“Drilling Rig” Exclusion Precluded Coverage for Claim Alleging Employee Was Injured While Working on a Drillship, Fifth Circuit Says

August 18, 2016 | Insurance Coverage

The U.S. Court of Appeals for the Fifth Circuit has ruled that, based on a “drilling rig” exclusion, an excess insurer on a marine insurance policy was not required to reimburse its insured for payments in a personal injury settlement.

The Case

An employee of Offshore Energy Services alleged that he was injured while working on a drillship in the Gulf of Mexico. The employee sued and Offshore was brought into the suit as a third-party defendant. Offshore then filed a cross claim against its excess carrier.

The insurer, relying on the policy’s drilling rig exclusion and arguing that a drillship was a type of drilling rig, asserted that it did not owe coverage and moved for summary judgment.

Offshore disagreed, claiming, among other things, that a drillship was not a drilling rig and that applying the drilling rig exclusion in the manner the insurer suggested would lead to an absurd result because the policy would not provide much coverage.

The district court granted the insurer’s motion, and Offshore appealed.

The Fifth Circuit’s Decision

The circuit court affirmed.

In its decision, it first rejected Offshore’s argument that the term drilling rig might not encompass drillships, finding no authority or persuasive reasoning for such a “fine distinction.”

It then ruled that the district court had correctly determined that the drilling rig exclusion precluded coverage for the employee’s accident. The Fifth Circuit was not persuaded that applying the exclusion in this case would lead to “absurd consequences” even accepting Offshore’s assertion that it did “99% of its business servicing the offshore oil industry.” The circuit court said that if parties did not wish for the exclusion to apply to accidents on drilling rigs or on drilling barges or on other listed locations, then they were “free to contract accordingly.”

The case is Richard v. Dolphin Drilling Ltd., No. 16-30003 (5th Cir. Aug. 1, 2016).

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