Lloyd’s May Proceed With Defect Claim Against Manufacturer for Oil Rig Blowout

A federal appellate court revived products liability claims filed by an offshore oil rig operator and its insurer against the manufacturer of a blowout prevention device that failed to prevent a catastrophic blowout that caused $70 million in damages.

The 5th Circuit Court of Appeals reversed a ruling by a federal district court in Texas to grant summary judgment in favor of Axon Pressure Products, a Houston company that manufacturers and refurbishes oil drilling equipment. The appellate panel also vacated the district judge’s decision to exclude testimony about the “unreasonably dangerous condition” of Axon’s products.

The decision gives Lloyds of London syndicates an opportunity to recoup some of the $48 million they paid to Walter Oil & Gas Explosion after oil burst out of the Hercules 265 at dangerously high pressure in 2011 The spurting oil burned for several hours before sealing itself off.

Walker, Axon, the Lloyd’s syndicates and the owner of the oil rig have been snared in a “byzantine dispute” over indemnity provisions in a web of contracts ever since the accident, the appellate panel said.

Walter and Lloyd’s, as subrogee, sued Axon, alleging that a blow-out prevention device that it had refurbished malfunctioned. Axon filed its own suit, alleging that Walker and the owner of the drilling platform, Hercules Drilling Co., had caused the blowout by failing to properly operate the rig. Hercules filed its own lawsuit against Walker and Axon.

District Court Judge Kenneth M. Hoyt, for the Southern District of Texas, granted summary judgment on several indemnity and merits issues. Hoyt barred testimony from several of Walker’s experts. The court also found that Walkers’ drilling contract required it to indemnify Axon for the very claims it had brought against the manufacturer.

The 5th Circuit said despite the judge’s findings, nothing in Walker’s drilling contract required it to indemnify Axon. The panel said Axon — and the district court judge — had interpreted the contract much too broadly. The contract requires Walker to indemnify contractors, subcontractors and suppliers only for some specific types of damages, not for all liability, the court’s opinion said.

The appellate court said the Hoyt had also erred by throwing out expert testimony that favored Walker’s product liability claims. The judge had ruled that one expert’s testimony is inadmissible without stating why, the 5th Circuit said. Similarly, the judge did not state why he had found testimony from six other experts to be inadmissible. Axon had argued that those reports were not timely submitted, but the district court judge did not address those arguments, the appellate panel said.

Judge Hoyt had also ruled that Axon had proven its argument that the blowout could have been prevented if the oil rig operator had undertaken “normal well control procedures” after the blowout. But the 5th Circuit said testimony by experts actually shows that there was disagreement about whether a defect in the equipment refurbished by Axon made it impossible to control the blowout.

The court also vacated the district court’s award of fees, which were based on summary judgment decisions that were overturned on appeal.