Certain Underwriters at Lloyd's London and Certain Insurance Companies et al v. Cameron International Corporation et al

Filing 413

MEMORANDUM granting 249 Hercules' MOTION for Summary Judgment on Contractual Indemnity Issues. (Signed by Judge Kenneth M Hoyt) Parties notified.(chorace)

United States District Court
Southern District of Texas

ENTERED
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
CERTAIN UNDERWRITERS AT LLOYD’S §
LONDON AND CERTAIN INSURANCE
§
COMPANIES, et al,
§
§
Plaintiffs,
§
VS.
§
§
CAMERON INTERNATIONAL
§
CORPORATION, et al,
§
§
Defendants.
§

January 04, 2018
David J. Bradley, Clerk

CIVIL ACTION NO. 4:14-CV-2105

MEMORANDUM
I.

INTRODUCTION
Before the Court is third-party defendants’, Hercules Drilling Company, LLC and

Hercules Offshore, Inc., (“Hercules”), motion for summary judgment [DE# 249], the plaintiff’s
Walter Oil and Gas Corporation (“Walter”), response to Hercules’ motion for summary
judgment [DE# 288], and Hercules’ reply to Walter’s response [DE# 324]. The Court has
reviewed the motion, response, reply, exhibits and arguments presented and determined that
Hercules’ motion raises question(s) of law that can be resolved on the parties’ paper. The Court
grants Hercules’ motion for summary judgment.
II.

BACKGROUND FACTS
The plaintiffs, Underwriter at Lloyd’s London and Center Insurance Companies

(“Underwriters”), Walter Oil & Gas Corporation (“Walter”), Tana Exploration Company
(“Tana”) and Helis Oil & Gas Company, LLC (“Helis”), bring this suit against defendants Axon
Pressure Product, Inc., Axon EP, Inc., (“Axon”), Cameron International Corporation

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(“Cameron”) and CAD Control Systems, Inc., (“CAD”) for losses associated with a well “blowout” that occurred off the coast of Louisiana on July 23, 2013.
The undisputed facts reveal that Walter, the operator, was in the process of “recompleting
the A-3 Well located in South Timbalier 200”, pursuant to a 2011 Offshore Drilling Contract
(“ODC”) between Walter and Hercules, the contractor. The ODC called for the employment of
the HERCULES 265 platform for the drill operation. In the event of damages or injuries, the
ODC allocated the risk between Walter and Hercules. The July 23 blow-out caused Walter to
incur substantial losses associated with damage to the rig and remediation of the well. After
settlements with Walter, Tana and Helis, Underwriters was subrogated to “certain” of their
claims allegedly suffered as a result of the 2013 blow-out. Underwriters sues Axon, Cameron
and CAD under theories of strict liability.
III.

CONTENTIONS OF THE PARTIES
In its motion for summary judgment, Hercules asserts that Walter breached the ODC

between Hercules and Walter by failing to defend and indemnify Hercules against Axon’s thirdparty suit against Hercules.

Hercules also asserts that Walter’s claims against Axon, if

permitted, will render Walter’s indemnity obligations to Hercules meaningless because a
recovery by Walter against Axon simply triggers Hercules’ indemnity obligations in favor of
Axon, triggering Walter’s indemnity obligations in favor of Hercules.
Walter does not dispute that Hercules is entitled to indemnity and a defense under the
terms of the ODC between Walter and Hercules. Instead, Walter argues that between it has not
sued Axon on claims that give rise to Walter’s indemnity obligations to Hercules, i.e., “pollution
damages, underground damage, and damage to or loss of the hole” and the like, Walter’s

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indemnity obligations under the ODC are not triggered. This assertion is unavailing to Walter
for the reasons stated herein.
IV.

STANDARD OF REVIEW
A summary judgment is generally appropriate where the pleadings, the discovery and

disclosure materials on file, and any affidavits show “that there is no genuine issue as to any
material fact and that the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P.
56(a). The movant bears the initial burden of “informing the Court of the basis of 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); see also
Martinez v. Schlumber, Ltd., 338 F.3d 407, 411 (5th Cir. 2003).
When determining whether a genuine issue of material fact has been established, a
reviewing court is required to construe “all facts and inferences . . . in the light most favorable to
the [nonmovant].” Boudreaux v. Swift Transp. Co., Inc., 402 F.3d 536, 540 (5th Cir. 2005)
(citing Armstrong v. Am. Home Shield Corp., 333 F.3d 566, 568 (5th Cir. 2003)). Likewise, all
“factual controversies [are to be resolved] in favor of the [nonmovant], but only where there is an
actual controversy, that is, when both parties have submitted evidence of contradictory facts.”
Boudreaux, 402 F.3d at 540 (citing Little, 37 F.3d at 1075 (emphasis omitted)).
V.

DISCUSSION AND ANALYSIS
A.
Hercules was responsible for the operation of the Drilling Unit, providing equipment and

labor under the supervision of Walter. Hercules’ motion for summary judgment is based on a
2011 ODC, the terms of which are unambiguous and, therefore, subject to interpretation by the
Court. See Becker v. Tidewater, Inc., 586 F.3d 358, 375 (5th Cir. 2009). Under the terms of

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ODC, Walter is obligated to indemnify and/or hold harmless Hercules and its affiliates, including
in some instances, Hercules’ contractors and subcontractors. In turn, Hercules “. . . assume[d]
only the obligations and liabilities” . . . associated with maintenance of the equipment. [DE#
249, ODC, p. 20].
The ODC states that all obligations not “specifically” assumed by Hercules become the
sole responsibility of Walter. A relevant portion of the ODC provides in relevant part:
. . . Operator [Walter] shall be solely responsible and assumes liability for all
consequences of operations by both parties . . . all risks or liabilities incurred . . .
directly . . . or indirect . . . notwithstanding any breach of representation or
warranty, express or implied, either expressed or implied, . . . negligence or fault
of [Hercules] its employees, subcontractors, consultants . . .latent defects or
unseaworthiness . . . including the Drilling Unit . . . on any theory of tort, breach
of contract . . . strict liability . . . either latent or patent.
Id. at Article V. Article IX of the ODC is also in play. It addresses the issue of indemnity in the
event of a blowout as follows:
901. Equipment or Property
(a)

...

(1)

Operator [Walter] shall be responsible for and hold
harmless and indemnify Contractor for loss or destruction
of or damage to Contractor’s drill pipe, drill collars, subs,
reamers, bumper subs, stabilizers and other in-hole
equipment when such equipment is being used in the hole
below the rotary table, normal wear expected . . . In the
case of equipment lost, destroyed or damaged beyond
repair, Operator shall reimburse Contractor an amount
equal to the then current replacement cost of such
equipment delivered to the Drilling Unit.
...
Operator shall at all times be responsible for and hold
harmless and indemnify Contractor from and against
damage to or loss of Operator’s property, Operator’s items,
and the property, equipment, material and services of
Operator’s Affiliated Companies, partnerships, and limited
liability companies . . . and its contractors and
subcontractors of any tier . . .

(c)

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902.

The Hole

In the event the hole should be lost or damaged at any time,
Operator shall, except as provided in Paragraph 705(f), be
responsible for and hold harmless and indemnify Contractor and its
suppliers, contractors and subcontractors of any tier from such
damage to or loss of the hole, including all downhole property
therein. [Article 705(f), labeled “Standby Rate” establishes
limitations on payment for drilling during a delay when the
Contractor is the sole cause of the delay either due to negligence or
willful conduct.]
911.

Indemnity Obligation

(a)

The parties intend and agree that the phrase “be responsible
for and hold harmless and indemnify” or other similar
words of release or indemnity (including limitation or
exclusion of damages and all other exculpatory provisions)
in this Contract including without limitation . . . means that
the indemnifying party shall release, indemnify, hold
harmless and defend (including payment of reasonable
attorney’s fees and costs of litigation) the indemnified party
from and against any and all claims, demands, causes of
action, losses, liabilities, damages, judgments and awards
of any kind or character . . .

(b)

An indemnifying party’s obligations contained in this
Contract shall extend to the indemnified party and shall
inure to the benefit of such party, . . .and to actions against
the Drilling Unit . . .
B.

Walter is obligated, by the terms of the ODC to defend, indemnify and hold harmless
Hercules from claims made by Axon unless Hercules’ acted “willful” and thereby caused the
blow-out. There is absolutely no evidence that Hercules acted willfully and thereby forfeited the
indemnity provisions of the ODC and no such act(s) are claimed by Walter.
Underwriters sued Axon only under strict liability theories associated with failed BOP
controls pursuant to Louisiana Product Liability Act, LA. Rev. Stat. Ann. § 9:2800.52 et. seq.
Nevertheless, Walter maintains that it is entitlted to also recover from Axon based on incurred

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costs “in excess of costs paid . . .” or reimbursed by Underwriters. In its response to Hercules’
motion, Walter argues that because its claims against Axon do not implicate the ODC between
Walter and Hercules, and because Axon, in particular, is not covered by the ODC, it is not
obligated to provide a defense or indemnify Hercules against Axon. The Court disagrees.
Axon’s suit against Hercules is triggered by Underwriters’ suit against Axon. In turn, Axon’s
suit against Hercules is based on contractual obligations between Hercules and Axon contained
in an indemnity agreement.
On June 18, 2010, Hercules and Axon entered into a Master Service Agreement (“MSA”)
whereby Hercules agreed to indemnify Axon . . . from and against any claims for loss, damage . .
. caused by the negligence or other legal fault of the [Hercules]. The MSA provides in relevant
parts:
Company shall release, Defend, indemnify, and hold harmless
Contractor Group from and against any and all Losses arising
out of personal or bodily injury, sickness, disease or death or
property damage, destruction or loss suffered by any member
of the Company Group in connection with this Agreement.
“Company Group” is defined in Paragraph 8.1(a) as:
individually or in any combination: (i) Company, its parent,
subsidiaries and Affiliates (as defined in Article 23),
contractors (other than Contractor), (ii) and their partners,
joint venturers, any entities for whom Company is performing
services or providing goods and all of their respective parents,
subsidiaries and affiliates, and (iii) the respective directors,
officers, agents, representatives, employees and invitees of all
of the foregoing.
“Contractor Group” is defined in Paragraph 8.1(b) as:
individually or in any combination: (i) Contractor, its parent,
subsidiaries and Affiliates (as defined in Article 23) and
subcontractors, (ii) its and their partners, joint venturers and
all of their respective parents, subsidiaries and affiliates, and

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(iii) the respective directors, officers, agents, representatives,
employees and invitees of all the foregoing
See [MSA, DE# 256, Ex. A at ¶ 8.1(a), 8.1(b) and 8.3].
C.
Walter also asserts that because this is a maritime suit, “a contract of indemnity should be
strictly construed” as not imposing liabilities not expressly stated in the ODC. For this principle,
Walter cites to Corbitt v. Diamond M. Drilling Co., 654 F.2d 329, 333 (5th Cir. 1981) and N.
Assurance Co. of America v. BHP Billiton Petroleum Deepwater, Inc., 722 F.3d 300, 303 (5th
Cir. 2013). These cases are inapplicable and Walter’s reliance is misplaced because Walter
seeks to recover from Axon losses that it cannot recover from Hercules. See also Articles V §
501 and IX, §§ 901, 902 and 911. And, since Axon can recover indemnity against Hercules for .
. . all losses arising out of . . . property damage . . . for equipment supplied by Axon pursuant to
the MSA, any recovery by the plaintiffs against Axon results in an Axon recovery against
Hercules.
D.
Moreover, Walter’s pleadings and the Court’s interpretation of the ODC, are not the only
bases for the Court’s conclusion that Hercules’ motion for summary judgment should be granted.
The testimony of the Vice President of Walter, Jim Looke, who executed the ODC is an
admission that Walter owes a duty to defend and, tellingly, has failed to provide it. He testified
as follows:
Q. All right. Did you review the indemnity obligations?
A. I can't recall, but, you know, I signed it, I guess I reviewed it.
Q. And that's something you would have normally done. So you
don't specifically remember reviewing the indemnity obligations in
this contract, but something you normally do, so you assume you did
in this case?

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A. Right.
Q. If you turn to Section 901 of this drilling contract, it -- it's the
indemnity obligations that Walter undertook in this drilling
contract.
…
Q. Are these -- is this a standard indemnity section that Walter
normally agrees to?
A. I'll have to read it, read over it first. This looks -- looks standard, yes.
Q. So if you look at, specifically, Section 901, at "Equipment and
Property," in that, the section that relates from operator to
contractor, what it says is that the operator in this case would be
Walter Oil & Gas, correct?
A. Right.
Q. And the contractor would be Hercules, correct?
A. Right.
Q. That if it's Walter's equipment and property, that, basically,
Walter assumes the risk for that loss to that equipment if something
goes wrong, correct?
A. Right.
….
Q. And that it would also hold Hercules harmless and defend it,
should someone -- someone assert a claim regarding Walter's
equipment and property, correct?
A. Yes.
Q. If you look at Section 902, it refers to the hole. That section, again,
also says that should there be damage to the hole, that Walter
assumes the -- the risk for that damage, correct?
A. Correct.
Q. Should someone assert a claim to Hercules for damage to the
hole, that Walter agrees to indemnify and defend Hercules for that
claim, correct?
A. Correct.
Q. If you look at 906 for debris removal, same thing, operator
assumes the risk for the debris removal for their own property,
correct?
A. Correct.

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Q. And that should someone assert a claim against Hercules for that
amount of debris removal, that Walter agrees to indemnify and
defend Hercules for those amounts, correct?
A. Correct.
Q. On Section 907 for underground damage, once again, there risk -the risk assumed by Walter in the contract is that Walter would
assume the risk for any underground damage to their property,
correct?
A. Correct.
Q. And should someone assert a claim against Hercules for any
damage -- or underground damage, that Walter will indemnify and
defend Hercules for such a claim, correct?
A. Correct.
Q. And then Section 1004, if you could turn to that. That's in a
section for additional insured, correct?
A. Yes.
Q. And in that section Walter Oil & Gas verifies or at least agrees
that it -- it's going to name Hercules, the contractor, as an additional
insured to its insurance policies, correct?
A. Correct.
See [Doc. No. 249, Exh. B, Deposition pp. 163-168].
E.
In addition to its duty to defend Hercules, Walter owes Hercules an attorneys’ fee for
breach of contract. Walter has intentionally failed to provide a defense to Hercules resulting in a
breach of the ODC. Under maritime law “[a] contract of indemnity includes the obligation to
pay the costs and attorneys’ fee of the indemnitee against the third party . . . “ See Nathaniel
Shipping, Inc., v. General Elec. Co., v. La. Gulf Shipyards, Inc., 920 F.2d 1256, 1268 (5th Cir.
1991); see also [ODC, Art. IX, § 911(a); Exh. A, Doc. No. 249]. Therefore, Hercules is
permitted to recover a reasonable attorneys’ fee incurred in pursuing a recovery under the terms

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of the ODC. See Jones v. Francis Drilling Fluids, Ltd., 642 F.Supp. 2d 643, 673 (S.D. Tex.
2009).
F.
Finally, Hercules’ right to a defense does not depend upon whether Axon recovers
against Hercules. The duty to defend is owed regardless of the nature of Axon’s suit against
Hercules because the suits arise out of the same nucleus of facts and occurrence. Therefore,
Hercules’ motion for summary judgment is GRANTED.
It is so Ordered.
SIGNED on this 4th day of January, 2018.
___________________________________
Kenneth M. Hoyt
United States District Judge

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