policies;
vii In the event that it is determined that Hallmark has a duty to indemnify Lessley
for the judgment in the Underlying Lawsuit under the Hallmark Policy, enter
judgment against ACE in the amount of any liability owed by Hallmark to
Lessley for the Underlying Lawsuit caused by defendants, including but not
limited to ACE for its misconduct and negligent or wrongful claim investigation,
trial defense, and/or failure to settle all claims related to or arising from the crude
oil spill and pollution that was the subject of Underlying Lawsuit;
viii. Award Hallmark its costs and attorneys’ fees arising from this action; and
1X, Award Hallmark such other and further relief to which Hallmark is entitled
{00296916.DOCX} 17
Respectfully submitted,
/s/ John B. Thomas
John B. Thomas
State Bar No.19856150
jthomas@hicks-thomas.com
Courtney Ervin
State Bar No. 24050571
cervin@hicks-thomas.com
Amanda Goldstein
State Bar No. 24102067
agoldstein@hicks-thomas.com
Hicks THOMAS LLP
700 Louisiana, Suite 2300
Houston, Texas 77002
Telephone: (713) 547-9100
Facsimile: (713) 547-9150
Attorneys for Plaintiff
Hallmark Specialty Insurance Company
{00296916.DOCX} 18
Preview
6/4/2021 3:44 PM Marilyn Burgess - District Clerk Harris County Envelope No. 54123320 2021-33760 / Court: 151 By: Courtni Gilbert Filed: 6/4/2021 3:44 PM CAUSE NO. HALLMARK SPECIALTY IN THE DISTRICT COURT INSURANCE COMPANY Plaintiff, Vv. OF HARRIS COUNTY, TEXAS LESSLEY SERVICES, LLC, ACE AMERICAN INSURANCE COMPANY, and CERTAIN UNDERWRITERS AT LLOYD’S, LONDON SUBSCRIBING TO POLICY NO. SCT 1011119, Defendants. _____ JUDICIAL DISTRICT PLAINTIFF’S ORIGINAL PETITION Plaintiff Hallmark Specialty Insurance Company (“Plaintiff’ or “Hallmark”) files its Original Petition against Defendants Lessley Services, LLC, ACE American Insurance Company, and Certain Underwriters at Lloyd’s, London, subscribing to Policy No. SCT 1011119 (collectively “Defendants”), and respectfully shows the Court as follows: I DISCOVERY CONTROL PLAN 1 Hallmark intends for discovery to be conducted under Level 2 pursuant to Rule 190.3 of the Texas Rules of Civil Procedure. Ii. RULE 47 STATEMENT 2 Hallmark seeks nonmonetary relief. 1 As set forth below, and among other things, Hallmark seeks a judicial declaration that it owes no duty to indemnify Lessley from or against liability it sustained in the underlying Domatti M.A. Management Trust, et al, vs. Lessley Services, LLC, et al., lawsuit; however, should the Court determine that Hallmark owes Lessley insurance coverage, Hallmark will seek to recover from defendant ACE American Insurance Company and possibly other defendants all sums the Court determines is owed by Hallmark to Lessley, which could exceed $1,700,000. {00296916.DOCX} Ti. PARTIES 3 Hallmark Specialty Insurance Company is a corporation organized under the laws of the State of Oklahoma and conducts business in the State of Texas. 4 Lessley Services, LLC (“Lessley”) is a Texas limited liability company with its principal office in Houston, Texas. Lessley may be served through its registered agent, Vivian Lessley, at 104 N Thomas Road, White Oak, Texas 75693, or wherever she may be found. 5 ACE American Insurance Company (“ACE”) is a corporation organized under the laws of the State of Pennsylvania that is authorized to, and does, conduct business in Texas ACE may be served with process via its registered agent, CT Corporation, at 1999 Bryan Street, Suite 900, Dallas, Texas, 75201 or wherever ACE may be found. 6 Certain Underwriters at Lloyd’s, London, subscribing to Policy Number SCT1011119, are members of the following Lloyd’s syndicate: Syndicate 2987, Brit Syndicates, Ltd. (“Underwriters”). Underwriters is a foreign insurance syndicate issuing surplus line coverage in Texas that may be served with process by serving the Texas Commissioner of Insurance at the Texas Department of Insurance, 333 Guadalupe, Austin, Texas 78701 who shall then serve Walker Wilcox Matousek, LLP at One North Franklin, Suite 3200, Chicago, Illinois 60606. Iv. JURISDICTION AND VENUE 7 The damages sought are within the jurisdictional limits of this Court. 8 Lessley is subject to personal jurisdiction in Texas because it is a Texas limited liability company. 9 ACE is subject to personal jurisdiction in Texas because it conducts business in Texas, and the claims in this action arise out of or relate to its purposeful contacts with Texas, {00296916.DOCX} including but not limited to, issuing an insurance policy to Lessley that is the subject of this lawsuit. 10. Underwriters is subject to personal jurisdiction in Texas because it conducts business in Texas, and the claims in this action arise out of or relate to its purposeful contacts with Texas, including but not limited to, issuing an insurance policy to Lessley that is the subject of this lawsuit. 11. Venue is proper in Harris County because Lessley’s principal office is in Harris County, Texas. Vv BACKGROUND FACTS A. Introduction and Summary 12. Hallmark issued an excess liability policy to Lessley, which, subject to all of its terms, conditions, exclusions and limits, sits above two underlying policies—a primary automobile liability policy issued by ACE and an excess policy issued by Underwriters. On or about November 23, 2019, a truck driver allegedly performing operations on behalf of Lessley fell asleep while loading crude oil into his truck and, as a result, 193 barrels of crude oil overflowed and spilled onto the ground. ACE admits that initially, it wrongfully denied Lessley’s claim for the clean-up and remediation of the spill. As a result, the contractor hired to remediate the spill was not paid and all remediation efforts were prematurely terminated. On February 10, 2020, the property owner filed a lawsuit against Lessley, and later named ACE, among others (defined below as the “Underlying Lawsuit”). ACE’s defense of Lessley, however was grossly inadequate from the outset, when it denied coverage, to ACE’s retention of a single lawyer to jointly represent ACE and Lessley, to the stipulation to liability and other {00296916.DOCX} mismanagement of the defense and trial of the case; all culminating in a verdict and judgment exceeding $4.7 million being entered against Lessley 13. Because of the excessive verdict and judgment against Lessley, Hallmark files this action seeking to declare all parties’ rights and obligations under the relevant insurance policies and, in the unlikely event it is determined that Hallmark owes any coverage at all to Lessley for its liability in the Underlying Lawsuit, finding that Hallmark is equitably subrogated to all rights and causes of action Lessley possesses and acquires against ACE for its failure, among other things, to adequately investigate, defend, conduct trial of, and/or settle, the Underlying Action, and against each other defendant for their intention and negligent misconduct causing or contributing to Lessley’s liability, according to proof. B. The Hallmark Policy 14 Hallmark issued an Excess Liability Policy to Lessley Services, LLC, as the Named Insured, covering the period from April 1, 2019 to April 1, 2020 under Policy Number 77HX19525E (the “Hallmark Policy”). A true and correct copy of the Hallmark Policy is attached hereto as Exhibit A. 15. The Hallmark Policy provides, in relevant part, that: WE, the Company named in the Declarations, relying upon the statements shown on the Declarations page and in the Schedule of UNDERLYING INSURANCE attached to this policy, and in return for the payment of the premium and subject to the terms, conditions, exclusions, and limits of insurance of this policy, agree with YOU as follows: SECTION I INSURING AGREEMENTS A. COVERAGE This insurance only applies to injury or damage covered by the UNDERLYING INSURANCE, and that takes place during OUR policy {00296916.DOCX} period. WE will pay on YOUR behalf the ULTIMATE NET LOSS in excess of the applicable limits of the UNDERLYING INSURANCE listed in the attached Schedule of UNDERLYING INSURANCE (whether such insurance is collectible or not). If the UNDERLYING INSURANCE does not pay a loss for reasons other than the exhaustion of any aggregate limit of insurance, then WE shall not pay such loss. The Definitions, Terms, Conditions, Limitations, and Exclusions of the UNDERLYING INSURANCE, in effect at the inception date of this policy, apply to this coverage unless they are inconsistent with provisions of this policy, or relate to premium, subrogation, any obligation to defend, the payment of expenses, limits of insurance, cancellation or any renewal agreement. 16. The Schedule of Underlying Insurance lists, in relevant part, the following two policies: (1) a Commercial Auto Liability policy issued by ACE to Lessley covering the period from April 1, 2019 to April 1, 2020 under Policy Number H08456872, with a bodily injury and property damage combined single limit for each accident of $1,000,000 (the “ACE Policy”)? and (2) an Excess Liability policy issued by Underwriters to Lessley covering the period from April 1, 2019 to April 1, 2020 under Policy Number SCT1011119, with an each occurrence and general aggregate limit of $2,000,000 (the “Underwriters Policy”). 17. The Limits of Insurance provision in the Hallmark Policy provides, in relevant part, that: B. LIMITS OF INSURANCE The Limit of Insurance stated in the Declarations as applicable to “each OCCURRENCE?” [$2,000,000] shall be the total limit of OUR liability for all covered damages sustained as the result of any one OCCURRENCE. The Limit of Insurance stated in the Declarations as “aggregate” [$2,000.000] shall be the total limit of OUR liability for all covered damages sustained during each annual period of this policy; and for which any UNDERLYING INSURANCE provides coverage that is 2 A copy of the ACE Policy is attached as Exhibit B. 3 A copy of the Underwriters Policy is attached as Exhibit C. {00296916.DOCX} subject to an aggregate limit. If the UNDERLYING INSURANCE limit has been reduced or exhausted solely by reason of losses paid thereunder arising out of OCCURRENCES which take place during OUR policy period, then this policy shall 1 in the event of reduction, pay the excess of the reduced underlying limit; 2 in the event of exhaustion continue in force as UNDERLYING INSURANCE. 18 The Policy’s Unimpaired Aggregate Provision endorsement provides: The Limits of Insurance of this policy shall not apply in excess of any reduced or exhausted underlying aggregate limit of liability to the extent that such reduction or exhaustion is the result of any injury, damage, expense, cost, loss, liability, or legal obligation which is not covered by this policy. 19. Among other things, the Hallmark Policy expressly excludes coverage for pollution and provides in relevant part: SECTION II (EXCLUSIONS) WHAT IS NOT COVERED BY THIS POLICY This insurance does not apply: H.1. To any injury, damage, cost, loss, liability or legal obligation arising out of or in any way related to pollution, however caused. Pollution includes the actual, alleged or potential presence in or introduction into the environment of any substance, including pollutants, if such substance has or is alleged to have the effect of making the environment impure, harmful, or dangerous. Environment includes any air, land, structure or the air therein, watercourse or water, including underground water. Pollutants include any solid, liquid, gaseous, or thermal irritant or contaminant including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste Waste includes material to be recycled, reconditioned or reclaimed. {00296916.DOCX} We shall have no duty or obligation to provide or pay for the investigation or defense of any SUIT excluded in this section, and in connection therewith Defense Provisions and Supplemental Payments shall not apply 20. As discussed below, the Policy’s Pollution Exclusion bars coverage for the Underlying Lawsuit. Certain Policy Conditions were also materially breached by Lessley, which Conditions include duties in the event of occurrence, offense, claim or suit, and related to other insurance, as follows: SECTION IV CONDITIONS F DUTIES IN THE EVENT OF OCCURRENCE, OFFENSE, CLAIM OR SUIT 1 YOU must see to it that WE receive prompt written notice of an OCCURRENCE or an offense which may result in a claim. Notice should include: a. How, when and where the OCCURRENCE or offense took place; b. The names and addresses of any injured persons and witnesses If a claim is made or SUIT is brought against any INSURED, YOU must see to it that WE receive written notice of the claim or SUIT as soon as practicable. YOU and any other involved INSURED must: a. Immediately send US copies of any demands, notices, summons or legal papers received in connection with the claim or SUIT b. Authorize US to obtain records and other information; c. Cooperate with US in the investigation, settlement or defense of the claim or SUIT; {00296916.DOCX} d. Assist US, upon OUR request, in the enforcement of any right against any person or organization which may be liable to the INSURED because of injury or damage to which this policy may also apply. No INSUREDS shall make or authorize an admission of liability or attempt to settle or otherwise dispose of any claim or SUIT without OUR written consent. J. OTHER INSURANCE IF OTHER INSURANCE, whether collectible or not, is available to the INSURED covering a loss also covered by this policy, other than a policy that is specifically written to apply in excess of this policy, the insurance afforded by this policy shall apply in excess of and shall not contribute with such OTHER INSURANCE. WE have no duty to provide coverage under this policy unless YOU and any other involved INSUREDS have fully complied with the conditions of this policy. Cc The Claim and Underlying Lawsuit 21 On or about February 10, 2020, Lessley was sued by Domatti M.A. Management Trust in a lawsuit styled Domatti M.A. Management Trust vs. Lessley Services, LLC, No. 10- 20432, in the 38th Judicial District Court for the Parish of Cameron, State of Louisiana (the “Underlying Lawsuit”). Two additional plaintiffs and three additional defendants—ACE, the driver of the vehicle and the driver’s employer—were later added to the Underlying Lawsuit. 22. Unbeknownst to Hallmark, the relevant facts establishing liability were stipulated to by Lessley and ACE, who were represented by the same defense lawyer retained and paid for by ACE. See Joint Stipulation, a true and correct copy of which is attached hereto as Exhibit Dt * As discussed below, Hallmark was not provided notice of, and certainly did not provide written consent to, this joint stipulation, as required by the Hallmark Policy. {00296916.DOCX} 23. The underlying plaintiff owned property located in Cameron Parish, Louisiana (the “Domatti Property”), which had been in the Domatti family for generations. On or about November 23, 2019, at approximately 4:20 AM, Blaise St. Clair (“St. Clair”), also a defendant in the Underlying Lawsuit, pulled his trailer up to an LACT transfer of custody unit to load crude oil into it from a storage tank. Despite his employment elsewhere, Lessley stipulated that St. Clair was “an operator working in the course and scope of his employment with Lessley” /d. at J 3. During the transfer of crude oil from the storage tank to the trailer, St. Clair waited inside the cab where he “fell asleep for four (4) hours.” /d. “While asleep, the LACT unit continued to pump crude oil into the tanker trailer, resulting in approximately 193 barrels of crude oil overflowing onto property owned by the Domatti Property.” /d. At approximately 9:00 AM, St. Clair was awakened and learned that there was an ongoing crude oil spill. At approximately 9:10 AM, St. Clair notified Lessley, through its owner, Jimmy Lessley, that there was an oil spill 24. The Joint Stipulation attached nine photographs, which were stipulated to show “the scene of the oil spill after the release,” that all the product shown on the ground was crude oil that overflowed from the trailer, and standing oil moving from the area of the spill onto the road where the Domatti Property is located. /d. at §4. Lessley further stipulated that, “[a]s a result of the oil spill, 193 barrels of crude oil were released onto the Domatti Property. Of the 193 barrels released onto the Domatti property, 62 barrels were recovered.” /d. at J5. 25 Prior to entering into the Joint Stipulation, counsel for ACE and Lessley entered into a Consent Judgment that ordered, adjudged and decreed that SLLD Transport Company, LLC, “the general employer of Blaise St. Clair at the time of the incident” was “not the ‘employer’ for vicarious liability purposes.” Instead, it was ruled by consent that Lessley was “the Special Employer, who is liable for the alleged incident involving Blaise St. Clair.” See {00296916.DOCX} Consent Judgment, a true and correct copy of which is attached hereto as Exhibit E. In other words, prior to any trial on the merits, counsel for ACE and Lessley consented or otherwise stipulated that Lessley was liable for any acts or omissions of the truck driver, for contamination of Domatti Property, and for the failure to promptly remediate the contamination. 26. On information and belief, following the crude oil spill described above, OMI Environmental Solutions (“OMI”) was hired by Lessley to perform environmental cleanup and remediation at the Domatti Property. Lessley also sought insurance coverage from ACE in connection with the oil spill under the ACE Policy, which ACE admits was owed but was wrongfully denied for “approximately six months.” Joint Stipulation at§ 6. After ACE denied the claim, OMI was not paid for its services, and “[a]s a result, the contractor (OMI) that was performing the environmental cleanup stopped working.” Jd. The cleanup or remediation of the crude oil spill was never completed, and as a result, the Underlying Lawsuit was filed against Lessley and ACE. 27. The Underlying Lawsuit, sought, among other things, recovery from Lessley to “conduct scientific analysis of the extent and nature of the contamination of the Property” and the “cost to restore the Property to their pre-polluted original condition.” The Underlying Lawsuit alleged that, as a result of the overflow and release of over 193 barrels of crude oil onto the Domatti Property, there was extensive soil and groundwater contamination, including toxic brines and salt, toxic heavy metals (including chromium, lead, mercury, arsenic, barium and zinc), radioactive materials, (including redium226 and radium228), volatile hydrocarbon compounds (including benzene, toluene, xylene and ethyl benzene), Polynuclear Aromatic Hydrocarbons (including naphthalene, fluorine and phenanthrene), mercury, lead based compounds, chromium based algicides, hydrochloric acid, caustic soda, and various corrosion {00296916.DOCX} 10 inhibitors, as well as other toxic and hazardous materials. The Underlying Lawsuit further alleged that Lessley’s and the other defendants’ failure to responsibly and timely remove or remediate the pollution on the surface and in the subsurface and groundwater caused by the crude oil spill allowed the pollution to migrate and spread throughout the Domatti Property. 28. ACE hired a single lawyer, John P. Guillory of Preis PLC, to jointly represent both ACE and Lessley in the Underlying Lawsuit. On information and belief, Mr. Guillory had a conflict of interest in representing both Lessley and ACE, and moreover, ACE and Guillory placed the defense of ACE over the defense of Lessley to the detriment of Lessley. For example, while ACE stipulated that it wrongfully denied coverage and allowed facts to be established at trial that, but for ACE’s wrongful denial and the resulting delay in remediating the oil spill on the Domatti Property, the remediation costs would have been far less because the oil would not have migrated or extensively damaged the Domatti Property, ACE failed to secure a finding of what amount of the verdict was properly apportioned and allocated solely to ACE, and not to Lessley, ACE’s named insured. 29. On May 18, 2021, after a two-day jury trial and only thirty minutes of deliberations, a verdict was rendered for $4,751,594, to “remediate the property.” The judgment entered based on the jury’s verdict exceeds the limits of both the ACE Policy and the Underwriters Policy. Therefore, Hallmark brings this lawsuit to, among other things, (i) declare the rights and obligations of the parties under the ACE, Underwriters and Hallmark Policies, and all other applicable insurance, with respect to the judgment; and (ii) to declare that Hallmark owes no indemnity obligations to Lessley and is not liable for payment of any amounts owed by ACE and/or Lessley under the judgment. {00296916.DOCX} 11 D. There is no coverage for the Underlying Lawsuit under the Hallmark Policy 30. There is no coverage under the terms, conditions, and exclusions of the Hallmark Policy for the judgment in the Underlying Lawsuit for the following, non-exhaustive, reasons. 31 There is no coverage under the Hallmark Policy unless and until the limits of the ACE Policy and Underwriters Policy have been exhausted. That has not occurred 32. In addition, Lessley materially breached the Hallmark Policy Conditions of coverage in at least the following ways. Lessley failed to provide notice of the crude oil spill, which it first learned about at 9:10 AM on November 23, 2019. See Joint Stipulation at { 3. Lessley also failed to provide notice of, or to forward copies of, any demands, notices, summons or legal papers, received in connection with the Underlying Lawsuit Most egregiously, ACE and Lessley prejudiced Hallmark’s rights by entering into the Consent Judgment and the Joint Stipulation without notifying Hallmark or giving Hallmark a chance to object, and certainly did not obtain Hallmark’s written consent to Lessley’s admissions to liability in the Underlying Lawsuit, in material breach of the Hallmark Policy’s Conditions which provide in part: “No INSUREDS shall make or authorize an admission of liability without OUR written consent” and Hallmark has no duty to provide coverage unless Lessley has “fully complied with the conditions of this policy.” 33. The Hallmark Policy also excludes coverage for any damages or liability arising out of or in any way related to pollution, however caused. This insurance does not apply ... to any injury, damage, expense, cost, loss, liability or legal obligation arising out of or in any way related to pollution, however caused. Pollution includes the actual, alleged or potential presence in or introduction into the environment of any substance, including pollutants, if such substance has or is alleged to have the effect of making the {00296916.DOCX} 12 environment impure, harmful, or dangerous. Environment includes any air, land, structure or the air therein, watercourse or water, including underground water. Pollutants include any solid, liquid, gaseous, or thermal irritant or contaminant including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes material to be recycled, reconditioned or reclaimed. (Emphasis added.) 34. At the conclusion of the Underlying Lawsuit, a verdict was rendered for $4,751,594, “to remediate the property.” Because Lessley’s liability in the Underlying Lawsuit arises out of and is directly related to the pollution event, the Hallmark Policy’s Pollution Exclusion bars coverage for all liability arising from, or in any way connected with, the Underlying Lawsuit 35 In addition to the foregoing, there is no coverage, or coverage is otherwise limited, for the Underlying Lawsuit under the Hallmark Policy because Lessley failed to mitigate or otherwise limit the extent of the pollution and consequent damages caused by the oil spill. When ACE denied coverage, Lessley should have continued funding the remediation efforts begun by OMI (at ACE’s expense) instead of allowing OMI to discontinue its remediation work because of the non-payment of invoices. Instead, Lessley and/or ACE allowed the spilled crude oil to migrate and pollute and contaminate the Domatti Property, thereby greatly increasing the overall cost to remediate the Domatti Property and, thus, the amount of the verdict and judgment. 36. There is also no coverage for the Underlying Lawsuit to the extent that the judgment is for punitive or exemplary damages or for declaratory, injunctive, or other equitable relief. 37. Coverage also may not be afforded to Lessley under the Hallmark Policy with respect to the Underlying Lawsuit based upon additional language of the Hallmark Policy, statutes, common law or equity {00296916.DOCX} 13 38. For the foregoing reasons, there is no coverage under the terms, conditions exclusions and limitations of the Hallmark Policy for the judgment in the Underlying Lawsuit. E. ACE and Underwriters 39. For the reasons set forth above, there is no duty to indemnify Lessley under the Hallmark Policy for the judgment entered in the Underlying Lawsuit. However, should it be determined that Hallmark owes any duty to indemnify Lessley for any part of the judgment, or otherwise owes Lessley any coverage obligations with regard to the Underlying Lawsuit (which Hallmark denies), then Hallmark seeks and is entitled to a declaration that any coverage provided by the Hallmark Policy is in excess of the limits of the coverage provided by the ACE Policy and Underwriters Policy, and Hallmark has no duty to defend or indemnify Lessley unless and until ACE has paid or otherwise exhausted its policy limits under the ACE Policy and Underwriters has paid or otherwise exhausted its policy limits under the Underwriters Policy. Hallmark is also entitled to equitable subrogation of all rights and causes of action Lessley possesses and acquires against ACE for its failure, among other things, to adequately investigate, defend, conduct trial of, and/or settle, the Underlying Lawsuit, and against each other defendant for their intention and negligent misconduct causing or contributing to Lessley’s liability, according to proof. VI. CAUSES OF ACTION Count One: Declaratory Judgment Against Lessley 40. Plaintiff incorporates by reference the allegations contained in Paragraphs 1 through 39 as if set forth herein in full. 41 A justiciable controversy exists between Hallmark and Lessley regarding the availability, if any, of insurance coverage for the judgment in the Underlying Lawsuit under the Hallmark Policy. Specifically, Hallmark seeks the following declarations {00296916.DOCX} 14 There is no coverage under the Hallmark Policy unless and until ACE and Underwriters have each exhausted their policy limits under the ACE Policy and Underwriters Policy, respectively, in payment of a claim that would be covered under the Hallmark Policy i There is no coverage available to Lessley because it breached the Hallmark Policy Conditions to coverage including, but not limited to, failing to timely provide notice of suit, failing to furnish documentation, and by agreeing to a consent judgment and stipulations of fact effectively conceding liability, without Hallmark’s knowledge or consent; ili The Exclusion Pollution of the Hallmark Policy, as well as the Policy’s other terms, conditions, exclusions and limitations, bars coverage for all liability Lessley sustains arising from or in any way connected with the Underlying Lawsuit; Vv, In the alternative, even if Hallmark has a duty to indemnify Lessley for the judgment in the Underlying Lawsuit, Hallmark’s liability shall be reduced by the amount of the judgment attributable to Lessley’s failure to take reasonable steps to avoid its legal liability and to minimize the amount of its legal liability, including its failure to mitigate any damages caused by the crude oil spill Count Two: Declaratory Judgment Against ACE and Underwriter: 42. Plaintiff incorporates by reference the allegations contained in Paragraphs 1 through 41 as if set forth herein in full. 43 In the alternative, if the Court finds that Hallmark owes a duty to indemnify Lessley for the judgment in the Underlying Lawsuit, then an actual case or controversy exists between Hallmark, ACE, Underwriters, and all other insurers regarding the scope and availability of insurance coverage for Lessley under each insurer’s policy for the judgment in the Underlying Lawsuit. 44, In such an event, Hallmark is entitled to, and seeks, a declaration that there is no coverage under the Hallmark Policy unless and until ACE and Underwriters have each exhausted their policy limits under the ACE Policy and Underwriters Policy, respectively, and all other insurance is likewise reduced or exhausted, in payment of one or more claims that are covered under the Hallmark Policy {00296916.DOCX} 15 Count Three: Equitable Subrogation against ACE 45 Plaintiff incorporates by reference the allegations contained in Paragraphs 1 through 44 as if set forth herein in full. 46. To the extent that Hallmark is found liable to Lessley for any judgment entered in the Underlying Lawsuit, Hallmark is entitled to equitable subrogation against ACE to the extent any such liability was caused by ACE’s negligent or wrongful claim investigation, trial defense, and/or failure to settle the Underlying Lawsuit. By way of example only, ACE was negligent in its handling of the claim investigation, including admittedly wrongfully denying the claim, which is alleged to have caused all remediation work to cease and the resulting pollution and environmental contamination to increase. But for ACE’s negligence and misconduct and resulting wrongful denial, the amount of any judgment against Lessley in the Underlying Lawsuit would not have exceeded the combined limits of the ACE Policy and the Underwriters Policy 47. Hallmark is also entitled to equitable subrogation against ACE to the extent its negligent handling of the defense of Lessley in the Underlying Lawsuit, including the negligence of defense counsel who ACE retained to jointly defend Lessley and ACE in the Underlying Lawsuit, caused the amount of any judgment against Lessley in the Underlying Lawsuit to exceed the available limits of the ACE Policy and the Underwriters Policy. VIL. ATTORNEYS’ FEES AND COSTS 48. Hallmark further requests an award of reasonable and necessary attorneys’ fees and costs as are equitable and just pursuant to section 37.009 of the Texas Civil Practice & Remedies Code. {00296916.DOCX} 16 VIL. PRAYER WHEREFORE, Hallmark respectfully prays that the Court 1 Declare that there is no coverage available to Lessley because the underlying limits of the ACE Policy and Underwriters Policy have not been exhausted, including by payment of a claim that is covered under the Hallmark Policy. il Declare that there is no coverage available to Lessley because it breached onditions to coverage under the Hallmark Policy, including notice of suit and obtaining written consent from Hallmark prior to making admissions of liability iti Declare that there is no coverage available to Lessley for the Underlying Lawsuit because coverage is excluded under the Pollution Exclusion in the Hallmark Policy. 1V. In the event that it is determined that Hallmark has a duty to indemnify Lessley for the judgment in the Underlying Lawsuit under the Hallmark Policy, declare that Hallmark’s liability shall be reduced by the amount of the judgment attributable to Lessley’s failure to take reasonable steps to avoid legal liability or to minimize the amount of its legal liability, including its failure to mitigate the pollution and all resulting damages by not paying the remediation company to continue their environmental cleanup work or to timely retain a suitable replacement; In the event that it is determined that Hallmark has a duty to indemnify Lessley for any portion of the judgment in the Underlying Lawsuit under the Hallmark Policy, declare that there is no coverage unless and until Lessley has exhausted all available limits of any underlying, primary, or other insurance coverage, including the ACE and Underwriters Policies; vi Otherwise declare all of the rights and obligations of the parties with regard to the ACE Policy, Underwriters Policy, Hallmark Policy, and all other applicable insurance policies; vii In the event that it is determined that Hallmark has a duty to indemnify Lessley for the judgment in the Underlying Lawsuit under the Hallmark Policy, enter judgment against ACE in the amount of any liability owed by Hallmark to Lessley for the Underlying Lawsuit caused by defendants, including but not limited to ACE for its misconduct and negligent or wrongful claim investigation, trial defense, and/or failure to settle all claims related to or arising from the crude oil spill and pollution that was the subject of Underlying Lawsuit; viii. Award Hallmark its costs and attorneys’ fees arising from this action; and 1X, Award Hallmark such other and further relief to which Hallmark is entitled {00296916.DOCX} 17 Respectfully submitted, /s/ John B. Thomas John B. Thomas State Bar No.19856150 jthomas@hicks-thomas.com Courtney Ervin State Bar No. 24050571 cervin@hicks-thomas.com Amanda Goldstein State Bar No. 24102067 agoldstein@hicks-thomas.com Hicks THOMAS LLP 700 Louisiana, Suite 2300 Houston, Texas 77002 Telephone: (713) 547-9100 Facsimile: (713) 547-9150 Attorneys for Plaintiff Hallmark Specialty Insurance Company {00296916.DOCX} 18