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Certain Underwriters at Lloyd's London and Certain Insurance Co. v. Cameron International Corp.

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

January 4, 2018

CERTAIN UNDERWRITERS AT LLOYD'S LONDON AND CERTAIN INSURANCE COMPANIES, et al, Plaintiffs,
v.
CAMERON INTERNATIONAL CORPORATION, et al, Defendants.

          MEMORANDUM

          Kenneth M. Hoyt United States District Judge

         I. INTRODUCTION

         Before the Court is third-party defendants', Hercules Drilling Company, LLC and Hercules Offshore, Inc., (“Hercules”), motion for summary judgment [DE# 249], the plaintiff's Walter Oil and Gas Corporation (“Walter”), response to Hercules' motion for summary judgment [DE# 288], and Hercules' reply to Walter's response [DE# 324]. The Court has reviewed the motion, response, reply, exhibits and arguments presented and determined that Hercules' motion raises question(s) of law that can be resolved on the parties' paper. The Court grants Hercules' motion for summary judgment.

         II. BACKGROUND FACTS

         The plaintiffs, Underwriter at Lloyd's London and Center Insurance Companies (“Underwriters”), Walter Oil & Gas Corporation (“Walter”), Tana Exploration Company (“Tana”) and Helis Oil & Gas Company, LLC (“Helis”), bring this suit against defendants Axon Pressure Product, Inc., Axon EP, Inc., (“Axon”), Cameron International Corporation (“Cameron”) and CAD Control Systems, Inc., (“CAD”) for losses associated with a well “blow-out” that occurred off the coast of Louisiana on July 23, 2013.

         The undisputed facts reveal that Walter, the operator, was in the process of “recompleting the A-3 Well located in South Timbalier 200”, pursuant to a 2011 Offshore Drilling Contract (“ODC”) between Walter and Hercules, the contractor. The ODC called for the employment of the HERCULES 265 platform for the drill operation. In the event of damages or injuries, the ODC allocated the risk between Walter and Hercules. The July 23 blow-out caused Walter to incur substantial losses associated with damage to the rig and remediation of the well. After settlements with Walter, Tana and Helis, Underwriters was subrogated to “certain” of their claims allegedly suffered as a result of the 2013 blow-out. Underwriters sues Axon, Cameron and CAD under theories of strict liability.

         III. CONTENTIONS OF THE PARTIES

         In its motion for summary judgment, Hercules asserts that Walter breached the ODC between Hercules and Walter by failing to defend and indemnify Hercules against Axon's third-party suit against Hercules. Hercules also asserts that Walter's claims against Axon, if permitted, will render Walter's indemnity obligations to Hercules meaningless because a recovery by Walter against Axon simply triggers Hercules' indemnity obligations in favor of Axon, triggering Walter's indemnity obligations in favor of Hercules.

         Walter does not dispute that Hercules is entitled to indemnity and a defense under the terms of the ODC between Walter and Hercules. Instead, Walter argues that between it has not sued Axon on claims that give rise to Walter's indemnity obligations to Hercules, i.e., “pollution damages, underground damage, and damage to or loss of the hole” and the like, Walter's indemnity obligations under the ODC are not triggered. This assertion is unavailing to Walter for the reasons stated herein.

         IV. STANDARD OF REVIEW

         A summary judgment is generally appropriate where the pleadings, the discovery and disclosure materials on file, and any affidavits show “that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). The movant bears the initial burden of “informing the Court of the basis of its motion” and identifying those portions of the record “which it believes demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986); see also Martinez v. Schlumber, Ltd., 338 F.3d 407, 411 (5th Cir. 2003).

         When determining whether a genuine issue of material fact has been established, a reviewing court is required to construe “all facts and inferences . . . in the light most favorable to the [nonmovant].” Boudreaux v. Swift Transp. Co., Inc., 402 F.3d 536, 540 (5th Cir. 2005) (citing Armstrong v. Am. Home Shield Corp., 333 F.3d 566, 568 (5th Cir. 2003)). Likewise, all “factual controversies [are to be resolved] in favor of the [nonmovant], but only where there is an actual controversy, that is, when both parties have submitted evidence of contradictory facts.” Boudreaux, 402 F.3d at 540 (citing Little, 37 F.3d at 1075 (emphasis omitted)).

         V. DISCUSSION AND ANALYSIS

         A.

         Hercules was responsible for the operation of the Drilling Unit, providing equipment and labor under the supervision of Walter. Hercules' motion for summary judgment is based on a 2011 ODC, the terms of which are unambiguous and, therefore, subject to interpretation by the Court. See Becker v. Tidewater, Inc., 586 F.3d 358, 375 (5th Cir. 2009). Under the terms of ODC, Walter is obligated to indemnify and/or hold harmless Hercules and its affiliates, including in some instances, Hercules' contractors and subcontractors. In turn, Hercules “. . . assume[d] only the obligations and liabilities” . . . associated with maintenance of the equipment. [DE# 249, ODC, p. 20].

         The ODC states that all obligations not “specifically” assumed by Hercules become the sole responsibility of Walter. A relevant portion of the ODC provides in relevant part:

. . . Operator [Walter] shall be solely responsible and assumes liability for all consequences of operations by both parties . . . all risks or liabilities incurred . . . directly . . . or indirect . . . notwithstanding any breach of representation or warranty, express or implied, either expressed or implied, . . . negligence or fault of [Hercules] its employees, subcontractors, consultants . . .latent defects or unseaworthiness . . . including the Drilling Unit . . . on any theory of tort, breach of contract . . . strict liability . . . either latent or patent.

Id. at Article V. Article IX of the ODC is also in play. It addresses the issue of indemnity in the event of a blowout as follows:

901. Equipment or Property
(a) . . .
(1) Operator [Walter] shall be responsible for and hold harmless and indemnify Contractor for loss or destruction of or damage to Contractor's drill pipe, drill collars, subs, reamers, bumper subs, stabilizers and other in-hole equipment when such equipment is being used in the hole below the rotary table, normal wear expected . . . In the case of equipment lost, destroyed or damaged beyond repair, Operator shall reimburse Contractor an amount equal to the then current replacement cost of such equipment delivered to the Drilling Unit.
. . .
(c) Operator shall at all times be responsible for and hold harmless and indemnify Contractor from and against damage to or loss of Operator's property, Operator's items, and the property, equipment, material and services of Operator's Affiliated Companies, partnerships, and limited ...

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