Richard v. Anadarko Petroleum Corp.

• Decision Date: 02 March 2017
• Docket Number: No. 16-30216,16-30216
• Citation: 850 F.3d 701
• Parties: Raylin RICHARD, Plaintiff v. ANADARKO PETROLEUM CORPORATION, Defendant–Third Party Plaintiff Offshore Energy Services, Incorporated, Third Party Defendant–Appellee v. Liberty Mutual Insurance Company, Third Party Defendant–Appellant
• Court: U.S. Court of Appeals — Fifth Circuit

850 F.3d 701

Raylin RICHARD, Plaintiff

v.ANADARKO PETROLEUM CORPORATION, Defendant–Third Party Plaintiff

Offshore Energy Services, Incorporated, Third Party Defendant–Appellee

v.Liberty Mutual Insurance Company, Third Party Defendant–Appellant

No. 16-30216

United States Court of Appeals, Fifth Circuit.

FILED March 2, 2017

Jefferson Randolph Tillery, Esq., Madeleine M. Fischer, Jones Walker, L.L.P., New Orleans, LA, Gary Jude Russo, Lafayette, LA, for Defendant–Third Party Defendant–Appellee.

Judy Y. Barrasso, Catherine Fornias Giarrusso, Esq., Barrasso, Usdin, Kupperman, Freeman & Sarver, L.L.C., New Orleans, LA, John Daniel Rayburn, Jr., Esq., Daigle Rayburn, L.L.C., Lafayette, LA, for Third Party Defendant–Appellant.

Before ELROD, SOUTHWICK, and GRAVES, Circuit Judges.

JAMES E. GRAVES JR., Circuit Judge:

This appeal presents, at its core, an insurance coverage dispute. Offshore Energy Services ("OES"), the appellee, indemnified three other companies for tort claims filed against them by an OES employee. OES considered itself contractually obligated to indemnify the other companies under an agreement with an oil and gas project's principal operator.¹

Liberty Mutual, OES's insurer, denied OES's claim for reimbursement of the funds OES spent defending against, and ultimately settling, the tort suit. Liberty Mutual now appeals two aspects of the proceedings below.

First, Liberty Mutual contends the district court erred by permitting OES and Anadarko Petroleum Corporation ("Anadarko"), the drilling project's principal, to equitably reform their master services contract (the "MSC").

Second, Liberty Mutual asserts the district court interpreted the OES–Liberty Mutual insurance policy erroneously when it concluded the policy obligated Liberty Mutual to reimburse OES for all of the attorney's fees OES incurred in connection with the tort suit, rather than a pro-rata portion of those fees.

We AFFIRM the district court's ruling permitting reformation of the MSC. We MODIFY the district court's judgment awarding attorney's fees; Liberty Mutual owes $168,695.96, which represents its pro-rata share of OES's attorney's fees.

FACTUAL BACKGROUND AND PROCEDURAL HISTORY

I. Origins of the insurance coverage dispute

This appeal is rooted in Raylin Richard's personal injury lawsuit against Anadarko, Dolphin Drilling Ltd. ("Dolphin Drilling"), and Smith International Inc. ("Smith International"). Richard worked as a casing supervisor for OES. Anadarko and OES had a longstanding master services contract (the "MSC"), under which OES provided casing and other services on Anadarko projects. One such project brought Richard onto a drill ship called the Belford Dolphin, where, in June 2009, he suffered an injury. Richard filed tort claims against Anadarko and other companies working on Anadarko's project, including Dolphin Drilling and Smith International.

OES, as Richard's employer, ultimately shouldered the financial burden of defending against Richard's claims and secured a full release by paying a $2.5 million settlement. OES assumed this burden pursuant to a two-part chain of contractual indemnifications. First, Anadarko's contractors, Dolphin Drilling and Smith International, turned to Anadarko for indemnification. Second, Anadarko, in turn, sought indemnity from OES for its own exposure, as well as Dolphin Drilling and Smith International's.

The MSC, which established the general terms under which OES and Anadarko would conduct business within a number of different projects, contains provisions imposing reciprocal indemnity obligations for claims relating to employees' work-related accidents. The parties vigorously dispute the scope of these indemnity obligations.

The dispute concerns paragraphs 14(a)–(b), which obligate OES and Anadarko to indemnify each other's "indemnitees," and paragraphs 2(c)–(d), which define the relevant "indemnitees" as "[Anadarko or OES, respectively,] its Affiliates, its joint owners and venturers, if any, and its and their directors, agents, representatives, employees and insurers and its subcontractors and their employees."

Liberty Mutual, OES's insurer, denied coverage for OES's expenditures related to Dolphin Drilling and Smith International.

II. Rulings related to coverage

A. Dismissal of Anadarko and Dolphin Drilling's third-party claims

After Liberty Mutual denied coverage, Anadarko and Dolphin Drilling both filed third-party complaints impleading OES and Liberty Mutual. The district court dismissed Anadarko and Dolphin Drilling's third-party claims against Liberty Mutual with prejudice. This did not, however, resolve the related issue of whether Liberty Mutual owed OES coverage for the amounts OES spent indemnifying Anadarko, Dolphin Drilling, and Smith International.

B. Summary judgment on OES's cross-claim

OES cross-claimed against Liberty Mutual seeking coverage for its indemnification of Dolphin Drilling, Smith International, and Anadarko. The district court granted summary judgment in Liberty Mutual's favor, concluding that Dolphin Drilling and Smith International were Anadarko's "contractors," which the MSC's indemnity provisions did not cover, rather than "subcontractors," which the MSC's indemnity provisions would cover.

The court found that it "[could] not answer the ... question" of whether to reform the MSC "at [that] time," but contemplated that OES and Anadarko might renew their request for reformation of the MSC in subsequent motions.

C. Reconsideration of summary judgment

On March 24, 2015, the district court granted Anadarko, Dolphin Drilling, Smith International, and OES's motions for reconsideration of the initial summary judgment ruling.² While the district court declined to revisit its prior construction of the MSC, the court permitted Anadarko and OES to reform the MSC to reflect a mutually-intended "knock for knock indemnity scheme that would require, under the circumstances of Mr. Richard's injury, OES to indemnify Anadarko, Smith, and Dolphin."

D. Denial of Liberty Mutual's subsequent challenge to the MSC's reformation

After OES filed an amended cross-claim reflecting the reformed indemnity provision, Liberty Mutual filed a new motion for summary judgment. Liberty Mutual essentially argued that reformation should not have been granted. The district court denied the motion on October 28, 2015.

E. Interpretation of the OES–Liberty Mutual insurance policy

The parties' focus then turned to the language of the OES–Liberty Mutual insurance policy. In a one-day bench trial, the parties contested Liberty Mutual's obligation to reimburse OES for the settlement funds and attorney's fees OES spent in connection with the Richard suit.

With respect to the settlement funds, the court found Liberty Mutual owed OES $900,000, representing the policy's $1 million limit less a $100,000 deductible. With respect to attorney's fees, the court awarded the full $468,599.90 OES spent defending itself, Dolphin Drilling, and Smith International.

F. Denial of Liberty Mutual's post-trial motions

The district court denied Liberty Mutual's motion for a new trial or to alter or amend the judgment on February 25, 2016. Liberty Mutual timely noticed this appeal on March 8, 2016.

JURISDICTION

The district court had jurisdiction over this case pursuant to 28 U.S.C. § 1333(1). This court has jurisdiction to review the district court's final judgment pursuant to 28 U.S.C. § 1291.

STANDARD OF REVIEW

With respect to the ruling permitting reformation of the MSC, because "the district court considered the merits of the [reconsideration] motion," this court "review[s] the reformation issue under the familiar summary-judgment standard of de novo ." See Am. Elec. Power Co. Inc. v. Affiliated FM Ins. Co. , 556 F.3d 282, 287 (5th Cir. 2009). We review for clear error the district court's finding regarding whether the contracting parties made a mutual mistake such that the contract fails to reflect their shared intent. See Ill. Cent. Gulf R.R. Co. v. R.R. Land , 988 F.2d 1397, 1402 (5th Cir. 1993) ("We freely review conclusions of law; but, because the reformation issue turns on a determination of the parties' intent, we review for clear error.") (applying Louisiana law); see also Motors Ins. Co. v. Bud's Boat Rental, Inc. , 917 F.2d 199, 204 (5th Cir. 1990) (holding, in the context of maritime contract reformation, that "[d]etermination of intent is a question of fact for the district court, which this court can reverse only if clearly erroneous"); Teche Realty & Inv. Co. v. Morrow , 673 So.2d 1145, 1148 (La. Ct. App. 1996) ("A determination of mutual error is essentially a question of fact, and a trial court's finding with reference to the presence or absence of mutual error should not be disturbed unless it is clearly wrong.").

This court reviews "de novo the interpretation of a[n] [insurance] contract, including any questions about whether the contract is ambiguous." Pioneer Expl., L.L.C. v. Steadfast Ins. Co. , 767 F.3d 503, 511–12 (5th Cir. 2014).

Conflicts-of-law questions also receive de novo review. Hartford Underwriters Ins. Co. v. Found. Health Servs. Inc. , 524 F.3d 588, 592 (5th Cir. 2008) ("This Court reviews questions of law, including conflicts of law questions, de novo ....").

ANALYSIS

I. Reformation of the OES–Anadarko Master Services Contract

The first issue presented in this appeal concerns whether the district court erred by permitting OES and Anadarko to reform the MSC. We hold that the district court correctly permitted reformation. Federal maritime law permitted the introduction of parol evidence to demonstrate a mutual mistake warranting reformation, Liberty Mutual's third-party interest in the MSC's indemnity provisions did not block reformation, and the record contains sufficient evidence to support reformation.

A. Application of federal maritime law

The district court correctly concluded that the MSC "is a maritime contract subject to federal maritime law."³

"[C]ourt[s] in maritime cases must apply general federal maritime...