OSHA says proper tank cleaning could have prevented worker's death. Nabors Completion and Production Services Co. cited for 1 willful, 4 serious violations

April 8, 2015

WILLISTON, N.D. 

Dustin Payne traveled to North Dakota looking for a good job, the opportunity to use his skills and the chance to secure a future for him and his fiancée back in Alabama. Instead, the 28-year-old Marine veteran with combat tours in Iraq and Afghanistan to his credit is dead, the victim of a massive explosion that his Williston employer could have prevented.

Payne was welding inside a water hauling tank when vapors ignited. He succumbed to his injuries five days after the Oct. 3, 2014, explosion, one of six worker fatalities related to operations in the Williston Basin formation since October 2014.

His employer, Nabors Completion and Production Services Co., failed to clean the water hauling tank thoroughly prior to welding and cutting operations, U.S. Department of Labor Occupational Safety and Health Administration investigators found. OSHA issued one willful and four serious safety citations involving welding operations and has placed Nabors in its Severe Violator Enforcement Program.

"Dustin Payne and his fiancée should be discussing marriage and their future together. Instead, she is left stricken and trying to move forward without him. This tragic incident was recognizable and preventable," said Eric Brooks, OSHA's area director in Bismarck. "Containers of oil production water, even after emptied, have the potential to contain flammable vapors. Employers must develop and implement a stringent container cleaning program. No container should be assumed to be safe for welding operations."

The willful violation cites Nabors for failing to clean the container of oil residue thoroughly. A willful violation is one committed with intentional, knowing or voluntary disregard for the law's requirement, or with plain indifference to employee safety and health.

OSHA inspectors noted the company failed to inspect welding areas prior to work; vent container spaces; separate oxygen and fuel-gas cylinders; and provide a fire watch, resulting in the issuance of four serious violations. An OSHA violation is serious if death or serious physical harm could result from a hazard an employer knew or should have known exists. 

Nabors, a Houston-based company that operates the world's largest land-based drilling rig fleet, faces proposed penalties of $97,200. 

In February, OSHA signed an alliance with both North Dakota and Montana, and the Montana-North Dakota chapter of the National Service, Transmission, Exploration and Production Safety Network, to foster safer and healthier working conditions in the oil and gas fields of North Dakota and Montana. The alliance's goal is to reduce occupational exposure to physical and chemical hazards, which have resulted in numerous injuries and fatalities.

Nabors has 15 business days from receipt of its citations and penalties to comply, request an informal conference with OSHA's area director, or contest the findings before the independent Occupational Safety and Health Review Commission. 

To ask questions, obtain compliance assistance, file a complaint or report workplace hospitalizations, fatalities or situations posing imminent danger to workers, the public should call OSHA's toll-free hotline at 800-321-OSHA (6742) or the agency's Bismarck Area Office at 701-250-4521.

Under the Occupational Safety and Health Act of 1970, employers are responsible for providing safe and healthful workplaces for their employees. OSHA's role is to ensure these conditions for America's working men and women by setting and enforcing standards, and providing training, education and assistance. For more information, visit http://www.osha.gov.

ORDER OF CIVIL AUTHORITY CLAIM FOR SUPERSTORM SANDY BARRED BY FLOODING EXCLUSION IN NEW YORK

A federal court in New York City tossed an Order of Civil Authority (OCA) claim by a New York City law firm in Bamundo, Zwal & Schermerhorn, LLP v. Sentinel Ins. Co., 2015 U.S. Dist. LEXIS 39409 (S.D.N.Y., Mar. 26, 2016).  The policy extended coverage to loss of business income caused by an OCA issued “as the result of a Covered Cause of Loss,” but it excluded flooding from the definition of that term.  The case is currently unreported on Westlaw.

The insured was a law firm with offices on John Street in lower Manhattan.  On October 28, 2012, the Mayor of New York City issued an executive order evacuating all homes and business located in the area.  Superstorm Sandy made landfall the next day, and parts of lower Manhattan – though not the area around the policyholder’s offices – quickly experienced “never-before-seen flood levels.”  

On October 31st, a second executive order continued the evacuation and directed that buildings could only be reoccupied after being inspected and declared safe; 14 more orders were subsequently issued extending those restrictions.  The law firm’s offices were ultimately declared available for occupancy on Christmas Eve, and the policyholder moved back in on January 4, 2013.

The policy afforded coverage for

the actual loss of Business Income you sustain when access to your scheduled premises is specifically prohibited by order of a civil authority as the direct result of a Covered Cause of Loss to property in the immediate area of your scheduled premises.

This extension of coverage was subject to a 72-hour waiting period deductible and limited to a period of 30 consecutive days.  In addition, the contract of insurance excluded loss caused by water, including flooding, from the definition of what constituted a covered cause of loss.  The insured made claim for loss of business income for the entire evacuation period (October 30th through January 4th), and it filed suit for breach of contract and bad faith after the insurer denied.

On March 26th, Judge Richard Sullivan granted the insurer’s motion for summary judgment and dismissed the case.  With respect to the breach of contract claims, the court held that the policy language at issue was “wholly unambiguous.”  The decision noted: (1) that “it is clear that this flooding directly caused the Mayor to issue Order 165 on October 31, 2012, and the subsequent evacuation orders;” and (2) that there was no question that access to the law firm’s offices was specifically prohibited by those orders. 

 As a result:

The only issue is whether that order of the civil authority was “the direct result of a Covered Cause of Loss to property in the immediate area” of Plaintiff’s office.  The answer to this question for the October 31 order and all subsequent evacuation orders is clearly “no,” for the simple reason that “Covered Cause of Loss” is defined in the Policy to exclude loss due to flooding.

*             *             *

Put simply, because the evacuation orders were the direct result of flooding in Zone A, they were, by definition, not the direct result of a “Covered Cause of Loss to property in the immediate area,” since Plaintiff’s policy expressly excluded flooding from the definition of a Covered Cause of Loss.

The court reached a different result with respect to the initial executive order of October 28th, noting that the Mayor’s first order “was a preemptive evacuation based not on flooding but on the risk of future flood damage and power outages.”  Judge Sullivan held that the flood exclusion would not operate to preclude OCA coverage for that.  

Any claim for the first three days of the evacuation was defeated, however, by the contract of insurance’s 72-hour waiting period deductible.  In addition, the court tossed the law firm’s bad faith claims because New York law does not recognize a separate cause of action for breach of the implied covenant of good faith and fair dealing when a breach of contract claim based on the same facts is also pled.

ELEVENTH CIRCUIT: SINKHOLE LOSS IN FLORIDA MUST IMPAIR THE PROPERTY’S STRUCTURAL INTEGRITY TO BE COVERED

Effective in 2005, Florida statutes defined “sinkhole loss” to mean “structural damage to the building, including the foundation, caused by sinkhole activity,” and they left the all-important term “structural damage” undefined.  

Homeowner’s policies issued in the state employed that formulation until May 17, 2011, when Florida adopted a much narrower five-part definition of structural damage that applied to policies affording coverage for sinkhole loss, and many courts construing the 2005 language held that the term “structural damage” meant nothing more than “damage to the structure.”  Several weeks ago in Hegel v. First Liberty Ins. Corp., 778 F.3d 1214 (11th Cir., Feb. 27, 2015), a unanimous Eleventh Circuit panel held: (1) that defining structural damage to mean any “damage to the structure” was “facially unreasonable” and “untenable;” and (2) that the term was properly understood to mean “damage that impairs the structural integrity of the building.”  It also refused, however, to look to the narrow 2011 formulation when dealing with a policy and a loss that preceded its effective date.

The Hegels owned a home in Spring Hills, Florida, and they made an insurance claim after discovering damage to the walls and floors on March 1, 2011.  Their homeowner’s carrier, First Liberty, denied the claim after its engineering expert concluded that the damage could be attributable to differential settlement and ordinary concrete shrinkage as opposed to sinkhole activity and that, in any case, it did not rise to the level of structural damage as defined in the 2011 statute.  The Hegels then secured several engineers of their own, who concluded that the home had suffered “widespread minor cracking” as a result of sinkholes and recommended $145,775 in subsurface grouting and $20,743.17 in cosmetic damage repairs.

The contract of insurance employed the 2005 formulation and left the term structural damage undefined, and the Hegels filed suit.  Cross-motions for summary judgment followed.  To obtain expedited review, First Liberty stipulated that structural damage meant any damage to the structure, but it nonetheless argued that it was entitled to summary judgment, contending that the 2011 definition of structural damage governed.  The Middle District of Florida granted the policyholders’ motion, and an appeal followed.

On February 27th, the Court of Appeals reversed.  Judge Ronald Gilman’s opinion rejected the broad interpretation of the term structural damage that both parties had agreed to in the court below.  As he explained:

[C]onstruing “structural damage” to mean simply any “damage to the structure” in the context of the insurance policy is facially unreasonable.

*              *              *

The district court awarded the Hegels damages for all subsurface and cosmetic repairs based on the parties’ stipulation that there was “physical damage to the Plaintiffs’ home.”  Because “structural damage” is necessary for the Hegels to recover under the policy, the court must have equated “physical damage to Plaintiffs’ home” with “structural damage to the building.”  Equating the two, however, essentially defines “structural damage” as “physical damage” – an untenable result.  Such a construction would render the word “structural” meaningless because all property damage is physical, thereby violating a foundational rule of contract interpretation that every word must be given effect.

Instead, the panel looked to what it dubbed the “excellent analysis” in Gonzalez v. Liberty Mut. Fire Ins. Co., 981 F.Supp.2d 1219 (M.D.Fla. 2013), and it held that the phrase “structural damage to the building” means “damage that impairs the structural integrity of the building.”

The court explained that this interpretation drew support from the fact that prior to 2005, the Florida legislature had defined sinkhole loss to mean “actual physical damage to the property covered.”  In 2005, that was changed to “structural damage to the building,” and the statute doing so recited that the legislature’s intent was “generally to reduce the number of sinkhole claims.”  In Judge Gilman’s words, “[t]his statement strongly implies that ‘structural damage’ is different from – and more restrictive than – ‘actual physical damage.’ “

As noted above, however, the panel declined to incorporate the 2011 amendment’s definition of structural damage into the Hegels’ insurance policy.  For those reasons, it remanded the case to the trial court for a determination of how much structural damage was actually due to sinkhole activity when the term was “properly defined.”

OKLAHOMA INSURANCE COMMISSIONER: DON’T DENY EARTHQUAKE CLAIMS AS MAN-MADE BY LINKING THEM TO FRACKING

APRIL 3, 2015

The jury is still out on whether hydraulic fracturing or “fracking” causes earthquakes, but carriers whose policies afford coverage for quakes have recently been denying such claims, asserting that they are excluded because they are attributable to a man-made cause – oil and gas production – rather than to a purely natural one.  Early last month, Oklahoma Insurance Commissioner John Doak cautioned against that, issuing a Bulletin warning earthquake insurers that his office would be forced “to take appropriate action to enforce the law” if they continued to deny quake claims on the basis of what he called “unsettled science.”

Oklahoma has experienced a remarkable rise in earthquake activity in recent years.  According to the Oklahoma Geological Survey, the state had 567 quakes of Magnitude 3.0 or greater in 2014.  That was a five-fold increase over 2013, a 14-fold increase over the 2008-2012 average, and a 100-fold increase over earlier years.  The 2014 number exceeded the total number of earthquakes in Oklahoma during the preceding 30 years combined; no state in the lower 48 states, including California, saw more quakes last year.

The culprit is believed by many to be the disposal process associated with fracking.  Fracking itself involves injecting a slurry of water, sand, and chemicals into wells to fracture oil- and gas-bearing rock strata and thereby permit the oil and gas to escape to the surface.  The suspicion is not that fracking itself is the malefactor but rather the subsequent disposal of its principal byproduct – millions and millions of gallons of toxic fluid that travels back to the surface with the extracted oil and gas and is then injected deep underground.

The dramatic rise in earthquakes led many Oklahomans to purchase earthquake insurance.  The take-up rate on such coverage was only 2% in 2011, but it is 15% today, which is a higher percentage than even California.  As the Insurance Commissioner’s recent Bulletin explained, however, earthquake insurance covers only quakes from natural causes; to quote from the notice, “ ‘Man-Made’ earthquakes are excluded” by such policies.

The bulletin was issued on Tuesday, March 3rd, and its principal purpose was to caution carriers against denying coverage for earthquake claims by alleging that they were caused by fracking.  As the Bulletin explained:

Lately there has been heated debate as to whether earthquakes can be caused by water disposal injection wells or hydraulic fracturing (“fracking”).  At present, there is no agreement at a scientific or governmental level concerning any connection between injection wells or fracking and “earthquakes.”

Recent information, collected by my office from the larger earthquake insurance companies, indicates that approximately one hundred Oklahoma earthquake claims were filed in 2014 with only eight having been paid.

In light of the unsettled science, I am concerned that insurers could be denying claims based on the unsupported belief that these earthquakes were the result of fracking or injection well activity.  If that were the case, companies could expect the Department to take appropriate action to enforce the law.

The Commissioner also cautioned insurers: (1) that if they intended to “deny a claim asserting ‘pre-existing’ damage, I expect that the insurer has inspected the property prior to inception of the coverage and maintained reasonably current information as to the condition of the insured property prior to loss;” and (2) that “I expect the addressees of this bulletin to take steps to insure that claims adjusters receive training as necessary to address the concerns” specific to earthquake insurance.  With regard to the latter, the state mandated an hour of continuing legal education on the topic of earthquake coverage for all adjusters every two years last fall.

In a press conference held at the time, Commissioner Doak stated that “[u]ntil a legal ruling is made, it is generally assumed that the earthquakes are not man-made” and that while “[t]his has to be resolved at some point, . . . we did not want insurers not paying claims until something like that is settled with a court decision.”  Reputable authorities seem to be moving towards the conclusion that fracking is the culprit here, however.  Thus a February report by the United States Geological Survey stated as follows:

This rise in seismic activity, especially in the central United States, is not the result of natural processes. . . . Deep injection of wastewater is the primary cause of the dramatic rise in detected earthquakes and the corresponding increase in seismic hazard in the central U.S.

In addition, the issue of causation is already wending its way through the legal system, though it is unlikely that the question will be definitively disposed of any time soon.  In 2011, one Sandra Ladra sustained injuries when her chimney collapsed in a Magnitude 5.6 quake – the strongest ever in Oklahoma – and she sued two energy companies, alleging that the earthquake was caused by fracking.  The trial court granted the defendants’ motion to dismiss, but she took an appeal, and the case is presently before the Oklahoma Supreme Court.

Source: http://www.jdsupra.com

IN PSEG V ACE, ET AL. A NEW JERSEY COURT REACHES THE CORRECT DECISION BY RULING THAT THE FLOOD SUBLIMITS DO NOT APPLY TO LOSSES CAUSED BY A NAMED-WINDSTORM'S STORM SURGE

APRIL 2, 2015

Here is an attempt by a losing defendant’s lawyer to chip away at the court’s decision.  The court reached the correct decision: when PSEG bought a named windstorm insurance, it expected to be covered for any damages that the storm caused.  The insurers tried to argue (and they failed to persuade the court) that all the massive storm damage was not caused by the named storm, but a flooding event.  Yet, it was the wind-driven storm surge that had caused the flooding along the coastline.   

These insurers tried to claim that a storm surge is separate from the named windstorm (very ridiculous argument) that the court rejected.  Basically the insurers lost on every level.  Read the court’s 21-page opinion to get info on the slaughtering of the insurer’s arguments.  The link is here: http://www.judiciary.state.nj.us/decisions/PSEG%20v.%20Ace%20American;%20ESX-L-4951-13.pdf

Here is a pathetic attempt by one of the insurer’s lawyer’s to reject the court’s opinion.

The Superior Court of New Jersey, Essex County's ruling in Public Service Enterprise Group Inc. v. Ace American Insurance Co.[1] on March 23 follows a line of thought advanced by many policyholder lawyers that included a definition of “Named Windstorm” in a property policy — typically to provide contract certainty in defining an occurrence and/or the application of deductibles — which creates a new and unlimited “superperil” that trumps other policy wordings, including exclusions and sublimits for flood. This argument, like the notion that storm surge inundation is not “flood,” has been rejected by almost every court to have seriously considered the issue.

PSEG, a utility, sued ACE American Insurance and other market insurers for losses from storm surge flooding arising out of Superstorm Sandy in 2012. The total policy limit was $1 billion, subject to a $250 million sublimit for flood, per occurrence. It was undisputed that Sandy’s storm surge inundated and damaged several PSEG properties. In other words, under the well-accepted common and ordinary meaning of the term, PSEG’s properties were damaged by “flood.” Nevertheless, the PSEG court refused to apply the flood sublimit, leaving the insurers potentially exposed for a risk that they did not bargain for and that they had explicitly sublimited. Or so they had thought.

So how did the PSEG court get there? Through the “superperil” of “Named Windstorm.” The court never quotes the policy’s “Named Windstorm” definition in full or tells us where the defined term is actually used in the policy.[2] All the court tells us is that “storm surge” is included in the policy’s definition of “Named Windstorm” and that there is no sublimit for it — ergo, coverage exists up to the full $1 billion policy limit (even for acknowledged flood damage).[3] Faster than a speeding hurricane, and able to leap large sublimits in a single bound, the “Named Windstorm” knows no coverage limitations.

In reaching its conclusion, the court makes an assumption — without meaningfully analyzing it — that the inclusion of a definition of “Named Windstorm” was intended and understood to create a broad new peril that encompasses all of the types of damage that typically accompany hurricanes. That is a perilous leap. Typically, “Named Windstorm” definitions are included for the benefit of the insured and to provide contract certainty. They are used to make clear, for example, that all damage from a “Named Windstorm” is subject to a single deductible rather than separate deductibles for wind and flood. They are also used to define a single occurrence, so that policyholders are not subject to multiple per occurrence deductibles from a single “Named Windstorm.” What cannot be reasonably deduced or inferred from any typical policy language, however, is that including a “Named Windstorm” definition is intended to create an entirely new uber-peril that destroys everything in its path.

The kinds of perils that are addressed in property damage policies are types of physical loss or damage (e.g., flood, wind, earthquake, collapse, etc.,). “Named Windstorm” is not a type of physical loss or damage. It is not disputed that storm surge is water pushed ashore by hurricane winds, but the damage that it causes is flood damage. Under a property insurance policy it is the type of damage that matters, and under the policy at issue in PSEG, flood damage is specifically sublimited.[4]

One of the reasons this is important is that insurance companies underwrite policies based on the risks of certain types of damage occurring and the exposures presented. In coastal areas, where the likelihood of flood damage may be high, insurers limit or manage their exposure through sublimits, reinsurance and otherwise. Brokers and risk managers know that flood coverage is limited and expensive so they make decisions about how much flood insurance to purchase for a particular business based on, among other things, the client’s exposure, risk tolerance and what the client is willing to pay for. To paraphrase a question posed by the Ninth Circuit, if PSEG thought it had “Named Windstorm” coverage that was inclusive of any and all damage from a “Named Windstorm” up to $1 billion, then why did it purchase a policy that contained a flood sublimit in it, particularly a sublimit of $250 million — a level of damage that likely would be sustained, if at all, only in the context of a hurricane?

The answer, of course, is that it didn’t. Instead, the policyholder lawyers are playing an expensive and high-stakes “gotcha” game.

The two principal cases addressing whether “Named Windstorm” is a separate peril that trumps a flood sublimit are Six Flags Inc. v. Westchester Surplus Lines and Northrop Grumman Corp. v. Factory Mutual Insurance Co.[5] In those cases, the Fifth and Ninth Circuit, respectively, rejected the policyholder’s assertion that a “Named Windstorm” deductible provision or an analogous “Weather Cat Occurrence” provision created a new and unlimited superperil.[6] 

The PSEG court glosses over those two cases, attempting to distinguish them in a brief one-paragraph discussion.[7]

Instead, the PSEG court relies on two other cases to support its holding: Seacor Holdings Inc. v. Commonwealth Insurance Co. and Pinnacle Entertainment Inc. v. Allianz Global Risks.[8] In Pinnacle, the principal issue was whether storm surge should be considered flood under the excess policies’ flood exclusion. The Pinnacle court concluded that storm surge was not clearly excluded, both because there was no specific language excluding wind-driven flood and because the policy contained a “Weather Catastrophe Occurrence” clause.[9] 

But, in doing so, the court relied in part on the district court’s opinion in Northrop Grumman, which was later reversed by the Ninth Circuit.[10] Pinnacle remains an unreported district court decision, is based in part on a case that was later reversed and has not been cited to or followed by any other court in the seven years since it was decided. It is the very definition of an outlier.

In Seacor, the insurer sought to apply two deductibles, one for “Named Windstorm” and one for “Flood,” to damages from hurricanes. The court concluded that only the single “Named Windstorm” deductible applied and, because of that, the flood sublimit was likewise inapplicable.[11] Seacor, also from the Fifth Circuit, is admittedly somewhat difficult to reconcile with Six Flags. However, in Seacor, the policy’s “Named Windstorm” deductible specifically describes “Named Windstorm” as a “peril,”[12] which is atypical. Additionally, I would suggest that the court’s decision can be explained by the insurer’s attempt to apply two deductibles notwithstanding the broad “Named Windstorm” deductible language, which undercut its position with respect to the application of a separate flood sublimit. There is no indication from the PSEG opinion that either of these factors were present here.

Certainly, the policy language at issue in PSEG wasn’t perfect. It gave the policyholder lawyers an opening and it created a not-insignificant risk for the carriers as illustrated by the court’s decision. Nevertheless, neither the definition of “Named Windstorm” in the occurrence section of the policy nor the use of the term “Named Windstorm” in connection with the Florida sublimit should be construed to create a new peril of “Named Windstorm.”[13]
In the many years of hurricane-related litigation both before and after Hurricane Katrina, the clear consensus of U.S. courts is that storm surge is simply a type of flood and that storm surge flood damage is subject to policy exclusions and sublimits for flood. Stated differently, a flood is a flood. In recognizing a “Named Windstorm” superperil, bound only by the policy’s outer limits, the PSEG decision is at odds with settled case law and erodes contract certainty.[14]

[1] Public Service Enter. Grp. Inc. et al. v. ACE American Ins. Co. et al., No. ESX-L-4951-13 (N.J. Super. Ct. Law Div. March 23, 2015) (hereafter “PSEG”)

[2] From a copy of one of the policies, however, it appears that “Named Windstorm” is defined in the “Occurrence” section and is also referenced in a $50 million sublimit for “Named Windstorm” in Florida.

[3] Id. at *3-5.

[4] Curiously, the court states that in the PSEG policy “the flood sublimits do not apply to the peril of flood but rather apply ‘per occurrence’”. Id. at *4. This reflects an unfortunate lack of understanding of the policy wording. The court quotes the policy’s flood sublimit as “$250,000,000 Flood — per occurrence ...” Id. Thus, the sublimit plainly applies to the peril of flood, with a limit of $250 million per occurrence. It is unclear (and the court does not explain) how it concludes that the flood sublimit does not apply to the peril of flood under the policy wording presented.

[5] Six Flags Inc. v. Westchester Surplus Lines Ins. Co. et al., 565 F.3d 948 (5th Cir. 2009); Northrop Grumman Corp. v. Factory Mutual Ins. Co., 563 F.3d 777 (9th Cir. 2009).
[6] Six Flags, 565 F.3d at 957; Northrop, 563 F.3d at 787.

[7] PSEG at *5.

[8] Seacor Holdings Inc. v. Commonwealth Ins. Co., 635 F.3d 675 (5th Cir. 2011); Pinnacle Entertainment Inc. v. Allianz Global Risks U.S. Ins. Co., No. 2:06-CV-00935 (D. Nev. March 26, 2008).

[9] Pinnacle at *5.

[10] Id. at *5-6.

[11] Seacor, 635 F.3d at 683.

[12] Id. at 678.

[13] The court’s decision also found for PSEG based on New Jersey’s efficient proximate cause doctrine. That issue is beyond the scope of this article. As a fundamental principle, however, even courts that follow a similar doctrine have generally held that this simply requires allocation between wind damage and flood damage in the context of a hurricane. See, e.g., Corban vs. United Serv. Auto. Ass’n, 20 So. 3d 601, 619 (Miss. 2009).

[14] Although not relevant to the PSEG discussion here, there has been a recent push in the London market, particularly by brokers, to treat all hurricane-caused damage as a singular peril of “Named Windstorm.” This approach would represent a marked departure from how U.S. underwriters have typically underwritten the separate perils of flood and wind. This kind of approach would require specific policy language to make the intent clear and would present a challenge in terms of evaluating and underwriting the total exposure. It also presents a risk of inconsistencies between policy forms and coverage layers. Perhaps this will merit its own article at some point in the future.