Full opinion text
MEMORANDUM OPINION AND ORDER TOM S. LEE, District Judge. THE INCIDENT AND COVERAGES Tomlinson Interests, Inc. (Tomlinson) operated the E.N. Ross # 2 Well located in the Johns Field in Rankin County, Mississippi. Republic Refining, Ltd. (Republic), a Tomlinson subsidiary, operated a gas plant nearby to process the sour gas produced by Tomlinson’s wells. On July 15, 1985, there was an above-ground blowout of the Ross # 2 well. At the time of the blowout, Tomlinson and Republic had comprehensive general liability coverage under several insurance policies issued by Hartford Accident & Indemnity Company and Hartford Casualty Insurance Company (collectively Hartford), as follows: Hartford Policy No. 61 CESSA0639, issued to Tomlinson, was the primary policy which provided liability coverage in limits of $500,000 for bodily injury and $100,000 for property damage (hereinafter Tomlinson primary or 0639); Hartford Policy No. 61 CESSA0642, issued to Republic providing comprehensive general liability coverage of $500,-000 for bodily injury and $100,000 for property damage (hereinafter Republic primary or 0642); Hartford Policy No. 61 HUNV 1261, issued to Republic and which listed Tomlin-son as an additional insured for drilling activities in the Johns Field, was an umbrella policy providing liability limits of $1,000,000 (hereinafter Republic umbrella or 1261); Hartford Policy No. 61 HUNV 1262, issued to Tomlinson, provided liability limits of $5,000,000 (hereinafter Tomlinson umbrella or 1262). A first layer of excess umbrella coverage was provided Republic, and by endorsement, Tomlinson, by Mission National Insurance Company’s (Mission) policy number MN038651, which furnished $4,000,000 coverage in excess of the Hartford policies 0642 and 1261. International Insurance Company (International) provided a second layer of excess coverage through its policy 522 6145 2 which had policy limits of $10,-000,000 in excess of the underlying Mission policy. In addition, Tomlinson had well control and redrill/replacement coverage under two certificates of insurance, numbers 35120 and 34595, subscribed to by certain insurance companies and Underwriters at Lloyd’s London (Underwriters). ENSUING LITIGATION Following the blowout, a number of Rankin County residents who lived in the vicinity of the well filed suits in Rankin County Circuit Court against the Estates of Tomlinson and Republic, and Dan Pierce and/or Pierce-Petro Management (Pierce), a contractor hired by Tomlinson to perform consulting services on the well, among others, seeking to recover for bodily injury and property damage, and for loss of use of their property as a result of the escape of hydrogen sulfide and other toxic gases. These lawsuits, which were consolidated under Master Cause Number 15,002, were ultimately settled for the sum of $1,665,-283, evidenced by an October 16, 1986 agreed judgment between Tomlinson and the plaintiffs. Upon entry of the agreed judgment, Hartford, which had defended Tomlinson in the case, paid $1,065,283 toward satisfaction of the judgment, leaving $600,000 unpaid. Hartford claimed that the Tomlinson umbrella policy, 1262, did not apply to the loss and that its payment of $1,065,283 had exhausted the coverage available under its policies. Hartford advised Tomlinson by letter dated December 22, 1986 that because the policy limits were exhausted, Hartford would no longer defend it. In September 1986, Roxani Gillespie, then conservator for the insolvent Mission, and International Insurance Company, the insurance carriers which provide coverage in excess of that provided by Hartford, brought the present action pursuant to 28 U.S.C. § 2201 and Federal Rule of Civil Procedure 57, seeking, among other things, a declaratory judgment that coverage under Hartford’s policies had not been exhausted and that therefore, the policies issued by Mission and International were not yet activated. Plaintiffs alleged that the underlying coverage was not exhausted as Hartford had wrongfully added insureds, including Pierce, after the loss occurred and had paid benefits on behalf of Pierce and other additional insureds and thereby had depleted funds available under Hartford’s policies to be used on behalf of actual insureds. Plaintiffs requested an order that Hartford recredit to the available policy proceeds all sums paid by or on behalf of Pierce, or any other person or entity who was not an insured prior to the loss. International also sought a declaration that it had no duty to “drop down” to substitute its policy limits for the coverage provided by Mission, which was insolvent, so as to prevent a gap in coverage. [T]hese policies each provide that Hartford's duty to defend ceases when the policy coverage had been exhausted through payment of judgements or settlements. Therefore, the Hartford will, effective immediately, cease bearing responsibility for cost of defense of any litigation against any of its insureds on account of the blowout of the gas well in the Johns Field in Rankin County, Mississippi, whether suit has been filed or not. Pierce was permitted to intervene in this cause by order of January 27, 1987, and on March 23, 1989, asserted a counterclaim against Mission and International and a crossclaim against Hartford seeking a declaration that Pierce is an insured under the primary and umbrella policies issued by Hartford to Tomlinson as well as the International excess policy. Pierce also alleged entitlement to attorney’s fees from International for being forced to intervene and defend in this action as a result of International’s taking the position that Pierce was entitled to no coverage under any of the policies at issue. While this case was pending, Tomlinson, on October 31, 1986, brought suit in the United States Bankruptcy Court for the Southern District of Texas seeking to establish that it continued to have coverage under Hartford’s policies, In re: Tomlin-son Interests, Debtor, Gary J. Knostman, Trustee for Tomlinson Interests, Inc., et al. v. Hartford Casualty Insurance Com pany and Hartford Accident and Indemnity Company, Case No. 84-03173-HS-7. Hartford responded with a request that the bankruptcy court reform the Tomlinson umbrella policy to exclude coverage of Tomlinson’s exposure in the Johns Field. After being advised by Hartford on December 22, 1986 that Hartford was taking the position that policy 1262 did not cover Tomlinson’s Johns Field operations and would no longer defend lawsuits against it, Tomlinson sought and obtained from the bankruptcy court a preliminary injunction, enjoining Hartford from abandoning its defense of lawsuits filed and pending against Tomlinson and prohibiting Hartford from denying coverage under policy 1262. Tomlinson and Republic thereafter, on February 20, 1987, intervened in this suit, contending, as in the bankruptcy court action, that its coverage under the Hartford policies had not been exhausted and that Hartford therefore remained obligated to defend and pay claims against Tomlinson. Tomlinson claimed entitlement to recover from Hartford certain costs allegedly incurred as a result of the blowout, including post-blowout evacuation expenses and costs associated with lost and damaged equipment, and additionally asserted claims against Hartford for punitive damages based on various alleged actions and inactions by Hartford in connection with Tomlinson’s claims under Tomlinson’s umbrella policy. Hartford filed a counterclaim against Mission, International, Tomlinson and Pierce seeking an adjudication that it was not liable under policy 1262 for payment of Tomlinson’s claims and was under no further obligation to defend Tomlinson, or any other insured, by virtue of exhaustion of the primary coverage. When, upon motion by Hartford, Underwriters were joined in the action, Hartford filed a crossclaim seeking to hold the Underwriters liable for any damages awarded to Tomlinson on its claim against Hartford for post-blowout expenses. Hartford later amended its crossclaim seeking an additional declaration that Underwriters were and are obligated to defend Tomlinson in all landowner actions (past, present and future) and that Underwriters are therefore liable for all sums expended by Hartford in Tomlinson’s defense of Master Cause 15,-002 and all additional costs that have been expended or will be expended in defense of landowner suits. Further, Hartford sought to recover from Underwriters all sums which Hartford paid in settlement of Master Cause 15,002. Tomlinson, likewise, asserted a crossclaim against Underwriters seeking recovery of the evacuation costs originally sought only against Hartford, as well as a declaration that Underwriters had a duty to defend Tomlinson in Master Cause 15,445 and any landowner suits which might be filed in the future. In addition to its claims against Mission, International, Tomlinson and Underwriters, Hartford filed a crossclaim against Pierce claiming that while Pierce was properly treated as a named insured under the Tomlinson and Republic umbrella policies, no coverage was provided under policy 1262 as that policy was not intended to cover the Johns Field operations. Hartford claimed, therefore, that it owed no duty to defend Pierce and sought to recoup from Pierce any and all costs which Hartford had expended in defense of Pierce following exhaustion of policies 0639 and 1261. Pierce, in turn, filed a claim against Hartford alleging that Pierce was insured under each of the Hartford policies, and demanding that Hartford be permanently enjoined to defend and indemnify Pierce in all third-party lawsuits arising out of the blowout until the aggregate limits of all the Hartford policies were reached. Pierce also alleged that Hartford had acted in bad faith, apparently in having attempted to abandon its defense of Pierce. Finally, Pierce claimed entitlement to recover attorney’s fees from Hartford for Pierce’s being forced to defend Hartford’s claims in this case. On September 10, 1987, the Houston Bankruptcy Court submitted proposed findings of fact and conclusions of law and a proposed final order to the federal district court in Houston. A hearing was scheduled for June 7, 1988 for Hartford’s appeal of the bankruptcy court’s preliminary injunction, but Hartford sought and obtained a stay of the Texas proceedings pending the outcome of this litigation. Recently, however, that stay was lifted and the Texas District Court entered its order substantially affirming the actions of the bankruptcy court. In July 1987, while this action was pending, the plaintiffs in Master Cause 15,002, in an effort to recover the outstanding $600,000 balance of the agreed judgment entered in that cause, filed separate garnishment actions against Hartford and Underwriters in state court. The cases were removed to this court. In Jones v. Southern Marine & Aviation Underwriters, 739 F.Supp. 315 (S.D.Miss.1988), this court concluded that Underwriters, pursuant to the terms of their policy and the agreed judgment, were relieved of all liability to the landowner plaintiffs for any part of the agreed judgment and accordingly entered summary judgment for Underwriters. That decision was affirmed by the Fifth Circuit. Jones v. Southern Marine & Aviation Underwriters, 888 F.2d 358 (5th Cir. 1989). Hartford, in response to the landowner plaintiffs’ garnishment efforts in Jones v. Hartford Accident and Indemnity Company, 714 F.Supp. 808 (S.D.Miss.1989), sought reformation of policy 1262 on the basis of an alleged mistake in preparing the policy, contending that the parties to that insurance contract had intended to exclude Tomlinson’s Johns Field operations from coverage under the policy but had erroneously failed to do so. Tomlinson, Republic and Gary J. Knostman, as bankruptcy trustee for Tomlinson and Republic, intervened in that action requesting a declaratory judgment that Tomlinson’s umbrella policy did provide coverage for the blowout and thus covered the balance of the unsatisfied judgment. Following a trial before Judge William H. Barbour of the issues presented, the court found, by opinion dated August 25, 1989, that Hartford’s policy 1262 provided coverage for the blowout. The court denied Hartford’s claim for reformation, granted Tomlinson’s request for declaratory relief, and awarded the landowner plaintiffs a judgment against Hartford for $600,000, representing the balance of the state court agreed judgment. The Fifth Circuit, by unpublished opinion, affirmed that decision. Jones v. Hartford Accident and Indemnity Company, 915 F.2d 1567 (5th Cir.1990). While litigation over the coverage issues was taking place in this court, additional landowner suits were filed and are now pending in the Rankin County Circuit Court, commenced in October 1987 and consolidated under Master Cause Number 15,-445. Discovery is ongoing in those proceedings, and there has to date been no resolution of that action and Hartford has continued to provide a defense for Tomlin-son in those proceedings. MOTIONS There are presently before the court numerous motions by the parties to this action, which can be briefly described as follows: Hartford’s Motion for Summary Judgment seeks judgment as follows: (a) that the actions taken by Hartford on behalf of Pierce in defending and indemnifying Pierce as a named insured under its primary policy were proper under its insurance agreement; (b) that it is under no duty to continue defending any insured since its policy limits have been exhausted and that it has no duty to defend Tomlinson or Republic since the excess policy makes defense optional; (c) that none of the policies issued by Hartford covers the “post blow-out” expenses claimed by Tomlinson; and (d) that because Judge Barbour stated that the ruling on the mutual mistake matter was a “close call,” Hartford had a legitimate and arguable reason for denying Tomlinson’s claim and thus it could have no punitive damages liability. Tomlinson’s Motion for Partial Summary Judgment Against Hartford seeks: (a) a determination that the claims of third parties seeking amounts for equipment damaged or destroyed in the blowout are insured under Hartford’s umbrella policy and that Hartford is required to defend and insure all of those claims; (b) recovery of attorney’s fees and litigation costs incurred in defending Hartford’s reformation action before Judge Barbour, and attorney’s fees incurred in connection with its pending motions. Tomlinson’s Cross-Motion for Summary Judgment Against Hartford seeks an adjudication in its favor as follows: (a) under both the primary and umbrella policies, Hartford is obligated to reimburse Tomlinson for post-blowout evacuation expenses incurred by Tomlinson which Tomlinson was “legally obligated to pay as damages;” (b) Hartford has a continuing duty to defend Tomlinson and is estopped from abandoning its defense of Tomlinson under the umbrella policy; and (c) this court should refrain from interfering with the injunction issued by the Texas bankruptcy court requiring Hartford to defend Tomlinson against all lawsuits involving claims arising out of the blowout of the Ross # 2 Well. International’s Motion for Summary Judgment requests: a declaration that its policy is not required to “drop down” in place of the policy issued by the now insolvent Mission. Pierce’s Motions for Partial Summary Judgment seek an adjudication that: (a) Pierce is an insured under the Hartford policies, including Tomlinson’s umbrella policy; (b) Pierce is entitled to coverage from International; (c) Hartford and International should be required to pay Pierce’s attorney’s fees for having to intervene in this action; and (d) that Hartford’s policy limits have not been exhausted because the incident giving rise to the claim for injuries against Pierce, the blowout, was not just one occurrence, as that term is defined in the policy, but rather amounts to multiple occurrences, each occurrence giving rise to a new claim and new liability under the Hartford policy. Underwriters’ Motion for Summary Judgment Against Hartford requests a declaration that: (a) they had no duty to defend Tomlinson in Master Cause 15,002 and have no duty to defend Tomlinson in Master Cause 15,445; and (b) they are not liable for payments made by Hartford pursuant to the agreed judgment in Master Cause 15,002. TOMLINSON’S MOTION FOR PARTIAL SUMMARY JUDGMENT; HARTFORD’S MOTION FOR SUMMARY JUDGMENT AND TOMLINSON’S CROSS-MOTION FOR SUMMARY JUDGMENT By its motion for summary judgment, Hartford seeks a determination that it is under no duty to continue defending any insured since its primary policy limits are exhausted and that it has no duty to defend Tomlinson or Republic under the umbrella policy since the excess policy makes defense optional, that none of the policies issued by Hartford to Tomlinson cover the post blow-out expenses claimed by Tomlin-son, and that it is entitled to summary judgment on Tomlinson’s punitive damages claim against it. Tomlinson has responded to Hartford’s motion with a cross-motion for summary judgment on the issues raised by Hartford. Tomlinson has additionally moved for partial summary judgment, asking this court to adjudicate that all claims for damage to, destruction of or the loss of use of equipment not owned by Tomlinson are insured under the umbrella policy and to enjoin Hartford to defend and acknowledge responsibility for such claims. Tomlinson also seeks damages from Hartford for equipment claims paid by Tomlinson which, under the terms of the umbrella policy, should have been paid by Hartford. Further, Tomlinson seeks an order requiring Hartford to reimburse Tomlinson for the attorney’s fees and costs incurred by Tomlinson in defending Hartford’s reformation claim, and in pursuing its motion for partial summary judgment. Conflicts Issue To determine the coverage issues presented by these motions, the court must decide whether Mississippi law or Texas law governs. Hartford contends that Mississippi law applies; Tomlinson asserts that Texas law applies. Both parties recognize that in a diversity action, the district court is bound to apply the choice of law rules of the state in which it sits. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941); Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938); Moore v. United Services Auto. Ass’n, 808 F.2d 1147, 1150 (5th Cir.1987). Mississippi utilizes a “center of gravity” approach to the resolution of conflicts issues. Mitchell v. Craft, 211 So.2d 509, 512 (Miss.1968). Thus, this court’s conflicts analysis begins with the premise that the law of the state which has “the most substantial contacts with the parties and the subject matter of the action” applies, Boardman v. United Services Auto. Ass’n, 470 So.2d 1024, 1031 (Miss.1985); the applicable law, though, is not necessarily the same for all issues and thus the court must separately analyze each issue under the center of gravity test, id. The Mississippi conflicts rules in the context of insurance contracts were set forth in Boardman. There, the court recognized that the Restatement (Second) of Conflict of Laws § 188 identifies a number of factors pertinent to the determination of what law applies in contract cases generally: (a) the place of contracting, (b) the place of negotiation, (c) the place of performance, (d) the location of the subject matter of the contract, and (e) the residence, place of incorporation and place of business of the parties. The policies in question were negotiated and executed in Texas, and were issued by Hartford in Texas to Tomlinson, a Texas corporation and provided coverage for risks located in Texas, Louisiana and Mississippi. Regarding insurance contracts specifically, the Restatement (Second) § 193 provides, as a rule of general applicability, that “where the greater portion of the risk be in a particular state for the major portion of the insurance ..., the risk’s principal location is the most important choice of the applicable law.” The Boardman court, though, recognized an exception to this general rule, holding that the more general §§ 6 and 188 apply when the issue concerns coverage under the policy: The outcome-determinative question here, however, appears to be one of coverage____ This is a matter having little to do with the location of the risk. This coverage question invokes the exception to the general “principal location of the insured risk” rule of Restatement § 193. In our view, the coverage issue tendered here is an issue unrelated to the insured risk, as a result of which the choice of law determination must be made by reference to the more general principles of Restatement § 6 and § 188, for here we are concerned with the meaning of the insurance contract____ Boardman, 470 So.2d at 1033-34. Hartford acknowledges in its brief in support of its motion for summary judgment that the issues currently before the court vis a vis Tomlinson are mainly matters of interpreting the policy and applying the facts to determine coverage. In the court’s opinion, it is abundantly clear that Texas law governs the coverage issues presented. Equipment Claims When the Ross #2 Well blew out, the hydrogen sulfide fumes were ignited to convert the gas to less toxic sulfur dioxide. The burning gas caused the destruction of oil field equipment rented to Tomlinson and to equipment owned by others working for Tomlinson on the well. Numerous equipment owners have sought recovery from Tomlinson for the damage to and destruction of their equipment. In this action and by its present motion, Tomlinson claims entitlement to a declaratory judgment that the third-party equipment claims are insured under Tomlinson’s umbrella policy and injunctive relief against Hartford requiring Hartford to defend and insure such claims. Pretermitting for the moment consideration of Tomlinson’s claim regarding Hartford’s defense obligations, the court will first address Tomlinson’s contention that the claims by third parties for damage or destruction to equipment on and around the well site are covered under the umbrella policy. The general coverage provision of policy 1262 reads as follows: the company will pay on behalf of the insured * ultimate net loss in excess of the total applicable limit (as stated in the Extension Schedule of the Underlying Insurance Policies) of underlying insurance or the amount of the self-insured retention when no underlying insurance applies, because of ... property damage ... to which this insurance applies, caused by an occurrence. Under policy 1262, “ultimate net loss” is defined as “all sums which the insured and his or her insurers shall become legally obligated to pay as damages, whether by final adjudication or settlement with the company’s written consent after making a proper deduction for all recoveries and salvages collectible.” The policy defines “property damage” as (1) physical injury to or destruction of tangible property which occurs during the policy period, including the loss of use thereof at any time resulting therefrom, or (2) loss of use of tangible property which has not been physically injured or destroyed provided such loss of use is caused by an occurrence during the policy period. In support of its claim for equipment damages, Tomlinson has submitted the affidavit of Darrell Bell, Tomlinson’s accounting/insurance manager, wherein Bell sets forth the various claims for which payment is sought under the umbrella policy. A number of the claims presented by the equipment owners to Tomlinson for payment are currently pending in the bankruptcy court in Houston. As to these claims, no lawsuit or adversary proceeding has been filed against Tomlinson: Derek Mfg. Inc. $ 51,510.00 Dia-Log Co. $ 6,190.00 Edd Oil Co. $ 4,800.00 Mid-South Detection & Control $ 4,960.80 National Fire Exting. Co. $ 4,770.00 Oilfield Indus./Roger’s Oil Tool $145,313.72 OSCA $ 1,337.00 Peterson Maritime Service $ 3,087.00 Rebel Testers $ 11,912.69 Reserve Pit Pumping $ 54,625.00 Southern Oil Field $ 7,791.00 Swaco $ 41,164.00 Toteo $ 65,303.28 With regard to each of these claims, Hartford asserts that it has no duty to defend since no suit has been filed, and respecting coverage, Hartford argues that none of the bankruptcy debts now being claimed by Tomlinson fit the damages provisions of the “ultimate net loss” definition in the policy since they do not represent “sums which the insured and his or her insurers shall become legally obligated to pay as damages, whether by final adjudication or settlement with the company’s written consent____” These claims, according to Hartford, are merely general debts of Tomlinson for which the umbrella policy does not provide coverage. Moreover, the “no action” clause of the policy requires, as a condition precedent to an action against Hartford for recovery under the policy, that- “the amount of the insured’s obligation to pay shall have been finally determined either by judgment against the insured after actual trial or by written agreement of the insured, the claimant and the company.” The court is of the opinion that, in view of the provisions of the policy, Hartford is under no present obligation as to the claims pending against Tomlinson in the bankruptcy court for equipment damaged or destroyed as a result of the blowout, though the court cannot conclude at this time that no such obligation will arise. Accordingly, neither Tomlinson nor Hartford is entitled to judgment at this time relative to those particular equipment claims. Hartford next contends that certain of the equipment damage claims are not payable under its umbrella policy for the reason that Tomlinson paid the claims without Hartford’s consent in violation of the no action and consent to settlement clauses in the policy: A Plus Steel Fabricators, Inc. $ 3,350.08 Murco Drilling $30,000.00 Halliburton $36,235.82 Petroleum Equip. Tools (Petco) $41,000.00 Tomlinson also seeks, in connection with these claims, the sum of $9,861.09 which .was paid to .the law firm of Daniel, Coker, Horton & Bell to defend these claims. Hartford contends that Tomlinson is not entitled to reimbursement of these equipment claims because Tomlinson paid the claims voluntarily and without Hartford’s consent. Hartford’s primary policy provides as follows: 4(c) The insured shall not, except at its own cost, voluntarily make any payment, assume any obligation, or incur any expense other than for first aid to others at the time of the accident. 5. Action Against Company. No action shall lie against the company unless, as a condition precedent thereto, there shall have been a full compliance with all of the terms of the policy, nor until the amount of the insured’s obligation to pay shall have been finally determined either by judgment against the insured after actual trial or by written agreement of the insured, the claimant, and the company. Paragraph 5 also appears in Tomlinson’s umbrella policy. In response to Hartford’s assertion that these claims are not covered by virtue of Tomlinson’s payment of the claims without the claims having first been reduced to judgment and/or without notice to and approval by Hartford, Tomlinson argues that Hartford is precluded from relying on the no action and consent to settlement clauses to avoid liability by virtue of Hartford’s having consistently denied coverage of the claims. It is undisputed that Hartford took the position at least from December 1986 that no coverage was provided under policy 1262 for Tomlinson’s Johns Field operations and that Hartford, on that basis, denied coverage for all claims by Tomlinson in connection with the blowout. It was not until after suit was filed against Hartford seeking recovery under Tomlinson’s umbrella policy that it was judicially determined that the policy does provide coverage for the Johns Field. It is generally recognized that once an insurer denies coverage and liability, the insured has the right to settle with its claimant rather than proceed to trial. See Franklin v. Oklahoma City Abstract & Title Co., 584 F.2d 964 (10th Cir.1978) (policy provisions prohibiting out-of-court settlements between insured and claimant not enforced when insurer repudiates coverage or denies liability); Gay & Taylor, Inc. v. St. Paul Fire & Marine Ins. Co., 550 F.Supp. 710 (W.D.Okla.1981) (insured may settle claim without consent of insurer if insurer denies liability); Eureka Inv. Corp., N. V. v. Chicago Title Ins. Co., 530 F.Supp. 1110 (D.C.1982) aff'd in part, rev’d in part, 743 F.2d 932 (D.C.Cir.1984) (policy provisions prohibiting out-of-court settlements between insured and claimant without consent of insurer not enforced when insurer repudiates coverage or denies liability). Texas law, which the court has held to be applicable, is in accord. The Texas Supreme Court, in Gulf Insurance Company v. Parker Products, Inc., 498 S.W.2d 676, 679 (Tex.1973), held that where an insurer refuses to tender a defense to its insured and denies coverage on a claim made against its insured, and the insured thereafter negotiates a settlement of the claim, the insurer is entitled to raise a policy defense of exclusion of coverage set forth in the policy, but the insurer is not entitled to require compliance by its insured with conditions precedent found in the policy. Similarly, in Womack v. Allstate Insurance Company, 156 Tex. 467, 296 S.W.2d 233, 236-37 (1956), the court held that an insurer’s written repudiation of its policy which was delivered to its insured two days before the suit was filed against the insured operated as a waiver of the insurer’s right to insist upon compliance with a policy condition requiring delivery of process and pleadings to the insured. See also Simon v. Maryland Casualty Co., 353 F.2d 608 (5th Cir.1965) (no action clause in liability policy eliminates out-of-court settlements between assured and damage claimant without consent of insurer but assured entitled to exercise judgment of prudent uninsured person in compromising claim when insurer repudiates coverage). In Ford v. State Farm Mutual Automobile Insurance Company, 550 S.W.2d 663 (Tex.1977), the court was presented with the question of whether an insurer waives the consent provision of its policy by a prior unconditional denial of liability. In Ford, it was stipulated that State Farm had denied liability to its insureds, and it was further stipulated that prior to their settlement with a third party, the insureds made no request or demand upon State Farm to approve the settlement. The court in Ford quoted at length from a prior Fifth Circuit decision, Stephens v. State Farm Mutual Automobile Insurance Company, 508 F.2d 1363 (5th Cir.1975), in which the court had predicted that the Texas courts, if confronted with the issue, would conclude that “a denial of coverage waives the consent clause.” In so predicting, the Fifth Circuit made the following observation, which was quoted and approved in Ford: The rationale behind holding to this particular waiver theory is that a claimant should not be required to approach his insurer, hat in hand, and request consent to settle with another when he has already been told in essence, that the insurer is not concerned, and he is to go his way. It is difficult to see why an insurer should be allowed, on the one hand, to deny liability and thus, in the eyes of the insured breach his contract and, at the same time, on the other hand, be allowed to insist that the insured honor all his contractual commitments____ [I]n the case of existent, denied liability the denial is a breach of contract on the part of the insurer and its breach should by rights relieve the insured of the punitive effects of his failure to comply with consent provisions of the insurance policy. Stephens, 508 F.2d at 1366 (quoted in Ford, 550 S.W.2d at 666). The Ford court noted that the waiver theory is in accord with principles of Texas contract law and adopted the rule espoused in Stephens as Texas law, stating State Farm neither paid nor pursued any of its affirmative steps for determination of what, if anything, it was due to pay plaintiff. Instead, it unconditionally denied all liability under the policy. This intentional conduct was inconsistent with claiming the right under the policy to consent before its insured settled with a third party. Such conduct constituted a waiver of that right. Ford, 550 S.W.2d at 666. Finally, the court observed that by virtue of its unconditional and, as it turned out, incorrect denial of coverage, State Farm “lost only the inconsistent right to assert the exclusionary consent clause as a grounds for forfeiture of plaintiffs entire coverage.” Id. In the case sub judice, Hartford took the unequivocal position that the Tomlinson umbrella policy did not provide coverage for the equipment damage claims presented by Tomlinson for the reason that the policy provided no coverage for Tomlin-son’s Johns Field operations. Hartford thus denied liability for the claims. And while the question of coverage under the policy was ultimately presented to a court for consideration and determination in Jones v. Hartford Accident and Indemnity Co., 714 F.Supp. 808 (S.D.Miss.1989), that occurred not because Hartford “pursued any of its affirmative steps for determination of what ... it was due to pay,” Ford, 550 S.W.2d at 666, but rather because suit was filed against Hartford by parties claiming that, contrary to the position taken by Hartford, coverage was available under the policy. Since the only basis asserted by Hartford for its contention that the policy provides no coverage for this category of equipment damage claims is Tomlinson’s failure to comply with the no-consent clause, and since Hartford is deemed to have waived that defense to coverage by its wrongful denial of coverage, these claims are payable under the policy. With reference to yet another category of claims, Hartford urges that coverage is unavailable under policy 1262 for the reason that the claims for damage to the equipment, each of which is currently being defended by Hartford, are based not upon Tomlinson's negligence, but rather upon Tomlinson’s alleged breach of contract in failing to return the equipment to its owner. These include the following claims: La-Tex Rentals, Inc. filed suit against Tomlinson in the Civil District Court for the Parish of Orleans, Louisiana, Civil Action No. 86-6879, requesting judgment for $6,829.63 on the basis of Tomlinson’s non-return of leased equipment. The suit alleges that the reason for the non-return of the equipment was Tomlinson’s negligence. Four JM’s, Inc. filed suit against Tomlin-son in the Civil District Court for the Parish of Orleans Louisiana, Civil Action NO. 86-6880, requesting judgment for $15,130 on the basis of Tomlinson’s failure to return equipment destroyed as a result of the blowout. The petition for damages alleges that the blowout was a direct result of Tomlinson’s negligence. Oilfield Rental Services instituted an adversary proceeding against Tomlinson in the Houston bankruptcy court, Adversary No. 87-0247, asserting a claim for recovery of $769,189.68. Though the complaint sets forth causes of action based on breach of contract (rental agreements) and quantum meruit, it also contains a count for negligence, wherein it is asserted that the plaintiffs equipment was destroyed as a result of the negligence of Tomlinson. Texas Snubbing and Albany Insurance Company brought suit against Tomlinson in the Circuit Court of Rankin County, Cause No. 15,344, seeking damages of over $460,000 for Tomlinson’s failure to return Texas Snubbing’s equipment which was destroyed at the blowout site. The complaint contains allegations of Tomlinson’s negligence. Hartford contends that the umbrella policy provides no coverage for these claims inasmuch as they are predicated on breaches of contracts; its policy, according to Hartford, is a liability policy covering only tort liability arising out of an “occurrence” resulting in an ultimate net loss through bodily injury or property damage. Hartford asserts that a simple breach of contract claim based upon an open account or failure to return rented equipment does not amount to a covered claim under Tomlinson’s policy. Hartford urges additionally that coverage for such contract claims is specifically excluded under the terms of the policy. The court cannot accept Hartford’s position in this regard. It is clear to the court that in the absence of an applicable exclusion, the claims for damaged equipment are covered under the policy. Contrary to Hartford’s assertion, the policy admits of no limitation of coverage to tort claims only. Rather, the policy provides coverage for sums which the insured becomes legally obligated to pay because of property damage due to an .occurrence; the damage to equipment falls within the policy definition of “property damage” and the damage resulted from an “occurrence,” the blowout. The exclusion upon which Hartford relies to remove these claims from coverage does not appear in the umbrella policy but rather is found in the primary policy, and reads as follows: 1. Exclusion. This insurance does not apply: (a) to liability assumed by the insured under any contract or agreement except an incidental agreement____ The policy definition of “incidental agreement” does not encompass the rental agreements that are claimed by Hartford to provide the bases for the claims of these equipment owners against Tomlinson. The question, therefore, would seem to be whether Tomlinson assumed liability under the rental agreements, within the meaning contemplated by the policy. In this regard, in Olympic, Inc. v. Providence Washington Ins. Co., 648 P.2d 1008, 1011 (Alaska 1982), the sole case relied on by Hartford in support of its argument regarding the applicability of the contractual liability exclusion, the court observed that: A general liability policy insures only against “liability which the law imposes upon all insureds alike.” 1 R. Long, [Law of Liability Insurance] @ 1.11, at 1-26. The contractual liability exclusion functions to relieve the insurer of responsibility for any “extra” liability that the insured undertakes by contract beyond the liability imposed by law for negligence. 648 P.2d at 1010 n. 6. The damage to the equipment in the case at bar was not caused by a breach of contract but rather was caused by the blowout which, in turn, it is alleged, was caused by Tomlinson’s negligence. Tomlinson did not contract to assume any “extra” liability, or liability to which it would not have been subject under general principles of tort law or perhaps more to the point, Tomlinson does not seek recovery under the Hartford umbrella policy for any liability in addition to that to which it may have been subject in the absence of the rental agreements. Moreover, the court in Olympic expressed the view that the exclusion of coverage for “liability assumed under any contract” refers to “liability incurred when one promises to indemnify or hold harmless another, and does not refer to the liability that results from breach of contract;” id. (citations omitted); thus, the court held, “the contractual liability exclusion applies only to hold harmless agreements.” Id. Hartford recognizes in its brief that the basis for liability in the above-described actions is not Tomlinson’s having assumed the negligence of someone else. Accordingly, under the Olympic decision upon which Hartford relies, the exclusion would be inapplicable. Hartford states in its brief in opposition to Tomlinson’s motion for partial summary judgment that “a simple breach of contract claim based upon an open account or failure to return rented equipment does not amount to a covered claim under the policy.” Hartford’s characterization of these claims is somewhat simplistic; while each of these claims may be based, in part, on open account or failure to return equipment, ultimately, the reason for the claims is the destruction of the equipment, i.e., “property damage,” as a consequence of the blowout, an “occurrence.” The claims are not to be considered as falling outside the scope of coverage, nor are the claims excluded from coverage simply because the equipment at issue was at the well site pursuant to rental agreements entered by Tomlinson and the equipment owners. The claims are thus insured under the umbrella policy. Post-Blowout Evacuation Expenses Following the blowout of the Ross # 2 Well, Tomlinson incurred and paid expenses in connection with the evacuation of persons living in the vicinity of the well. By its motion for summary judgment, Hartford seeks a determination that none of the policies issued to Tomlinson or Republic cover these expenses, arguing first that they do not represent “damages” under the Hartford policies, and secondly, that even if the expenses do qualify as legal “damages,” Hartford can still have no liability because Tomlinson paid these expenses voluntarily, in contravention of policy conditions. As previously stated, the policy at issue, 1262, provides coverage for “ultimate net loss in excess of the applicable limit,” and defines “ultimate net loss” as “all sums which the insured ... shall become legally obligated to pay as damage whether by final adjudication or settlement with the company’s written consent.” Hartford argues that the expenses incurred by Tomlin-son were not “damages” as contemplated by the policy and that in any event, Tomlin-son was under no legal compulsion to pay these expenses. Tomlinson, on the other hand, takes the position that payment of these expenses was its mandatory legal obligation under an emergency contingency plan which it was required by law to develop and implement and that, therefore, these expenses are “damages” for which Tomlinson was under a legal obligation to pay. It is undisputed that pursuant to an order of the Mississippi State Oil and Gas Board dated March 18, 1982, Tomlinson, as operator of the Ross # 2 Well, was required to develop and file with the Board an Emergency Contingency Plan which had to include an emergency evacuation plan. The facts surrounding Tomlinson’s payment of these evacuation expenses are the subject of some dispute. Darrell Bell, Tomlinson’s accounts payable manager and insurance manager, asserts in his affidavit that pursuant to the contingency plan, Tomlinson immediately began to evacuate persons in the vicinity of the well following the July 15, 1985 blowout. Initially, persons in a one-mile radius of the well were evacuated. The evacuation extended to a three-mile radius over the few days following the blowout, and ultimately, the evacuation was continued pursuant to order of the Mississippi Emergency Management Agency. Bell states in his affidavit that notwithstanding Tomlinson’s requests for claims adjustment, Hartford did not make a claims agent available for at least six days after the blowout. In the meantime, many of the evacuees were without cash or credit cards to obtain food and lodging, and Tomlinson therefore directly paid for the evacuees’ hotel rooms and food and paid also for security of the evacuated area during the period immediately following the blowout. Tom Graves, general counsel and insurance manager of Tomlinson, similarly states that receiving assistance from Hartford following the blowout proved difficult. Graves states that despite Tomlinson’s repeated efforts to obtain assistance from Hartford, Hartford representatives did not finally become involved in the adjustment process until July 21, six days after the blowout. However, before Hartford representatives arrived to offer assistance, it became apparent to Graves and Bell that the evacuation would continue for some period of time and they therefore began making more permanent arrangements for the evacuees, and advanced funds to cover lodging and subsistence expenses of evacuees. According to Graves, once the adjusting process began, he continually apprised Jim Napper, Hartford’s claims representative, of what Tomlinson was doing with the evacuees and its efforts for cost containment. Tomlinson claims that Hartford, through Napper, agreed prior to September 1985 to pay evacuation expenses in the one-mile area surrounding the well. After the evacuation process was completed, Tomlinson in late 1985 or early 1986 submitted to Hartford for payment a claim package totaling $645,587.33 for evacuation expenses paid by Tomlinson; Tomlinson thereafter submitted a supplemental package of $180,-000.00. Graves states that despite Hartford’s having led Tomlinson to believe that the claims would be paid, and despite repeated requests by Tomlinson for information concerning the claims, Hartford did not advise Tomlinson of its position on coverage until December 1986, and Hartford then, for the first time, informed Tomlinson that the claims would not be reimbursed. Hartford’s version of events differs somewhat from that described by Tomlin-son. According to Hartford, Jack Combes, a Hartford claims representative, set up an emergency office four, rather than six, days after the well blowout. By the time Combes arrived, Tomlinson already had several representatives on the scene, including Graves, and had already contracted with various restaurants and hotels in Jackson to provide emergency lodging and meals to evacuees, and had also already contracted for payment of expenses such as public relations fees, adjuster’s fees, attorney’s fees, and other miscellaneous expenses. Hartford acknowledges that Combes was advised by Graves that these steps had been taken in compliance with a pre-arranged emergency evacuation plan formulated before the blowout. Hartford denies, however, that Tomlinson ever suggested to Combes that Hartford was expected to reimburse Tomlinson for these expenses, and states that Combes never made any representation or promise, express or implied, that Hartford would reimburse Tomlinson for these expenses. In addition, Napper stated in an affidavit that he was aware that Tomlinson was “under a legal obligation to do all that they could do to mitigate the damage[s]” caused by the blowout, but that he “never made any statements to anyone at Tomlinson ... which would encourage Tomlinson to rely 'upon [his] word for reimbursement of expenses from The Hartford for expenses not covered by their policy.” Tomlinson argues that Hartford is liable under the umbrella policy for these expenses because Tomlinson was legally obligated to pay evacuation expenses under the Mississippi Emergency Management Agency Plan in effect for the Johns Field. Hartford contends, though, that an obligation to pay expenses for complying with the plan is not the same thing as a legal obligation to pay “damages.” Neither the primary policy nor the umbrella policy defines the phrase “legal obligation” or the term “damage.” Hartford states that the kind of “legal obligation” contemplated by the policy means legal obligation related to litigation or damage claims by a third party. In the court’s opinion, Hartford views the scope of this language in the policy too narrowly, particularly in light of the rule in Texas mandating strict construction of insurance policies in favor of insureds. See United American Ins. Co. v. Selby, 161 Tex. 162, 338 S.W.2d 160 (1960). Tomlinson was required by the governing authority, the State Oil and Gas Board, to evacuate persons from the vicinity of the well following the blowout if the circumstances presented danger to the surrounding areas, and the expense of doing so was, at least in the first instance, Tomlinson’s responsibility. Though the parties have cited no authority addressing this precise issue, and the court has found none, there are numerous cases in an analogous area that are instructive. In New Castle County v. Hartford Accident & Indemnity Co., 673 F.Supp. 1359 (D.Del.1987), the county brought a declaratory judgment action against its liability insurers, seeking a declaration that the insurers were obligated to defend and indemnify the county for claims in connection with pollution allegedly emanating from landfills utilized by the county, and for remedial measures required by the State Department of Natural Resources and Environmental Control in connection with the alleged pollution. The insurance policy at issue provided, as does Hartford policy 1262, that the insurer “will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of personal injury or property damage.” The insurers argued, as does Hartford, that the term “damages,” as contemplated by the policy, did not include the county’s claim for reimbursement of cleanup costs since they were not amounts which the insured was legally obligated to pay. The court, however, rejected this argument, finding that the claims were covered costs that the County might become ‘legally obligated to pay’ as a result of actions filed by property owners for injuries they sustained. 673 F.Supp. at 1365-66. Similarly, in Township of Gloucester v. Maryland Casualty Co., 668 F.Supp. 394 (D.N.J.1987), the court held that the costs of cleanup and closure of a landfill pursuant to the New Jersey Sanitary Landfill Closure and Contingency Act were recoverable “damages” under comprehensive general liability policies, where the State Department of Environmental Protection’s cleanup order required the insured to perform repairs to both its own and third-parties’ property and to take specified preventative measures. A Texas district court has expressed approval of the New Castle and Gloucester decisions: Even in cases involving cleanup costs incurred by a policyholder in complying with governmental directives in environmental matters, the weight of authority and better reasoned decisions hold that those costs are “damages.” Dayton Indep. School Dist. v. Nat’l Gypsum Co., 682 F.Supp. 1403, 1411 n. 24 (E.D.Tex.1988) (citing Gloucester and New Castle), rev’d on other grounds, W.R. Grace & Co. v. Continental Casualty Co., 896 F.2d 865 (5th Cir.1990); see also Independent Petrochemical Corp. v. Aetna, 654 F.Supp. 1334, 1348 (D.D.C.1986) (sums denominated as cleanup costs constituted damages for purposes of liability insurance coverage); Lansco, Inc. v. Department of Environmental Protection of State of New Jersey, 138 N.J.Super. 275, 350 A.2d 520 (1975) (holding that coverage under comprehensive general liability policy extended to statutory liability for damages recoverable by State for injury to environment caused by oil spill). Though each of the cited cases concerned cleanup costs which an insured was obliged to expend rather than costs which an insured was obliged to incur in connection with an evacuation, the analysis and conclusions reached in those cases are equally applicable in both situations. The court concludes, therefore, that the costs of the evacuation are “damages” which Tomlin-son was “legally obligated to pay,” within the meaning of the policy. Hartford claims that even though the expenses may have been incurred under a mandatory evacuation procedure, i.e., a “legal obligation,” and fall within the “damages” provision of the policy, Hartford is still not liable because of Tomlinson’s failure to comply with conditions precedent to coverage under the policy, and in particular, paragraph 4(c) of the policy which prohibits voluntary payments by the insured, and the no action and consent to settlement clause contained in the primary policy. As already indicated, the court considers that it is not reasonable to suggest that Tomlinson’s payment of the evacuation expenses was “voluntary,” for Tomlinson was required by law to effect the evacuation. In response to the argument that Tomlin-son has forfeited coverage by its violation of the no action clause, Tomlinson asserts that Hartford is estopped by its actions in connection with the evacuation adjustment process to rely on Tomlinson’s noncompliance with the no action clause as a basis for its denial of coverage. Specifically, Tomlinson argues that in the face of an emergency situation, Hartford was immediately notified of the need for prompt action, but delayed responding to Tomlinson’s requests for assistance. Furthermore, Hartford was made aware of the steps being taken by Tomlinson vis-a-vis payment for evacuees’ expenses, yet never advised Tomlinson that it would not be reimbursed for these payments. In fact, Hartford, according to Tomlinson, led Tomlinson to believe that reimbursement would be made, but then, a year and a half later, refused coverage. In support of its estoppel argument, Tomlinson relies principally on Chemical Applications Co. v. Home Indemnity Co., 425 F.Supp. 777 (D.Mass.1977). In that case, the insured brought suit against its liability insurer to recover costs expended in cleaning up an oil spill for which it was responsible. The insured could have allowed the government to do the work and then brought suit to recover the costs but it was more cost efficient for the insured to perform the work itself. When the spill occurred, the insured notified the insurer of the emergency, and asked the insurer to advance funds for the insured to commence the cleanup operations. The insurer did not respond, and the insured, under heavy government and public pressure, began the cleanup process using its own funds. Still, there was no response from the insurer. Not until a month after the accident did the insurer make its position known: It denied liability for the work performed by the insured in reliance on a no action clause identical to that at issue here. The court found that the insured incurred the costs of the cleanup because of the need to respond to an emergency with which it was confronted and with reference to which it could not be obliged to play “fast and loose.”- The court concluded that under the circumstances presented, the insurer could not avoid liability because of its own failure to assent to the insured’s reasonable proposal for attending to the situation: Applying the principle of the necessity of good faith and reasonableness, I find that in this case defendant may not deny liability. From the beginning, plaintiff was in a dilemma____ For plaintiff to do nothing, and surrender all control to defendant, who, in turn, would do nothing, would inevitably subject plaintiff to unrecoverable charges. The insurer, under the circumstances, was bound to agree to reasonable action. Plaintiff’s proposal to perform cleanup work itself at cost could not do other than benefit the insurer, since the total cost of the cleanup was thereby minimized____ Chemical Applications, 425 F.Supp. at 779. In the court’s opinion, the rationale and holding of the court in Chemical Applications is eminently correct under the facts there presented, and would apply in the present case, assuming the facts are as contended by Tomlinson. That is, if by virtue of Hartford’s allegedly unreasonable actions in delaying responding to Tomlin-son’s emergency, Tomlinson was placed in the untenable position of choosing either to not pay the evacuation expenses and risk greater potential exposure or, on the other hand, pay the costs and risk Hartford’s later denial of coverage for Tomlinson’s having paid the claims without a judgment or Hartford’s express written consent, then it would follow that Hartford should not be permitted to avoid liability. In the same vein, if Hartford by its actions reasonably led Tomlinson to believe that reimbursement would be forthcoming, as for example by knowingly permitting Tomlinson to make the evacuation expenditures with knowledge that Tomlinson expected reimbursement, without advising or suggesting to Tomlinson that coverage would be denied, then it would seem that Hartford should be estopped from reliance on the no action clause to avoid liability under the policy. Under Texas law, [t]he doctrine of waiver, as asserted against insurance companies to avoid the strict enforcement of conditions contained in their policies, is only another name for the doctrine of estoppel. It can only be invoked where the conduct of the companies has been such as to induce action in reliance upon it, and where it would operate as a fraud upon the assured if they were afterwards allowed to disavow their conduct and enforce the conditions. Southland Life Ins. Co. v. Lawson, 137 Tex. 399, 153 S.W.2d 953 (1941) (quoting Globe Mutual Ins. Co. of New York v. Wolff, 95 U.S. 326, 24 L.Ed. 387 (1877)). The court concludes that the parties’ motions, as they pertain to the post-blowout evacuation expenses, should be denied. In the court’s opinion, questions of fact remain regarding the circumstances surrounding the evacuation and adjustment process as they pertain to Tomlinson’s claim of estoppel which are best reserved for trial. Hartford next argues that “most” of the expenses claimed by Tomlinson are “first party” expenses, prime examples of which are public relations costs and attorney’s fees, which are simply not covered under the terms of the policy because they are not “damages.” Hartford’s suggestion that “most” of the expenses paid by Tomlinson would not be recoverable as they are not the types of expenses that would qualify as “damages” under the policy appears to be an exaggeration. Assuming that Tomlinson would otherwise be entitled to reimbursement of evacuation expenses that fall within the definition of “damages,” the court would nevertheless have some question as to the recoverability of some of the items for which recovery is sought, and finds that presentation via trial of evidence relating specifically to the amounts and nature of expenses incurred would be necessary under the circumstances. Before leaving the issue of post-blowout evacuation expenses, mention should be made of Hartford’s assertion that it “cannot possibly be estopped to deny liability for these expenses” by virtue of a non-waiver and reservation of rights agreement executed between Hartford and Tomlinson on July 19, 1985, four days after the blowout, which provided that Hartford’s taking actions to investigate the accident, to advance sums to third parties on Tomlinson’s behalf, and defend any suit or suits “shall not in any way waive, invalidate, modify or forfeit any of the terms, conditions and requirements of the policy issued by Hartford____” The only policy referred to in the agreement was the Tomlinson primary policy; the agreement does not purport to relate to the umbrella policy. Under Texas law, “[n]on-waiver agreements are strictly construed against the insurer and liberally in favor of the insured.” Highway Ins. Underwriters v. Griffith, 290 S.W.2d 950 (Tex.Civ.App. 1956). The agreement that no action by the insurer would constitute a waiver will not be construed to bar the insured from setting up the actions of the insurer as a basis for invoking the doctrine of estoppel. Orkin Exterminating Co. v. Massachusetts Bonding and Ins. Co., 400 S.W.2d 20, 26 (Tex.Civ.App.1965), rev’d on other grounds, 416 S.W.2d 396 (Tex.1967). Therefore, under Texas law, the non-waiver agreement does not preclude Tomlinson’s assertion of the doctrine of estoppel. Had Hartford intended to preserve its rights under the Tomlinson umbrella policy, the agreement could and should have so provided. Punitive Damages In this action, Tomlinson has asserted causes of action for bad faith under Texas common law, the Texas Insurance Code, and the Texas Deceptive Trade Practices Act. Hartford has moved for summary judgment as to Tomlinson’s claim for punitive damages. In Jones v. Hartford Accident and Indemnity Co., 714 F.Supp. 808 (S.D.Miss. 1989), the court, in ruling that Hartford had failed to sustain its burden to prove mistake so as to entitle it to reformation of policy 1262 to exclude the Joh