Freeport McMoRan Resource Partners v. Kremco, Inc.

• Decision Date: 25 June 1993
• Docket Number: Civ. A. No. 92-0036.
• Citation: 827 F. Supp. 1248
• Parties: FREEPORT McMoRAN RESOURCE PARTNERS, LIMITED PARTNERSHIP v. KREMCO, INC.; Dreco Energy Services Limited, d/b/a Dreco Services; Dreco, Inc., d/b/a Dreco Services; and National Union Fire Ins. Co. of Pittsburgh, Pa.
• Court: U.S. District Court — Eastern District of Louisiana

827 F. Supp. 1248

FREEPORT McMoRAN RESOURCE PARTNERS, LIMITED PARTNERSHIP v. KREMCO, INC.; Dreco Energy Services Limited, d/b/a Dreco Services; Dreco, Inc., d/b/a Dreco Services; and National Union Fire Ins. Co. of Pittsburgh, Pa.

Civ. A. No. 92-0036.

United States District Court, E.D. Louisiana.

June 25, 1993.

William B. Gibbens, III, Russell Bennett Ramsey, Gelpi, Sullivan, Carroll & Gibbons, New Orleans, LA, for plaintiff.

James J. Hautot, Jr., Michael W. Adley, Juneau, Judice, Hill & Adley, Lafayette, LA, David Arthur Olson, Lemle & Kelleher, David F. Bienvenu, Paul J. Politz, Renee Summer Melchiode, Hoffman, Sutterfield, Ensenat & Bankston, James Richard Holmes, James Holmes, New Orleans, LA, Susan A. Daigle, Bryan David Scofield, Broussard, David & Daigle, Lafayette, LA, John Michael Johnson, Larry Gene Canada, Galloway, Johnson, et al., Donald Richard Abaunza, Russell Keith Jarrett, Liskow & Lewis, New Orleans, LA, for defendants.

ORDER AND REASONS

LIVAUDAIS, District Judge.

Defendants Underwriters at Lloyd's and Insurance Companies subscribing to Certificate No. 41422 ("underwriters") have filed a Motion for Summary Judgment on the issue of whether claimed damages are excluded from the policy's excess comprehensive general liability coverage. Plaintiff Freeport McMoRan ("McMoRan"), and defendants Kremco, Inc. ("Kremco"), Dreco, Inc. ("Dreco"), and Dreco Energy Services, Ltd. ("DESL"), oppose the motion. The volume of supplemental memoranda filed has led this Court to conclude that it could not be more familiar with the factual intricacies of this case.

I. Factual and Procedural Background

One of McMoRan's platforms, located in Main Pass Block 299 on the Outer Continental Shelf off the Louisiana coast, sustained structural damage on January 9, 1991. Prior to the accident, McMoRan and Dreco had entered into a contract pursuant to which Dreco was to manufacture three folding derrick drilling rigs.¹ The accident at issue involved one of those rigs. McMoRan planned to use the rig to drill pressure control wells in the Gulf of Mexico. These wells would have relieved the pressure that accumulated as McMoRan drilled into a nearby sulfur dome as part of its sulfur production project.

Dreco's engineering department designed the drilling rig, and then Kremco constructed the rig for Dreco at Kremco's manufacturing plant in Clearfield, Utah. The rig was then shipped to Louisiana, and subsequently transported to McMoRan's platform by a separate contractor whom McMoRan hired. Kremco then affixed the rig to the platform. The derrick portion was designed to be hydraulically raised and lowered, and on January 9, 1991, Kremco employees began to show McMoRan employees how to accomplish this task. In doing so, the derrick was raised to its upright position. Then, as the derrick was lowered, it collapsed and fell into the Gulf of Mexico, damaging McMoRan's platform in the process. The rig's substructure remained on the platform.

McMoRan contracted with Offshore Pipelines, Inc. ("OPI") to retrieve the derrick and other equipment from the Gulf, and to remove the substructure from the platform. OPI charged McMoRan $581,663.15 for these services. The underwriters move for summary judgment here only with regard to the cost of removing the substructure. McMoRan then rented space in McDermott Inc.'s ("McDermott") derrick yard in order to store the derrick while it was repaired. McDermott charged $51,850.63 for these services. After Dreco repaired the rig, McDermott, pursuant to a contract with McMoRan, transported and installed it on McMoRan's platform. McDermott charged $230,822.99 to do so.

Shortly after the derrick collapsed, McMoRan hired Waldemar S. Nelson & Co., Inc. ("Waldemar") to investigate why the collapse occurred, and to ensure that a similar fate did not befall Dreco's other two drilling rigs. Waldemar charged $189,986.21 for its services. Third Party Plus ("Third Party") and Wide World Consultants ("Wide World") performed services similar to those of Waldemar, and these companies charged McMoRan $38,925.58 and $2,779.32, respectively.

McMoRan filed suit against Dreco and Kremco alleging breach of contract, negligence, and strict liability. McMoRan also sued Dreco's primary insurer, National Union Fire Insurance Company of Pittsburgh, and Dreco's excess insurer, the Lloyd's underwriters who move for summary judgment here. The underwriters contend that as a matter of law, the policy at issue here (the pertinent language is set forth in the analysis below) excludes from coverage the items of damage specified above. The underwriters further argue that McMoRan's claim for $20,756.93 in attorneys' fees fails.

II. Analysis

A. Applicable Law — State or Maritime?

The underwriters contend that the determination of which law applies is irrelevant for summary judgment purposes because Louisiana, Texas, and federal courts have consistently interpreted the language at issue in the excess policy. McMoRan gives cursory treatment to the choice of law issue in its brief, and ultimately concludes, without providing much guidance, that this Court must determine which law applies before deciding the instant motion. The Court agrees with this view.

Notably, the accident occurred on the Outer Continental Shelf, and indeed McMoRan invoked this Court's federal question jurisdiction pursuant to the Outer Continental Shelf Lands Act ("OCSLA"), 43 U.S.C. §§ 1331-1356. At first glance, OCSLA seems without question to dictate which law this Court must follow here:

To the extent that they are applicable and not inconsistent with ... Federal laws ... the civil and criminal laws of each adjacent State, now in effect or hereafter adopted, amended, or repealed are hereby declared to be the law of the United States for that portion of the subsoil and seabed of the outer Continental Shelf, and artificial islands and fixed structures erected thereon, which would be within the area of the State if its boundaries were extended seaward to the outer margin of the outer Continental Shelf ...

43 U.S.C. § 1333(a)(2)(A). Assuming that state law applies in this case, OCSLA dictates that the law of Louisiana would govern as it is the state adjacent to the part of the shelf where the McMoRan platform was located. What the parties fail to address in their briefs, however, is whether state law satisfies the "not inconsistent" with Federal law (maritime law in this case) requirement.

The Fifth Circuit has devised a test which somewhat parallels OCSLA's language. In deciding whether Louisiana state law applies as surrogate federal law under OCSLA, courts must examine the following factors: "(1) The controversy must arise on a situs covered by OCSLA (i.e. the subsoil, seabed, or artificial structures permanently or temporarily attached thereto). (2) Federal maritime law must not apply of its own force. (3) The state law must not be inconsistent with Federal law." Union Texas Petroleum Corp. v. PLT Engineering, Inc., 895 F.2d 1043, 1047 (5th Cir.), cert. denied, 498 U.S. 848, 111 S.Ct. 136, 112 L.Ed.2d 103 (1990).

The first factor is unquestionably satisfied here; the accident occurred on McMoRan's platform on the Outer Continental Shelf. The second factor, however, presents the troublesome question of whether maritime law or Louisiana state law controls. While the Court ultimately concludes that Louisiana law applies, the facts in this case come perilously close to those in cases where the Fifth Circuit has held that maritime law applies, and therefore a somewhat detailed discussion of choice of law is warranted.

Uncertainty stalks the Fifth Circuit's OCSLA jurisprudence; no less than three sitting judges on that court have recognized the tension in the case law with regard to whether state law or maritime law applies to certain causes of action arising on the Outer Continental Shelf. "I am ... troubled by the tension, or perhaps outright inconsistency, between many of our opinions in this area." Thurmond v. Delta Well Surveyors, 836 F.2d 952, 957 (5th Cir. 1988) (Garwood, J., concurring). An "apparently contradictory line of cases" exists with regard to the choice of law issue. Lewis v. Glendel Drilling Co., 898 F.2d 1083, 1084 (5th Cir.1990) (Jones, J.), cert. denied, ___ U.S. ___, 112 S.Ct. 171, 116 L.Ed.2d 134 (1991). "In each new case, a panel of this court must comb through a bewildering array of cases that rely upon inconsistent reasoning in the hope of finding an identical fact situation. Absent en banc reconciliation, cases thus are decided on what seems to be a random factual basis." Smith v. Penrod Drilling Corp., 960 F.2d 456, 461 (5th Cir.1992) (footnote omitted) (Smith, J.). Unfortunately, the instant case has no preexisting factual twin, and therefore this Court turns to several cases for instructive purposes.

In Laredo Offshore Constructors, Inc. v. Hunt Oil Co., 754 F.2d 1223 (5th Cir.1985), the court held that OCSLA and the relevant state law thereunder applied to a contract for constructing an offshore oil and gas platform that would be permanently attached to the ocean floor on the Outer Continental Shelf. Id. at 1229. In reaching this conclusion, the court found persuasive the fact that "Laredo's principal obligation under the contract was the construction of a stationary platform, and ... it is the alleged breach of this obligation that gave rise to the instant action." Id. at 1231. The court also noted that while "the contract contemplated the hiring of vessels and seamen to build the structure, it had no direct relationship with these traditional subjects of maritime law ... and the mere inclusion of maritime obligations in a mixed contract does not, without more, bring nonmaritime obligations within the pale of admiralty law." Id.

In the present case, the contract between McMoRan and Dreco specified that Dreco was to design and construct (although Kremco actually performed the construction work for Dreco) three...