Hunton Insurance Recovery Blog

The United States District Court for the Southern District of Texas recently rejected a claim by a group of insurance companies (“Underwriters”) against American Global Maritime Inc. for more than $500 million that the Underwriters paid the named insured under an Off-Shore Construction Risk insurance policy for losses resulting from the an alleged off-shore oil rig failure.

The action arose out of alleged construction defects related to Chevron’s “Big Foot” oil-drilling platform in the Gulf of Mexico. Chevron hired American Global to be the marine warranty surveyor responsible for reviewing and certifying the project’s specifications and materials. American Global issued the certificate of approval required for the project to proceed; however, during the attempted installation of the platform in 2015, it was alleged that parts from the structure fell to the sea floor. The Underwriters paid more than $500 million in connection with the incident under an Off-Shore Construction insurance policy they had issued to Chevron.

After paying the claim, the Underwriters filed a negligence action against American Global and other contractors involved in the project.

The Southern District of Texas rejected the Underwriters’ negligence claims, relying upon the insurance policy’s subrogation waiver clause, which precludes subrogation claims against “Other Assureds.” American Global qualified as an Other Assured, as it had a written contract with Chevron for work on the Big Foot project. The policy covered American Global against “all risks” of physical damage or loss to the project, including from American Global’s own negligence.

The opinion confirms the established principle that an insurer may not sue an insured to recover money paid for the risk that the insurer promised to insure. It also demonstrates that courts will enforce subrogation waivers included in insurance policies, even where the insurer seeks to cleverly disguise its subrogation claim. Subrogation waivers encourage parties to commercial agreements to anticipate and insure against risks, thereby avoiding future litigation, preserving economic relations, and facilitating operations. Policyholders should consider retaining experienced coverage counsel to assist in carefully evaluating the drafting, enforceability, and scope of subrogation provisions if and when they are being added to insurance policies as additional insureds.