The Fifth Circuit found that two storms causing damage to a drilling rig constituted two occurrences, mandating payment of two deductibles. Seahawk Liquidating Trust v. Certain Underwriters at Lloyds London, 2016 U.S. App. LEXIS 871 (5th Cir. Jan 19,2016).
Seahawk's rig was three-legged, and rose from the seabed by jacking up of 375 foot-legs. In February 2010, while moving the rig, the Seahawk encountered severe weather and jacked up the rig out of the water for several days. Nevertheless, the rough seas caused the legs to become misaligned.
Between February and April, Seahawk repaired the hydraulic-jacking system on several occasions. In April, the rig was moved to perform another drilling contract. The legs were misaligned and the rig failed to jack up to a sufficient height to perform the contract. Seahawk had to provide a replacement rig at a cost of $1,092,000. Attempts were made to repair the original rig in dry dock. Seahawk learned the legs were misaligned but did not fix them because of the expense.
In July, the rig was used for another drilling contract after using an unorthodox method to jack it up - the rig was jacked up one side of the hull at a time, rather than jacking up the entire hull uniformly.
On July 21, 2010, the rig arrived to perform another drilling contract at East Cameron Island. The crew attempted to jack up the rig in rough seas, even though the operating manual forbade such a practice in the inclement weather. The rig because disengaged from the hull, and sustained further damage. After the July storm, the rig went into dry dock until December 2010 for further repairs.
Seahawk submitted a claim to its insurers for $16,969,860 for the cost of repairs. The claim was rejected and Seahawk filed suit. The district court determined that the claim was properly rejected because there were two occurrences, meaning two $10 million deductibles had to be met, so Seahawk could recover nothing.
The $10 million deductible provision read, "Each occurrence shall be treated separately, but it is agreed that a sequence of losses or damages arising from the same occurrence shall be treated as one occurrence." The district court reasoned there were two occurrences because the sequence of losses (the damages and subsequent repairs) between February and July was proximately caused by the February storm, but the sequence of losses after the July storm was proximately caused by that latter storm. There were two separate proximate causes of two different series of losses, making two occurrences.
On appeal, Seahawk argued that the February storm was an occurrence that damaged the rig's legs and was a but-for cause of the damages suffered after the July storm because the damaged legs slowed down the jacking-up process.Because the rig's damaged legs contributed to the damages after the July storm, all of the losses between February and December arose from the same February occurrence.
The insurers argued that any damages after the July storm arose from that storm, not the February storm. The phrase "arising from" required that the occurrence be the proximate cause of the "sequence of losses or damages." Even if the February storm damaged the legs and thereby contributed to the losses after July, the July storm would be the proximate cause of - and the occurrence giving rise to - the sequence of losses thereafter.
The Fifth Circuit agreed there were two occurrences. Evidence supported the determination that the July storm, not the February storm, was the proximate cause of the sequences of losses after July. For example, the misaligned legs caused by the February storm did not prevent the rig from jacking up in calm weather. Further, five months elapsed between the February and July storms, and although Seahawk knew of the misaligned legs for at least two months before the July storm, it did not repair the legs. Thus the July storm was an intervening and proximate cause of the losses, constituting a second occurrence.