Marine & Energy Alert: Fifth Circuit Holds Additional Insureds Lack Coverage for Contractual Liability

April 27, 2016

On April 26, 2016, the U.S. Fifth Circuit Court of Appeals affirmed the decision by Judge Mary Ann Vial Lemmon declining to broaden additional insured coverage afforded under a commercial general liability policy to energy operator Apache Corporation to contractual liabilities assumed by energy service provider Linear Controls, Inc.

In the underlying action, Jake Bergeron, an employee of Linear Controls, Inc., filed a claim for personal injuries in International Marine, LLC’s vessel owner limitation of liability action arising out of an allision with an unmanned production platform in the Gulf of Mexico off the Louisiana coast. Bergeron was a passenger aboard International Marine’s vessel en route to an Apache Corporation platform to perform work pursuant to a contract between Linear and Apache, and the vessel was time chartered by Apache.

International Marine filed a declaratory judgment action against Linear and Apache seeking defense and indemnity and insurance coverage. Apache agreed to defend and indemnify International Marine against claims arising from personal injuries to Apache’s employees or subcontractors and to obtain “comprehensive general liability” insurance naming International Marine as an additional insured under such policy. Linear agreed to defend and indemnify Apache against claims arising from injuries to Linear’s employees and to maintain liability insurance naming Apache as an additional insured.

Linear obtained the required commercial liability insurance from Catlin Specialty Insurance, and Apache paid a late premium to Catlin to be named as an additional insured as required by Marcel v. Placid Oil Co., 11 F.3d 563 (5th Cir. 1994). Apache then filed a third-party complaint against Catlin alleging that if it owed International Marine defense and indemnity, then Apache is entitled to contractual liability coverage as an additional insured under the Catlin policy.

Catlin filed a motion for summary judgment arguing that the contractual liability coverage, which Apache sought under the policy as an additional insured, specifically coverage for Apache’s contractual defense and indemnity obligations to International Marine, is precluded by the policy’s terms since such coverage is reserved solely for the named insured, Linear. Apache argued that Catlin’s policy language was ambiguous and that it should be entitled to contractual liability coverage because Apache paid a Marcel premium and because the purpose of its indemnity provisions in its contract with Linear was to ensure that Linear would be responsible for any injuries to its own employees.

Ruling in favor of Catlin and dismissing Apache’s claims for insurance coverage, the Fifth Circuit found that Apache was specifically named as an additional insured, not a named insured, and only named insureds are entitled to contractual liability coverage under a commercial general liability policy. In so doing, the Fifth Circuit dismissed Apache’s arguments that the scope of its additional insured coverage should be expanded to include its named insured’s contractual obligations.

This decision is significant for energy and maritime operators because it clarifies the extent to which a party named as an additional insured under a policy can rely on the insurer, as opposed to the named insured, to stand behind the liabilities assumed by the named insured.

Marty McLeod and David Saltaformaggio represented Catlin. The case is Int’l Offshore Servs. v. Linear Controls Operating, Inc., No. 15-30786 (5th Cir. April 26, 2016). A link to a copy of the decision can be found by clicking here.