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

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

February 23, 2018





         Before the Court is the defendant's, Axon, motion for summary judgment [DE 159], and the plaintiffs', Underwriters, response [DE 425].[1] The Court, after a complete and proper review of Axon's motion, Underwriters' response, the arguments and supporting documents presented and all memoranda on file, determines that Axon's motion for summary judgment should be granted, pursuant to 28 U.S.C. § 2201 of the Federal Rules of Civil Procedure.


         The factual background giving rise to this suit has been stated previously and will not be restated at this time. Suffice it to say, for purposes of this motion, Underwriters filed this suit as subrogee of plaintiffs, Walter, Tana and Helis, as a result of well blowout on the Hercules 265 on July 23, 2013, off the coast of Louisiana in the Gulf of Mexico. At the time, Hercules was responsible for the crew and operations although under the supervision of Walter, pursuant to an Offshore Drilling Contract (“ODC”) between the two. It is that ODC and its legal interpretation that is the subject of this motion. See [DE 249, Attachment 1].

         In previous Memoranda, the Court held that Walter is contractually obligated to indemnify Hercules under the terms of the ODC. See [DE 413 Memorandum, pp. 3, 4]. Relying on the terms of the ODC, the Court held that “Walter [was] obligated to indemnify and hold harmless Hercules and its affiliates . . . [its] contractors and subcontractors”. Id. By its motion for summary judgment, Axon raises the question of whether Axon is a contractor or subcontractor under the terms of the ODC and, therefore, entitled to indemnity. Alternatively, Axon raises a question concerning the standard of proof applicable to Underwriters strict liability claims against Axon in this case -- is it a “but for” standard or a “substantial factor” standard. The Court is of the opinion that Axon is entitled to subcontractor status under the terms of the ODC. Therefore, the Court need not address the question of which standard of proof applies. In addition, assuming that previous memoranda and orders already entered by the Court have not addressed the affidavit(s) of various witnesses, the Court STRIKES them as untimely and determines that the SEMS Report[2] of findings is unimpeached.

         The Court also determines that the findings and conclusions of the BSEE Panel Report are consistent with those in the SEMS Report and together support the conclusion that the BOP[3], including the blind shear ram, was overwhelmed by the ineptitude of Walter personnel that resulted in the blowout and the erosion of the surfaces in the BOP making it impossible to obtain and maintain proper seal in the BOP. The Court's reasoning and conclusions rely, for the most part, on the SEMS and BSEE Reports and the testimony of Walter's on site personnel.


         A. Underwriters' Contentions/Assertions

         Underwriters asserts that the blowout preventer (“BOP”) specifically the blind shear rams, on which Axon performed repair work, failed to properly close and thereby stop the well blowout on July 13, 2013. In this regard, Underwriters contends that the work and/or parts installed were inferior and as a result the BOP failed to accomplish its intended purpose.

         Underwriters' suit is based on claims of strict liability, relying on Louisiana Product Liability Act. See [LA. Rev. Stat. Ann. § 9:2800.52, et. seq.]. Underwriters offers that Axon's defenses of contributory responsibility and/or sole or superseding or intervening cause for the blowout are not supported by undisputed summary judgment evidence. State differently, Underwriters claims that Axon's evidentiary claim, that Axon's “alleged” defective BOP, did not cause the blowout on the well, is unfounded.

         B. Axon's Contentions and Assertions

         Axon asserts that the issue before the Court is whether Underwriters can avoid Walter's admission to federal agencies that the blowout occurred “because the rig crew failed to close a valve on the BOP.” Axon refers to Walter's SEMS report provided to the federal government that the choke line High Closing Ration valve (“HCR”) was never successfully closed. Therefore, Axon argues any “alleged defect in the BOP is immaterial because even assuming a defect in the blind shear rams, an open HCR valve or any failure of the BOP to function properly, must be seen as a “but for” cause of the blowout. Therefore, argues Axon, even if the “blind shear rams” [had closed and sealed, there was an alternative route for the gas and particulate [to] escape, and the blowout would have continued. Axon relies on the report commissioned by Walter and provided to government concerning factors that caused or contributed to the blowout. In light of the fact that Underwriters is a subrogee of Walter, the Court looks first to the terms of the ODC and then to the SEMS report concerning liability for the blowout.


         Summary judgment is mandated when the party against whom the motion is directed fails to show the existence of sufficient material facts establishing that an element essential to the movant's claim is disputed. FRCP, Rule 56. “[T]he nonmoving party must go beyond the pleadings and by . . . affidavits, or by the ‘depositions, answers to interrogatories and admissions on file' . . . show that there is no genuine issue [of a material fact] for trial. Celotex Corp. v. Catrett, 477 U.S. 317; 324 (1986).

         Interpretation of the terms of a contract, including an indemnity clause, is a matter of law. Duval v. Northern Assurance Company of America¸722 F.3d 300, 303 (5th Cir. 2013 (citation omitted)). However, a court will not construe an indemnity clause to impose liability for a loss that is not expressly nor impliedly stated in the contract. Id.

         When a party, an assignor, assigns, its rights under a contract to an another party, an assignee, the assignee is subrogated to the rights of the assignor. Factor King, LLC v. Block Builders, LLC, et. al, 193 F.Supp.3d 651, 656 (2016) (citations omitted). The rights of the assignor govern or define the rights of the assignee. Id. Therefore, defenses to claims that may be asserted against the assignor are enforceable against the assignee. Id. (citing to Parish National Bank v. Historic Construction, Inc., 2002 WL 971392, 2002 U.S. App. Lexis 29391 at 4-5 (5th Cir. 2002). Stated plainly, the rights of an assignee can never exceed the rights of the assignor.


         Following the well blowout, Walter commissioned a Safety Environmental Management Systems Accident Investigation Report [SEMS] that was completed pursuant to federal regulation on August 29, 2014. See [30 CFR Section 250.1919]. The report addressed the nature of the incident, its escalation and loss of control, and finally centered on the cause factors for the blowout. We turn to critical portions of that report for review.

         A. The SEMS Report

         The SEMS report defines its scope as “describ[ing] findings that are based on the evidence examined to date and reflect[ing] the investigation's current working understanding of events leading to the blowout.” It was composed of Dr. Geoffrey R. Egan, (Team Leader) Technical Director, Intertek AIM, Sunnyvale, California; Dr. Adam T. (Ted) Bourgoyne, Jr., (Lead Author) P.E., Bourgoyne Engineering LLC, Baton Rouge, Louisiana; Mr. Darryl Bourgoyne, (Lead Investigator & Secondary Author) Technical Consultant to Bourgoyne Engineering LLC, Baton Rouge, Louisiana; and Dr. Glen Stevick, (BOP Expert), Principal, Senior Mechanical Engineer, Berkeley Engineering and Research, Berkeley, California.

         A major question addressed by the investigators was why activation of blind shear rams, which was the last blowout barrier in place when flow through the drillpipe could not otherwise be stopped, did not successfully control the well. The SEMS report states that the primary factors causing the escalation of the incident and loss of well control was an ineffective response to well control after the crew ignored kick detections and failed to follow well shut-in procedures. The report also concluded that activating the blind shear rams did not and could not have established control of the well because the choke line High Closing Ratio (HCR) valve was never successfully closed. Therefore, and in light of the loss of hydraulic control pressure due to “inflow”, activation of the blind shear rams may or may not have resulted in a complete closure and sealing of the blind sear rams.

         In determining first causes, the investigators determined that “the first blowout barrier breached was the pressure overbalance in excess of formation pore pressure that was being provided by the completion fluid”. A blowout occurs when formation fluid is allowed to enter the wellbore as it did in this incident. With the influx of formation fluids into the wellbore, a “kick”, would have occurred and the wellbore fluids would kick out of the well above the rig floor. The investigators concluded that, at this stage of the blowout, a complete closure of the blind shear rams would not have stopped it. This is so because the primary cause of the escalation of the blowout was an ineffective and inept response by the crew in responding to well control complications, i.e., kick detection and delayed well shut-in procedures.

         In addition, the investigators concluded that the HCR valve never responded to attempts to close it. The attempt to close the HCR valve by attempting to actuate the HCR selector valve from the Toolpusher's remote panel was too late. The attempt(s) came after the accumulator pressure, and perhaps most of the pneumatic pressure, had been depleted. Therefore, the HRC selector valve did not close at the time due to the fact that the BOP components were eroded away by sand laden formation fluid. As a result, the hydraulic circuits became exposed to the blowout fluids resulting in a shutdown of the BOP system.

         The investigators also found that the blind shear rams attempted to close on a tool joint. The blind shear rams are not intended to cut through a tool joint when forming an effective seal. Computer simulations performed by the investigators indicated that the blind shear rams was capable of cutting the 3-1/2” drillpipe and a portion of the tapered wall section of the 3-1/2” drillpipe near the tool joint, but not the thickest part of a made-up tool joint.

         B. The BSEE Panel Report (excerpts)

         The BSEE also convened a panel to investigate the well blowout on the Hercules 265.

         The panel submitted, in relevant part, the following Report of findings and conclusions:

The Panel found that Walter and Hercules personnel did not calculate the density of the Zinc Bromide completion fluid used to maintain a pressure balance within the well to account for the full range of temperatures that could have been encountered within the well . . . The Panel concluded that the crew encountered temperatures higher than expected, which affected the density of the completion fluid. As a result, the completion fluid did not effectively maintain the pressure balance in the well, which resulted in the flow of hydrocarbons into the well.
The Panel determined that the rig-floor personnel failed to recognize signs of this “kick” in its early stages. Crew on the rig floor only became aware that the kick occurred when completion fluid began to shoot out from the open end of the annulus and drill pipe . . . The Panel concluded that the procedures in place for responding to a loss of well control were inadequate because they did not consider the potential caustic effects of the completion fluid on the crew.
Failure to detect the kick before its effects were seen at the surface also prevented the crew from following their established well control procedure. The force of the fluid moving out of the well was strong enough to push the drill pipe upward and into the top drive. The crew could not manipulate the drill pipe, which prevented them from installing the drill pipe safety valve and further limited their options of reestablishing control of the well.
The Panel found the actions to close the rams came too late; by the time the attempt to close was made, the well was already flowing at a pressure exceeding the BOP's capabilities. The flow of gas up through the well also carried sand from within the formation. This mixture of gas and sand traveling at high velocity quickly eroded the surfaces within the BOP, which would have prevented any chance of maintaining a proper seal. When the BOP stack was recovered from the rig, The (sic) Panel was able to document evidence of this sand cutting on the BOP.

         C. Relevant and Selected Testimonial Evidence

         Following completion of the SEMS Investigation Report, the parties engaged in deposition discovery. The depositions of Dr. Adam T. (“Ted”) Bourgoyne, Darryl Bourgoyne and Dexter Hicks were among those recorded. Dr. Bourgoyne was the lead author in the preparation of the SEMS Investigation Report. Darryl Bourgoyne was lead investigator and secondary author of the Report. The following excerpts of their testimony are relevant to the Court's conclusions. The excerpted portions are as follows:

         A. Excerpts from the testimony of Dexter Hicks, a Roustabout

         Q. Did you ever -- the day that the blowout occurred, did you ever see -- did you ever see, you know, on a five-stand losses of two-plus barrels?

         A. No, sir.

         Q. On the day that the blowout occurred, if you were tripping out and you saw a two barrel loss and then shortly after that you saw a one barrel gain, in other words, you saw a switch from I'm taking losses, now all of a sudden I'm taking gains, what would you do?

         A. If I would have detected it, I would have monitored it, shut down and monitored it.

         Q. When you say "shut down, " what do you mean?

         A. Stop pipe movement.

         Q. And would you have done a flow check?

         A. I would have left my trip tank on.

         Q. If you would have seen a change where you were taking losses but then you switched to a gain, would that have led you to do a flow check?

         A. If it's detected. If I would've detected a two barrel gain -- or losses and then again, a one barrel gain, I would've stopped pipe movement and lined up the circle and monitored it on my trip tank, my gains and losses visually.

         Q. Would you have stopped all movement and monitored it for at least ten minutes?

         A. Yes.

[p. 112, ll. 20 through p. 113, l. 22]

         Q. Well, you told me -- hold on. You told me a moment ago that you lowered down, and they set the slips, and at that point you saw fluid coming out. So before they tried to stab the TIW, you had already closed the annular. That's what you said a minute ago. Do you remember that?

         A. Yes.

         Q. And the Hydril, that's the same thing as the annular, right?

         A. Yes, sir.

         Q. So before you tried to raise up the block, you had already closed the annular, because that fluid was coming out and you had to stop it from getting on your guys?

         A. Yes, sir.

         Q. So you've got your annular closed. You then try to lift up and it doesn't work. What do you do next?

         A. By that time, the toolpusher is on the floor, and he asked have I tried the TIW, and I told him, "No, sir. And he said, "What you got closed?" And I told him, "I've got the Hydril closed." He said, "Why didn't you get the TIW in it?" I told him, “Because the force of the pipe was pushing up against the top drive, so the higher I pick up, the higher it come up." He said, "Well, we'll go down to ...

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