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Law of the Case Doctrine Inapplicable: Policy Does Not Cover Rig Damages

Case: American Home Assurance Co. v. Oceaneering International, Inc.
U.S. Fifth Circuit Court of Appeals
Case No. 14-20222; 2015 U.S. App. LEXIS 6867 (unpublished decision)


In American Home Assurance Company, the Fifth Circuit found that Oceaneering International, Inc.’s (Oceaneering), reliance on two Fifth Circuit decisions from 2010 and 2012 in related suits to argue that damage to an oil rig was properly classified as property damage, and therefore covered under the policy, was misplaced.

An American energy corporation ("Energy Corporation") had hired Aker Maritime, Inc. to provide design and engineering services for the construction of a riser system which attached a floating spar to the ocean floor as part of an offshore oil production facility in the Gulf of Mexico. After its completion, stability problems plagued the riser system, leading to a crack in the spar’s hull. Oceaneering repaired the hull for Energy Corporation, and Energy Corporation put Aker in charge of designing a permanent fix. Aker ordered bolts from Lone Star as part of the fix, but Lone Star substituted the wrong kind of bolts for the right ones. Not only were the bolts the wrong kind, they were also defective. Oceaneering accepted the bolts without noticing the substitution. The bolts later failed. Thereafter, Energy Corporation sued Oceaneering, Aker, Lone Star and others on multiple theories of liability and a jury returned a verdict in favor of Energy Corporation on all claims, finding all Defendants negligent. Aker brought claims for indemnity against Oceaneering and Lone Star.

In a subsequent coverage suit, Oceaneering sought indemnification from its insurer, American Home Assurance, for Oceaneering’s own indemnification of Aker. American Home denied coverage under its Commercial General Liability Marine Package Insurance policy because there was no “property damage,” defined by the policy as “physical injury to tangible property, including all resulting loss of use of that property,” and based on a “sistership” exclusion contained in the policy. The district court granted summary judgment in American Home’s favor based on the sistership exclusion, which applied to bar coverage.

On appeal, the Fifth Circuit did not reach the issue the sistership exclusion, concluding that Oceaneering “failed to carry its burden of establishing ‘property damage’ as required by the Policy” in order to trigger a duty to indemnify. In so holding, the Fifth Circuit rejected Oceaneering’s arguments that the court was bound to follow two earlier Fifth Circuit decisions, both of which Oceaneering contended found that the defective bolts caused “property damage” to the spar. The Fifth Circuit examined the prior opinion’s and determined they were not binding in this separate coverage action through the law of the case doctrine because the prior rulings were in separate proceedings, rather in a “subsequent stages of the same case,” as the law of the case doctrine requires. The prior opinions, though stemming from the same event, also considered different issues and specifically did not address whether the bolts caused “property damage” to the spar. The Fifth Circuit noted the fundamental flaw in Oceaneering’s argument is that it assigned talismanic significance to the use of the words “property damage” in the earlier opinions. “Yet the words an opinion uses cannot be abstracted from the questions and arguments presented to the court for decision.” Because the prior opinions failed to establish the bolts caused “property damage” within the meaning of the policy, Oceaneering failed to carry its burden of demonstrating coverage.

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