910 F.2d 224 (5th Cir. 1990), 89-3557, Offshore Production Contractors, Inc. v. Republic Underwriters Ins. Co.

Docket Nº:89-3557.
Citation:910 F.2d 224
Party Name:OFFSHORE PRODUCTION CONTRACTORS, INC., Plaintiff-Appellee, Paul N. Dabaillon, Trustee in Bankruptcy of Norman Offshore Pipeline Contractors, Inc. (formerly Offshore Production Contractors, Inc.), Plaintiff-Appellee Cross-Appellant, v. REPUBLIC UNDERWRITERS INSURANCE COMPANY, Defendant-Appellee Cross-Appellee, v. BAYLY, MARTIN & FAY OF TEXAS, INC.,
Case Date:August 29, 1990
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit
 
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910 F.2d 224 (5th Cir. 1990)

OFFSHORE PRODUCTION CONTRACTORS, INC., Plaintiff-Appellee,

Paul N. Dabaillon, Trustee in Bankruptcy of Norman Offshore

Pipeline Contractors, Inc. (formerly Offshore

Production Contractors, Inc.),

Plaintiff-Appellee Cross-Appellant,

v.

REPUBLIC UNDERWRITERS INSURANCE COMPANY, Defendant-Appellee

Cross-Appellee,

v.

BAYLY, MARTIN & FAY OF TEXAS, INC., Defendant-Appellant

Cross-Appellee.

No. 89-3557.

United States Court of Appeals, Fifth Circuit

August 29, 1990

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[Copyrighted Material Omitted]

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Charles W. Nelson, Jr., New Orleans, La., for defendant-appellant cross-appellee.

Warren D. Rush, Gina Rush Calogero, Lafayette, La., for Offshore Production Contractors, Inc.

James Carroll, Peter B. Tompkins, Gelpi, Sullivan, Carroll & LaBorde, New Orleans, La., for Republic Underwriters Ins. Co.

Appeal from the United States District Court for the Middle District of Louisiana.

Before POLITZ, JONES, and BARKSDALE, Circuit Judges.

EDITH H. JONES, Circuit Judge:

Bayly, Martin & Fay, Inc. ("BMF") appeals from the district court judgment which concluded that BMF breached its duty to procure builder's risk stand-by insurance on behalf of Offshore Production Contractors Inc. ("OPC"). BMF contends both that Republic Underwriters Insurance Company ("Republic") wrongfully denied coverage for OPC's claim under the policy, and that BMF used its best efforts to obtain the broadest possible coverage. Because the district court did not clearly err when it decided that BMF misrepresented the scope of OPC's coverage and that OPC reasonably relied on BMF's misrepresentations, we affirm.

I.

Background

Offshore Production Contractors, Inc. ("OPC"), a maritime construction company, lays offshore oil pipelines for the petroleum industry. In September, 1984, OPC contracted with Mesa Petroleum Company to construct a pipeline at Brazos A-7 in the Gulf of Mexico. OPC would connect pipelines running along the floor of the Gulf with Mesa's production platform through a "riser" constructed by OPC. As part of the contract, Mesa required OPC to obtain offshore builder's risk insurance.

OPC's Chief Executive Officer Robert Norman contacted Peter Barbara, OPC's regular insurance agent at Bayly, Martin & Fay, Inc. ("BMF"), to obtain the insurance.

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Barbara was well respected, having spent over 30 years in the insurance industry. He specialized in insurance for enterprises servicing oil companies. Barbara handled over 80 percent of OPC's business through verbal commitments, billing OPC for the premium anywhere from 30 to 90 days after the policy's effective date.

In this instance, Barbara recommended that OPC purchase a blanket builder's risk insurance policy, which would permit OPC to submit separate declarations for each project. Barbara quoted Norman two premiums. Standard builder's risk insurance would cost approximately $20,000 depending upon project specifications. For an additional $4,125, Norman could receive coverage for stand-by time. 1 Stand-by coverage insures a company that has mobilized its equipment against losses incurred when equipment or the project itself is damaged, and some of the mobilized equipment or workers must remain idle while the damage is repaired. 2 Because OPC undertook the Mesa project during the fall, OPC estimated that weather in the Gulf might damage equipment, causing down-time while OPC fixed the problem. Consequently, Norman elected to purchase the stand-by coverage.

Barbara communicated Norman's decision to Bert Swayles and Tommy Ebner, Jr., two other BMF agents with expertise in drafting stand-by policies. Swayles and Ebner negotiated with Republic Underwriters Insurance Company ("Republic") to formulate OPC's stand-by clause. These drafters started with provisions from other policies, refined and excluded specific terms, and arrived at the current language. Most importantly, they rejected language which would have covered stand-by time "whenever repairs for loss, damage or destruction ... cannot be conducted due to the weather, but pipe laying operations could have been conducted by the contractor if there had been no repairs necessary." Swayles and Ebner delivered the final language to Barbara on September 15, 1984.

Barbara discussed the entire insurance contract with OPC. At trial, he did not remember whether OPC asked him if the policy covered incidents like the one at issue in this case, but he did recall discussing the stand-by clause as triggered by weather and by other mechanical problems. Barbara told OPC that since the stand-by clause contained no express exclusions, the policy appeared to cover stand-by "for whatever reason." According to Barbara, once an insured loss occurred, Republic should compensate OPC for all time spent waiting to repair the damage, regardless of the reason for the delay. Barbara mildly qualified these explanations with the caveat that no court had yet interpreted this contract language, and he was uncertain exactly what a court would do.

Barbara did not provide OPC with an actual copy of the policy until well after the incident that led to OPC's claim. He also did not ask Ebner or Swayles, the policy's drafters, to interpret the stand-by clause for OPC. Barbara never mentioned the 48-hour deductible which OPC needed to satisfy before Republic would cover stand-by time, or the $100,000 deductible for insured damage. Robert Norman relied upon Barbara's representations when he elected to purchase this insurance. Had Norman even suspected that the stand-by clause would not cover down-time due to weather, he never would have purchased this supplementary coverage.

Shortly after purchasing the insurance, OPC used the barge DELTA I to lay Mesa's pipeline. By October 13, 1984, OPC was ready to connect the pipeline on the Gulf bottom to the production equipment

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on Mesa's platform. OPC raised the end of the pipeline off the sea floor, clamped it to the barge using bear clamps, and began to weld the tube-turn section of the riser onto the pipeline. Half-way through the process, the weather turned threatening and rough seas jolted the barge. The weld broke. OPC rebevelled the ends of the riser and the pipeline, and attempted to reassemble the weld. The weather foiled OPC's efforts.

Electing to move its barge to safer waters, OPC placed the riser on the deck, capped the pipeline and dropped it back down to the sea bottom. Tugboats then towed the barge several miles from the platform, where it remained moored until October 24 when it returned to the project site. The storm finally dissipated sufficiently by October 28 to permit OPC to lay pipe. OPC still could not repair the riser. Working from October 28 until November 1, and from November 2 until November 5, OPC eventually abandoned the site again because of bad weather.

The weather finally permitted OPC to repair the riser on November 11. After moving its barge back into position abutting Mesa's offshore platform, OPC dispatched divers to the sea bottom to locate the pipeline. High seas had caused the pipeline to drift almost 30 feet from its expected location. OPC again raised the pipeline onto the barge, clamped it with the bear clamps, and repaired the riser. OPC expended approximately 30 hours completing the repairs.

Once OPC finished the project, Norman called Barbara to discuss filing a claim for stand-by expenses incurred after the riser weld broke. Barbara advised OPC that the stand-by clause in the builder's risk policy should cover the damage. With Barbara's assistance, OPC prepared a cost accounting and filed its proof of loss with Republic. Upon investigating the incident, Republic denied OPC's claim because the stand-by time resulted from bad...

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