Court Opinion

ID: 4020608
Source: CourtListenerOpinion
Date Created: 2016-08-02 00:00:55.877067+00
Date Added: 2024-06-11T14:30:20.746183
License: Public Domain

Case: 16-30003      Document: 00513617939   Page: 1   Date Filed: 08/01/2016

        IN THE UNITED STATES COURT OF APPEALS
                 FOR THE FIFTH CIRCUIT

                                 No. 16-30003                   United States Court of Appeals
                               Summary Calendar                          Fifth Circuit

                                                                       FILED
                                                                  August 1, 2016
RAYLIN RICHARD,                                                   Lyle W. Cayce
                                                                       Clerk
             Plaintiff

v.

DOLPHIN DRILLING LIMITED; SMITH INTERNATIONAL,
INCORPORATED,

             Defendants - Appellants

OFFSHORE ENERGY SERVICES, INCORPORATED,

             Third Party Defendant - Appellant

v.

VALIANT INSURANCE COMPANY,

             Third Party Defendant - Appellee

                 Appeal from the United States District Court
                    for the Western District of Louisiana

Before WIENER, HIGGINSON, and COSTA, Circuit Judges.
STEPHEN A. HIGGINSON, Circuit Judge:
      This case asks us to resolve a contract dispute between an insurer—
Valiant Insurance Company—and the insured—Offshore Energy Services. The
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                                  No. 16-30003
question is whether Valiant, as an excess insurer on a marine insurance policy,
is required to reimburse Offshore for payments in a personal injury settlement.
The district court granted summary judgment for Valiant, holding that an
exclusion in the insurance policy precludes coverage.

                                 I. Background
      This case arises out of personal injuries sustained by Raylin Richard, an
Offshore employee, while working on a drillship in the Gulf of Mexico in 2009.
Richard sued in January 2011, and Offshore was brought into the suit in
August 2011 as a third-party defendant. Offshore brought a cross claim against
Liberty Mutual Insurance Company, its primary insurer, in September 2012,
and against Valiant, its excess insurer, in January 2014—three years after
Richard filed suit. Valiant answered in April 2014, asserting, among other
defenses, that under Exclusion 11(d) of its policy with Offshore, which we refer
to as the drilling rig exclusion, Valiant did not owe coverage for “any liability
for, or any loss, damage, injury or expense caused by, resulting from or
incurred by reason of any liability or expense arising out of the ownership, use,
or operation of drilling rigs . . . .” Offshore eventually settled with Richard, but
maintained its action for reimbursement against Liberty and Valiant. This
appeal involves only Offshore’s claim against Valiant.
      Valiant moved for summary judgment, arguing that the drilling rig
exclusion unambiguously precluded coverage for Richard’s accident, which
occurred on a drillship, a type of drilling rig. Offshore disagreed, claiming that,
among other things, (1) a drillship is not a drilling rig; (2) the drilling rig
exclusion does not preclude coverage, and applying it in the manner Valiant
suggests would lead to an absurd result because the policy would not cover
much; and (3) Valiant waived its right to assert coverage defenses by failing to
issue a reservation of rights letter and waiting until April 2014 to raise its
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policy defenses, including the drilling rig exclusion. The district court granted
summary judgment for Valiant, rejecting Offshore’s affirmative defense of
waiver and finding that the “drilling rig exclusion applies to the claims at issue
in this case and is a bar to coverage.” Offshore timely appealed. After reviewing
the briefs and record, we AFFIRM the district court’s grant of summary
judgment for Valiant.

                                II. Discussion
                                         A.
      We review de novo a grant of summary judgment, applying the same
standards as the district court. Malin Int’l Ship Repair & Drydock, Inc. v.
Oceanografia, S.A. de C.V., 817 F.3d 241, 249 (5th Cir. 2016). Summary
judgment is appropriate when “the movant shows that there is no genuine
dispute as to any material fact and the movant is entitled to judgment as a
matter of law.” Fed. R. Civ. P. 56(a).

                                         B.
      The parties agree that Louisiana law applies. “To determine Louisiana
law, we look to the final decisions of the Louisiana Supreme Court.” In re
Katrina Canal Breaches Litig., 495 F.3d 191, 206 (5th Cir. 2007). “In the
absence of a final decision by the Louisiana Supreme Court, we must make an
Erie guess and determine, in our best judgment, how that court would resolve
the issue if presented with the same case.” Id. In the absence of a state supreme
court opinion, we look to the state intermediary courts “as the strongest
indicator of what a state supreme court would do, absent a compelling reason
to believe that the state supreme court would reject the lower courts’
reasoning.” Hux v. S. Methodist Univ., 819 F.3d 776, 780–81 (5th Cir. 2016).

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      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 Louisiana Civil Code.” Cadwallader v. Allstate Ins.
Co., 848 So. 2d 577, 580 (La. 2003). “This court’s role in interpreting insurance
contracts is ‘to ascertain the common intent of the parties to the contract.’”
Cash v. Liberty Ins. Underwriters, Inc., 624 F. App’x 854, 858–59 (5th Cir.
2015) (unpublished) (quoting Cadwallader, 848 So. 2d at 580). “The parties’
intent, as reflected by the words of the policy, determine[s] the extent of
coverage.” Reynolds v. Select Props., Ltd., 634 So. 2d 1180, 1183 (La. 1994).
Finally, “[w]hen 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.
      The drilling rig exclusion states:
      III.   Exclusions
             A.   This insurance does not apply to:
                  ....
                  11.     Any liability for, or any loss, damage, injury or
                          expense caused by, resulting from or incurred by
                          reason of:
                          ....
                          d.     any liability or expense arising out of the
                                 ownership, use or operation of drilling
                                 rigs, drilling barges, drilling tenders,
                                 platforms, flow lines, gathering stations
                                 and/or pipelines, but this exclusion shall
                                 not apply to craft serving the foregoing
                                 such as crew, supply, or utility boats,
                                 tenders, barges or tugs.

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The district court found that the accident giving rise to this litigation occurred
on a drilling rig, a term that “clearly encompasses” drillships. 1 The district
court then held that the above exclusion precluded coverage for Richard’s
accident because the accident occurred on a “drilling rig.” In reaching its
conclusion, the district court looked to this court’s unpublished opinion in
Cash, which held that an identical exclusion precluded coverage under similar
circumstances.
       In Cash, a worker was injured “while being transferred by crane from a
platform to a supply vessel.” 624 F. App’x at 855. The excess insurance policy
in Cash contained an identical exclusion to the policy here. Based on that
exclusion, we concluded from the plain language of the policy “that the parties
intended to exclude platforms from coverage.” Id. at 860. We reasoned that “[i]f
the parties had intended for the use or operation of the platforms to be covered
under the policy, they could have drafted the contractual language that way or
omitted the term ‘platform’ from the exclusions section, but they did not.” Id.
We based our decision in Cash in large part on a Louisiana Court of Appeals
case that reached the same conclusion—Janex Oil Co. v. Hanover Compressor
Co., 694 So. 2d 415, 416 (La. App. 4 Cir. 1997). The court in Janex faced a
nearly identical exclusion, and likewise held that “the purpose of this exclusion
was to limit coverage to vessels while excluding drilling platforms.” Id.; see also
Underwriters at Lloyd’s London v. OSCA, Inc., No. 03-20398, 2006 WL 941794,
at *23 (5th Cir. Apr. 12, 2006).
       Offshore urges us not to follow our previous holding in Cash because, as
an unpublished case, it is not binding precedent under Fifth Circuit Rule
47.5.4. While Offshore is correct, we find Cash’s reasoning compelling and hold

       1 Offshore argues in passing that the term drilling rig might not encompass drillships,
but offers no authority or persuasive reasoning for what it agrees would be a “fine
distinction.” We are not persuaded by Offshore’s argument.
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that the district court was correct in finding that the drilling rig exclusion in
Valiant’s policy precluded coverage for Richard’s accident. As in Cash, we are
unpersuaded by Offshore’s argument that construing the plain language of the
exclusion in this way will lead to “absurd consequences” prohibited by La. Civ.
Code art. 2046. Offshore cites two cases in support. While Clovelly Oil Co., LLC
v. Midstates Petroleum Co., LLC, 112 So. 3d 187, 192 (La. 2013) stands for the
general proposition that courts should refrain from construing a contract in a
manner that leads to absurd results, the specific facts of that case provide no
support to Offshore. The issue in Clovelly was whether a lease acquired in 2008
by one of two parties to a 1972 joint operating agreement was covered by the
1972 agreement. In Ins. Office of Am., L.L.C. ex rel. S R M Props., L.L.C. v. H
I Insulation, L.L.C., 462 F. App’x 434, 437 (5th Cir. 2012) (unpublished) we
held that “interpreting an insurance policy to provide coverage for a non-
existent entity” would lead to an absurd consequence under Louisiana law.
Here, however, there is no question that Offshore purchased coverage for work
its employees actually carried out. The only question is what amount or
percentage of this work was not covered due to the exclusion’s drilling rig
exception. Even accepting Offshore’s assertion that it did “99% of its business
servicing the offshore oil industry,” that would not necessarily mean that the
exclusion leads to absurd results, for two reasons. First, the exclusion is clear
that it only covers the “ownership, use or operation of drilling rigs, drilling
barges, drilling tenders, platforms, flow lines, gathering stations and/or
pipelines,” and Offshore’s claim that it does 99% of its business servicing the
oil industry is not the same as a claim that 99% of its business involves the
“ownership, use or operation of drilling rigs . . . .” Second, the exclusion does
“not apply to craft serving [drilling rigs, drilling barges, drilling tenders,
platforms, flow lines, gathering stations and/or pipelines] such as crew, supply,
or utility boats, tenders, barges or tugs.” It is unclear how much of Offshore’s
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business “servicing the offshore oil industry” falls within this exception to the
exclusion. Of course, as in Cash, to avoid this very situation we reiterate that
if parties do not wish for the exclusion to apply to accidents on drilling rigs or
on drilling barges or on other listed locations, then they are free to contract
accordingly. See Cash, 624 F. App’x. at 860.
       We are similarly unpersuaded by Offshore’s waiver argument: that by
waiting until 2014 to raise its policy defenses, including the drilling rig
exclusion, and not previously issuing a reservation of right letter, Valiant
waived its right to assert coverage defenses. Under Louisiana law, “[w]aiver
occurs when there is an existing right, a knowledge of its existence and an
actual intention to relinquish it or conduct so inconsistent with the intent to
enforce the right as to induce a reasonable belief that it has been relinquished.”
Steptore v. Masco Constr. Co., 643 So. 2d 1213, 1216 (La. 1994). The district
court concluded that Valiant possessed an existing right under the policy and
knew of the right, 2 satisfying the first two Steptore elements, but did not
relinquish its rights based on actual intention or conduct—the third Steptore
element.
       Offshore relies almost exclusively on Steptore itself to support its
argument that “Valiant’s failure to notify [Offshore] of its intent to rely on the
drilling rig exclusion . . . for three years . . . resulted in a reasonable belief by
[Offshore] that Valiant did not intend to assert coverage defenses.” Offshore’s
primary argument is relinquishment based on conduct. 3 In Steptore, the

       2 The district court found that Valiant received notice of the accident in 2011, even
though it did not become a party to the lawsuit until 2014.
       3 Offshore also urges this court to find that Valiant had an actual intention to

relinquish its rights based on the testimony of John Moy, a Valiant underwriter. According
to Offshore, Moy negotiated with Offshore for its insurance business and was the Valiant
employee who received the 2011 notice of Richard’s accident. Based on these facts, Offshore
concludes that Valiant had “an intent to specifically insure companies like [Offshore] in
situations where accidents occurred during their work on . . . drillships.” The district court
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Louisiana Supreme Court held that “when an insurer, with knowledge of facts
indicating noncoverage under the insurance policy, assumes or continues the
insured’s defense without obtaining a nonwaiver agreement to reserve its
coverage defense, the insurer waives such policy defense.” Id. (emphasis added).
Here, the district court distinguished Steptore, reasoning that because Valiant
never assumed the defense of Offshore, “Valiant’s failure to issue a reservation
of rights letter, without more, does not constitute conduct inducing a
reasonable belief in waiver under Steptore.” We likewise find Steptore
distinguishable. The plaintiff in Steptore filed suit against both the primary
and excess insurers, making the excess insurer a full participant in the case
from the beginning of the lawsuit. Id. at 1214–15. Here, as mentioned, Valiant
was not made a party to this case until three years after the initial suit. Thus,
as the district court pointed out, “there is no evidence before the court to
suggest that Valiant ever assumed the defense of [Offshore].”
       Offshore responds by pointing to Steptore’s Opinion Denying Rehearing,
where the excess insurer for the first time asked the court to draw a distinction
between primary and excess insurers. Id. at 1220. The Steptore court declined
based on the facts presented in that case. Id. We are not persuaded that this
rehearing denial aids Offshore here. There is no question that in Steptore the
excess insurer was involved in the case from the beginning where, as here,
Valiant did not become a party to the suit until years later. In sum, we agree

rejected this argument, based in part on its conclusion that Moy’s testimony was “parol
evidence of the policy’s meaning.” We agree that Moy’s testimony on his personal
understanding of the Valiant policy does not establish Valiant’s actual intention to relinquish
its right to assert policy defenses. Valiant did not become a party to the litigation until 2014,
and it asserted its policy defenses, including the drilling rig exclusion, in its answer three
months later. We do not think that Moy’s understanding of the Valiant policy and his receipt
of the 2011 notice established an actual intention to relinquish Valiant’s right to assert policy
defenses when Valiant was not yet a party to the litigation and, thus, had not been required
to provide its policy defenses.
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with the district court that “the facts as alleged by [Offshore] do not show
conduct which . . . would induce a reasonable person to conclude that Valiant
waived its coverage defenses under the policy at issue in this case.”

                               III. Conclusion
      For the foregoing reasons, the judgment of the district court is
AFFIRMED. Valiant’s opposed motion to strike portions of the record on
appeal is DENIED.

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