Court Opinion

ID: 4185173
Source: CourtListenerOpinion
Date Created: 2017-07-11 18:01:09.707109+00
Date Added: 2024-06-11T14:13:13.898667
License: Public Domain

Case: 16-30456   Document: 00514067042     Page: 1   Date Filed: 07/11/2017

                        REVISED July 11, 2017

        IN THE UNITED STATES COURT OF APPEALS
                 FOR THE FIFTH CIRCUIT      United States Court of Appeals
                                                     Fif h Circuit

                                                                          FILED
                                                                        June 21, 2017
                                 No. 16-30456
                                                                        Lyle W. Cayce
                                                                             Clerk
INTERNATIONAL MARINE, L.L.C.; INTERNATIONAL OFFSHORE
SERVICES, L.L.C.,

             Plaintiffs - Appellants

TESLA OFFSHORE, L.L.C.,

             Intervenor Plaintiff - Third Party Plaintiff - Appellant

v.

INTEGRITY FISHERIES, INCORPORATED; SEA EAGLE FISHERIES,
INCORPORATED,

             Defendants – Appellees

NATIONAL SECURITY FIRE AND CASUALTY COMPANY; ATLANTIC
SPECIALTY INSURANCE COMPANY; ONE BEACON INSURANCE
COMPANY; NEW YORK MARINE AND GENERAL INSURANCE
COMPANY,

            Third Party Defendants - Appellees

                Appeals from the United States District Court
                    for the Eastern District of Louisiana

Before SMITH, ELROD, and HAYNES, Circuit Judges.
HAYNES, Circuit Judge:
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                                      No. 16-30456

       International Marine, L.L.C., International Offshore Services, L.L.C.
(collectively “International”), and Tesla Offshore, L.L.C. (“Tesla”), appeal the
district court’s grant of summary judgment dismissing their indemnity and
insurance claims. 1 For the reasons explained below, we AFFIRM in part and
VACATE and REMAND in part.
                                    I. Background
       This case involves an allision in the Gulf of Mexico causing significant
damage to a submerged mooring line for the M/V NAUTILUS (the
“NAUTILUS”), a mobile offshore drilling unit used by Shell Offshore, Inc.
(“Shell”), to conduct drilling operations. The principal dispute before this court
concerns whether third parties are contractually obligated to pay for that
damage.
       Tesla, an offshore survey company, was tasked with performing an
archaeological sonar survey in the Gulf of Mexico. To perform this survey,
Tesla required two vessels: a larger vessel, called the “tow vessel,” and a
smaller vessel, called the “chase vessel.” Tesla contracted with International
to provide and operate the tow vessel, called the M/V INTERNATIONAL
THUNDER (the “THUNDER”).                  As to the chase vessel, Tesla initially
contracted with Integrity Fishers, Inc. (“Integrity”), but after Integrity’s vessel
developed mechanical issues, Integrity substituted a different chase vessel
owned and operated by Sea Eagle Fisheries, Inc. (“Sea Eagle”), called the F/V
LADY JOANNA (the “JOANNA”). 2

       1 International attempted to amend its complaint to include claims against the
insurers, but the district court denied this amendment as “futile” in its summary judgment
decision. This opinion refers to the claims described in International’s proposed amended
complaint and Tesla’s claims against the insurers collectively as the “insurance claims.” On
remand, the district court should reconsider the motion to amend.
       The parties dispute whether Integrity was also an owner of the JOANNA. Integrity
       2

admitted that Charles V. Rodriguez, Sr., is president of both Integrity and Sea Eagle, and
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      The THUNDER traveled along a survey grid while towing a “towfish,”
owned by Tesla. The towfish was attached to a cable, nearly two miles long,
and was towed close to the bottom of the ocean, where it emitted sonar signals
and transmitted the echo of those signals to Tesla equipment on the chase
vessel. Tesla personnel, rather than the crew of the chase vessel, operated the
Tesla equipment.       At the time of the allision, the chase vessel was the
JOANNA. According to Tesla’s party chief aboard the JOANNA, the Tesla
tracking equipment was “our responsibility,” whereas the crew of the JOANNA
was responsible for “driving the vessel and staying within . . . a radius of a tow
fish.” The Tesla equipment automatically relayed the sonar signals to the
THUNDER, which allowed the Tesla survey team to monitor the towfish and
maintain the proper towfish position above the ocean bottom and in relation to
the survey grid.
      The precipitating incident for this litigation was an allision between the
towfish cable and a submerged mooring line for the NAUTILUS. Prior to the
allision, the towfish had experienced technical problems, forcing Tesla to reel
it onto the THUNDER for repairs.               The THUNDER and the JOANNA
temporarily went off the grid toward the south until the towfish was repaired
and redeployed, at which point the THUNDER turned north, back toward the
grid, followed by the JOANNA. According to International, this turn toward
the north put both vessels on a course that brought them closer to the
NAUTILUS. The JOANNA’s captain informed Tesla’s party chief, who was
occupied with the Tesla equipment, that the THUNDER was getting too close
to the NAUTILUS. The party chief then radioed the THUNDER to warn of the
danger, but his warning was met with assurances that everything was okay.
The party chief testified that about thirty to forty-five minutes later the towfish

evidence suggests that Integrity has an insurable interest in the JOANNA. Nevertheless,
because we affirm the dismissal of the indemnity claim, we need not resolve this dispute.
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cable allided with the mooring line of the NAUTILUS. The JOANNA was over
the towfish and the Tesla equipment was sending sonar signals to the
THUNDER immediately prior to the allision.
       Shell, which was using the NAUTILUS for drilling operations when the
allision occurred, sued Tesla and International for negligence. 3 In the Shell v.
Tesla negligence litigation, a jury awarded damages to Shell and determined
that Tesla was 75% at fault and International was 25% at fault. In the present
action before this court, Tesla and International claim they are entitled to
indemnity from Integrity and Sea Eagle because the allision related to the
operation of the JOANNA. Tesla and International additionally claim that
they are entitled to insurance coverage because they were added as additional
insureds on Integrity’s and Sea Eagle’s insurance policies with Atlantic
Specialty Insurance Company/One Beacon Insurance Company (“One Beacon”)
and New York Marine & General Insurance Company (“NY MAGIC”). 4
       The contractual relationships between Tesla, Integrity, and Sea Eagle
were set out in two master service agreements (“MSAs”). The parties agree
that the MSAs were identical in all relevant respects, and this litigation
focuses on two articles, Article 9 and Article 11. Article 9 provides, in relevant
part, that the indemnitors (here, Integrity or Sea Eagle) are liable to Tesla and

       3   This litigation is referred to as Shell v. Tesla.
       4  This indemnity and insurance lawsuit took a circuitous route before reaching its
present iteration. In response to Shell’s lawsuit, Tesla and International impleaded Sea
Eagle for indemnity. Upon discovering that Integrity may have had an ownership interest
in the JOANNA, International subsequently filed a separate indemnity lawsuit against
Integrity—which was the initiating suit for the present action before this court. The district
court concluded that the Sea Eagle indemnity claim in Shell v. Tesla was related to the
International lawsuit, and thus decided to consolidate the Sea Eagle indemnity claim with
the International lawsuit. Shell v. Tesla continued as a trial on International and Tesla’s
fault for the allision with the NAUTILUS, while the International lawsuit was used to settle
any indemnity and insurance claims. Thus, the district court dismissed the claims against
Sea Eagle from Shell v. Tesla and permitted them to be reasserted here, which International
did via a second amended complaint and Tesla did via a third-party demand. Tesla then
impleaded Sea Eagle’s and Integrity’s insurers, One Beacon and NY MAGIC.
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its contractors for damage to third party property “arising out of or related in
any way to the operation of any vessel owned . . . by [Integrity or Sea Eagle]
. . . to perform work under this agreement except to the extent such loss, harm,
infringement, destruction, or damages is caused by [Tesla’s or its contractor’s]
gross negligence or willful misconduct.” This obligation is owed “regardless of
cause including who may be at fault or otherwise responsible under any
contract, statute, rule or theory of law.” Article 11 requires, in relevant part,
that Sea Eagle and Integrity provide insurance coverage for “third party claims
arising out of or connected with the performance of Service hereunder,” and
name Tesla and its contractors as additional insureds.                    The insurance
obligations purchased under the MSAs were required to be “independent of the
indemnity obligations contained in the contract/agreement and [to] apply
regardless     of   whether     the    indemnity     provisions     contained      in   the
contract/agreement are enforceable.”
       The insurers filed three motions to dismiss. The district court, however,
never explicitly decided these motions. While they were still pending, Integrity
and Sea Eagle filed motions for summary judgment. Tesla and International
responded with their own cross-motions for summary judgment. The district
court granted Integrity’s and Sea Eagle’s motions and denied Tesla’s and
International’s motions, concluding that “Shell’s claims for damages based on
the M/V NAUTILUS incident did not arise out of, and are not related to, the
operation of the F/V LADY JOANNA.” Furthermore, because it found that
there was no indemnity obligation, the district court also concluded that the
insurers did not have any obligations to Tesla or International, and it
dismissed all claims against the insurers.            Tesla and International timely
appealed. 5

       5 In February 2016, prior to the district court’s summary judgment order, Tesla,
International, Integrity, and Sea Eagle reached a partial settlement, but expressly reserved
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                              II. Standard of Review
      We review a grant of summary judgment de novo. Int’l Marine, L.L.C.
v. Delta Towing, L.L.C., 704 F.3d 350, 354 (5th Cir. 2013).                   “Summary
judgment is appropriate when ‘there is no genuine dispute as to any material
fact and the movant is entitled to judgment as a matter of law.’” Id. (quoting
FED. R. CIV. P. 56(a)). The interpretation of a maritime contract is a question
of law. Id.
                                   III. Discussion
A. Indemnity Claims
      Tesla and International make two principal arguments: the JOANNA’s
operation was “related to” the damages sustained by the NAUTILUS because
(1) the JOANNA’s job was to position itself above the towfish, thereby enabling
the onboard Tesla equipment to relay a sonar signal to the THUNDER for
proper navigation; and (2) the JOANNA and the THUNDER were involved in
a joint sonar survey operation in which the JOANNA played an essential role.
We conclude that the summary judgment evidence supports only one finding:
the operation of the JOANNA was independent of the negligent conduct found
to have caused damage to the NAUTILUS. Accordingly, we affirm the district
court’s judgment and hold that neither Sea Eagle nor Integrity owe indemnity
under the MSAs.
       Under federal maritime law, an indemnity contract covers losses within
the contemplation of the parties but not those which are “neither expressly
within its terms nor of such a character that it can be reasonably inferred that

the indemnity and the insurance claims. As part of that agreement, Integrity and Sea Eagle
were given a guarantee that no uninsured judgment would be collected against them. In
Tesla’s impleader and third-party complaint, it alleged that NY MAGIC issued a
“Bumbershoot Policy” adding the JOANNA and providing coverage for contractual liability.
Because of this agreement, although Integrity and Sea Eagle remain parties to this lawsuit,
the only parties making an active defense of the district court’s order are One Beacon and
NY MAGIC.
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the parties intended to include them within the indemnity coverage.” Corbitt
v. Diamond M. Drilling Co., 654 F.2d 329, 333 (5th Cir. 1981). We look to the
contract as a whole and can only look beyond the contract if there is an
ambiguity. Fontenot v. Mesa Petroleum Co., 791 F.2d 1207, 1214 (5th Cir.
1986).   “[W]e have broadly construed language identical or similar to the
‘arising in connection herewith’ language in [the agreement at issue] to
unambiguously encompass all activities reasonably incident or anticipated by
the principal activity of the contract.” Id. Though broad, however, such an
undertaking is not limitless. Marathon Pipe Line Co. v. M/V Sea Level II, 806
F.2d 585, 591 (5th Cir. 1986) (rejecting a construction that would “read the
‘occurring in connection with’ language to cover a limitless number of
unforeseeable casualties that might have occurred during the pendency of the
construction work on [the company’s] pipeline”). When one party’s negligent
contractual performance causes third party property damage independent of
the alleged indemnitor’s contractual performance, indemnity is usually not
required absent a clear indication that the parties agreed to such an unusual
undertaking. See id.
      In Marathon, we examined whether the damage in question was related
to the services performed by the alleged indemnitor, Oceanonics, under its
contract. Id. at 590–91. We explained that the contract could not “be read in
a vacuum to apply to any situation for which a colorable argument could be
made that loss of property was somehow related to Oceanonics’ services under
the contract.” Id. at 591. Instead, we held that “since Oceanonics did not
contract to place [the vessel in question’s] anchors, the . . . indemnity provision
created no obligation on Oceanonics’ part to indemnify [the plaintiff].” Id.
      Here, as in Marathon, Tesla and International’s negligence, as well as
the resulting damage to the NAUTILUS, was independent of the operation of
the JOANNA.       The principal activity of the contract between Tesla and

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Integrity/Sea Eagle was for Integrity/Sea Eagle to operate the JOANNA as a
chase vessel—i.e., to navigate the 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 JOANNA before an indemnity obligation
arises. Nothing about the 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 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 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].” Id. at 592.
       Indemnity is not owed merely because Tesla and International were
negligent during the survey, in the absence of the requisite connection to the
JOANNA’s operation. See id. at 591. Although the 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. 6             Because the summary judgment evidence

       6 In Marathon, we observed that “potential liability” under the indemnity provision
was limited to “accidents that might occur during [the contractor’s] performance of contract
services.” Marathon, 806 F.2d at 591. This statement did not mean that every accident
occurring during the contractor’s performance of contract services would trigger the
indemnity provision. It merely meant that the potential for liability was possible only during
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supports only the conclusion that the JOANNA’s operation made no
contribution to the negligent act causing the NAUTILUS’s damages, indemnity
is not owed under the MSAs. See id. at 592; cf. Fontenot, 791 F.2d at 1216
(“[T]he Mesa-Rowandrill contract contemplated the operation of a heliport
aboard the [drilling rig] and . . . Fontenot’s injuries occurred ‘in connection
[]with’ the operation of that heliport.” (third alteration in original)).
      To be clear, we continue to subscribe to the general rule articulated in
Fontenot that indemnity agreements containing language such as “arising out
of” should be read broadly. See Fontenot, 791 F.2d at 1214. It is only when the
alleged indemnitor’s contractual performance is completely independent of
another party’s negligent act that caused damage that we apply a limitation to
this general rule. See Marathon, 806 F.2d at 591.
      In Marathon, we also concluded that a gratuitous warning by the alleged
indemnitor to the plaintiff of potential danger did not give rise to indemnity
liability that would not otherwise exist. Id. at 590. Similarly here, the warning

the contractor’s performance of services under the contract. There are instances in which
accidents occurring during a contractor’s performance are nevertheless independent of that
performance. This case is one example: a joint sonar survey was underway and Integrity/Sea
Eagle successfully performed its obligations under the contract by positioning the JOANNA
above the towfish while another contractor negligently performed its own obligations by
running the towfish into a submerged mooring line, and the JOANNA had no additional
relationship to the resulting damages. Under such circumstances, no indemnity is owed
unless the contract indicates that Integrity/Sea Eagle “agreed to such an unusual
undertaking.” Id. In another example, if the THUNDER itself had negligently allided with
the NAUTILUS while the joint sonar survey was still underway and the JOANNA was still
in operation positioned above the towfish, this negligent act would be independent of the
JOANNA’s operation. Imposing an indemnity obligation merely because of the JOANNA’s
involvement in the ongoing joint sonar survey would create “an unusual and surprising
obligation.” See id. (quoting Corbitt, 654 F.2d at 333).
       By contrast, if the JOANNA developed a technical issue impairing its performance—
even if caused by the installation of Tesla’s equipment or the conduct of Tesla’s onboard
crew—and third party damages arose from that technical failure, then those damages might
arise out of or relate to the JOANNA’s operation. Similarly, if, during the sonar survey, a
third party boarded the JOANNA to refuel it or to repair Tesla equipment, and either the
third party’s equipment were damaged or personnel were injured, then those damages might
arise out of or relate to the JOANNA’s operation. See Fontenot, 791 F.2d at 1214.
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from the JOANNA’s captain to Tesla’s party chief that the THUNDER was
moving too close to the NAUTILUS was, as the district court correctly
concluded, a gratuitous act that has no effect on the outcome of this litigation.
See id.
B. Insurance Claims
       The district court concluded that because the indemnity claims failed,
the insurance claims also failed.          Although 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. The scope of insurance coverage is determined
by the language of the insurance policy obtained, 7 which may yield a different
result than the indemnity provision in the original contract. See Six Flags, Inc.
v. Westchester Surplus Lines Ins. Co., 565 F.3d 948, 954 (5th Cir. 2009) (“The
language of the policy is the starting point for determining [the parties’]
intent.”); Elliott v. Cont’l Cas. Co., 949 So.2d 1247, 1254 (La. 2007) (“The
parties’ intent, as reflected by the words of the policy, determine the extent of
coverage.”); see also Int’l Offshore Servs., L.L.C. v. Linear Controls Operating,
Inc., 647 F. App’x 327, 329 (5th Cir. 2016) (“Even assuming arguendo that the
MSC required Linear to secure [insurance] coverage, that would not determine
whether Linear actually secured the coverage in this Policy. We must look to

       7 Following the Supreme Court’s decision in Wilburn Boat Co. v. Fireman’s Fund
Insurance Co., 348 U.S. 310 (1955), we have held that “the 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. Emp’rs Ins.
of Wasau, 771 F.2d 910, 912 (5th Cir. 1985); see also Wilburn, 348 U.S. at 313 (“In the field
of maritime contracts as in that of maritime torts, the National Government has left much
regulatory power in the States.”); Albany Ins. Co. v. Kieu, 927 F.2d 882, 886 (5th Cir. 1991)
(“State law, therefore, governs the interpretation of marine insurance policies unless an
available federal maritime rule controls the disputed issue.”). Under Louisiana law,
insurance contracts are subject to general rules of contract interpretation under the civil
code. Bernard v. Ellis, 111 So. 3d 995, 1002 (La. 2007).

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the Policy’s language . . . .”); Holden v. U.S. United Ocean Servs., L.L.C., 582
F. App’x 271, 273 (5th Cir. 2014) (in a case involving both an indemnity
obligation and an obligation to add a party as a named insured, court analyzed
each possible ground for liability separately: “We discern two possible ways in
which there could be coverage . . . (1) if [the indemnitor] were liable via its
indemnity, . . . or (2) if the [] claims against the indemnitee were covered by
the policy pursuant to [its] status as an additional insured under the policy.”). 8
       Here, none of the insurance policies are in the record nor is there any
other evidence from which the policy language can be definitively discerned.
Summary judgment cannot be granted on the insurance claims without first
reviewing the insurance policies and determining their scope. It is possible
that Tesla and International were added as additional insureds on a policy that
provides more coverage than that set forth in the MSAs. On this record,
however, we cannot make that determination. Accordingly, we vacate the
district court’s judgment as to Tesla’s and International’s insurance claims and
remand those claims for appropriate disposition.
       For the foregoing reasons, we AFFIRM the summary judgment
dismissing the indemnity claims, VACATE the dismissal of the insurance
claims, and REMAND the case to the district court for further proceedings
consistent with this opinion.

       8Although International Offshore Services and Holden are not “controlling precedent,”
they “may be [cited as] persuasive authority.” Ballard v. Burton, 444 F.3d 391, 401 n.7 (5th
Cir. 2006) (citing 5TH CIR. R. 47.5.4).
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