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Lloyd's Syndicate 457 v. Floatec LLC

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

July 9, 2019

LLOYD'S SYNDICATE 457, et al., Plaintiffs,
v.
FLOATEC LLC, et al., Defendants.

          MEMORANDUM AND OPINION

          LEE H. ROSENTHAL CHIEF UNITED STATES DISTRICT JUDGE.

         This case arises from a complex insurance arrangement memorialized in complex policies filled with conditions, limits, cross-references, exclusions, and exceptions to exclusions. In 2014, Chevron U.S.A., Inc. was building an oil-drilling platform, known as the “Bigfoot Project, ” in the Gulf of Mexico. Chevron insured the Bigfoot Project with an Offshore Construction Risk Policy issued by Aon Limited and underwritten by a number of other insurance companies.[1]

         Each underwriter took some Project risk in exchange for a share of the premium. This arrangement spread the Project's estimated $2 billion risk across the Underwriters. The Underwriters required Chevron to hire a marine warranty surveyor to review and certify the Project's specifications and materials before the installation. Chevron hired American Global Maritime under a Service Contract to meet this coverage condition. The Offshore Construction Risk Policy insured American Global Maritime as an “Other Assured” against “all risks” of physical damage or loss to the Bigfoot Project, including from American Global Maritime's own negligence. (Docket Entry No. 98-1 at 56-57, 61).

         The Service Contract required American Global Maritime to review the procedures for installing the Bigfoot Project on the ocean floor, including by checking the calculations and inspecting the parts, then certifying the installation as ready to proceed. American Global Maritime issued the certificates. The Bigfoot Project's installation went wrong, and parts sank to the ocean floor. The Underwriters paid Chevron $500 million for the loss, then sued Chevron's contractors, including American Global Maritime, alleging negligence in certifying the installation.

         After a wave of dispositive motions and rulings, American Global Maritime is the last defendant, and only negligence claims remain. American Global Maritime has moved for summary judgment on the remaining claims, and the Underwriters have responded. (Docket Entry Nos. 123-24, 134). After the Fifth Circuit decided an appeal affirming another defendant's dismissal, the Underwriters and American Global Maritime submitted supplemental briefing. (Docket Entry Nos. 138, 142). This court has carefully considered the pleadings; the motion, response, and supplemental briefing; the court's previous decisions; the Fifth Circuit's opinion; the voluminous record, including the policies and contracts; and the applicable law.

         Because the undisputed facts show no basis for recovery against American Global Maritime as a matter of law, judgment is so granted to American Global Maritime, and final judgment is separately entered. The reasons for these rulings are detailed below.

         I. Background

         The facts and procedural history have been explained at length and in detail. (See Docket Entry No. 111). Because the other defendants have been dismissed and only negligence claims remain against American Global Maritime, this brief background is tailored to that party and those claims.

         In 2014, Chevron contracted with a number of companies to build an oil-drilling platform with tension legs approximately 225 miles south of New Orleans, Louisiana. The Bigfoot Project was designed to reach through 5, 185 feet of water to oil reserves beneath the seabed. Sixteen steel tethers, or “tendons, ” would secure the platform to the seabed. While the tendons were being installed, they would be clamped to buoyance modules to keep them afloat. Each clamp had 12 bolts.

         Chevron obtained insurance for the Bigfoot Project through the Offshore Construction Risk Policy issued by Aon. This Offshore Construction Risk Policy “insure[d] against all risks of physical loss” and “damage” for “works executed anywhere in the world in the performance of all contracts relating to the Project.” (Docket Entry No. 98-1 at 61 (emphasis added)). The covered “activities” included:

[p]roject studies, engineering, contingencies, design, project management, procurement, fabrication, construction, prefabrication, storage, load out, loading/unloading, transportation by land, sea or air . . ., towage, mating, installation, burying, hook-up, connection and/or tie-in operations, testing and commissioning, existence, initial operations and maintenance, testing, trials, pipelaying, trenching, and commissioning.

(Id. at 56). The Offshore Construction Risk Policy listed Chevron as a “Principal Assured[]” and defined “Other Assureds” to include “Project managers” and “[a]ny other company, firm person or party, including their contractors and/or sub-contractors and/or manufacturers and/or suppliers, with whom the Assured(s) named . . . have entered into written contract(s) in connection with the Project.” (Id.).

         As to Other Assureds' coverage, the Offshore Construction Risk Policy stated that:

[t]he interest of the Other Assured(s) shall be covered throughout the entire Policy Period for their direct participation in the venture, unless specific contract(s) contain provisions to the contrary. The rights of any Assured under this insurance shall only be exercised through the Principal Assureds. Where the benefits of this insurance have been passed to an Assured by contract, the benefits passed to that Assured shall be no greater than such contract allows and in no case greater than the benefits provided under the insuring agreements, terms, conditions and exclusions in the Policy.

(Id. at 57).

         The Underwriters were subrogated “to all rights which the Assured may have against any person or other entity, other than Principal Assureds and Other Assureds, in respect of any claim or payment.” (Id.). The Underwriters waived “rights of subrogation against any Principal Assured(s) and/or Other Assured(s).” (Id.). The Offshore Construction Risk Policy was “primary to, and [would] receive no contribution from, any other insurance maintained by or for the Principal Assured(s) and/or Other Assured(s).” (Id. at 69).

         The Offshore Construction Risk Policy required Chevron to hire a marine warranty surveyor to “review/attend/approve the major marine operations as appropriate.” (Id. at 4-5). Chevron chose American Global Maritime. (Id. at 4). Chevron and American Global Maritime entered into a Service Contract that required American Global Maritime to “review, witness, oversee, observe, approve[, ] and certify facilities as fit for transport, installation[, ] and duty pursuant to marine standards and [the Offshore Construction Risk Policy].” (Docket Entry No. 98-2 at 60, 71-72). American Global Maritime indemnified Chevron for up to $5, 000, 000 of “damage or loss” arising out of the Service Contract, “prorated to the extent that [American Global Maritime's] negligence or fault contributed to the damage or loss.” (Id. at 28). The Service Contract required American Global Maritime to obtain commercial general liability policy; to name Chevron and its affiliates as additional insureds under the commercial general liability insurance; and for the commercial general liability insurance to be “primary with respect to all insureds, including additional insureds, and that no other insurance carried by [Chevron] will be considered as contributory for any loss.” (Id. at 33-34). The commercial general liability insurance policy would not “limit or reduce [American Global Maritime's] liability and indemnity obligations” to Chevron. (Id. at 33).

         American Global Maritime obtained a Commercial General Liability Policy that had a $2 million limit and made Chevron an “Additional Insured.” (Docket Entry No. 124-1 at 6, 11). The Commercial General Liability Policy covered bodily injury and property damage that American Global Maritime became “legally obligated to pay as damages.” (Id. at 13). The Commercial General Liability Policy did not cover damages from American Global Maritime's “professional services, ” but it did cover “operations in connection with construction work performed by [American Global Maritime] or on [its] behalf.” (Id. at 52). As to Additional Insureds, such as Chevron, the Commercial General Liability Policy was “primary and NON-CONTRIBUTORY, ” meaning “that other available insurance will apply as excess and will not contribute as primary to the insurance provided by this policy.” (Id. at 30-31, 35 (emphasis in original)).

         American Global Maritime also had a Premier Design Professionals Liability Insurance Policy. This Professional Liability Policy covered bodily injury or property damage from “any actual or alleged act, error or omission committed or attempted solely in the performance of or failure to perform Design Professional Services.” (Docket Entry No. 124-2 at 8, 11, 14). “Design Professional Services” meant those services “in the Insured's capacity as an architect, engineer, land surveyor, landscape architect, construction manager, interior designer, land planner, space planner, expert witness, or technical consultant” in any of those areas. (Id. at 14). American Global Maritime's Professional Liability Policy was “in excess of the amount of . . . any other insurance or indemnification available to the Insured.” (Id. at 31-32).

         On May 16, 2015, American Global Maritime issued a certificate of approval stating that it had “reviewed procedures, checked calculations and inspected preparation for float over and installation of . . . the tendons . . . . [and] the operation is hereby approved.” (Docket Entry No. 84 at 246). The tendon installation went forward. On May 29, the tendons were connected to a foundation on the seabed and to the buoyancy modules. Nine of the sixteen tendons sank before they could be secured to the drilling platform. The remaining seven tendons were taken back to shore. An inspection report stated that the clamp bolts had failed, causing the tendons to detach from the buoyancy modules and sink. The Underwriters paid Chevron about $500 million for the loss.

         The Underwriters then sued American Global Maritime, asserting negligence and negligent misrepresentation claims, among others. (Docket Entry No. 32 at 16-18). The Underwriters alleged that American Global Maritime was negligent in failing to appoint competent “personnel” and in failing “to identify and correct the glaring and obvious design errors that led to the collapse of the tendons.” (Id. at 11). These “errors and omissions, ” alleged the Underwriters, “fell far short of the required standard of care and constitute negligence.” (Id. at 16). The negligent misrepresentation allegation was based on American Global Maritime's breach of its “legal duty to review documents and procedures and ensure that they were correct before approving them.” (Id. at 17). The Underwriters alleged that American Global Maritime made material misrepresentations by approving the tendon design and installation and by failing to “inform [the] Underwriters of the increasing nature and degree of risk as the installation project ran far outside its projected time lines.” (Id.). The Underwriters sought actual damages for “the loss of the tendons, including but not limited to, costs to retrieve and store standing tendons and to replace and reinstall all of the lost tendons and [buoyancy modules].” (Id. at 16, 21). The Underwriters described the “nature and type of [their] harm” as the “catastrophic failure of [] the construction installation project.” (Id. at 17).

         American Global Maritime moved to dismiss for failure to state a plausible claim, arguing that the antisubrogation rule barred the Underwriters' claims. (Docket Entries No. 29-30). The court granted the motion in part and denied it in part, finding that American Global Maritime was an “Other Assured” under the Offshore Construction Risk Policy; the Underwriters had waived subrogated claims against “Other Assureds”; and the Underwriters asserted direct, not subrogated, tort claims against American Global Maritime. (Docket Entry No. 63 at 18-21).

         The court's July 2017 Memorandum and Opinion explained that:

[a] Louisiana court might reject the Underwriters' direct tort claims against American Global Maritime as impermissible artful pleading, or find that, in this case, public policy strongly militated against concluding that American Global Maritime owed the Underwriters a tort duty. Or a Louisiana court could find that this unusual set of facts justified an extension of the antisubrogation rule to bar any claim that, while not pleaded as a subrogated claim with the insurer standing in the shoes of its insured, would nonetheless have the functional effect of reimbursing an insurer for payments it made under the policy. But American Global Maritime has provided neither authority nor argument to support these approaches. . . . American Global Maritime is free to provide authority and argument in support of its positions at summary judgment.

(Id. at 21).

         American Global Maritime predictably moved for summary judgment. It argued that the antisubrogation rule barred the Underwriters' claims; the Louisiana confusion doctrine extinguished claims; and it did not owe the Underwriters a tort duty under Louisiana law. (Document Entry No. 98 at 9-10). The Underwriters responded that American Global Maritime is not an “Other Assured” under the Offshore Construction Risk Policy; the antisubrogation rule does not bar direct tort claims; the Offshore Construction Risk Policy insured for property damage, not liability, and so the confusion doctrine did not apply; the insurance and indemnity clauses in the Service Contract disclaimed coverage under the Offshore Construction Risk Policy; and American Global Maritime breached duties under theories of negligent misrepresentation and negligent-professional undertaking. (Docket Entry No. 106 at 10-12).

         This court granted summary judgment for some of the claims against American Global Maritime, but denied it as to the claims sounding in negligence. (Docket Entry No. 111 at 36-41). The court had previously determined that “the anti-subrogation rule bars only subrogated actions, ” not direct tort claims, and found that “the record and arguments provide[d] no basis” for changing that decision. (Id. at 41). But the court noted that Louisiana's confusion doctrine could extinguish the negligence claims if the Underwriters had a duty to indemnify American Global Maritime for the losses sought through those negligence claims. (Id. at 43-44). Noting that the Offshore Construction Risk Policy permitted American Global Maritime to alter coverage through contract, and the Service Contract required American Global Maritime to indemnify Chevron and obtain commercial general liability insurance, the court declined to rule on the confusion doctrine until the parties addressed these aspects of the negligence claims. (Id. at 46-55). The court denied the summary judgment motion, without prejudice, allowing American Global Maritime to try again. This motion followed.

         American Global Maritime again argues that the Louisiana confusion doctrine extinguishes the Underwriters' negligence claims and that the antisubrogation rule bars them. (Docket Entry No. 124 at 12-25). The Underwriters respond that neither the confusion doctrine nor the antisubrogation rule applies because of American Global Maritime's contractual arrangement with Chevron and because the negligence ...


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