Drilling Rig Exclusion Precluded Insured’s Reimbursement Claim Against Excess Insurer

The U.S. Fifth Circuit Court of Appeals recently addressed an insurance coverage question involving an excess insurer and an offshore injury.  The Plaintiff was injured while working on a drillship in the Gulf of Mexico.  Plaintiff filed a lawsuit in 2011 pursuant to the Jones Act and general maritime law in the U.S. District Court for the Western District of Louisiana.  Later that year, his employer was named as a third party defendant.  The employer filed cross claims against its primary insurer in 2012 and against its excess insurer 2014.  The Jones Act employer eventually settled with the Plaintiff, but maintained its claims for reimbursement against its two insurers.

 

The excess insurer moved for summary judgment and argued the excess insurance policy excluded coverage.  Specifically, the policy contained an exclusion for “any liability or expense arising out of the ownership, use or operation of drilling rigs, drilling barges, drilling tenders, platforms, flow lines, gathering stations and/or pipelines, but this exclusion shall not apply to craft serving the foregoing such as crew, supply, or utility boats, tenders, barges or tugs.”  The District Court agreed the injury occurring on a drillship fell within this exclusion and dismissed the employer’s claim for reimbursement against the excess insurer.  The employer appealed to the Fifth Circuit.

 

On appeal, the employer argued in part that the excess insurer waived coverage defenses by not raising them until 2014 and not issuing a reservation of right letter.  Under Louisiana law, waiver occurs when there is 1) an existing right, 2) knowledge of its existence, and 3) an actual intention to relinquish it or conduct so inconsistent with the intent to enforce the right as to induce a reasonable belief that it has been relinquished.  The Court found the excess insurer satisfied the first two elements by possessing the coverage defense and having knowledge of the accident as early as 2011.  The employer argued that the excess insurer’s conduct of not raising the coverage defense for three years satisfied the third element and effectively waived the insurer’s right to assert a coverage defense.  The Fifth Circuit determined that because the excess insurer was not made a party to the case until three years after the lawsuit being filed, there was no evidence that the excess insurer had assumed defense of the employer with the intention or conduct of eventually denying coverage.  In other words, the insurer’s conduct prior to being brought into the lawsuit did not create a belief that it intended to waive the coverage defense, which was asserted in its initial filings.  Thus, the excess insurer had not waived its right to lodge a coverage defense and the Fifth Circuit affirmed the dismissal of the employer’s claim against its excess insurer.

 

Richard v. Dolphin Drilling

Plaintiff’s Construction Defect Claims Against Offshore Spar Manufacturer Dismissed

In June 2011, an offshore worker was injured on a spar (a floating platform shaped like a giant buoy) on the outer continental shelf when he was struck in the face with the flange of a valve.  He filed a personal injury lawsuit against the manufacturer of the spar, McDermott, Inc., alleging his injury was caused by defective design and construction of the spar.

 

McDermott filed a motion for summary judgment, arguing that the plaintiff’s right of action was perempted under Louisiana law.  McDermott asserted that because plaintiff was covered by the Outer Continental Shelf Lands Act (OCSLA), the law of the adjacent state (Louisiana) applied as a surrogate to federal law.  McDermott then pointed to a Louisiana statute, La. R.S. 9:2772, which provides a five year peremptive period in which to bring an action arising out of deficiencies in the design or construction of immovable property.  Because McDermott delivered the finished spar to its customer (plaintiff’s employer) in 2004, plaintiff’s design defect claim filed in 2013, was time barred.  The District Court agreed with McDermott and dismissed plaintiff’s claims.  Plaintiff appealed to the U.S. Fifth Circuit Court of Appeals.

 

On appeal, plaintiff argued that La. R.S. 9:2772 did not apply to his claim because the spar was not an immovable, which was a matter of first impression for the Court.  The Fifth Circuit had previously determined that a spar is not a vessel for purposes of the Jones Act, but no court had ever addressed whether a spar is immovable property under Louisiana law.  The Court noted that fixed platforms are considered immovable property.  The Court further noted that the spar in question was permanently moored to the ocean floor, was intended to remain in its location for its twenty year life, and it would take months of planning to move the spar.  The Fifth Circuit concluded that enough similarities exist between a spar and fixed platform that a spar is immovable property under Louisiana law.  Thus, plaintiff’s design defect claims were dismissed as time barred by state law.

 

Hefren v. McDermott, Inc.

Fifth Circuit Holds “Zone of Danger” Test Not Applicable Under the LHWCA

In a recent unpublished opinion, the U.S. Fifth Circuit Court of Appeals affirmed the Administrative Law Judge’s award of benefits to a longshoreman who sustained work-related psychological injuries.  Claimant was operating a forklift when he accidentally struck and killed his co-worker.  Although Claimant was not physically injured, he attempted to assist the deceased co-worker by untangling her from under the forklift. During the entire time that first responders were attempting to save the co-worker, Claimant stood ten to fifteen feet away with a clear view of her.  Claimant spent the rest of the day reporting what he saw to multiple state and federal law enforcement agencies.

 

Claimant was subsequently diagnosed with post-traumatic stress disorder, depression, and anxiety; he was also being monitored for suicide.  Both Claimant’s treating physicians as well as the Employer’s Second Medical Opinion physician opined that Claimant was disabled from returning to work.  However, the SMO physician opined that Claimant was under-medicated, and Employer requested a Department of Labor (“DOL”) Independent Medical Examination (“IME”). The DOL IME physician opined that Claimant did not suffer from PTSD because Claimant did not experience a threat himself and was never in danger during the accident.  Further, the DOL IME opined that Claimant demonstrated significant evidence of malingering.   Based on this report, Employer terminated indemnity and medical benefits, and Claimant filed a claim.

 

Employer disputed the claim, arguing that Claimant was not entitled to compensation under the LHWCA for a psychological injury because he did not sustain a physical injury or was not placed in immediate risk of physical injury, i.e., Claimant was not in the “zone of danger” set forth in Consolidated Rail Corp. v. Gottshall, 512 U.S. 532 (1994).  Employer further contended that the DOL IME’s opinion that Claimant did not suffer from PTSD was dispositive.

 

The Fifth Circuit (in affirming the ALJ and the BRB) held that the “zone of danger” test was a tort concept inapplicable to the LHWCA.  Further, Section 2(2) defining “injury” did not distinguish between physical and psychological injuries. Nowhere in the statute was there a requirement that physical injury accompany a psychological injury.  The Fifth Circuit further affirmed the ALJ’s findings that the DOL IME physician’s report was to be given little weight.  In examining the plain language of Section 7(e), the court held nothing in the LHWCA required an ALJ to adopt a DOL IME physician’s opinion as binding.  The ALJ’s finding that the numerous other doctors who diagnosed PTSD and disabled Claimant was supported by substantial evidence.

 

Ceres Marine Terminal Inc. v. Director, OWCP

Fifth Circuit Weighs in on P&I Insurance Coverage Dispute

Following a verdict in favor a Jones Act seaman, Larry Naquin, for injuries he sustained in a land-based crane accident, an insurance coverage dispute arose between Naquin’s employer, Elevating Boats, LLC (“EBI”), and its insurance companies, State National Insurance Company (“SNIC”) and Certain London Insurers (“London Insurers”).  EBI alleged that SNIC and London Insurers breached their insurance contracts by denying EBI’s claims related to Naquin’s accident and failing to provide defense and indemnity.  EBI also sought damages for bad faith on the part of SNIC and London Insurers.  SNIC moved for summary judgment, arguing there was no coverage for Naquin’s land-based accident under its Protection & Indemnity Policy (the “Policy”) and that EBI failed to provide sufficient notice as required by the Policy.  The District Court granted summary judgment and entered final judgment in favor of SNIC.

 

On appeal, the Fifth Circuit reviewed the “Indemnity” provision of the policy that called for indemnification of EBI “as owner of the Vessel” for liability arising out of “any casualty or occurrence[.]”  SNIC argued that the “as owner of the Vessel” clause did not provide coverage for EBI’s negligence in Naquin’s land-based accident.  EBI’s assertion to the District Court was that the “any casualty or occurrence” clause provided coverage for the accident.  The Fifth Circuit, interpreting Louisiana law, found that the only way to give meaning to the “Indemnity” provision of the Policy was to construe it as limiting coverage to “any casualty or occurrence” which arises out of EBI’s conduct “as owner of the Vessel.”  Since Naquin’s injuries resulted from a land-based crane accident, the Court held that there was no causal operational relation between the vessel and injury so as to extend coverage of the Policy in this instance.  The District Court’s summary judgment was affirmed.

 

Naquin v. Elevating Boats, L.L.C., et al.