United States Court of Appeals
Fifth Circuit
F I L E D
UNITED STATES COURT OF APPEALS
For the Fifth Circuit May 5, 2006
Charles R. Fulbruge III
Clerk
No. 03-31208
TEXACO EXPLORATION AND PRODUCTION, INC.; MARATHON OIL COMPANY,
Plaintiffs-Appellants,
VERSUS
AMCLYDE ENGINEERED PRODUCTS COMPANY, INC.; ET AL.,
Defendants,
AMCLYDE ENGINEERED PRODUCTS COMPANY, INC.; UNITED DOMINION
INDUSTRIES, INC., formerly known as AMCA INTERNATIONAL CORP.,
formerly known as CLYDE DIVISION,
Defendants-Appellees.
CERTAIN UNDERWRITERS AT LLOYDS LONDON, Each for its own self and
not one for the other, jointly and not severally and each
subscribing to Policy No. S611625 and each for its own self and
not one for the other, jointly and not severally and each
subscribed to Policy No. S611626; ET AL.,
Plaintiffs-Appellants,
VERSUS
AMCLYDE ENGINEERED PRODUCTS, INC.; ET AL.,
Defendants,
AMCLYDE ENGINEERED PRODUCTS, INC.; AMCLYDE ENGINEERED PRODUCTS
COMPANY, INC.; UNITED DOMINION INDUSTRIES INC., formerly known as
AMCA INTERNATIONAL CORP., formerly known as CLYDE DIVISION; J RAY
MCDERMOTT INTERNATIONAL VESSELS, LTD.,
Defendants-Appellees.
Appeal from the United States District Court
For the Eastern District of Louisiana
(99-CV-3623)
Before JONES, Chief Judge, and JOLLY and DeMOSS, Circuit Judges.
DeMOSS, Circuit Judge:
This appeal arises out of an accident during the construction
of the Petronius oil and gas production facility in the Gulf of
Mexico. Addressing multiple issues raised in two actions
consolidated for trial and appeal, we affirm in part, reverse in
part, and remand for further proceedings. With respect to the
products liability action arising from the loss of a portion of the
Petronius compliant tower, we conclude that the district court
erred in determining its subject matter jurisdiction and the
applicable substantive law; and we reverse and remand. With
respect to the insurance subrogation action and the attendant
interpretation of the applicable insurance policy, we affirm the
district court’s grant of summary judgment based upon parties’
entitlement to waiver of subrogation and affirm the dismissal of
the subrogation claims. We also affirm the court’s award of costs
to AmClyde.
FACTUAL BACKGROUND
The two actions consolidated for trial and appeal, which for
simplicity’s sake we style the Texaco products liability action (or
the “Texaco cause”) and the Underwriters subrogation action (or the
2
“Underwriters cause”), are presented separately. Though no party
raises an objection to the consolidation, we treat the actions
separately here for clarity to the parties and to the district
court on remand.
I. Facts Leading to Texaco’s Products Liability Action
Plaintiffs-Appellants Texaco Exploration and Production, Inc.
and Marathon Oil Company (collectively, “Texaco”) are the lessees
of an offshore federal lease at Viosca Knoll Block 786 on the Outer
Continental Shelf (or the “Shelf”). The lease block is located in
approximately 1750 feet of water and is the site of Texaco’s oil
and gas development project, Petronius. The Petronius project was
a $400 million deepwater drilling and production project for the
development of 80 to 100 million barrels of oil equivalent. The
compliant tower, the construction of which forms the basis of this
dispute, is a platform, designed to flex with the forces of wave,
wind, and current, that is fixed permanently to the Outer
Continental Shelf. The Petronius compliant tower is approximately
1870 feet in height, weighs approximately 43,000 tons, and is
capable of producing 60,000 barrels of oil and 100 million cubic
feet of natural gas per day. See Texaco and Marathon Move Forward
on $400 Million Deepwater Project in Gulf of Mexico Compliant Tower
Design Selected for “Petronius,” BUSINESS WIRE, Sept. 17, 1996,
available at LEXIS, News Library, BWire file.
During the 1998 construction of the Petronius compliant tower,
3
a main load line on a crane, which was mounted on the Derrick Barge
50 (“DB-50"), failed. The crane or load line failure caused the
deck section that was then suspended (the “South Deck Module”) to
fall into the Gulf of Mexico on the Outer Continental Shelf off the
coast of Alabama and Louisiana. The failure resulted in a complete
loss of the South Deck Module and a fifteen-month delay to the
construction project of the Petronius compliant tower affixed to
the sea floor.
Prior to the initiation of construction, Texaco contracted
with J. Ray McDermott, Inc. (“McDermott”). The contract charged
McDermott with the engineering design, drafting, fabrication,
installation, and construction of the Petronius compliant tower
platform and its components, including the foundation piles, tower,
support frame, two deck modules (the North Deck Module and the
South Deck Module), and attendant drilling rigs at Viosca Knoll
Block 786. The construction project proceeded in two phases using
the DB-50 barge, which McDermott chartered and operated.1 The DB-
50 was owned by J. Ray McDermott International Vessels, Ltd.
(“JRMIV”).2 The crane mounted to the DB-50 was manufactured by the
predecessor to Defendant-Appellee AmClyde Engineered Products, Inc.
1
Texaco and McDermott’s construction contract called for
McDermott’s provision of the DB-50 or another suitable vessel.
2
The parties make much of the quality and degree of
distinction between JRMIV and McDermott. The entities are at a
minimum affiliates, and we address this issue in greater detail
with respect to the discussion of Underwriters’ appeal.
4
Once construction of the compliant tower commenced, both the
North and South Deck Modules (which were prefabricated off-site)
were transported to the offshore construction site on the same
material barge. On December 3, 1998, McDermott began installation
of both modules onto the already-constructed support frame of the
Petronius compliant tower. First, McDermott transported the
heavier of the two, the North Deck Module, some 1500 feet from its
storage location on the material barge to the support frame and
installed it. McDermott then began installation of the South Deck
Module. Between the initial lift of the South Deck Module from the
material barge and its placement on the support frame, the crane’s
wire rope load line failed, dropping the South Deck Module to the
sea floor.
II. Facts Leading to Underwriters’ Subrogation Action
Builder’s Risk Underwriters (the “Underwriters”) insured the
Petronius compliant tower construction project, including the lost
South Deck Module. The Builder’s Risk Policy comprises a general
conditions section, a section that covers physical damage, and a
section that covers third party legal and contractual liabilities.
Texaco was a principal, named assured under the policy.
Under the terms of the policy, Underwriters paid Texaco more
than $72 million for covered losses, including the loss of the
South Deck Module. Not included, however, in the policy’s coverage
5
were the losses due to delayed production.3
PROCEDURAL BACKGROUND
On December 2, 1999, Texaco sued, among others, AmClyde
Engineered Products Company, Inc. (“AmClyde”) and Friede Goldman
Halter, Inc., successors to the designer and manufacturer of the
Clyde Whirley 4000 Model 80 crane, in federal court, invoking
federal question jurisdiction under the Outer Continental Shelf
Lands Act (“OCSLA” or the “Act”), 43 U.S.C. § 1331, and admiralty
jurisdiction in the alternative. Texaco alleged multiple
negligence and products liability causes of action, and alleged
that the case should be governed by general admiralty law.4 Texaco
did not sue McDermott because their contract contained a binding
arbitration clause.
In a separate action, Underwriters sued, among others,
AmClyde, JRMIV, and the DB-50 in rem, seeking subrogation for
amounts already paid to Texaco under the terms of the Builder’s
Risk Policy issued to Texaco as the principal assured, invoking
admiralty jurisdiction under 28 U.S.C. § 1333. Underwriters did
not sue McDermott because McDermott was a named additional assured
3
Losses due to delay are expressly excluded from coverage
under section one of the policy, which covers property damage.
Builder’s Risk Policy, at 14, ¶ 10(1)(c).
4
Texaco alleged in part: (1) AmClyde’s crane design was
defective, rendering the crane unreasonably dangerous; (2)
AmClyde failed to furnish McDermott with sufficient information
regarding functioning limitations on the crane; and (3) AmClyde
negligently maintained and inspected the crane.
6
under the Builder’s Risk Policy with Texaco. The two actions,
Texaco’s products liability action and Underwriters’ subrogation
action, were consolidated on Underwriters’ motion.
The defendants in Texaco’s suit tendered McDermott as a third-
party defendant pursuant to Federal Rule of Civil Procedure 14(c),
and McDermott filed a summary judgment motion on the Rule 14(c)
tendered claims. Texaco moved to stay all proceedings between
itself and McDermott pending arbitration. The district court
denied the stay and granted McDermott summary judgment. Texaco
appealed the interlocutory order under 9 U.S.C. § 16(a)(1)(A). See
Texaco v. AmClyde, 243 F.3d 906 (5th Cir. 2001) (“Texaco I”). On
appeal, a panel of this Court reversed, staying litigation between
Texaco and McDermott and vacating the summary judgment for
McDermott. Id. at 912. The panel declined to create an exception
to the Federal Arbitration Act, 9 U.S.C. § 3, to permit a third
party, AmClyde, to nullify an arbitration clause that did not
conflict with Rule 14(c). The panel remanded with instructions
that a limited stay be entered between Texaco and McDermott and
that Texaco’s claims against other defendants proceed.5 The Texaco
I panel did not address the issues raised in the instant appeal.
On remand, the district court granted by written order dated
October 13, 2000 a motion to strike Texaco’s jury demand, noting
5
Texaco and McDermott subsequently submitted to arbitration
and resolved their dispute.
7
that admiralty law’s application extinguished the jury trial right.
In that order, the district court determined that no fact or
allegation permitted the exercise of OCSLA jurisdiction because
admiralty law alone governed and did not give rise to a jury trial
right. On Underwriters’ subrogation claim, the district court
granted summary judgment to AmClyde on the grounds that it was an
additional insured under the Builder’s Risk Policy, entitled to
waiver of subrogation. The court granted AmClyde defense costs
under that same policy.
The case proceeded to bench trial on Texaco’s products
liability claim for twenty-four days. The district court issued
its liability findings in an oral opinion and entered a written
order of judgment. The court found that Texaco had failed to
sustain its burden of proof with respect to liability against all
defendants except McDermott. The court concluded that JRMIV was
liable to Texaco and Underwriters for unseaworthiness of the DB-50
because of the crane load line’s failure and in the alternative,
that McDermott’s negligence in caring for and inspecting the wire
rope was a superseding cause.
JRMIV moved to dismiss Underwriters’ subrogation action based
upon the policy language and to vacate the court’s earlier finding
that JRMIV was partially liable to Texaco for the loss of the South
Deck Module. The district court subsequently vacated its liability
findings and entered summary judgment for JRMIV on the ground that
JRMIV was an additional insured entitled to a waiver of subrogation
8
or, alternatively, that McDermott, as a bareboat charter, was
solely responsible for the condition, maintenance, and operation of
the DB-50 at all pertinent times, precluding liability against
JRMIV for unseaworthiness.
DISCUSSION
Texaco and Underwriters separately appeal, arguing that the
district court erred in multiple rulings. We hold the district
court erred in determining it lacked jurisdiction under OCSLA. In
light of that fundamental error, the court erred in applying
substantive maritime law and in denying Texaco’s demand for a jury
trial. Based upon these errors, and because the denial of jury
trial was not harmless error, we must vacate the district court’s
judgment for AmClyde and remand for further proceedings. With
respect to the district court’s summary judgment disposition of
issues related to Underwriters’ subrogation claims, we affirm.
I. Texaco’s Appeal
Texaco argues that the district court reversibly erred in
granting the motion to strike Texaco’s jury demand based upon the
court’s incorrect determination of its subject matter jurisdiction.
According to Texaco, jurisdiction was properly grounded on OCSLA –
which provides federal courts with jurisdiction over disputes
arising from the development of minerals on the Outer Continental
Shelf – in addition to the admiralty jurisdiction that the district
court recognized, and Texaco further contends that these
9
overlapping admiralty and OCSLA jurisdictions result in the
application of substantive maritime law and also give rise to a
jury trial right that the district court improperly denied.
A. Subject Matter Jurisdiction
1. OCSLA Jurisdiction Was Properly Invoked
The relevant portion of OCSLA’s jurisdictional grant provides,
(b)(1) Except as provided in subsection (c) of this
section, the district courts of the United States shall
have jurisdiction of cases and controversies arising out
of, or in connection with (A) any operation conducted on
the outer Continental Shelf which involves exploration,
development, or production of the minerals, of the
subsoil and seabed of the outer Continental Shelf, or
which involves rights to such minerals . . . .
43 U.S.C. § 1349(b)(1)(A).
The Act expressly grants subject matter jurisdiction to the
federal courts over cases and controversies “arising out of or in
connection with” any operation involving the “development” of
minerals on the Outer Continental Shelf. Id. “Development” is
defined by OCSLA as “those activities which take place following
discovery of minerals in paying quantities, including geophysical
activity, drilling, platform construction, and operation of all
onshore support facilities, and which are for the purpose of
ultimately producing the minerals discovered.” § 1331(l) (emphasis
added). Thus, the Act provides for federal subject matter
jurisdiction over cases and controversies arising out of or in
connection with any operation involving platform construction on
the Outer Continental Shelf. Id.; § 1349(b)(1). Such federal
10
question jurisdiction under OCSLA is, by virtue of its express
statutory provision, independent of any additional maritime basis
for federal jurisdiction. See U.S. CONST. Art. III, § 2; 28 U.S.C.
§ 1333.
We have recognized that OCSLA’s jurisdictional grant is broad,
Tenn. Gas Pipeline v. Houston Cas. Co., 87 F.3d 150, 154 (5th Cir.
1996), and that the Act covers “a wide range of activity occurring
beyond the territorial waters of the states on the outer
continental shelf of the United States,” Demette v. Falcon Drilling
Co., 280 F.3d 492, 495 (5th Cir. 2002). Continental shelf platform
construction, such as the construction of the Petronius compliant
tower giving rise to this action, is explicitly included within the
OCSLA definition of “development.” 43 U.S.C. § 1331(l); Laredo
Offshore Constructors, Inc. v. Hunt Oil Co., 754 F.2d 1223, 1226-27
(5th Cir. 1987) (explaining that both the plain text and
legislative history of OCSLA support federal jurisdiction over
actions arising from development, in the form of platform
construction, on the Outer Continental Shelf).
AmClyde counters that this controversy arises, instead, out of
the traditional maritime conduct of transporting goods across
navigable waters, which is beyond the reach of OCSLA. The district
court concluded that Texaco’s claims fall exclusively under the
district court’s admiralty jurisdiction and cannot, also or in the
alternative, be grounded upon OCSLA’s jurisdictional grant in §
11
1349(b)(1). The court determined that admiralty law exclusively
applied, extinguishing a jury trial right. Citing Baris v. Supicio
Lines, Inc., 932 F.2d 1540, 1547 (5th Cir. 1991), and Laredo, 754
F.2d at 1229, the court concluded that admiralty law alone served
as a basis for jurisdiction because its situs and nexus tests were
satisfied and because the court rejected Texaco’s invocation of the
savings to suitors clause of 28 U.S.C. § 1333.
We agree with Texaco that the underlying facts and the nature
of the torts alleged bring its cause of action within OCSLA’s
provisions for federal subject matter jurisdiction. See 43 U.S.C.
§ 1349(b)(1). At the time of the loss of the South Deck Module,
the parties were undeniably involved in the development of the
Outer Continental Shelf, as defined by the Act. The complaint
pleads that on December 3, 1998, McDermott “was lifting the
Petronius south deck module at a location on the Outer Continental
Shelf adjacent to the Petronius compliant tower structure” when the
load line failed, dropping the module into the sea and causing a
total loss of the module, damages related to reconstruction, and
delay to the platform construction and mineral development.
Contrary to AmClyde’s characterization on appeal, the undisputed
facts demonstrate that traditional maritime transportation was
complete at the time of the loss. The DB-50 was in position, had
already installed the North Deck Module, and was lifting – not
transporting – the South Deck Module into position for
12
installation. In submissions to the district court, AmClyde
characterized the accident as occurring while McDermott lifted the
deck module into place after having “successfully placed the north
deck module,” and in its Answer and Cross-Complaint, AmClyde
referred repeatedly to the conduct at the time of the accident as
“the Petronius module lift.” The parties’ own characterization of
the events surrounding the loss of the South Deck Module reveals
that Texaco’s cause arises out of and in connection with the
development of the Outer Continental Shelf. See § 1349(b)(1).
In Recar v. CNG Producing Co., 853 F.2d 367, 369 (5th Cir.
1988), we held that OCSLA granted the district court subject matter
jurisdiction over a plaintiff’s claim that he was injured, while
suspended and swinging from a fixed platform to a nearby vessel,
when the rope that carried him broke. Id. at 368-69. OCSLA’s
jurisdiction extended to Recar’s claim because his injury, “that
occurred while he was overseeing the repair and maintenance of the
platform, [arose] out of the production of minerals on the Outer
Continental Shelf” and would not have occurred but for his
maintenance of the platform. Id. at 369. Similarly, here, the
harm alleged by Texaco arises directly from the construction of the
Petronius compliant tower, a fixed platform expressly covered by
OCSLA’s terms, and would not have occurred but for the development
of the Outer Continental Shelf in the form of the Petronius
compliant tower’s construction.
13
As stated earlier, this Circuit has consistently read OCSLA’s
jurisdictional grant broadly. See Tenn. Gas Pipeline, 87 F.3d at
156; EP Operating Ltd. P’ship v. Placid Oil Co., 26 F.3d 563, 569
(5th Cir. 1994); Recar, 853 F.2d at 369. AmClyde’s argument to the
contrary is not availing. OCSLA’s broad grant of jurisdiction to
the federal courts over cases arising out of the development of the
seabed is not curtailed simply because the South Deck Module was in
motion at the time of the crane or wire rope’s failure. The deck
module was already at the development site and was merely being
moved by crane from the materials barge into its place on the fixed
compliant tower, rather than being transported point-to-point
across the sea. The crane load line failure occurred during the
construction of the compliant tower, after the successful
installation of the North Deck Module. Texaco properly pled that
the court exercised jurisdiction under OCSLA.
Our jurisdictional analysis does not conclude here, however,
because Texaco also appeals the final judgment resulting from the
court’s application of substantive maritime law to the claims it
deemed arose out of admiralty jurisdiction. In Recar, we expressly
declined to address whether admiralty, in addition to OCSLA,
provided a basis for the court’s subject matter jurisdiction. 853
F.2d at 370 (noting the possibility that “the relationship of the
alleged ‘wrong’ . . . to traditional maritime activity is
sufficiently strong to characterize the wrong as a maritime tort
14
which requires application of general maritime law”). We must
resolve whether two bases for jurisdiction overlap or whether OCSLA
alone grants subject matter jurisdiction.
2. Admiralty Jurisdiction Was Not Properly Invoked
Texaco’s complaint reveals that the alleged torts do not give
rise to admiralty jurisdiction. In the first instance, Texaco
invoked the court’s OCSLA jurisdiction: “This Court has subject
matter jurisdiction under [OCSLA]. The facts underlying the claim
require the application of substantive general maritime law.” In
the alternative, Texaco averred that the court enjoyed admiralty
jurisdiction over the claims. See 28 U.S.C. § 1333. In light of
these mixed allegations of federal court jurisdiction, Texaco
complained of (1) defective and unreasonably dangerous products
design, including design of the crane’s equalizer system,
triggering strict liability; (2) negligent failure to furnish
sufficient information regarding operating limitations to the
barge’s owner; (3) negligent failure to maintain, inspect and/or
remedy the crane’s defects; (4) negligent failure to alert Texaco
to a known danger with respect to the crane; (5) negligent failure
to prevent the construction project from proceeding with knowledge
of the crane’s defects; (6) defective and unreasonably dangerous
condition of the wire rope that was furnished with improper,
defective, or inadequate lubrication, making it unreasonably
susceptible to corrosion; (7) negligent provision of unmatching
15
port and starboard load lines; and (8) negligent failure to detect
deficiencies of the crane and wire rope during a test lift and
inspection or a failure to warn if the deficiencies were detected.
Admiralty jurisdiction is determined by a two part test of (1)
location and (2) connection with maritime activity. Sisson v.
Ruby, 497 U.S. 358, 363 (1990). The location test is easily
satisfied as the parties agree that the products liability and
negligence torts alleged here occurred on navigable water.
Therefore, our analysis must focus upon the connection test, which
is less easily resolved on this record and which comprises two
queries: (1) whether the type of incident involved has the
potential to disrupt maritime commerce and (2) “whether the general
character of the activity giving rise to the incident shows a
substantial relationship to traditional maritime activity.” Jerome
B. Grubart, Inc. v. Great Lakes Dredge & Dock Co., 513 U.S. 527,
534 (1995); Scarborough v. Clemco Indus., 391 F.3d 660, 663 (5th
Cir. 2004).
Texaco’s causes of action, which we have concluded are
inextricably connected with the development of the Outer
Continental Shelf and an installation for production of resources
there, see 43 U.S.C. § 1333(a)(1), are insufficiently connected to
traditional maritime activity to support the application of
admiralty law. In Grubart, the connection to maritime activity was
sufficient to trigger admiralty jurisdiction because the incident
16
was of a type potentially disruptive to maritime commerce and the
general character of the activity was “substantially related to
traditional maritime activity.” Grubart, 513 U.S. at 538, 540.
The complaint there alleged negligent weakening of a tunnel
structure located underneath the riverbed, into which the defendant
had contracted to install pilings. Id. at 529. The resultant
connection to maritime activity was sufficient because the incident
resulted from “damage by a vessel in navigable water to an
underwater structure.” Id. at 539. The general character of the
activity was maritime in nature because the work giving rise to the
claim was “repair or maintenance work on a navigable waterway
performed from a vessel.” Id. at 540.
The distinction between Grubart and the instant suit hinges
upon the core factors relevant to the determination of maritime
law’s application. In Grubart, the damage was inextricably tied to
the navigable waterway: the transportation and use of materials on
water were directly connected to the repair and maintenance of a
navigable waterway. Id. Texaco’s complaint, on the other hand,
arises not from traditionally maritime activities but from the
development of the resources of the Outer Continental Shelf, and
Texaco’s complaint would not exist but for the construction of the
Petronius compliant tower, an activity undeniably covered by OCSLA.
To the extent that maritime activities surround the construction
work underlying the complaint, any connection to maritime law is
17
eclipsed by the construction’s connection to the development of the
Outer Continental Shelf.
Therefore, the district court erred in determining the basis
for its subject matter jurisdiction. The district court on remand
exercises its jurisdiction granted by OCSLA, not admiralty
jurisdiction.
B. OCSLA’s Choice of Law Provision Determines Applicable Law
Concluding that jurisdiction rested solely upon OCSLA, we now
turn to the district court’s denial of jury trial. Texaco argues
that OCSLA’s choice of law provision, see 43 U.S.C. § 1333, is not
in dispute;6 however, we must determine the applicable substantive
law in order to address whether the denial of jury trial was
reversible error. According to Texaco, its complaint combines a
maritime claim with a non-maritime basis for jurisdiction and this
combination creates a Seventh Amendment right to jury trial, the
denial of which was reversible error. According to AmClyde’s
alternative position,7 in the event of overlapping jurisdiction —
grounded upon both OCSLA and admiralty — substantive maritime law
6
Indeed, we agree with Texaco that in determining whether
OCSLA grants subject matter jurisdiction, the statute’s choice of
law provision is not at issue. But here, Texaco also challenges
the denial of jury trial and, relatedly, the district court’s
judgment for AmClyde. This second challenge requires review of
the district court’s application of maritime law to Texaco’s
claims against AmClyde.
7
We have rejected AmClyde’s primary argument that the sole
basis for subject matter jurisdiction is admiralty.
18
applies and prevents a right to jury trial. We disagree with both
parties’ positions. As we explain next, OCSLA does not permit the
application of substantive maritime law to Texaco’s action.
Both parties merely assume that maritime law controls this
defective product design and negligence action, citing only dicta
for the proposition that where OCSLA and admiralty jurisdiction
overlap, maritime law applies. See Laredo, 754 F.2d at 1229.8 Our
caselaw has not squarely resolved whether maritime law applies of
its own force to a products liability tort occurring during and as
a result of the construction of a fixed compliant tower on the
Outer Continental Shelf. We may not rely upon the parties’ bare
conclusion that substantive maritime law applies because OCSLA
provides its own choice of law rules.
OCSLA extends federal law to the Outer Continental Shelf and
borrows adjacent state law as a gap-filler. 43 U.S.C. § 1333. “To
the extent that they are applicable and not inconsistent with this
subchapter or with other Federal laws and regulations . . . the
8
The parties’ conclusion that maritime law applies to the
merits of the claim likely stems from the Contract for
Engineering, Fabrication and Installation that contains a choice
of law provision, identifying the General Maritime Law of the
United States as the applicable law. As we explain, under OCSLA,
the Contract’s choice of law provision is of no moment because
the parties’ choice of law will not trump the choice of laws
scheme provided by Congress in OCSLA. See Gulf Offshore Co. v.
Mobil Oil Corp., 453 U.S. 473, 485 (1981); Union Tex. Petroleum
Corp. v. PLT Eng’g, Inc., 895 F.2d 1043, 1050 (5th Cir.), cert.
denied, 498 U.S. 848 (1990); Matte v. Zapata Offshore Co., 784
F.2d 628, 631 (5th Cir. 1986). Moreover, AmClyde was not a party
to the Contract for Engineering, Fabrication and Installation.
19
civil and criminal laws of each adjacent State . . . are hereby
declared to be the law of the United States for that portion of the
subsoil and seabed of the outer Continental Shelf, and artificial
islands and fixed structures erected thereon.” § 1333(a)(2)(A).
[OCSLA] proclaims that [fixed platforms on the Outer
Continental shelf] are federal enclaves and any dispute
arising on them is to be resolved by resort to the laws
of the adjacent state which, ‘to the extent that they are
applicable and not inconsistent with [OCSLA] or with
other Federal laws and regulations . . . are . . .
declared to be the law of the United States. . . .’ 43
U.S.C. § 1333(a)(2)(A).
Matte v. Zapata Offshore Co., 784 F.2d 628, 630 (5th Cir. 1986).
These statutory choice of law rules are not subject to
exception by the parties’ agreement. Gulf Offshore Co. v. Mobil
Oil Corp., 453 U.S. 473, 485 (1981); Union Tex. Petroleum Corp. v.
PLT Eng’g, Inc., 895 F.2d 1043, 1050 (5th Cir.), cert. denied, 498
U.S. 848 (1990) (finding “beyond any doubt that OCSLA is itself a
Congressionally mandated choice of law provision requiring that the
substantive law of the adjacent state is to apply even in the
presence of a choice of law provision in the contract to the
contrary”); see also Matte, 784 F.2d at 631 (concluding choice of
law provision between parties violated “the federal policy
expressed in [OSCLA], which seeks to apply the substantive law of
the adjacent states to problems arising on the Shelf”).
In Rodrigue v. Aetna Casualty & Surety Co., 395 U.S. 352
(1969), the Supreme Court addressed whether the Death on the High
Seas Act or state law, applicable by virtue of OCSLA’s choice of
20
law provision, controlled two tort claims arising out of fatal
accidents on artificial drilling rigs on the Outer Continental
Shelf. Id. at 352. The Court held that the sole remedy arose
under state law and rejected wholesale the application of admiralty
law. Id. at 355, 360 (explaining that “the accidents had no more
connection with the ordinary stuff of admiralty than do accidents
on piers”). The distinctive text and legislative history of OCSLA
weigh against the application of admiralty law to claims arising
out of the accidental death of shelf workers on platforms. Id. at
361 (“[T]hese structures were to be treated as island[s] or as
federal enclaves within a landlocked State, not as vessels.”). And
under OCSLA, “for federal law to oust adopted state law federal law
must first apply.” Id. at 359. Rodrigue initially recognized “the
operative assumption underlying [OCSLA],” that is, “admiralty
jurisdiction generally should not be extended to accidents in areas
covered by OCSLA.” Offshore Logistics v. Tallentire, 477 U.S. 207,
218 (1986) (citing Rodrigue, 395 U.S. at 361).9
9
Chevron Oil Co. v. Huson, 404 U.S. 97, 99 (1971), overruled
on other grounds by Harper v. Va. Dep’t of Taxation, 509 U.S. 86
(1993), reiterated the disjoint between OCSLA’s application and
the application of admiralty law occasioned by OCSLA’s choice of
law provision: “[OSCLA] does not make admiralty law applicable
to” personal injury actions on an artificial island drilling rig.
Id. (emphasis added). In the context of personal injury to
workers on the Shelf, this proposition has been widely
recognized. See Gulf Offshore, 453 U.S. at 481; Dahlen v. Sec.
Ins. Co. of Hartford, 281 F.3d 487 (5th Cir. 2002) (rejecting
argument that the Admiralty Extension Act made admiralty
applicable and holding OCSLA required application of the law of
the adjacent state, rather than maritime law); Recar, 853 F.2d at
21
While Rodrigue speaks to “accidents actually occurring on the
[artificial] islands,” 395 U.S. at 366, this situs-based element of
determining whether platform-related torts are covered by OCSLA has
been extended in this Circuit. Recar, 853 F.2d at 368-69. We have
held that OCSLA’s text and history require application of the Act
to harm arising directly from the repair and maintenance of fixed
platforms on the Shelf, even when the harm occurs as a result of a
rope failure related to platform maintenance. Id. Thus, in this
Circuit, Rodrigue is not limited to harm occurring on the fixed
platform itself. See id. Rodrigue could not be so limited, even
in the absence of Recar, given the plain and broad text of OCSLA,
see 43 U.S.C. § 1333(b)(1)-(2), and the Act’s legislative history,
which reveals that Congress intended to treat the unique geography
and commerce of the Outer Continental Shelf independently, see Gulf
Offshore, 453 U.S. at 480 n.7; Rodrigue, 395 U.S. at 364-65
(explaining Congress’s intent to treat causes arising out of the
development of the Outer Continental Shelf differently from
369 (holding OCSLA granted jurisdiction and declining to review
whether admiralty might also apply, independent of OCSLA). But
see Demette v. Falcon Drilling Co., 280 F.3d 492, 500-01
(applying the Longshore Harbor Workers’ Compensation Act to an
employee injured on the Outer Continental Shelf and applying
maritime law to the relevant indemnity contract). Admiralty law
does not govern the merits simply because OCSLA covers the cause
of action, and the parties’ agreement to the contrary will not
alter this rule.
22
traditional maritime claims).10
Interpreting Rodrigue’s treatment of OCSLA in Laredo, we held
that maritime law did not extend to cover a dispute arising out of
the contract for an oil platform’s construction. Laredo, 754 F.2d
at 1229. “[I]n the context of oil and gas exploration on the Outer
Continental Shelf, admiralty jurisdiction and maritime law will
only apply if the case has a sufficient maritime nexus wholly apart
from the situs of the relevant structure in navigable waters.” Id.
at 1230.
That the contract contemplated in part the use of
instruments of admiralty, therefore, is not sufficient to
oust OCSLA-adopted state law in this case. Nor do we
think that, under the circumstances existing here, the
fact that the contract relates to offshore oil and gas
10
Rodrigue’s analysis of OCSLA’s legislative history
explains that the unique nature of the Shelf and Congress’s
treatment of it and its resources is inherently incompatible with
admiralty law.
Careful scrutiny of the hearings which were the basis
for eliminating from [OSCLA] the treatment of
artificial islands as vessels convinces us that the
motivation for this change, together with the adoption
of state law as surrogate federal law, was the view
that maritime law was inapposite to these fixed
structures . . . .
Rodrigue, 395 U.S. at 363.
Congress might have applied admiralty law to the
jurisdiction covered by OCSLA, but calculated that substantive
maritime law was ill-suited to serve the needs Congress intended
to address. “Moreover, the committee [considering the bill
underlying OCSLA] was acutely aware of the inaptness of admiralty
law. The bill applied the same law to the seabed and subsoil as
well as to the artificial islands, and admiralty law was
obviously unsuited to that task.” Id. at 364-65.
23
exploration is itself a sufficient basis for the exercise
of admiralty jurisdiction.
Id. at 1231-32.
The instant dispute materially parallels Laredo because, as we
have explained, the relationship of the alleged wrong to
traditional maritime activity is insufficient to permit the
application of maritime law. And federal maritime law cannot oust
the application of state law where maritime law does not apply of
its own force. See id. at 1229.
Three conditions bear upon the question of whether adjacent
state law applies as surrogate federal law under OCSLA. Union Tex.
Petroleum, 895 F.2d at 1047.
(1) The controversy must arise on a situs covered by
OCSLA (i.e. the subsoil, seabed, or artificial structures
permanently or temporarily attached thereto). (2) Federal
maritime law must not apply of its own force. (3) The
state law must not be inconsistent with Federal law.
Id. OCSLA requires the application of state law as borrowed
federal law to a non-maritime contract dispute arising out of the
construction of a gathering line on the seabed of the Outer
Continental shelf. Id. at 1050.
The first and second Union Texas Petroleum conditions are
satisfied here. As we have already explained, the complaint arises
on an OCSLA situs because the claims are inextricably linked to the
construction of a platform permanently fixed to the Shelf for the
purposes of development and would not have arisen but for such
development. And maritime law cannot apply of its own force
24
because there is an insufficient connection between the underlying
torts and traditional maritime activity. See id. at 1047-48. The
damages allegedly caused by a defectively designed or maintained
portion of the crane (or by defective wire rope or by the negligent
inspection and maintenance of those two specific parts engaged in
the compliant tower’s construction) are not the stuff of
traditional maritime activity on the high seas. See Rodrigue, 295
U.S. at 360; see also Herb’s Welding, Inc. v. Gray, 470 U.S. 414,
422 (1985) (describing Rodrigue as “indicat[ing] that drilling
platforms [are] not even suggestive of traditional maritime
affairs”). There is nothing inherently maritime about the alleged
causes of the damages in this case of platform construction,
especially as “exploration and development of the Continental Shelf
are not themselves maritime commerce.” See Herb’s Welding, 470
U.S. at 425.
These torts arise out of the atypical circumstances of the
construction of a fixed, compliant tower on the Outer Continental
Shelf, an area unlike any other in its geography and resources that
Congress determined require unique treatment by federal law. See
Rodrigue, 395 U.S. at 361, 363-65. The DB-50's involvement in the
accident and other elements of maritime activity that precede or
surround the compliant tower’s construction on the Shelf are
insufficient to support either admiralty jurisdiction or the
application of substantive maritime law. Texaco’s claims are
25
governed by OCSLA and not by maritime law.
This conclusion is bolstered by the contrast between the
allegations of this cause of action with past circumstances under
which OCSLA has not been triggered. OCSLA does not cover the
wrongful deaths of platform workers “killed miles away from the
platform and on the high seas simply because” of their employment
status. Tallentire, 477 U.S. at 219. Here is not a suit arising
from “a function traditionally performed by waterborne vessels,”
id., but rather a claim arising from traditionally non-maritime
products liability and negligence in the maintenance or inspection
of specific parts related to construction of a fixed, compliant
tower on the Outer Continental Shelf. OCSLA controls to the
exclusion of admiralty law.11
Accordingly, we also must remand for further proceedings
because the district court erred in its application of substantive
maritime law to Texaco’s claims. An additional difficulty presents
11
Texaco I does not preclude our conclusion here that
admiralty has no application. Texaco I did not address subject
matter jurisdiction, nor did it review the substantive law
applicable to the action. 243 F.3d at 908-12. References in the
opinion to admiralty law were not central to the holding that the
Arbitration Act required a stay of the proceedings between Texaco
and McDermott to permit the arbitration required by the parties’
contractual agreement, but the panel assumed admiralty’s
application in order to resolve the narrower question put before
it. Id. at 912. Indeed, the panel did not resolve definitively
whether admiralty applied, stating instead that “regardless of
whether the Petronius construction contract is treated as a
maritime transaction or simply as interstate commerce, the FAA
applies.” Id. at 909 n.2.
26
on this record: no party identifies the adjacent state such that
the law of the adjacent state may be applied. See Union Tex.
Petroleum, 895 F.2d at 1047. On remand, the first order of
business will be the determination of which state’s law applies
under OCSLA. Subsequently, the district court should address the
jury demand in light of the applicable state products liability and
negligence law.
C. Denial of Jury Trial Was Not Harmless Error
AmClyde argues that even if a jury trial were properly
requested, there was no harmful error in the district court’s
denial of the jury trial demand because Texaco’s case failed to
survive AmClyde’s Rule 50(a) motion for judgment as a matter of
law. See McDonald v. Steward, 132 F.3d 225, 230 (5th Cir. 1998)
(providing settled law that “even if a party is erroneously denied
a jury trial, the error is harmless if the evidence could not have
withstood a motion for a directed verdict at trial”); Roscello v.
Southwest Airlines Co., 726 F.2d 217, 220 (5th Cir. 1984).
We review the district court’s judgment as a matter of law de
novo. Compaq Computer Corp. v. Ergonome Inc., 387 F.3d 403, 409
(5th Cir. 2004). Judgment as a matter of law is appropriate only
when the facts and inferences point so strongly and overwhelmingly
in favor of one party that the court determines reasonable people
could not arrive at a contrary verdict. Id.
Texaco argues that substantial evidence on disputed facts
27
supports the possibility of a jury verdict in its favor. In light
of our conclusion that OCSLA and, under 43 U.S.C. § 1333, the law
of the adjacent state apply, we cannot say that the denial of jury
trial in this case was harmless error. In the absence of the
application of admiralty law, AmClyde’s arguments supporting bench
trial disposition of this cause, on the sole basis of maritime law,
evaporate. Moreover, the volumes of disputed facts and
contradictory expert opinions presented prevent us from concluding
that no reasonable jury would find for Texaco. Experts opined on
physical evidence and calculations related to the functioning of
the crane, and contradictory opinions on those facts requires the
conclusion that a reasonable jury might find in favor of Texaco.12
For the foregoing reasons, on this record we cannot affirm the
district court’s judgment as a matter of law in AmClyde’s favor.
We must remand for further proceedings in light of our holdings
that the district court exercises subject matter jurisdiction over
the cause based upon OCSLA; that, contrary to the parties’
assertions, the nature of Texaco’s cause does not permit the
application of admiralty law; and that, under OCSLA, the
12
Texaco also argues that the district court abused its
discretion in excluding the testimony of two Texaco witnesses,
Messrs. Zielinski and Czerniak, as a sanction for Texaco’s
failure to timely disclose protected proprietary information to
parties. Texaco argues that the court’s improper sanction
exacerbated the harm caused by the denial of jury trial. Finding
that the error was not harmless on other grounds, we need not
resolve this issue, but we note that whatever reasons
precipitated the district court’s sanction for discovery delay
will not exist on remand.
28
substantive law applicable to Texaco’s claim on remand is the law
of the adjacent state, see 43 U.S.C. § 1333(a)(2)(A).
II. Underwriters’ Appeal
Underwriters separately appeal the district court’s entry of
summary judgment against them on issues related to insurance
coverage under the Builder’s Risk Policy and defense costs awarded
to AmClyde.13 The parties fail to identify the applicable law,
although Underwriters suggest the dispute is resolved in the same
manner whether Texas or Louisiana law applies to the insurance
policy. The district court did not conduct a choice-of-laws
analysis and applied the law of Louisiana to the cross motions for
summary judgment. No party objected to that choice of law below,
and no party objects to the application of Louisiana law to the
insurance policy disputes on appeal.
A. AmClyde Is an “Other Assured” Under the Builder’s Risk Policy
Entitled to Waiver of Subrogation and Defense Costs
Underwriters appeal the district court’s October 11, 2001
order that under the Heddington Offshore Construction Risks Policy
(the “Builder’s Risk Policy”), AmClyde was an “other assured”
entitled to a waiver of subrogation and costs under the policy’s
terms. Underwriters argue that to be included as an other assured
13
Again, the actions of Texaco and Underwriters were
initially separate, but the district court consolidated them on
Underwriters’ motion for reasons of expediency. On appeal,
Texaco and Underwriters separately briefed their challenges to
the district court’s rulings, and accordingly, we treat them
separately here.
29
a party must have a written contract with Texaco, the principal
assured, and that AmClyde lacks such a written contract.
Underwriters further argue that AmClyde cannot be an other assured
even if no written agreement is required. Underwriters challenge
the district court’s determination that AmClyde is entitled as an
other assured to the protection of the subrogation clause and the
court’s award of costs to AmClyde under the policy.
1. AmClyde Is an Other Assured Under the Policy
The “other assured” provision of the Builder’s Risk Policy
states,
J. Ray McDermott, Inc. and/or Gulf Island Fabrication,
Inc. and/or W.H. Linder & Associates, Inc. and/or
Waldemar S. Nelson and Company, Inc. and/or Project
Consulting Services, Inc. and/or other contractors and/or
sub-contractors and/or suppliers and any other company,
firm, person or party with whom the Assured(s) in (1),
(2) or (3) of this Clause have, or in the past had,
entered into written agreement(s) in connection with the
subject matters of Insurance, and/or any works,
activities, preparations etc. connected therewith.
Builder’s Risk Policy, at 2, ¶1. (emphasis added).14
The parties dispute the proper reading of the above listing
14
The principal assureds are defined as
(1) Texaco Exploration and Production, Inc. and/or Marathon Oil
Company Inc. and/or associated partners in the Petronius Project
and/or as may be agreed hereon.
(2) Parent and/or subsidiary and/or affiliated and/or associated
and/or inter-related companies of the above as they now exist or
may hereafter be constituted and their Directors, Officers and/or
employees and/or other participants as may be agreed.
(3) Project managers, if applicable.
30
of covered entities and persons; in particular, they dispute
whether the “written agreement(s)” requirement applies only to “any
other company, firm, person or party” or, instead, applies to all
preceding entities. According to Underwriters, the requirement of
past or current “written agreement(s)” applies to each preceding
entity in the entire list. Underwriters would read the requirement
of entry into written agreement to apply to “other contractors
and/or sub-contractors and/or suppliers and any other company,
firm, person or party.” According to AmClyde, the list separates
entities with the conjunction “and/or” and therefore, the written
agreement provision applies only to “any other company, firm,
person or party.” Under AmClyde’s reading, “other contractors” and
“sub-contractors” are each “other assureds,” irrespective of any
written agreement with Texaco or another principal assured.
We review the district court's legal conclusions, including
its interpretation of contracts, de novo. Taita Chem. Co. v.
Westlake Styrene Corp., 246 F.3d 377, 385 (5th Cir. 2001); Nolan v.
Golden Rule Ins. Co., 171 F.3d 990, 992 (5th Cir. 1999). In
interpreting the language of the Builder’s Risk Policy on AmClyde’s
motion for summary judgment, the district court applied Louisiana
law, and the parties do not contest the choice of law.
Underwriters submit that the Builder’s Risk Policy enjoys equal
contacts with Texas and Louisiana and urges that the issue
presented is resolved identically under either state’s law.
31
A contract is unambiguous if “its language as a whole is
clear, explicit, and leads to no absurd consequences, and as such
it can be given only one reasonable interpretation.” Chembulk
Trading LLC v. Chemex Ltd., 393 F.3d 550, 555 n.6 (5th Cir. 2004).
The clear construction of the provision provides a list of
categories of assureds, separating each category by the conjunction
“and/or.” The final category is itself a list with an attendant
qualification: “suppliers and any other company, firm, person or
party” with whom an assured entered an applicable written
agreement.15 Thus, the requirement of written agreement does not
apply to the separate categories that precede this final sub-list,
including a subcontractor. Under the unambiguous language of the
Builder’s Risk Policy, a contractor or subcontractor may be an
other assured, irrespective of the written agreement qualification.
Underwriters point to OPI International, Inc. v. Gan Minster
Insurance Co., an unpublished opinion from the Southern District of
Texas, in support of their argument that AmClyde is not an other
assured. See Nos. H-94-2756, H-94-3412, H-94-3413, 1996 WL 650130
(S.D. Tex. Mar. 12, 1996). But OPI International does not inform
the analysis in this matter because the policy language at issue
there was materially different from the other assured definition at
15
That it might be debated whether the written agreement
qualification applies only to “other company firm, person or
party” or to those entities as well as “suppliers” need not be
resolved here because AmClyde is a subcontractor.
32
issue here. See id. at *3. In OPI International, the definition
of other assureds included “contractors and/or subcontractors”
within the group of “other Compan[ies]” with whom the assureds had
entered into contracts. See id. Such is not the case here, where
the other assured definition separates subcontractors, contractors,
and suppliers from the group of other companies with whom the
assureds have entered into written contracts.
Moreover, Underwriters’ proposed reading of the policy
provision would result in the absurdity that a covered
subcontractor would be required to have entered into a written
contract with Texaco or a principal assured, thereby becoming a
contractor. By definition, a subcontractor enters into an
agreement with a contractor, rather than the principal party whose
performance is payment in exchange for the provision of goods or
services or the completion of a project. See, e.g., BLACK’S LAW
DICTIONARY 1464 (8th ed. 2004). Had AmClyde contracted with Texaco
or a principal assured, a party to the contract who sought the
Petronius construction project’s completion, AmClyde would be a
contractor as opposed to a subcontractor. Underwriters’ reading of
the “other assured” provision would render the term “subcontractor”
surplusage, and such a reading must be avoided under Louisiana law
and under principles of contract interpretation both generally and
in the maritime context. See LA. CIV. CODE ANN. art. 2049; Chembulk
Trading, 393 F.3d at 555; Transitional Learning Cmty. at Galveston,
33
Inc. v. U.S. Office of Personnel Mgmt., 220 F.3d 427, 431 (5th Cir.
2000). The district court correctly concluded that the unambiguous
policy language does not require a written agreement with respect
to a subcontractor in order for the subcontractor to qualify as an
other assured. Having determined that the policy language is
unambiguous, we need not reach beyond the four corners of the
document to explore the intent of the parties. See, e.g., Ingalls
Shipbuilding v. Fed. Ins. Co., 410 F.3d 214, 220 (5th Cir. 2005).
Underwriters next argue that even in light of the reading we
determine the policy requires, AmClyde is not a subcontractor and
therefore cannot qualify as an other assured. “A subcontractor is
one who takes a portion of a contract from the principal contractor
or another subcontractor.” Avondale Indus., Inc. v. Int’l Marine
Carriers, Inc., 15 F.3d 489, 494 (5th Cir. 1994). “A subcontractor
may or may not have an agency relationship with the contractor and
that relationship does not control whether or not a subcontract has
been struck.” Id.
The record reflects that AmClyde is a subcontractor to
Texaco’s Petronius tower construction project. AmClyde and
McDermott entered a written agreement requiring AmClyde’s provision
of work to McDermott and covering the work provided by AmClyde to
the Petronius tower construction project. The record also reveals
that subject to its contract with McDermott, AmClyde provided the
following services to the Petronius construction project: design of
34
the deep water lowering system for use on the underwater
installation of the tower support structure for the Petronius
project, technical advice to McDermott related to the crane’s
extended travel service and underwater use during the Petronius
project, and technical advice on the main hook loading for the
lifts of the North and South Deck Modules, specifically.
In light of the contractual agreement between AmClyde and
McDermott, in combination with AmClyde’s provision of work to the
Petronius project itself subject to that contract, including the
the very lift of the deck module most closely tied to the property
loss at the heart of this case, AmClyde is a subcontractor to the
Petronius tower construction project. And although the degree of
AmClyde’s role in the overall construction of the compliant tower
may not be substantial when compared to others’ roles in
construction, AmClyde’s efforts in designing the lowering system
used to install the support structure of the compliant tower and in
calculating the hook eccentricity, a requisite part of the lifts,
were integral to and required for compliant tower construction.
Also, the allegations in Underwriters’ own complaint support in
part that Underwriters understood AmClyde’s status as a
subcontractor. Underwriters alleged that AmClyde’s technical
contribution to and efforts in the design and maintenance of the
crane were specifically “in connection with” the Petronius project.
Underwriters alleged AmClyde’s negligence in “maintaining and/or
inspecting the crane in connection with . . . the Texaco Petronius
35
Project, specifically, including the South Deck Module.”
After careful review of the record, the briefs of the parties,
and the oral arguments, we affirm the district court’s conclusion
that AmClyde is an “other assured” under the Policy on the basis
that AmClyde was a subcontractor. The record reflects AmClyde’s
subcontractor status in form of a written agreement to provide work
to McDermott and AmClyde’s actual provision of work, under contract
with McDermott, related to the Petronius tower construction
project. As subcontractor, under the Policy’s unambiguous
language, AmClyde is an other assured. The policy provides for
waiver of subrogation against any assured and any entity or person
“whose interests are covered by this Policy.” Thus, AmClyde is
entitled to the waiver of subrogation.
2. The District Court Properly Awarded Costs to AmClyde
Underwriters argue that the district court erred in awarding
costs to AmClyde for its defense. In pertinent part, the Builder’s
Risk Policy provides,
With respect to costs, the Builder’s Risk Policy provides
Subject only to the limits and deductibles of this
Policy, the Company agrees to pay costs, charges and
expenses reasonably incurred in investigating and/or
defending any claim or incident which in the Assured’s
opinion may result in a claim being pursued against them
in connection with this project. This policy will also
reimburse the Assured for expenditures necessarily
incurred in obtaining legal representation and/or non-
legal expert witness(es) in the event of a public or
government enquiry into any accident or occurrence,
provided such accident or occurrence would give rise to
a claim under this policy.
36
Builder’s Risk Policy, at 6, ¶ 11.
Underwriters argue that the above clause does not apply
because the claims related to delay defended by AmClyde are
excluded from coverage under both the property damage section,
section one, and the general liability sections of the policy.
Underwriters also argue that the policy bars coverage for claims
between insureds for damage to the insured property. Underwriters
finally objects to the district court’s costs award, arguing that
costs were awarded twice to AmClyde. AmClyde argues that the plain
meaning of the clause supports the award of defense costs and that
the amount of the award was proper.
According to Underwriters, the division of the policy into two
relevant sections – section one regarding physical damage and
section two regarding general liability – requires that the costs
award was in error because AmClyde, not an “other insured” under
section two of the policy but an “other assured” under the physical
damage section, cannot recover third party liability defense costs.
Underwriters argue that any other result confuses the nature of
third party liability and first party property coverage.
Section two of the policy contains a cross-liability clause
that permits coverage of claims or potential claims between
assureds. The clause explains that such cross-liability coverage
will not operate to increase the limit of liability and that
section two does not provide coverage for physical loss of or
damage to the insured property. Underwriters reads the cross-
37
liability provision broadly and in combination with the costs
provision to indicate that costs cannot be recovered in relation to
the delay claim between assureds here. In support of this
argument, Underwriters relies on Agip Petroleum Co. v. Gulf Island
Fabrication, Inc., No. 00-20487 (5th Cir. Nov. 28, 2001). In Agip
Petroleum, a panel of this Court addressed an appeal of summary
judgment for Underwriters regarding general liability coverage and
concluded that under Texas law, a builder’s risk policy with a
general liability provision similar to section two here did not
provide coverage for liability claims between assureds for damages
to the insured property. Id. at 7, 17. In Agip Petroleum,
Underwriters did not appeal the summary judgment awarded to the
contractors in regard to the subrogation claim, and the Court did
not address the issue of costs. See id. at 7. According to
Underwriters, the Costs Clause at issue here operates only when a
covered claim arises and no such claim exists here because Texaco
chose not to insure damages due to delay. Underwriters cites Agip
Petroleum for the proposition that the delay damages are not
covered, thereby precluding the award of costs in the defense of
one insured against another for uninsured damages. AmClyde argues
that the plain meaning of the clause supports the conclusion that
its defense costs against Texaco must be paid by Underwriters and
therefore the district court properly awarded costs.
We agree with AmClyde that a plain reading of the Costs Clause
38
indicates Underwriters must pay costs incurred by an insured to
defend a claim “in connection with” the Petronius construction
project. In relevant portion, the policy states, “the Company
agrees to pay costs . . . reasonably incurred in . . . defending
any claim or incident which in the Assured’s opinion may result in
a claim being pursued against them in connection with this
project.” Moreover, the policy provides for defense costs in
relation to “a public or government enquiry into any accident or
occurrence [that] would give rise to a claim under this policy.”
The clause fails to limit costs to the defense of certain claims,
and contrary to Underwriters’ characterization, the plain language
of the Costs Clause provides a broad duty to pay defense costs
connected to the compliant tower’s construction even when the
clause is read in conjunction with other policy provisions. The
broad language of the Costs Clause permits a costs award even in
relation to a claim that may not ultimately be covered under the
policy language. We affirm the district court’s award of costs to
AmClyde under the Builder’s Risk Policy.
With respect to Underwriters’ argument that costs were
erroneously awarded twice, we similarly affirm the district court’s
award. Pretrial, AmClyde and Underwriters stipulated to the
reasonableness of eighty percent of the defense costs.
Underwriters challenged the remainder on the ground that costs for
all multiple entities, including two not insured under the policy,
were included in the calculation and requested allocation among the
39
defendants. The district court granted costs in the stipulated
amount of $2,534,000 but did not require allocation, finding that
the two entities not insured were predecessors in interest to
AmClyde that were represented by AmClyde’s counsel and that the
entities appeared, in all respects, in the same posture as AmClyde,
facing the same liability and requiring precisely the same defense
as did AmClyde.
Underwriters argue the burden of allocating defense costs
falls to AmClyde. Underwriters rely upon Enserch Corp. v. Shand
Morahan & Co., 952 F.2d 1485, 1493 (5th Cir. 1992). AmClyde argues
that no allocation is necessary because the four entities related
to AmClyde were all sued in the same capacity and that no basis
exists for deducting costs associated with any entity’s defense
because its liability was wholly derivative of AmClyde’s. AmClyde
points to the repeated reference to the four entities defending the
faulty design, manufacture, and inspection of the crane as either
“AmClyde” or the “AmClyde Defendants.” AmClyde cites in support a
district court opinion from California where the court did not
require allocation in the case of a non-insured party’s liability
deriving entirely from the insured party and a covered claim. See
Raychem Corp. v. Fed. Ins. Co., 853 F. Supp. 1170, 1180 (N.D. Cal.
1994). In arguing that an allocation is unnecessary, AmClyde
points to no controlling law on point.
The record makes clear that the nature of the AmClyde related
40
entities was well understood to all parties and to the district
court below. AmClyde’s incurred defense costs properly result from
the uniform defense of multiple factual entities appearing before
the court as one legal entity based upon Texaco and Underwriters’
complaints and the nature of the claims. This Circuit has not
required an allocation on such a record, and Underwriters fail to
point to any controlling law so requiring. Finding no error in the
court’s award, we affirm the award of defense costs to AmClyde.
B. JRMIV Is an Other Assured Entitled to Waiver of Subrogation
Based upon the foregoing, we similarly affirm the district
court’s conclusion that JRMIV was an other assured entitled to
waiver of subrogation. JRMIV argued before the district court that
Underwriters could not proceed in subrogation against it because of
express waivers of subrogation in the Builder’s Risk Policy and
because JRMIV is an other assured against whom subrogation is
waived. On March 31, 2003, the district court granted JRMIV’s
motion for dismissal of Underwriters’ subrogation action. The
court held that Underwriters expressly waived rights of subrogation
against it as an insured in the Builder’s Risk Policy because JRMIV
qualified as an insured subcontractor. The court also concluded
that JRMIV is an affiliate or contractor/subcontractor under the
waiver of subrogation provision for affiliate entities and is also
therefore entitled to waiver of subrogation. Alternatively, the
district court concluded that JRMIV did not bear liability for any
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unseaworthiness of the DB-50 because McDermott was the bareboat
charterer of the DB-50 and was, as such, solely responsible for the
vessel’s operation. The district court accordingly dismissed
Underwriters’ claims against JRMIV.
Because we conclude that the unambiguous policy language does
not require a written agreement in order for a contractor or
subcontractor to qualify as an other assured entitled to waiver of
subrogation, we need here only address whether JRMIV was a
subcontractor or contractor to the compliant tower’s construction
to resolve its status as an other assured. JRMIV argues that its
contribution to the Petronius construction project qualifies it as
either or both. Underwriters disagrees, echoing its arguments with
respect to AmClyde, that is, that the definition of “other
assureds” requires a written contract of all entities and that
therefore JRMIV does not qualify as an other assured.
The policy expressly includes as an other assured, entitled to
waiver of subrogation, a contractor with Texaco relating to the
Petronius construction project. As previously explained, McDermott
entered a written construction agreement with Texaco covering the
Petronius tower construction project. There, the parties defined
as a “Contractor” both (1) McDermott and (2) McDermott’s “parent,
subsidiaries, and affiliates, the agents, employees and
subcontractors of any of them.” McDermott and JRMIV are
affiliates; both are wholly owned subsidiaries of McDermott
Holdings. Accordingly, Texaco and McDermott defined JRMIV as a
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Contractor to the Petronius construction project in the written
construction agreement. Moreover, JRMIV, the owner of the DB-50
and attached crane, provided the vessel that was a subject of the
construction contract. JRMIV’s provision of the vessel satisfied
the construction contract’s guarantee provided by Contractor (that
is, McDermott and JRMIV as an affiliate of McDermott) for the
provision of the DB-50 to perform the installation activities
described in the construction contract. JRMIV was a contractor to
the Petronius project under the terms of the construction contract
and, accordingly, under the terms of the Builder’s Risk Policy. As
the written agreements of the parties require us to so conclude, we
need not also address the other arguments advanced by JRMIV to
trigger its status as an other assured.
The district court correctly dismissed Underwriters’
subrogation claim against JRMIV, and although multiple arguments
may have supported such action, we need not address any other
argument offered in support of the dismissal of Underwriters’
claim.
CONCLUSION
With respect to Texaco’s appeal, we hold that OCSLA extends
federal subject matter jurisdiction to the tort action that arose
on the unique construction site of the Petronius compliant tower;
that admiralty jurisdiction and maritime law do not apply so as to
oust the substantive law of the adjacent State; and that in light
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thereof, the denial of jury trial cannot be said to be harmless.
On remand, the district court should permit Texaco an
opportunity to amend its pleading and should request that the
parties address at the outset which state’s law is adjacent to the
Petronius compliant tower and determine accordingly the applicable
tort law under OCSLA. Texaco has preserved its request for a jury
trial as well as its request for the inclusion of its experts’
testimony. The district court should reassess the jury trial
demand and the admissibility of the experts’ testimony in light of
the state’s law that is borrowed as federal law under OCSLA.
We affirm the district court’s dismissal of Underwriters’ suit
seeking subrogation against AmClyde and JRMIV. Each entity is an
other assured entitled to waiver of subrogation, and the court did
not err in its award of defense costs to AmClyde.
Accordingly, we affirm in part and reverse in part the
district court’s judgment and remand for further proceedings
consistent with this opinion.
AFFIRMED IN PART; REVERSED IN PART; and REMANDED.
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