Legal Roundup: Recent Energy Insurance Cases

29 June 2018

THE OKLAHOMA SUPREME COURT RULED THAT OIL AND GAS COMPANIES CAN BE SUED WHEN A WORKER IS KILLED OR INJURED ON THE JOB

Oklahoma’s highest court struck down a state workers’ compensation law that exempted oil and gas well operators and owners from lawsuits, including one filed by a worker who was fatally burned in 2014 at an Oklahoma County oil well site.

The family of a trucker filed a lawsuit after he was dispatched to the oil well site in Crescent, Oklahoma, to pick up waste water and was severely burned, dying three days later. Among other things, the lawsuit sought damages and alleged that the company negligently operated the well and failed to warn of dangerous conditions at the site. But attorneys for the well operator argued that a workers’ compensation law adopted by the Oklahoma Legislature in 2013 granted the oil well’s operator immunity from the lawsuit. The position was that all employers in the state could be sued except oil and gas operators.

The Supreme Court agreed with a district court judge who ruled the statute is an unconstitutional special law designed to treat the oil and gas industry differently than other industries, stating “no valid reason exists for the special treatment of the oil and gas industry” under Oklahoma’s workers’ compensation system. The lawsuit was sent back to the district court for additional arguments.

INSURERS LOSE APPEAL IN RENOS CASE

Underwriters appealed against a USD 15mm loss after the destruction by fire of freighter ship Renos, six years ago. Following a fire on board Renos, the owner contended that they were entitled to be indemnified on a constructive total loss (CTL) basis, backed by an independent surveyor who indicated that the vessel could be a CTL. However two surveyors appointed by the insurers considered that the damage to the vessel fell short of the level of damage required for a CTL.

The classification society issued their report on the repairs they considered necessary. Varying quotations from shipyards had been received, some based on the owners’ repair specifications suggesting the strong possibility that the vessel was a CTL, others based on the insurers’ surveyors’ specifications suggesting the vessel was not a CTL. Unable to resolve the impasse, the owners gave Notice of Abandonment (NOA).

The insurers agreed that the owners were entitled to be indemnified, but only on a partial loss basis. They argued that the NOA had been given too late to claim a CTL.

Section 62(3) of the Marine Insurance Act 1906 provides that a NOA “must be given with reasonable diligence after the receipt of reliable information of the loss, but where the information is of a doubtful character, the Assured is entitled to a reasonable time to make inquiry”.

The High Court held that the NOA had been given in time, saying it was not realistic to take one source in isolation; the presence of conflicting information from other sources threw the reliability of any one source into question (in other words the conflicting reports made it impossible for the Assured to definitely know the vessel was a CTL).

Insurers appealed and the Appeal Court found in favour of the Assured.

Subscribe to JLT's  Energy newsletter

RULING ON DEFINITION OF “TOW” UNDER MARINE INSURANCE POLICIES OVERTURNED BY US COURT OF APPEALS

In our October 2017 newsletter we reported on a US District Court case involving a tug boat leading a towing operation which through its ‘dominant mind’ was held responsible for the safe navigation of an entire flotilla, having the duty to exercise such reasonable care and skill as navigators would exercise under similar circumstances.

The tug in question was the lead tug in a four-vessel flotilla (three tugs and a barge) when one of tugs collided with the bridge and sank. The court applied the ‘dominant mind’ doctrine, which provides that, where damages arise from a casualty involving a tow or an entire flotilla, only the vessel controlling the operation is liable. The court found that the defendant tug, as the lead tug, owed a responsibility to the entire flotilla - which included a duty to the sunken tug.

Based on this duty, the court determined it was the insurance policy covering the defendant tug that was liable to the damaged vessel. The case has now been appealed by the tug’s hull policy (which included collision liability) insurers, and a US Appeals court has reversed the prior ruling holding that an ‘assisting’ tug was part of the lead tug’s ‘tow’ according to the tort principle known as the ‘dominant mind’ doctrine.

The Appeal Court looked at the plain meaning of ‘tow’ and determined that the common understanding of ‘tow’ is “some ship or boat that is being provided extra motive power from another ship or boat by being pushed or pulled.” Importantly, the ‘tow’ may have its own power but can only be designated as the ‘tow’ if a ship or boat “receives auxiliary motive power from the tug or towing vessel.”

Based upon this definition of ‘tow’, the Appeal Court concluded that the sunken vessel (the assisting tug) could not be characterized as the ‘tow’ of the lead vessel because there was no indication that the lead vessel provided the assisting tug with any motive power or that she was pushing or pulling her in any way.

Download Energy Newsletter

If you require any further information, please contact John Cooper, Managing Director on +44 (0)20 7466 6510 or email john_cooper@jltgroup.com.

YOU MAY ALSO BE INTERESTED IN