One Plus One Still Equals Two: Two Events Do Not Make One Occurrence under Hull Policy

One Plus One Still Equals Two

Two Events Do Not Make One Occurrence under Hull Policy

By: Claudia Carrizales

Seahawk Liquidating Trust v. Certain Underwriters at Lloyds London, No. 15-30324, 2016 WL 233384 (5th Cir. Jan. 19, 2016).Do two “events” equal one occurrence? The United States Court of Appeals for the Fifth Circuit recently affirmed a decision denying claims for insurance proceeds in favor of the insurer, Defendant-Apellee Lloyds, on the basis that the damage sustained by the vessel was not “arising from” the same occurrence. The policy contained a $10 million deductible per injury-sustaining occurrence with “occurrence” defined as “any loss or sequence of losses arising out of a single occurrence would be treated as one occurrence.”Accordingly, if Seahawk spent over 10 million dollars on repairs due to both events and lost a contract due to the February storm then Lloyds was bound to indemnify Seahawk for the repairs as well as the lost contract under the terms of the policy. Lloyds, however, maintained that any damages after the July storm arose from that specific storm, and not the first storm. Lloyds argued that “arising from” required a proximate cause analysis, and under such analysis, even if the February storm contributed to the losses after July because of the damage to the legs, the July storm was still the proximate cause of the damage and therefore the sole occurrence for the sequence of losses thereafter.The policy’s choice of law clause required application of Texas law. Because the lower court did not interpret the policy language of “arising from,” the Court made an Eerie guess as to the interpretation in this context under Texas law.  Reviewing the case law, the Court found that “when an occurrence is technically defined to include a series of losses arising from the same event, it includes only those losses proximately caused by that event.” Thus, the Fifth Circuit affirmed the District Court’s determination of the number of occurrences using the proximate cause analysis and found no error in the lower court’s determination that the February storm was not the proximate cause of the damages following the July storm. Therefore, Seahawk could not meet its per-occurrence deductible and was precluded from recovering for the costs of repairing the rig.With regard to the loss of contract claim, the Fifth Circuit upheld the District Court’s application of the concurrent-cause doctrine, dismissing each of Seahawk’s arguments in turn. First, the Court found no merit in the argument that the concurrent-cause doctrine only applied if the policy invoked it, as Texas law invokes the concurrent-cause doctrine whenever the combination of covered and uncovered perils combined cause a loss. Second, the Court returned to the language of the policy to dismiss Seahawk’s argument that the concurrent-cause doctrine would not apply because the loss of the contract itself was compensable. However, as Seahawk cited no case law to support its interpretation, the Court highlighted language in the provision requiring the loss of contract must be the result of physical damages covered under the general provisions of the policy to be compensable.Third, Seahawk argued that because the loss of the contract was attributable to damage that was “theoretically” covered under the policy, the loss should be recoverable. However, the facts indicated that the misaligned legs were not the only reason the Rig failed to complete the Hilcorp contract. Rather, the expert and the witnesses indicated that damaged hydraulic system was the more conspicuous problem.The concurrent-cause permits recovery only for the loss attributable to the covered peril, thus, the burden is on the insured to produce evidence allocating the proportion of damages.Because Seahawk offered no evidence segregating the damages attributable to either, the Court found that Seahawk had not met their burden and could not recover under the loss of contract provision.Finding no error with the District Court’s analysis, the Fifth Circuit affirmed their decision on both issues.