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Lloyd's, other insurers not liable to cover $17 million oil rig claim

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Lloyd's of London and other insurers are not obligated to provide $17 million in coverage for a damaged oil rig because there were two incidents, each of which fell under the policies' $10 million deductible, says an appeals court in upholding a lower court ruling.

Houston-based Seahawk Drilling Inc., now in liquidation, operated an oil rig that was damaged in a February 2010 storm, according to Tuesday's ruling by the 5th U.S. Circuit Court of Appeals in New Orleans in Seahawk Liquidating Trust v. Certain Underwriters' at Lloyds, London et al.

Then in July 2010, the rig's hydraulic-jacking system became disengaged when the crew attempted to jack it out of the water, even though its operating manual forbade doing so, which caused the hull to slide down the legs and float in the sea. It sustained further damage during the 30 hours it floated in rough seas, according to the ruling.

After the July storm, the rig was put in dry dock for further repairs until December 2010. While it was in dry dock, Seahawk submitted a $17 million claim to insurance policy issuers to cover the cost of repairs, which the insurers rejected.

Seahawk filed suit against the insurers in U.S. District Court in Alexandria, Louisiana, in February 2012. Insurers in the case included Lloyd's as well as 13 other insurers.

After a three-day bench trial, the District Court determined the insurers had properly rejected the claim because they found there were two occurrences, each of which fell under the policies' $10 million deductible.

Seahawk appealed the ruling, and a three-judge appeals court panel unanimously upheld the lower court.

“Because there were two occurrences, the district court properly denied Seahawk's claim for the cost of repairs between February and December 2010,” said the appeals court ruling.

The District Court “did not clearly err in finding that the February storm was not the proximate cause of the sequence of losses following the July storm,” the ruling said, in affirming the case's dismissal.