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Lloyd's Syndicate 457 v. Floatec, L.L.C.

United States Court of Appeals, Fifth Circuit

April 17, 2019

FLOATEC, L.L.C., doing business as FloaTEC Solutions, L.L.C. Defendant-Appellee

          Appeal from the United States District Court for the Southern District of Texas

          Before SMITH, DUNCAN, and ENGELHARDT, Circuit Judges.


         This case concerns a disputed siting of Big Foot in the Gulf of Mexico. We refer to a floating oil-drilling platform that rests on four massive columns- hence the name "Big Foot"-moored by steel tendons to the ocean floor. Chevron, which operates and co-owns Big Foot, contracted with FloaTEC to engineer the tendons. During installation in 2015, several tendons failed, causing Chevron huge losses. Big Foot was insured by various Lloyd's of London syndicates (collectively, "Underwriters") through a policy issued to Chevron. To cover the tendon mishap, Underwriters paid Chevron over $500 million and then went looking to recoup that money. Among others, Underwriters sued FloaTEC. Underwriters claimed that, having paid Chevron's losses under the policy, they were subrogated to Chevron's right to sue FloaTEC for damages caused by the tendon failures.

         Eventually the case landed in federal district court and FloaTEC moved to dismiss. FloaTEC argued that it qualified as an "Other Assured" under Underwriters' policy and that the policy waives subrogation against "Other Assureds"-hence Underwriters' subrogation-based claims should fail. Underwriters responded in two ways. First, they argued that the subrogation issue should be decided by an arbitrator, not the district court, by virtue of the broad arbitration clause in Chevron's contract with FloaTEC. Second, Underwriters argued that, in any event, FloaTEC was not an "Other Assured" under a proper reading of the policy.

         The district court sided with FloaTEC on both points. It decided the arbitration clause did not apply because Underwriters were not a party to the Chevron/FloaTEC contract. It then decided FloaTEC did qualify as an "Other Assured" under the policy, thus enabling FloaTEC to raise the subrogation waiver. The court dismissed Underwriters' claims with prejudice.

         Underwriters appeal both issues. We affirm.



         Big Foot is a major deepwater oil drilling project in the Gulf of Mexico off the Louisiana coast. It is located on the Outer Continental Shelf in the Walker Ridge Area, Block 29, about 225 miles south of New Orleans. The project is operated by Chevron, which co-owns it with Statoil Gulf of Mexico LLC and Marubeni Oil & Gas (USA) Inc. As part of the project, in 2015, Chevron began to build and install an "extended tension-leg platform" that would be anchored to the seafloor almost a mile below. This is a photo of the platform in transit to Walker Ridge:

         (Image Omitted)

         The platform would be kept stationary by sixteen steel tendons attached to pilings driven into the seafloor. These tendons were critical to the floating platform's stability.

         Chevron contracted with FloaTEC to provide engineering services in connection with Big Foot, including the design and installation of the tendons. We will refer to the Chevron/FloaTEC agreement as the "Chevron/FloaTEC Contract" or simply the "Contract." The Contract required FloaTEC to maintain specific kinds of insurance related to the performance of its duties on the project. The Contract also included a broad arbitration clause, empowering a chosen arbitrator or arbitrators to "rule on objections concerning jurisdiction, including the existence or validity of this arbitration clause and existence or the validity of this Contract[.]"

         Big Foot was insured by Underwriters through an Offshore Construction Project Policy with Chevron. We will refer to this Underwriters/Chevron agreement as the "Underwriters/Chevron Policy" or simply as the "Policy." The Policy was written on a "WELCAR 2001" form, a standard construction risk policy developed for the offshore energy market at Lloyd's in the late 1990s. See, e.g., Tim Taylor, Offshore Energy Construction Insurance: Allocation of Risk Issues, 87 Tul. L. Rev. 1165, 1170 (2013) ("Taylor"). Risks covered by the Policy included physical loss or damage to Big Foot incurred during the project's design and engineering. The Policy included a clause stating that Underwriters agreed to "waive rights of subrogation" against any "Principal Assureds" or "Other Assureds." "Other Assureds" were defined in a separate section of the Policy to include "[a]ny" other companies with whom Chevron had "entered into written contract(s) in connection with the [Big Foot] Project."

         In mid-2015, before the platform's stabilizing tendons had been installed, nine of the sixteen tendons detached from their supporting buoys and plummeted to the seafloor. An investigation revealed that the bolts holding the tendons to the buoys had come loose. Chevron rejected the remaining seven tendons and had them sent back to shore. The failure of the tendons and the resulting delay to Big Foot caused Chevron huge losses. As a result, Underwriters paid Chevron over $500 million under the Policy.


         Seeking to recoup those payments, Underwriters filed a lawsuit in a Texas state court in May 2016, naming as defendants various contractors connected to Big Foot, including FloaTEC. Underwriters alleged FloaTEC had negligently designed and manufactured the tendons and attachment bolts and had therefore caused the damages to Big Foot. Prior to service of process, claims against all defendants except FloaTEC were dropped. FloaTEC removed the case to federal court.

         Underwriters then filed an amended complaint, adding the claim that FloaTEC breached its contract with Chevron. Underwriters' claims against FloaTEC were all based on subrogation-meaning Underwriters sought to stand in Chevron's shoes by virtue of having paid Chevron's losses under the Policy. See La. Civ. Code art. 1825 (subrogation is "the substitution of one person to the rights of another" and "may be conventional or legal"); id. art. 1827 ("conventional" subrogation occurs when "[a]n obligee who receives performance from a third person . . . subrogate[s] that person to the rights of the obligee, even without the obligor's consent"); see also, e.g., Old Repub. Life Ins. Co. v. Transwood, Inc., 2016-0552 (La.App. 1 Cir. 6/2/17); 222 So.3d 995, 1005 (explaining that, "[u]nder Louisiana law, although an insurer which pays claims on behalf of an insured is not entitled to legal subrogation, it may still be entitled to conventional subrogation if appropriately provided in the contract of insurance") (citing Watters v. State Dep't of Transp. & Devel., 33, 870 (La.App. 2 Cir. 9/27/00); 768 So.2d 733, 737).

         FloaTEC moved to dismiss for failure to state a claim and, alternatively, to compel arbitration if the court found Underwriters had stated a claim. FloaTEC's argument for dismissal hinged on three clauses in the Underwriters/Chevron Policy. The first clause, entitled "Subrogation," states:

Underwriters shall be subrogated to all rights which the Assured may have against any person or other entity, other than Principal Assureds and Other Assureds, in respect of any claim or payment made under the Policy (emphasis added).

         The second clause, entitled "Waiver of Subrogation," states:

Underwriters agree to waive rights of subrogation against any Principal Assured(s) and/or Other Assured(s) including drilling contractors and/or their ...

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