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Tesla Offshore, L.L.C. v. Atlantic Specialty Insurance Co.

United States District Court, E.D. Louisiana

February 28, 2018

INTERNATIONAL MARINE, LLC ET AL.
v.
INTEGRITY FISHERIES, INC.

         SECTION I

         REF: BOTH CASES

          ORDER & REASONS

          LANCE M. AFRICK UNITED STATES DISTRICT JUDGE

         Before the Court are cross-motions for summary judgment filed by plaintiff Tesla Offshore, LLC (“Tesla”) and defendants Atlantic Specialty Insurance Company/OneBeacon Insurance Company (“OneBeacon”) and New York Marine & General Insurance Company (“NYMAGIC”). Despite insisting that they are entitled to coverage from OneBeacon and NYMAGIC, plaintiffs International Marine, LLC and International Offshore Services, LLC (collectively “International”) have not filed any motions for summary judgment. For the following reasons, OneBeacon and NYMAGIC's motions are granted, and Tesla's motions are denied.

         I.

         Summary judgment is proper when, after reviewing the pleadings, the discovery and disclosure materials on file, and any affidavits, the court determines that there is no genuine dispute of material fact. See Fed. R. Civ. P. 56. “[A] party seeking summary judgment always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). The party seeking summary judgment need not produce evidence negating the existence of a material fact, but need only point out the absence of evidence supporting the other party's case. Id.; Fontenot v. Upjohn Co., 780 F.2d 1190, 1195 (5th Cir. 1986).

         Once the party seeking summary judgment carries its burden, the nonmoving party must come forward with specific facts showing that there is a genuine dispute of material fact for trial. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). The showing of a genuine issue is not satisfied by creating “‘some metaphysical doubt as to the material facts, ' by ‘conclusory allegations, ' by ‘unsubstantiated assertions, ' or by only a ‘scintilla' of evidence.” Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (citations omitted). Instead, a genuine issue of material fact exists when the “evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). “Although the substance or content of the evidence submitted to support or dispute a fact on summary judgment must be admissible . . ., the material may be presented in a form that would not, in itself, be admissible at trial.” Lee v. Offshore Logistical & Transp., LLC, 859 F.3d 353, 355 (5th Cir. 2017) (quotation omitted).

         The party responding to the motion for summary judgment may not rest upon the pleadings but must identify specific facts that establish a genuine issue. Anderson, 477 U.S. at 248. The nonmoving party's evidence, however, “is to be believed, and all justifiable inferences are to be drawn in [the nonmoving party's] favor.” Id. at 255; see also Hunt v. Cromartie, 526 U.S. 541, 552 (1999).

         II.

         Tesla was hired to conduct an archaeological survey in the Gulf of Mexico. In order to complete the survey, Tesla required two vessels, a “tow vessel” and a “chase vessel.” The tow vessel was to travel along the survey grid pulling a towfish attached to a long cable near the bottom of the ocean as it emitted sonar signals. The chase vessel was to operate directly above the towfish and receive its sonar transmissions.

         Tesla contracted with International to provide and operate the tow vessel, the M/V INTERNATIONAL THUNDER (“THUNDER”). For the chase vessel, Tesla initially contracted with Integrity Fisheries, Inc. (“Integrity”). However, after its vessel, the F/V INTEGRITY (“INTEGRITY”), developed mechanical problems, Integrity substituted a vessel owned and operated by Sea Eagle Fisheries, Inc. (“Sea Eagle”), the M/V LADY JOANNA (“LADY JOANNA”).[1]

         Tesla installed its own equipment onto the THUNDER and the LADY JOANNA and assigned Tesla personnel to work onboard the vessels.[2] With respect to the chase vessel, the crew of the LADY JOANNA was responsible for driving the vessel and staying within reach of the towfish. Tesla personnel operated Tesla's towfish tracking equipment.

         On November 2, 2012, with the THUNDER towing the towfish and the LADY JOANNA operating above it, the cable pulling the towfish allided with a mooring line of the M/V NAUTILUS (“NAUTILUS”), a mobile offshore drilling unit in use by Shell Offshore, Inc. (“Shell”). Following the allision, Shell sued Tesla and International for negligence.[3] A jury awarded $9, 041, 552 in damages, allocating 75 percent fault to Tesla and 25 percent fault to International.[4]

         In the present lawsuit, Tesla and International claimed that they were entitled to indemnity from Integrity and Sea Eagle, arguing that the NAUTILUS allision related to the operation of the LADY JOANNA. Tesla and International also claimed that they were entitled to insurance coverage for liability arising from the allision, because they were insured under the insurance policies that Integrity and Sea Eagle procured from OneBeacon and NYMAGIC.[5]

         Considering the parties' cross-motions for summary judgment, this Court determined that Tesla and International were not entitled to indemnity from Integrity or Sea Eagle.[6] In reaching its conclusion, the Court looked to language in the underlying contracts, which limited Integrity and Sea Eagle's indemnity obligations to claims “arising out of or related in any way to the operation of any vessel owned, operated, leased, and/or chartered by [Integrity or Sea Eagle].”[7]

         The Court reasoned that “the [] NAUTILUS incident did not ‘arise out of the operation' of the [] LADY JOANNA in anything but the most attenuated sense; the [] LADY JOANNA was simply there as the chase vessel staying above the sonar towfish as it was towed by the [] THUNDER in the course of Tesla's sonar operation.”[8]Therefore, “Shell's claims for damages based on the [] NAUTILUS incident did not arise out of, and are not related to, the operation of the [] LADY JOANNA.”[9]Consequently, the Court concluded, Integrity and Sea Eagle owed no indemnity to Tesla or International for liability arising from Shell's claims.[10] Additionally, the Court held that, because there was no indemnity obligation, Tesla and International's claims regarding insurance coverage also failed.[11] Tesla and International appealed.[12]

         On appeal, the Fifth Circuit affirmed the Court's decision as to the indemnity claims but reversed as to the insurance claims. Regarding the indemnity claims, the Fifth Circuit agreed that the NAUTILUS incident did not arise out of, and was not related to, the operation of the LADY JOANNA and that neither Integrity nor Sea Eagle owed indemnity to Tesla or International.

         As the panel stated,

the summary judgment evidence supports only one finding: the operation of the [LADY] JOANNA was independent of the negligent conduct found to have caused damage to the NAUTILUS. . . . The principal activity of the contract between Tesla and Integrity/Sea Eagle was for Integrity/Sea Eagle to operate the [LADY] JOANNA as a chase vessel-i.e., to navigate the [LADY] JOANNA so that it remained above the towfish. The MSAs are clear that the NAUTILUS's damage must relate to or arise out of the operation of the [LADY] JOANNA before an indemnity obligation arises. Nothing about the [LADY] JOANNA's successful operation as a chase vessel, however, related to Tesla's decisions to redeploy the towfish near the NAUTILUS and take the route back toward the grid that caused an allision with a submerged mooring line. The undisputed evidence shows that Tesla and International were solely responsible for deploying the towfish, positioning the towfish, releasing the appropriate amount of towline dragging the towfish, and choosing the direction in which the towfish would travel. The [LADY] JOANNA's job was simply to follow the THUNDER and stay above the towfish, wherever it may go, which it performed successfully. . . . The [LADY] JOANNA's involvement in such an effort-[the sonar survey]-did not cause the accident and did not contribute to [Tesla's and International's] decision to dr[ive] the [towfish] across [the NAUTILUS's mooring line]. . . . Although the [LADY] JOANNA was still in operation carrying out the joint sonar survey and in position over the towfish at the time of the allision, its indisputably successful operation had no bearing on the decision to redeploy the towfish near the NAUTILUS and cross the NAUTILUS's mooring line. Because the summary judgment evidence supports only the conclusion that the [LADY] JOANNA's operation made no contribution to the negligent act causing the NAUTILUS's damages, indemnity is not owed under the MSAs.

Int'l Marine, 860 F.3d at 759-60.

         With respect to the insurance claims, the Fifth Circuit noted that “[a]lthough similarities in the contractual obligations for indemnity and insurance under the MSAs may suggest that indemnity and insurance claims rise and fall together in this litigation, such a parallel is not always the case.” Id. at 761. “The scope of insurance coverage, ” the panel observed, “is determined by the language of the insurance policy obtained, which may yield a different result than the indemnity provision in the original contract.” Id.

         The relevant insurance policies, however, were not in the record at the time the Court granted summary judgment. Hence, the Fifth Circuit vacated the dismissal of the insurance claims and remanded the claims for further consideration, noting that “[s]ummary judgment cannot be granted on the insurance claims without first reviewing the insurance policies and determining their scope.” Id. at 762.

         Accordingly, the only question now before the Court is whether Tesla and International are entitled to insurance coverage under the policies issued to Integrity and Sea Eagle by OneBeacon and NYMAGIC.[13] The Court considers each insurer's policy and the scope of its coverage in turn.

         III.

         “[T]he interpretation of a contract of marine insurance is-in the absence of a specific and controlling federal rule-to be determined by reference to appropriate state law.” Ingersoll-Rand Fin. Corp. v. Employers Ins. of Wausau, 771 F.2d 910, 912 (5th Cir. 1985). Under Louisiana law, “[a]n insurance policy is a contract between the parties and should be construed by using the general rules of interpretation of contracts set forth in the Civil Code.” Bernard v. Ellis, 111 So.3d 995, 1002 (La. 2012). According to the Civil Code, “[i]nterpretation of a contract is the determination of the common intent of the parties.” La. Civ. Code art. 2045. “When the words of a contract are clear and explicit and lead to no absurd consequences, no further interpretation may be made in search of the parties' intent.” La. Civ. Code. art. 2046. Additionally, “[e]ach provision in a contract must be interpreted in light of the other provisions so that each is given the meaning suggested by the contract as a whole.” La. Civ. Code art. 2050.

         With respect to insurance contracts, “[t]he parties' intent, as reflected by the words of the policy, determine the extent of coverage.” Elliott v. Cont'l Cas. Co., 949 So.2d 1247, 1254 (La. 2007). Further, “[a]n insurance policy should not be interpreted in an unreasonable or a strained manner so as to enlarge or to restrict its provisions beyond what is reasonably contemplated by its terms or so as to achieve an absurd conclusion.” Bernard, 111 So.2d at 1002. “If the policy wording at issue . . . unambiguously expresses the parties' intent, the insurance contract must be enforced as written.” Cadwallader v. Allstate Ins. Co., 848 So.2d 577, 580 (La. 2003).

         A.

         The relevant insurance obligations are set out in the two master services agreements (“MSAs”) that Tesla entered into with Integrity and Sea Eagle.[14] The identical MSAs read, in relevant part:

INSURANCE


a. Except as otherwise provided herein, Contractor [Integrity/Sea Eagle] shall, at its sole cost and expense, procure and maintain, in force at all times during the term hereof sufficient insurance or Company [Tesla] approved self-insurance (i) as may be required by law, and (ii) to protect Contractor [Integrity/Sea Eagle] and Company [Tesla] from third party claims arising out of or connected with the performance of Service hereunder. All such insurance shall be written with companies satisfactory to Company [Tesla] and shall be of the types and in the minimum amounts specified in Exhibit “A”.
b. All insurance policies of Contractor [Integrity/Sea Eagle] related to Services shall, to the extent of the risks and liabilities assumed by Contractor [Integrity/Sea Eagle] in this Agreement, (i) provide a minimum of thirty (30) days notice to Company [Tesla] prior to cancellation or material change, (ii) except for Workers' Compensation coverage, name Company Group [including Tesla and International] as an additional assured; (iii) contain a waiver of subrogation as to Company Group [including Tesla and International]; and (iv) be considered primary insurance in relation to any other insurance providing coverage to any member of Company Group [including Tesla and International].

         B.

         i.

         Pursuant to its obligations under the MSA, Integrity obtained from OneBeacon a marine comprehensive liability (“MCL”) policy.[15] Neither Tesla nor International are listed as named insureds on the policy.[16] Thus, Tesla and International are only entitled to coverage under the OneBeacon policy if they qualify as additional insureds under the policy's terms.

         Section IV of the OneBeacon policy defines “who is an insured.”[17] A later endorsement to the policy then modifies that definition. That endorsement states, in pertinent part:

MARINE COMPREHENSIVE LIABILITY


THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY.


ADDITIONAL INSURED AND WAIVER OF


SUBROGATION ENDORSEMENT (BLANKET)


. . .
It is agreed that:
1. Section IV. of the policy (Who is an Insured) is amended to include any person or organization that you are obligated by an “insured contract” to include as Additional Insureds, but only with respect to liability arising out of “your work.”[18]

         The policy makes clear that “the words ‘you' and ‘your' refer to the Named Insured shown in the Declarations, and any other person or organization qualifying as a Named Insured under this policy.”[19] Further, the policy provides: “Your work” means:

a. Work or operations performed by you or on your behalf; and b. Materials, parts or equipment furnished in connection with such work or operations.

         “Your work” includes:

a. Warranties or representations made at any time with respect to the fitness, quality, durability, performance or use of “your work”; and
b. The providing of or failure to provide warnings or instructions.[20]

         Additionally, the policy defines “insured contract” to mean:

That part of any other written contract or written agreement pertaining to your business . . . under which you assume the tort liability of another party to pay for “bodily injury” or “property damage” to a third person or organization. Tort liability means a liability that would be imposed by law in the absence of any contract or agreement.[21]

         Accordingly, for Tesla and International to be considered additional insureds, three criteria must be met. First, Integrity or Sea Eagle must have been obligated to include Tesla and International as additional insureds on the OneBeacon policy. Second, any such obligation must have arisen from an insured contract-that is, a written contract or agreement pertaining to Integrity or Sea Eagle's business under which Integrity or Sea Eagle assumed Tesla and International's tort liability. Third, any liability for which Tesla and International seek coverage as additional insureds must have arisen out of Integrity or Sea Eagle's work-that is, work or operations performed by Integrity or Sea Eagle; performed on Integrity or Sea Eagle's behalf; or involving materials, parts, or equipment furnished in connection with such work or operations.

         ii.

         The third of these criteria is dispositive. Even if Integrity or Sea Eagle were bound by an insured contract to include Tesla and International as additional insureds on the OneBeacon policy, the liability for which Tesla and International now seek coverage-i.e., the damage to the NAUTILUS and its mooring line-did not arise out of Integrity or Sea Eagle's work.

         As this Court explained in addressing Tesla and International's indemnity claims, “[t]he [NAUTILUS] incident did not ‘arise out of the operation' of the [LADY JOANNA] in anything but the most attenuated sense; the [LADY JOANNA] was simply there as the chase vessel staying above the sonar towfish as it was towed by the [THUNDER] in the course of Tesla's sonar operation.”[22] The Court also noted that “the [NAUTILUS] incident is not ‘related to' the operation of the [LADY JOANNA] merely because the [LADY JOANNA] was ‘necessary' or ‘integral' to the entire sonar survey operation in the sense that Tesla could not have conducted the survey but for the presence of a chase vessel.”[23] Moreover, the Court reasoned that “because Shell's claims did not arise out of and are not related to the operation of the [LADY JOANNA], a fortiori they did not arise out of and are not related to the operation of the [] INTEGRITY, a vessel that was not even on the scene” at the time of the allision.[24] Therefore, the Court determined “that Shell's claims for damages based on the [NAUTILUS] incident did not arise out of, and are not related to, the operation of the [LADY JOANNA].”[25]

         The Fifth Circuit reached the same conclusion. As it stated, “Tesla and International's negligence, as well as the resulting damage to the NAUTILUS, was independent of the operation of the [LADY] JOANNA.” Int'l Marine, 860 F.3d at 760.

         The panel elaborated further:

Nothing about the [LADY] JOANNA's successful operation as a chase vessel . . . related to Tesla's decisions to redeploy the towfish near the NAUTILUS and take the route back toward the grid that caused an allision with a submerged mooring line. The undisputed evidence shows that Tesla and International were solely responsible for deploying the towfish, positioning the towfish, releasing the appropriate amount of towline dragging the towfish, and choosing the direction in which the towfish would travel. The [LADY] JOANNA's job was simply to follow the THUNDER and stay above the towfish, wherever it may go, which it performed successfully. Tesla's equipment would then relay the position of the towfish. The [LADY] JOANNA's involvement in such an effort-the sonar survey-did not cause the accident and did not contribute to Tesla's and International's decision to drive the towfish across the NAUTILUS's mooring line . . . Although the [LADY] JOANNA was still in operation carrying out the joint sonar survey and in position over the towfish at the time of the allision, its indisputably successful operation had no bearing on the decision to redeploy the towfish near the NAUTILUS and cross the NAUTILUS's mooring line.

Id. (internal alterations and quotations omitted). In short, “the [LADY] JOANNA's operation made no contribution to the negligent act causing the NAUTILUS's damages.” Id. at 761.

         Put plainly, these decisions definitively establish that the LADY JOANNA had nothing to do with the NAUTILUS incident. Indeed, its operation was “completely independent of [Tesla and International's] negligent act.” See Id. (emphasis in original). Further, the provision and operation of the LADY JOANNA was indisputably the only work or operations performed by Integrity or Sea Eagle. Thus, the only work or operations performed by Integrity or Sea Eagle had no bearing on the allision that gave rise to Tesla and International's liability to Shell. Necessarily, then, Tesla and International's liability to Shell did not arise from Integrity or Sea Eagle's work. Accordingly, the third criteria of the additional insured endorsement is not met, and neither Tesla nor International qualify as additional insureds under the terms of the OneBeacon policy. Tesla and International are, therefore, not entitled to coverage by OneBeacon.

         Despite the seemingly straightforward nature of this conclusion, Tesla and International nevertheless insist that they are owed coverage. Emphasizing that the definition of “your work” found in the OneBeacon policy includes work done “on [Integrity or Sea Eagle's] behalf, ” Tesla states, in conclusory fashion: “Given that the LADY JOANNA was chartered to Tesla and performing services for Tesla pursuant to the MSA, Tesla is an ‘additional insured' under the blanket ‘additional insured' endorsement in the MCL Policy.”[26] What Tesla fails to explain, however, is how any work related to the NAUTILUS incident was being done on Integrity or Sea Eagle's behalf. By Tesla's own admission, the LADY JOANNA was “performing services for Tesla.”

         Put another way, the LADY JOANNA was doing work on behalf of Tesla, not the other way around. As OneBeacon notes, “[n]o one was performing work or operations on behalf of Sea Eagle or Integrity.”[27] And, as previously discussed, the work or operations performed by Integrity or Sea Eagle did not give rise to Tesla or International's liability, and no materials, parts, or equipment furnished ...


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