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Lloyd's syndicate 457 v. Floatec LLC

United States District Court, S.D. Texas, Houston Division

July 27, 2017

LLOYD'S SYNDICATE 457, et al., Plaintiffs,


          Lee H. Rosenthal Chief United States District Judge

         A number of Lloyd's syndicates and maritime insurance companies, referred to in this opinion as “the Underwriters, ” sued Floatec LLC and American Global Maritime Inc., asserting that they were responsible for the expensive failure of a major offshore oil-and-gas construction project. (Docket Entry No. 32). Both Floatec and American Global Maritime moved to dismiss or compel arbitration. (Docket Entries No. 29, 30). The court held a hearing for argument on the motions. At the hearing, the court requested supplemental briefs. (Docket Entries No. 60, 61). Based on the motions, responses, replies, and the supplemental briefs, counsels' arguments, and the applicable law, Floatec's motion to dismiss, (Docket Entry No. 30), is granted, with prejudice and without leave to amend. American Global Maritime's motion to dismiss or compel arbitration, (Docket Entry No. 29), is denied. The reasons are stated in detail below.

         I. Background

         Several Lloyd's syndicates and a number of maritime insurers underwrote an Offshore Construction Risk Policy for Chevron USA, Inc., Statoil Gulf of Mexico LLC, and Marubeni Oil & Gas USA. The Policy covered construction operations for Chevron's “Big Foot” deepwater drilling project in the Gulf of Mexico off the Louisiana coast. (Docket Entry No. 41 at 12-13). The project was to install an extended tension-leg platform drilling rig at a site about 225 miles south of New Orleans, in 5, 200 feet of water. The rig installation involved driving pilings into the seafloor, connecting “tendons” to the pilings, and ultimately connecting the tendons to the drilling platform. (Docket Entry No. 32 at ¶ 13-15). During the attempted installation in late May and early June 2015, several tendons fell to the seafloor. (Id. ¶¶ 20-21). The Underwriters assert that they paid over $500 million to Chevron under the Policy. (Id. ¶ 30).

         Floatec and American Global Maritime contracted with Chevron to do work on the Big Foot project. Floatec provided “engineering design and analysis” for the tendons and was “responsible for interface management for the entire project.” (Id. ¶ 18). The Policy required Chevron to appoint a Marine Warranty Surveyor, and Chevron selected American Global Maritime. (Id. ¶ 24). The Marine Warranty Surveyor's duties included reviewing and approving engineering, design, and operational aspects of the construction project. (Id. ¶¶ 24-25). The Underwriters allege that Floatec and American Global Maritime's work was deficient and caused the tendons to fail during the rig installation.

         The Underwriters allege that Floatec owed Chevron a duty of care, that the engineering work Floatec performed was negligent and grossly negligent in breach of that duty, and that the negligence proximately caused the tendon collapse. (Id. ¶¶ 32-34, 36-38).

         As to American Global Maritime, the Underwriters allege that it owed them a duty of care that it violated by failing to competently perform its Marine Warranty Surveyor duties.[1] (Id. ¶¶ 42- 44). The Underwriters also allege that American Global Maritime negligently misrepresented the quality of its work as a Marine Warranty Surveyor and failed to adequately review the engineering and design of the project. (Id. ¶¶ 46-49). The Underwriters allege that American Global Maritime owed them a fiduciary duty, which it breached by improperly performing its work. The Underwriters allege that these breaches caused the tendon failure and subsequent losses. (Id. ¶¶ 51-53). Finally, the Underwriters allege that both defendants are liable under Louisiana product-liability and redhibition law. (Id. ¶¶ 54-59; 61-64).

         Floatec and American Global Maritime filed motions to dismiss or, in the alternative, to compel arbitration. The motions present several interlocking issues, discussed in detail below. Both defendants argue that they are “Other Assureds” under the Chevron Policy, and therefore that the Policy's subrogation waiver and the antisubrogation rule bar the Underwriters' suit. In the alternative, Floatec and American Global Maritime argue that their contracts with Chevron have broad arbitration clauses under which the Underwriters must arbitrate rather than litigate their claims. The Underwriters respond that the court must address arbitrability first, and that the defendants are not Other Assureds.

         II. Analysis

         A. Choice of Law

         This case arises from an effort to install a drilling rig on the seabed adjacent to Louisiana, bringing it within the choice-of-law provision in the Outer Continental Shelf Lands Act. In cases arising on the seabed of the outer continental shelf or “artificial islands and fixed structures erected thereon, ” federal courts apply the substantive law of the adjacent state. Petrobras Am., Inc. v. Vicinay Cadenas, S.A., 815 F.3d 211, 215 (5th Cir.), order clarified on reh'g, 829 F.3d 770 (5th Cir. 2016), and cert. denied sub nom. Vicinay Cadenas, S.A. v. Petobras Am., Inc., 137 S.Ct. 1066, 197 L.Ed.2d 177 (2017). “Because OSCLA's choice of law scheme is prescribed by Congress, parties may not voluntarily contract around Congress's mandate.” Id. Louisiana substantive law applies regardless of the choice-of-law provisions in the relevant contracts.

         B. The Order of Decisions

         Both sides argue that, depending on how the court rules on certain issues, arbitration is proper. However, they disagree about the order in which the court should address the issues. Floatec and American Global Maritime argue that, if the court finds that the Underwriters can sue them as Chevron's subrogee because they are not Other Assureds, then the litigation should be dismissed in favor of arbitration under the arbitration agreements in each defendant's contract with Chevron. The defendants urge that that decision is logically made only after deciding whether one or both of the defendants are Other Assureds under the Chevron Policy.

         The Underwriters make different arguments as to each defendant. The Underwriters argue that their claims against American Global Maritime are not based on subrogation to Chevron's contractual rights, but rather on independent tort duties that American Global Maritime owed the Underwriters. The Underwriters also argue that American Global Maritime waived its right to arbitrate by seeking a merits determination on its Other Assured status. As to Floatec, the Underwriters also argue that Floatec waived its right to arbitrate. However, they argue that if Floatec did not waive that right, their claims against Floatec are properly arbitrated because they are subrogated claims under Chevron's contract with Floatec. That contract has a broad arbitration clause. Both Floatec and American Global Maritime respond that all of the Underwriters' claims are brought as Chevron's subrogee, under the defendants' contracts with Chevron. According to the defendants, the court should reach arbitrability only if it first finds that either Floatec or American Global Maritime, or both, are not Other Assureds under the Chevron Policy.

         The defendants' proposed order of decisions is correct. The arbitration issue arises only if the court determines that the Underwriters can bring a subrogated action asserting Chevron's rights against the defendants. The arbitration clauses the defendants rely on are in their respective contracts with Chevron, not in the Policy. If the Underwriters cannot assert subrogated contract claims based on Chevron's rights, the arbitration agreements are irrelevant.

         C. “Other Assured” Status

         The Chevron Policy contains a subrogation waiver that, in relevant part, provides that the Underwriters cannot bring subrogated claims against an “Other Assured.” (Docket Entry No. 29-3 at 57). If the defendants are Other Assureds, the Underwriters concede that their claims against Floatec are barred, but they urge that their claims against American Global Maritime are not based on subrogation rights and can proceed. The first question is whether either or both of the defendants are Other Assureds. They are.

         The Policy contains two provisions that bear on the defendants' Other Assured status. The first is the definition of who is an “Assured.” The Policy defines “Principal Assureds” as:

i. Chevron U.S.A., Inc., Statoil Gulf of Mexico LLC, [and] Marubeni Oil & Gas (USA) Inc.
ii. Parent and/or subsidiary and/or affiliated and/or associated and/or inter-related companies of the above as they are now or may hereafter be constituted and their directors, officers and ...

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