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Jones v. Francis Drilling Fluids, Ltd.

District Court, S.D. Texas
2009 WL 2382023, 2009 U.S. Dist. LEXIS 65511, 642 F. Supp. 2d 643 (2009)
ELI5:

Sections

Rule of Law:

Under Louisiana law, a Total Pollution Exclusion in a Commercial General Liability policy applies only to environmental pollution and does not bar coverage for workplace accidents where chemicals are confined to the area of intended use; additionally, contracts for services on inland drilling barges are maritime contracts, rendering their indemnification provisions valid under federal maritime law.


Facts:

  • Francis Drilling Fluids, Ltd. (Francis Drilling) entered into a Master Services Agreement (MSA) with Applied Drilling Technologies, Inc. (ADTI) to provide cleaning services on drilling rigs, agreeing to indemnify ADTI and its subcontractors for claims by Francis Drilling employees.
  • To fulfill the MSA, Francis Drilling obtained a Commercial General Liability (CGL) Policy from Liberty Mutual, which named ADTI and its subcontractors as additional insureds but contained a 'Total Pollution Exclusion.'
  • Kevin Jones, an employee of Francis Drilling, was working on RIG 46, a 'posted barge' located in a Louisiana marsh, cleaning a sand trap tank.
  • An employee of BJ Services (another subcontractor) poured a chemical called 'W.O. Break' (a sodium hypochlorite solution) into a shaker mechanism connected to the tank where Jones was working.
  • Fumes from the W.O. Break traveled into the tank, causing Jones to suffer inhalation injuries, dizziness, and burning in his throat and nose.
  • The chemical release was approximately three gallons, remained confined within the rig's internal equipment, and did not escape into the surrounding water or land.
  • No environmental cleanup or reporting to government environmental agencies was required following the incident.

Procedural Posture:

  • Kevin Jones sued Francis Drilling, TODCO, ADTI, BJ Services, and Baker Hughes in District Court for personal injuries.
  • Jones settled his claims for $145,000, with funds advanced by Liberty Mutual, Francis Drilling, and the other defendants.
  • TODCO, ADTI, BJ Services, and Baker Hughes (Third-Party Plaintiffs) filed third-party claims against Liberty Mutual and Francis Drilling seeking indemnification and insurance coverage.
  • Liberty Mutual and Francis Drilling filed cross-claims against BJ Services and Baker Hughes for indemnification under 'pollution' clauses in their respective contracts.
  • The District Court denied summary judgment motions filed by Liberty Mutual and Francis Drilling regarding choice of law and the pollution exclusion.
  • The case proceeded to a bench trial before the District Court on the issues of insurance coverage and indemnification.

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Issue:

Is a Comprehensive General Liability insurer required to provide coverage and indemnification for a worker's chemical inhalation injury occurring on an inland drilling barge, or is coverage barred by the policy's Total Pollution Exclusion and the nature of the service contract?


Opinions:

Majority - Judge Lee H. Rosenthal

Yes, the insurer is required to provide coverage because the accident constituted a workplace injury rather than environmental pollution, and the contract is governed by maritime law. The court reasoned that under the Louisiana Supreme Court's decision in Doerr v. Mobil Oil Corp., Total Pollution Exclusions are designed to strictly exclude liability for environmental pollution, not all contact with substances classified as pollutants. Because the W.O. Break fumes were confined to the rig, caused no environmental damage, and resulted from a discrete workplace accident, the exclusion did not apply. Furthermore, the court determined the MSA was a maritime contract because RIG 46 qualifies as a 'vessel' under maritime law, and the contract related to the vessel's mission. Therefore, federal maritime law applied, validating the indemnification provisions that might otherwise be void under Louisiana state law. Consequently, Liberty Mutual and Francis Drilling must indemnify the third-party plaintiffs for the settlement and defense costs of the Jones claim.



Analysis:

This decision reinforces the specific limitations of 'Total Pollution Exclusions' within the Fifth Circuit and under Louisiana law, specifically following the Doerr standard. It prevents insurers from using broad definitions of 'pollutants' to deny coverage for routine industrial accidents that do not constitute traditional environmental catastrophes. Additionally, the case provides a significant application of the Demette test for determining maritime contracts, clarifying that 'posted barges' in inland waters remain vessels for legal purposes. This distinction is critical for oil and gas litigation, as it determines whether enforceable federal maritime indemnification rules trump state anti-indemnity statutes.

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