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Fifth Circuit Affirms District Court Decision Upholding the Power of Plain Language in Maritime Insurance Contracts

On August 1, 2016, the United States Court of Appeals for the Fifth Circuit affirmed a decision from the Western District of Louisiana in Raylin Richard v. Dolphin Drilling, No. 16-30003, affirming a grant of summary judgment in favor of Valiant, the third party defendant-appellee.  The Fifth Circuit held that a clear and unequivocal exclusion of coverage in the insurance policy agreement precluded coverage in that particular instance.  The case involved an incident in which the original plaintiff, Raylin Richard, was injured while working on a drillship for his employer, Dolphin Drilling.  Richard sued in January 2011, and Offshore was later brought into the suit as a third party defendant.  Offshore brought a crossclaim against Liberty Mutual Insurance, its primary insurer, and against Valiant, its excess insurer..

In its answer, Valiant asserted that it did not owe coverage, pursuant to the “drilling rig exclusion” of its policy with Offshore, which stated that no coverage was owed for “any liability for, or any loss, damage, injury, or expense caused by, [or] resulting from… [the] operation of drilling rigs.” Valiant moved for summary judgment on the ground that this exclusion absolved it of coverage liability. In response, Offshore argued that: 1) a drillship is not a drilling rig, 2) the drilling rig exclusion does not preclude coverage, and 3) Valiant waived its right to assert coverage defenses by (among other things) waiting three months to raise its policy defenses. The district court rejected Offshore’s reasoning, and the appellate court agreed.

In granting summary judgment, the court cited Reynolds v. Select Props., Ltd., 634 So.2d 1180, 1183 (La. 1994), which held that “the parties’ intent, as reflected by the words of the policy, determine[s] the extent of coverage.” Louisiana law further holds that when the words of a contract are clear and explicit, “no further interpretation may be made in search of the parties’ intent.” La. Civ. Code art. 2046.  The policy exclusion states that coverage does not apply to “any liability for... or expense arising out of the ownership, use or operation of drilling rigs.” The district court found that the accident giving rise to the claim occurred on a drilling rig, and that the term “clearly encompasses” drillships. The court based its decision, in part, on Cash v. Liberty Ins. Underwriters, Inc., 624 F. App’x 854, 855 (5th Cir. 2015), a Fifth Circuit decision upholding a nearly identical policy exclusion. The Fifth Circuit concluded from the plain language of the policy “that the parties intended to exclude platforms from coverage.” Id. at 860. Had the parties intended otherwise, they would have drafted contractual language to reflect that intent. Id.

Offshore’s third argument, that Valiant waived its right to assert coverage defenses, by waiting until 2014 to raise such defenses, was also unconvincing to the Court. Under Louisiana law, “waiver occurs when there is an existing right, a knowledge of its existence and an actual intention to relinquish it or conduct so inconsistent with the intent to enforce the right as to induce a reasonable belief that it has been relinquished.” Steptore v. Masco Constr. Co., 643 So. 2d 1213, 1216 (La. 1994). The district court concluded that Valiant possessed an existing right, knew of the right, and did not relinquish its rights. The Fifth Circuit affirmed.

To read the full opinion of the Fifth Circuit, please click here.

For more information about the Court's decision and how it may apply to specific facts and circumstances, please do not hesitate to contact us at info@chaloslaw.com.

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