Lloyd's Syndicate 457 v. FloaTEC, L.L.C.

Case: 17-20550 Document: 00514920853 Page: 1 Date Filed: 04/17/2019

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT United States Court of Appeals

Fifth Circuit

FILED

April 17, 2019

No. 17-20550

Lyle W. Cayce

Clerk

LLOYD’S SYNDICATE 457; LLOYD’S SYNDICATE 1036; LLOYD’S

SYNDICATE 1084; LLOYD’S SYNDICATE 1209; LLOYD’S SYNDICATE

1225, et al

Plaintiffs - Appellants

v.

FLOATEC, L.L.C., doing business as FloaTEC Solutions, L.L.C.

Defendant - Appellee

Appeal from the United States District Court

for the Southern District of Texas

Before SMITH, DUNCAN, and ENGELHARDT, Circuit Judges.

STUART KYLE DUNCAN, Circuit Judge:

This case concerns a disputed siting of Big Foot in the Gulf of Mexico.

We refer to a floating oil-drilling platform that rests on four massive columns—

hence the name “Big Foot”—moored by steel tendons to the ocean floor.

Chevron, which operates and co-owns Big Foot, contracted with FloaTEC to

engineer the tendons. During installation in 2015, several tendons failed,

causing Chevron huge losses. Big Foot was insured by various Lloyd’s of

London syndicates (collectively, “Underwriters”) through a policy issued to

Chevron. To cover the tendon mishap, Underwriters paid Chevron over $500

million and then went looking to recoup that money. Among others,

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Underwriters sued FloaTEC. Underwriters claimed that, having paid

Chevron’s losses under the policy, they were subrogated to Chevron’s right to

sue FloaTEC for damages caused by the tendon failures.

Eventually the case landed in federal district court and FloaTEC moved

to dismiss. FloaTEC argued that it qualified as an “Other Assured” under

Underwriters’ policy and that the policy waives subrogation against “Other

Assureds”—hence Underwriters’ subrogation-based claims should fail.

Underwriters responded in two ways. First, they argued that the subrogation

issue should be decided by an arbitrator, not the district court, by virtue of the

broad arbitration clause in Chevron’s contract with FloaTEC. Second,

Underwriters argued that, in any event, FloaTEC was not an “Other Assured”

under a proper reading of the policy.

The district court sided with FloaTEC on both points. It decided the

arbitration clause did not apply because Underwriters were not a party to the

Chevron/FloaTEC contract. It then decided FloaTEC did qualify as an “Other

Assured” under the policy, thus enabling FloaTEC to raise the subrogation

waiver. The court dismissed Underwriters’ claims with prejudice.

Underwriters appeal both issues. We affirm.

I.

A.

Big Foot is a major deepwater oil drilling project in the Gulf of Mexico

off the Louisiana coast. It is located on the Outer Continental Shelf in the

Walker Ridge Area, Block 29, about 225 miles south of New Orleans. The

project is operated by Chevron, which co-owns it with Statoil Gulf of Mexico

LLC and Marubeni Oil & Gas (USA) Inc. As part of the project, in 2015,

Chevron began to build and install an “extended tension-leg platform” that

would be anchored to the seafloor almost a mile below. This is a photo of the

platform in transit to Walker Ridge:

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The platform would be kept stationary by sixteen steel tendons attached to

pilings driven into the seafloor. These tendons were critical to the floating

platform’s stability.

Chevron contracted with FloaTEC to provide engineering services in

connection with Big Foot, including the design and installation of the tendons.

We will refer to the Chevron/FloaTEC agreement as the “Chevron/FloaTEC

Contract” or simply the “Contract.” The Contract required FloaTEC to

maintain specific kinds of insurance related to the performance of its duties on

the project. The Contract also included a broad arbitration clause, empowering

a chosen arbitrator or arbitrators to “rule on objections concerning jurisdiction,

including the existence or validity of this arbitration clause and existence or

the validity of this Contract[.]”

Big Foot was insured by Underwriters through an Offshore

Construction Project Policy with Chevron. We will refer to this

Underwriters/Chevron agreement as the “Underwriters/Chevron Policy” or

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simply as the “Policy.” The Policy was written on a “WELCAR 2001” form, a

standard construction risk policy developed for the offshore energy market at

Lloyd’s in the late 1990s. See, e.g., Tim Taylor, Offshore Energy Construction

Insurance: Allocation of Risk Issues, 87 TUL. L. REV. 1165, 1170 (2013)

(“Taylor”). Risks covered by the Policy included physical loss or damage to Big

Foot incurred during the project’s design and engineering. The Policy included

a clause stating that Underwriters agreed to “waive rights of subrogation”

against any “Principal Assureds” or “Other Assureds.” “Other Assureds” were

defined in a separate section of the Policy to include “[a]ny” other companies

with whom Chevron had “entered into written contract(s) in connection with

the [Big Foot] Project.”

In mid-2015, before the platform’s stabilizing tendons had been

installed, nine of the sixteen tendons detached from their supporting buoys and

plummeted to the seafloor. An investigation revealed that the bolts holding the

tendons to the buoys had come loose. Chevron rejected the remaining seven

tendons and had them sent back to shore. The failure of the tendons and the

resulting delay to Big Foot caused Chevron huge losses. As a result,

Underwriters paid Chevron over $500 million under the Policy.

B.

Seeking to recoup those payments, Underwriters filed a lawsuit in a

Texas state court in May 2016, naming as defendants various contractors

connected to Big Foot, including FloaTEC. Underwriters alleged FloaTEC had

negligently designed and manufactured the tendons and attachment bolts and

had therefore caused the damages to Big Foot. Prior to service of process,

claims against all defendants except FloaTEC were dropped. FloaTEC

removed the case to federal court.

Underwriters then filed an amended complaint, adding the claim that

FloaTEC breached its contract with Chevron. Underwriters’ claims against

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FloaTEC were all based on subrogation—meaning Underwriters sought to

stand in Chevron’s shoes by virtue of having paid Chevron’s losses under the

Policy. See LA. CIV. CODE art. 1825 (subrogation is “the substitution of one

person to the rights of another” and “may be conventional or legal”); id. art.

1827 (“conventional” subrogation occurs when “[a]n obligee who receives

performance from a third person . . . subrogate[s] that person to the rights of

the obligee, even without the obligor’s consent”); see also, e.g., Old Repub. Life

Ins. Co. v. Transwood, Inc., 2016-0552 (La. App. 1 Cir. 6/2/17); 222 So.3d 995,

1005 (explaining that, “[u]nder Louisiana law, although an insurer which pays

claims on behalf of an insured is not entitled to legal subrogation, it may still

be entitled to conventional subrogation if appropriately provided in the

contract of insurance”) (citing Watters v. State Dep’t of Transp. & Devel., 33,870

(La. App. 2 Cir. 9/27/00); 768 So.2d 733, 737).

FloaTEC moved to dismiss for failure to state a claim and, alternatively,

to compel arbitration if the court found Underwriters had stated a claim.

FloaTEC’s argument for dismissal hinged on three clauses in the

Underwriters/Chevron Policy. The first clause, entitled “Subrogation,” states:

Underwriters shall be subrogated to all rights which the Assured

may have against any person or other entity, other than Principal

Assureds and Other Assureds, in respect of any claim or payment

made under the Policy (emphasis added).

The second clause, entitled “Waiver of Subrogation,” states:

Underwriters agree to waive rights of subrogation against any

Principal Assured(s) and/or Other Assured(s) including drilling

contractors and/or their sub-contractors (emphasis added).

Finally, the third clause defines “Other Assureds” to include:

[a]ny other company, firm, person, or party . . . with whom [various

entities including Chevron] have entered into written contract(s)

in connection with the [Big Foot] Project.”

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FloaTEC argued that it qualified as an “Other Assured” and that

Underwriters’ claims were therefore barred by the Policy’s subrogation waiver.

Underwriters opposed FloaTEC’s motion, arguing (1) FloaTEC was not an

“Other Assured” under the Policy, and (2) FloaTEC had waived any right to

arbitration by moving to dismiss.

The district court agreed with FloaTEC that it was an “Other Assured”

under the Policy and that Underwriters’ claims were thus barred by the

subrogation waiver. The court therefore dismissed Underwriters’ claims with

prejudice for failure to state a claim. 1 Underwriters appeal.

II.

We review de novo a dismissal for failure to state a claim, asking whether

the plaintiff “fail[ed] to allege any set of facts in support of his claim which

would entitle him to relief.” Taylor v. Books A Million, Inc., 296 F.3d 376, 378

(5th Cir. 2002). We also review de novo a district court’s interpretation of a

contract. Greenwood 950, LLC v. Chesapeake Louisiana, LP, 683 F.3d 666, 668

(5th Cir. 2012); Steel Warehouse Co. v. Abalone Shipping Ltd. of Nicosai, 141

F.3d 234, 236–37 (5th Cir. 1998).

III.

Underwriters’ appeal requires us to consider two related issues. First,

we must decide whether the district court improperly disregarded the

arbitration clause in the Chevron/FloaTEC Contract when it ruled, as an

initial matter, on FloaTEC’s motion to dismiss. If we decide that the district

court properly considered FloaTEC’s motion to dismiss before any arbitrability

1 In the order dismissing FloaTEC, the district court also denied a motion to dismiss

or to compel arbitration filed by another defendant, American Global Maritime, Inc., which

had been added by Underwriters’ amended complaint. The court subsequently granted

Underwriters’ motion for partial final judgment under Federal Rule of Civil Procedure 54(b),

allowing Underwriters to appeal the dismissal of its claims against FloaTEC. See, e.g.,

Johnson v. Ocwen Loan Servicing, LLC, 916 F.3d 505, 507 (5th Cir. 2019).

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issue, then, second, we must decide whether the court’s ruling on the motion

to dismiss was correct. We consider each issue in turn.

A.

Underwriters argue that the Contract’s delegation clause required the

district court to send their claims to arbitration instead of ruling on FloaTEC’s

motion to dismiss. That clause, Underwriters assert, “clearly and

unmistakably” delegates to the arbitrator all “gateway arbitrability issues,”

including whether the Policy’s subrogation waiver bars their claims. See, e.g.,

Petrofac, Inc. v. DynMcDermott Petroleum Oper. Co., 687 F.3d 671, 675 (5th

Cir. 2012) (parties must “‘clearly and unmistakably provide’” that they have

agreed to “arbitrate arbitrability”) (quoting AT&T Techs., Inc. v. Commc’ns

Workers of Am., 475 U.S. 643, 649 (1986)). 2 According to Underwriters, the

clause prohibited the court from ruling on FloaTEC’s motion to dismiss because

“a valid delegation clause requires the court to refer a claim to arbitration to

allow the arbitrator to decide gateway arbitrability issues.” Kubala v. Supreme

Prod. Servs., Inc., 830 F.3d 199 (5th Cir. 2016) (citing Rent-A-Ctr., W., Inc. v.

Jackson, 561 U.S. 63, 68–69 (2010)). By ruling on that motion, say

Underwriters, the court let FloaTEC “game the system”—that is, “seek[ ] a

decision on the merits while keeping the arbitration option as a backup plan

in case the effort fails.” In re Mirant, 613 F.3d 584, 590 (5th Cir. 2010).

Underwriters misread our precedent. To assess whether a claim must be

arbitrated, we follow a two-step analysis. At step one, “the court must

2 As already explained, the delegation clause provides that “[t]he . . . arbitrators have

the power to rule on objections concerning jurisdiction, including the existence or validity of

this Contract.” Given our resolution of this issue, we need not determine whether

Underwriters are correct that the clause “clearly and unmistakably” delegates arbitrability

to the arbitrator. Cf., e.g., Petrofac, 687 F.3d at 675 (explaining that “the express adoption of

[American Arbitration Association] rules presents clear and unmistakable evidence that the

parties agreed to arbitrate arbitrability”).

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determine ‘whether the parties entered into any arbitration agreement at all.’”

IQ Prod. Co. v. WD-40 Co., 871 F.3d 344, 348 (5th Cir. 2017) (quoting Kubala,

830 F.3d at 201). “This first step is a question of contract formation only—did

the parties form a valid agreement to arbitrate some set of claims.” Id. (citing

Kubala, 830 F.3d at 201–02). This inquiry is for the court: “Where the very

existence of any [arbitration] agreement is disputed, it is for the courts to

decide at the outset whether an agreement was reached[.]” Will-Drill Res., Inc.

v. Samson Res. Co., 352 F.3d 211, 218 (5th Cir. 2003) (emphasis added); see

also, e.g., DK Joint Venture 1 v. Weyand, 649 F.3d 310, 317 (5th Cir. 2011) (“[It]

is for the courts and not the arbitrator to decide in the first instance . . .

whether the parties entered into an arbitration agreement in the first place.”).

Only if we answer “yes” at the first step do we proceed to the second. At step

two, we engage in a “limited” inquiry: “[W]hether the [parties’] agreement

contains a valid delegation clause.” IQ Prod., 871 F.3d at 348 (citing Kubala,

830 F.3d at 202). We ask only whether there is “‘clear and unmistakable’

evidence” that the parties intended to arbitrate. Id. 3 If so, a “motion to compel

arbitration should be granted in almost all cases.” Id. (quoting Kubala, 830

F.3d at 202).

Underwriters skip the first step of the analysis. They would compel

arbitration of their claims against FloaTEC based on the Contract’s delegation

clause. But that is step two. Underwriters must first contend with the step one

3 Along with other circuits, we previously recognized a narrow exception to this rule

when “a claim of arbitrability is ‘wholly groundless.’” IQ Prod., 871 F.3d at 349 (quoting

InterDigital Commc’ns, LLC v. Int’l Trade Comm’n, 718 F.3d 1336, 1346–47 (Fed. Cir. 2013),

vacated as moot by LG Electronics, Inc. v. InterDigital Commc’ns, LLC, 572 U.S. 1056 (2014)).

This “wholly groundless” exception was recently abrogated by the Supreme Court in Henry

Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524 (2019). That development leaves

intact the remainder of our two-part framework for assessing a claim’s arbitrability. More to

the point, Schein’s abrogation of the wholly groundless exception has no impact on this case

since it altered step two of our framework, and here we apply only step one.

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question, which is whether they “form[ed] a valid [arbitration] agreement”

with FloaTEC to begin with. IQ Prod., 871 F.3d at 348. FloaTEC denies this

strenuously: It points out that Underwriters are not parties to the Contract

and, moreover, that the only agreement Underwriters are parties to (the

Underwriters/Chevron Policy) bars subrogation against “Other Assureds” like

FloaTEC. See infra III.B. Hence FloaTEC moved to dismiss Underwriters’

claims, which are based entirely on subrogation.

The district court correctly treated this subrogation issue as a step one

inquiry because it goes to whether any arbitration agreement exists between

Underwriters and FloaTEC. If the Policy bars Underwriters from stepping into

Chevron’s shoes and benefitting from the Contract’s delegation clause, then

Underwriters and FloaTEC never “entered into any arbitration agreement at

all.” IQ Prod., 871 F.3d 344, 348. We have consistently treated attacks on an

arbitration agreement’s existence as step one matters for courts, not

arbitrators. See, e.g., Will-Drill, 352 F.3d at 216 & nn. 26–28 (treating as a step

one inquiry cases where “the parties resisting arbitration attack the existence

of the entire agreement, not the arbitration clause specifically”). For example,

we have followed sister circuit cases that “refus[ed] to order arbitration of

disputes where one party claims that it is not bound by the arbitration

agreement . . . because it was not an original party to the agreement.” Id. at

216 (discussing Chastain v. Robinson-Humphrey Co., 957 F.2d 851 (11th Cir.

1992); Joseph Co. v. Mich. Sugar Co., 803 F.2d 396 (8th Cir. 1986)). The

subrogation issue here falls into the same category: FloaTEC argues that the

Policy’s subrogation bar means Underwriters cannot step into the

Chevron/FloaTEC Contract containing the arbitration agreement. By deciding

FloaTEC’s motion to dismiss at the outset, the district court properly resolved

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that contract-formation issue, which is “for the courts and not the arbitrator to

decide in the first instance.” DK Joint Venture 1, 649 F.3d at 317. 4

Underwriters cannot avoid this outcome by calling the subrogation issue

a “merits-based affirmative defense” to its claims against FloaTEC. That again

ignores that we have two contracts here, not one. If we were dealing with a

disagreement between Chevron and FloaTEC concerning FloaTEC’s

engineering of Big Foot’s tendons, we might have a “merits-based” issue that

would presumably have to be arbitrated under the Contract. We have nothing

like that here, however. FloaTEC argues Underwriters were not parties to the

Contract at all and so could not invoke the Contract’s delegation provision in

the first place. This is not a dispute about the “merits” of Underwriters’ claims;

it is “a simpler type of dispute which, we have held, is for the courts and not

the arbitrator to decide in the first instance: a dispute over whether the parties

entered into any arbitration agreement in the first place.” Id. 5

4 The parties submitted post-argument briefs addressing the impact, if any, of the

Supreme Court’s recent decisions in Schein, 139 S. Ct. 524, and New Prime, Inc. v. Oliveira,

139 S. Ct. 532 (2019). Neither decision bears on the issues before us. Schein simply rejected

the “wholly groundless” exception to arbitrability delegations. 139 S. Ct. at 529. It did not

change—to the contrary, it reaffirmed—the rule that courts must first decide whether an

arbitration agreement exists at all. See id. at 530 (“To be sure, before referring a dispute to

an arbitrator, the court determines whether a valid arbitration agreement exists.”).

Similarly, Oliveira decided only that “a court should decide for itself whether [the Federal

Arbitration Act’s] ‘contracts of employment’ exclusion applies before ordering arbitration,”

139 S. Ct. at 537, but said nothing about how a court should determine whether any

arbitration agreement exists to begin with.

5 Underwriters urge that arbitration is “strongly favored” and should be granted

unless the pertinent arbitration clause is “not susceptible of an interpretation” that would

cover the dispute. See, e.g., Sedco, Inc. v. Petroleos Mexicanos Mexican Nat. Oil Co. (Pemex),

767 F.2d 1140, 1145 (5th Cir. 1985), as modified by Freudensprung v. Offshore Tech. Servs.,

Inc., 379 F.3d 327 (5th Cir. 2004). We do not question those principles, but they have no

bearing here. We are not interpreting an arbitration clause; we are deciding whether an

arbitration clause exists between the relevant parties. The “strong federal policy favoring

arbitration,” we have held, “‘does not apply to the determination of whether there is a valid

agreement to arbitrate between the parties.’” Will-Drill, 352 F.3d at 214 (quoting Fleetwood

Enters. Inc. v. Gaskamp, 280 F.3d 1069, 1073 (5th Cir. 2002)).

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For the same reason, Underwriters are wrong that FloaTEC “gamed the

system by asking the district court to first determine the merits” and, if that

failed, asking “to send the case to mandatory arbitration” for a second bite at

the apple. As explained, FloaTEC’s motion to dismiss did not ask the court to

“determine the merits” of Underwriters’ claims; it asked the court to rule that

Underwriters could not be subrogated to Chevron’s rights. And FloaTEC asked

for arbitration only if the court ruled that Underwriters were subrogated to

Chevron’s rights. By making these alternative requests, FloaTEC was not

“gaming the system”—it was covering its bases. Cf. Mirant, 613 F.3d at 590–

91 (a party “game[d] the system” when it “did not initially present its motion

to compel arbitration . . . as an alternative to its motion to dismiss,” but instead

litigated the merits extensively before moving to compel arbitration).

In sum, we conclude the district court correctly ruled on FloaTEC’s

motion to dismiss before addressing any issue concerning the arbitrability of

Underwriters’ claims. 6

B.

We turn to Underwriters’ argument that the district court erred by

dismissing its claims against FloaTEC. The district court reasoned that

FloaTEC qualified as an “Other Assured,” as defined in the Policy, because

FloaTEC “entered into a written contract” with Chevron “in connection with

the [Big Foot project].” The court therefore concluded that Underwriters’

subrogated claims were barred, because in the Policy Underwriters “agree[d]

to waive rights of subrogation against any . . . Other Assured(s).”

6 Given our resolution of this threshold issue, we need not consider FloaTEC’s

alternative argument that Underwriters waived their right to argue for arbitration now by

opposing arbitration below.

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On appeal, Underwriters contend the district court misread the Policy.

They focus, not on the definition of “Other Assured,” but on a distinct clause

entitled “Special Conditions for Other Assureds,” which provides as follows (we

present the three sentences of the clause separately for easier reading):

[1] The interest of the Other Assured(s) shall be covered

throughout the entire Policy Period for their direct participation in

the venture, unless specific contract(s) contain provisions to the

contrary.

[2] The rights of any Assured under this insurance shall only be

exercised through the Principal Assureds.

[3] Where the benefits of this insurance have been passed to an

Assured by contract, the benefits passed to that Assured shall be

no greater than such contract allows and in no case greater than

the benefits provided under the insuring agreements, terms[,]

conditions[,] and exclusions in the Policy (brackets added).

The definition of “Other Assured,” argue Underwriters, must be read in light

of these Special Conditions. Specifically, they say the clause’s first and third

sentences require consulting the Chevron/FloaTEC Contract to see whether

Chevron is obligated to provide insurance coverage to FloaTEC under the

Policy. If not, Underwriters argue that FloaTEC cannot qualify as an “Other

Assured” and so cannot invoke the Policy’s subrogation waiver. Moreover,

Underwriters contend that by defining “Other Assured” in isolation, the

district court rendered the Special Conditions clause meaningless. They argue

that, “[i]f possession of a written contract [with Chevron] alone was sufficient

to qualify for full coverage under the [Policy], there would be no need for the

Special Conditions provision.”

To resolve this issue, we apply Louisiana law 7 governing contract

interpretation. See generally LA. CIV. CODE, bk. III, tit. IV, ch. 13; id. arts.

7 As the district court correctly found, Louisiana law applies under the Outer

Continental Shelf Lands Act. See 43 U.S.C. § 1333(a). Congress has “adopt[ed] as surrogate

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2045–2057; see also, e.g., In re Katrina Canal Breaches Litig., 495 F.3d 191,

206–08 (5th Cir. 2007) (discussing Louisiana law principles for interpreting

insurance contracts). Under Louisiana law, “[t]he role of the judiciary in

interpreting insurance contracts is to ascertain the common intent of the

insured and insurer as reflected by the words in the policy.” Peterson v.

Schimek, 98-1712 (La. 3/2/99); 729 So. 2d 1024, 1028; see also LA. CIV. CODE

art. 2045 (contractual interpretation is “the determination of the common

intent of the parties”). “Words and phrases used in an insurance policy are to

be construed using their plain, ordinary and generally prevailing meaning,

unless the words have acquired a technical meaning.” Cadwallader v. Allstate

Ins. Co., 2002-1637 (La. 6/27/03); 848 So. 2d 577, 580 (citing LA. CIV. CODE art.

2047). Insurance policies should be construed holistically, meaning that “one

policy provision is not to be construed separately at the expense of disregarding

other policy provisions.” Louisiana Ins. Guar. Ass’n v. Interstate Fire & Cas.

Co., 93-0911 (La. 1/14/94); 630 So. 2d 759, 763; see also LA. CIV. CODE art. 2050

(contractual provisions must be interpreted “in light of the other provisions” to

give each “the meaning suggested by the contract as a whole”). “The rules of

construction do not authorize . . . the exercise of inventive powers to create an

ambiguity where none exists or the making of a new contract when the terms

express with sufficient clearness the parties’ intent.” Cadwallader, 848 So. 2d

at 580; see also LA. CIV. CODE art. 2046 (when words are “clear and explicit and

lead to no absurd consequences, no further interpretation may be made in

search of the parties’ intent”). On the other hand, “[i]f after applying the other

general rules of construction an ambiguity remains, the ambiguous contractual

federal law the ‘civil and criminal laws of each adjacent State’” to govern disputes on the

Outer Continental Shelf. Petrobras Am., Inc. v. Vicinay Cadenas, S.A., 815 F.3d 211, 215 (5th

Cir.), order clarified on reh’g, 829 F.3d 770 (5th Cir. 2016) (quoting 43 U.S.C. § 1333(a)(2)(A)).

Parties cannot alter this rule by choosing another state’s law in their contract. Id.

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provision is to be construed against the drafter, or, as originating in the

insurance context, in favor of the insured.” Louisiana Ins. Guar. Ass’n, 630 So.

2d at 764; see also Katrina Canal Breaches Litig., 495 F.3d at 207 (same).

Under this “rule of strict construction,” ambiguous clauses are “construed

against the insurer and in favor of coverage” and “equivocal provisions seeking

to narrow an insurer’s obligation are strictly construed against the insurer.”

Bonin v. Westport Ins. Corp., 2005-0886 (La. 5/17/06); 930 So.2d 906, 911

(citations omitted).

Applying these principles to the insurance contract at issue, we reject

Underwriters’ arguments that the district court misread its terms. To the

contrary, the court correctly found FloaTEC to be an “Other Assured” under

the Policy and thus correctly concluded that Underwriters’ claims against

FloaTEC are barred by the Policy’s subrogation waiver.

First, the “plain . . . meaning” of the Policy qualifies FloaTEC as an

“Other Assured.” Cadwallader, 848 So. 2d at 580. It is uncontested that

FloaTEC contracted with Chevron to provide engineering services for Big Foot.

This makes FloaTEC an “Other Assured” under the Policy’s text because it

“entered into [a] written contract[ ]” with Chevron “in connection with the [Big

Foot] project.” The Policy places no additional conditions on the status of an

“Other Assured.” See, e.g., AGIP Petroleum Co., Inc. v. Gulf Island Fabrication,

Inc., 920 F. Supp. 1318, 1325–26 (S.D. Tex. 1996) (construing materially

identical definition of “other assured” and concluding this “clear and

unambiguous language . . . [was] intended to include contractors . . . who

entered into agreements with [the principal Assured] concerning the

[project]”). FloaTEC therefore qualifies under the Policy as an “Other Assured”

against whom Underwriters “agree[d] to waive rights of subrogation,” as the

district court correctly found. No further analysis was required in the face of

that plain language. See LA. CIV. CODE art. 2046 (“no further interpretation

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may be made in search of the parties’ intent” when a contract’s words are “clear

and explicit and lead to no absurd consequences”).

Tellingly, Underwriters’ arguments are not directed to the text of the

“Other Assured” definition or the subrogation waiver. Instead, they rely on

cases allegedly standing for the proposition that an “Other Assured” must be

entitled to insurance coverage from a Principal Assured. See, e.g., WH

Holdings, LLC v. Ace Am. Ins. Co., 481 F. App’x 894 (5th Cir. 2012); Edwards

v. Brambles Equip. Servs., Inc., 75 F. App’x 929 (5th Cir. 2003). But “[n]one of

th[ose] cases,” the district court cogently observed, “supports a general

proposition that, always and everywhere, Other Assured status is determined

by reference to the contract between a Principal Assured and a putative Other

Assured.” To the contrary, in those cases the issue turned—as it does here—on

the specific policy definition in play.

The policies in Underwriters’ cases limit an “insured” to entities a

principal is obligated to insure. See WH Holdings, 481 F. App’x at 895 (defining

“insured” to include “any party in interest which the insured is responsible to

insure”); Edwards, 75 F. App’x at 932 (involving a policy that “extend[ed]

coverage to ‘any person or organization you [the main policyholder] are

required by written contract to include as an insured’”) (emphases added). Here,

the pertinent definition is materially different: “Other Assured” means an

entity with whom a principal Assured has “entered into written contract(s) in

connection with the [Big Foot] Project.” That definition does not require that

the principal Assured also be obligated to provide coverage to the entity, and

we cannot blue-pencil that extra clause into the Contract. “[I]t is too obvious

for argument that courts will not add words to a contract for the purpose of

ascertaining the true intent of the parties.” Ross v. Zuntz, 36 La. Ann. 888, 894

(La. 1884); see also Sims v. Mulhearn Funeral Home, Inc., 2007-0054 (La.

5/22/07); 956 So. 2d 583, 589 (explaining “[c]ourts lack the authority to alter

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the terms of insurance contracts under the guise of contractual interpretation

when the policy’s provisions are couched in unambiguous terms”).

Second, we disagree with Underwriters that the Special Conditions

clause somehow alters or qualifies the Policy’s otherwise unambiguous

definition of “Other Assured.” Nothing in the Special Conditions clause

purports to modify that definition. To the contrary, the clause assumes that its

conditions apply only to entities that already are “Other Assureds.” Nor does

the clause purport to modify the Policy’s subrogation waiver, which

unambiguously “waive[s] rights of subrogation against . . . Other Assured[s].”

Reading the Special Conditions clause to strip an otherwise-qualified entity of

“Other Assured” status, as Underwriters urge us to do, would be an

impermissible “exercise of inventive powers to create an ambiguity where none

exists.” Cadwallader, 848 So. 2d at 580. We lack authority to do that. See LA.

CIV. CODE art. 2046; Sims, 956 So. 2d at 589.

Even if we possessed that revisionary authority—and could pretend the

Special Conditions clause somehow modifies the definition of “Other

Assured”—that would not help Underwriters. We would then be left with an

insurance contract ambiguous on what constitutes an “Other Assured,” and

ambiguous on how the subrogation waiver applies. But it is bedrock law that

ambiguous insurance provisions are read against the insurer and in favor of

coverage. LeBlanc v. Aysenne, 2005-0297 (La. 1/19/06); 921 So.2d 85, 89

(explaining “[i]f there is an ambiguity in a[n] [insurance] policy, then that

ambiguity should be construed in favor of the insured and against the insurer”)

(citing Pareti v. Sentry Indemnity Co., 536 So.2d 417, 420 (La. 1988); accord

Bonin, 930 So.2d at 911; Carrier v. Reliance Ins. Co., 1999-2573 (La. 4/11/00);

759 So. 2d 37, 43; Louisiana Ins. Guar. Ass’n, 630 So. 2d at 764. Moreover,

when “subrogation is disputed,” then the intent to subrogate “must be shown

by clear proof . . . that unquestionably implies it.” A. Copeland Enter., Inc. v.

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Slidell Mem’l Hosp., 94-2011 (La. 6/30/95); 657 So.2d 1292, 1298 (citing 5 LA.

CIV. L. TREATISE, LAW OF OBLIGATIONS § 11.22 (1992)). Far from “clear proof”

of an intent to subrogate, here the Policy’s plain text shows intent to bar

subrogation against a putative “Other Assured” like FloaTEC and does not

even hint that the Special Conditions clause tempers that bar.

If there were any doubt on this point, the record shows that

Underwriters and Chevron knew exactly how to limit “Other Assured” status

in the Policy. The parties struck through a provision in the Special Conditions

section that made conformity with certain “Quality Assurance/Quality Control

system(s)” a “condition precedent . . . to benefit from the Other Assureds status”

(emphasis added). 8 If Underwriters and Chevron wanted to impose a similar

condition precedent for required Policy coverage (or anything else), a template

was thus readily available: The parties could have inserted a provision making

Chevron’s obligation to extend Policy coverage a “condition precedent” to an

entity’s ability to benefit from “Other Assured” status or from the subrogation

waiver. They did not, and we cannot do it for them.

We also reject Underwriters’ argument that allowing FloaTEC to benefit

from the subrogation waiver as an “Other Assured” renders the Special

Conditions clause “meaningless.” To be sure, we must read an insurance

8 The stricken clause appears in the record as follows:

See, e.g., Taylor, supra, at 1181 (explaining that this provision, which was “designed to limit

access to the policy for contractors” who failed to comply with agreed quality control

procedures, “has not been a popular clause and is now frequently deleted”). The parties also

struck a similar clause from the Policy’s subrogation waiver. That clause would have made

conformity with the same quality control provisions a “condition precedent to [Other

Assureds] benefiting from the [Policy’s] automatic waiver of subrogation.”

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contract to give every provision meaning. LA. CIV. CODE art. 2050; see, e.g.,

Arias-Benn v. State Farm Fire & Cas. Ins. Co., 495 F.3d 228, 231 (5th Cir. 2007)

(under Louisiana law, “[a]n insurance contract is to be construed as a whole”).

But, even on the district court’s straightforward reading of “Other Assured”

(requiring an “Other Assured” only to have a Big Foot contract with Chevron),

the Special Conditions clause would still play a role in the parties’ contractual

relationships. For instance, the first sentence of the Special Conditions clause

permits Chevron to limit a contractor’s Policy coverage through a “provision”

in a “specific contract.” Suppose Chevron did that in its contract with FloaTEC

(as appears to be the case) 9: That limitation might come into play should

FloaTEC seek affirmative recovery under the Policy against Underwriters

(which, of course, is not the scenario we have here). The second Special

Conditions sentence would also play a role in this scenario: FloaTEC would

have to “exercise[ ]” whatever “rights” it has under the Policy “through the

Principal Assureds,” like Chevron. And the third Special Conditions sentence

would insure that any recovery FloaTEC sought under the Policy “shall be no

greater than such contract [with Chevron] allows.”

This reading harmonizes the “Other Assured” definition and the Special

Conditions clause. The definition concerns a party’s status as an “Other

Assured,” whereas the clause concerns the extent to which an “Other Assured”

9 As the district court explained, the Chevron/FloaTEC Contract requires FloaTEC to

maintain specific insurance covering certain project risks, such as workers’ compensation and

employer’s liability insurance, commercial general liability insurance, and automobile,

watercraft, and aircraft insurance. The Contract further provides that, to the extent of

FloaTEC’s liabilities, this required insurance “is primary with respect to all insureds . . . and

that no other insurance carried by [Chevron] will be considered as contributory insurance for

any loss.” We need not decide to what extent these provisions limit FloaTEC’s interests under

the Policy because, as explained, FloaTEC is not seeking recovery under the Policy. Rather,

it is seeking only to raise the subrogation waiver against Underwriters’ claims. It is enough

to say, with the district court, that these insurance requirements in the Chevron/FloaTEC

Contract “have nothing to do with [FloaTEC’s] Other Assured status” under the Policy.

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may claim Policy coverage. By arguing that a party has “Other Assured” status

only insofar as it has coverage, Underwriters conflate status and extent of

coverage. But the Policy does not. As the district court cogently explained, “the

Policy definition of an Other Assured . . . plainly does not require the contract

between [Chevron] and [FloaTEC] to address the subject of insurance[.]”

Moreover, under the rules of contract interpretation, we should avoid an

interpretation of the Special Conditions clause that overrides the plain

language of the “Other Assured” definition. See, e.g., Clovelly Oil Co., LLC v.

Midstates Petroleum Co., LLC, 2012-2055 (La. 3/19/13); 112 So.3d 187, 195

(courts should “interpret contract provisions ‘so as to avoid neutralizing or

ignoring any of them or treating them as surplusage’”) (quoting John Bailey

Contractor, Inc. v. State Dept. of Transp. & Devel., 439 So.2d 1055, 1058 (La.

1983)) (citing LA. CIV. CODE art. 2050).

Finally, another reason for rejecting Underwriters’ counter-textual

reading of the Policy (and for accepting the district court’s textual reading) is

that Underwriters’ reading collides with the “anti-subrogation” rule. Under

this “fundamental principle of insurance law[,]” “[a]n insurer cannot by way of

subrogation recover against its insured or an additional assured any part of its

payment for a risk covered by the policy.” Peavey v. M/V ANPA, 971 F.2d 1168,

1177 (5th Cir. 1992) (citing, inter alia, Dow Chemical Co. v. M/V Roberta

Taylor, 815 F.2d 1037, 1043 (5th Cir. 1987)) (emphasis added). 10 Importantly,

the rule applies even when the additional assured is not covered under the

10 See also, e.g., Shelter Mut. Ins. Co. v. State Farm Mut. Auto. Ins. Co., 2007-0163 (La.

App. 1 Cir. 7/18/08); 993 So.2d 236, 240 (observing “[i]t is well settled [under Louisiana law]

that an insurer cannot be subrogated against its own insured”) (citations omitted); 16 COUCH

ON INS. § 224:12 (“Pursuant to the antisubrogation rule, an insurer is not entitled to

subrogation against persons or entities named in the policy as insureds, or who are additional

insureds under the terms of the policy.”) (citing, inter alia, Olinkraft, Inc. v. Anco Insulation,

Inc., 376 So.2d 1301 (La. App. 2 Cir. 1979) (emphasis added).

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policy for the specific risk at issue. See, e.g., Dow Chemical Co., 815 F.2d at

1044–45 (discussing Marathon Oil Co. v. Mid-Continent Underwriters, 786

F.2d 1301, 1302 (5th Cir. 1986); Wiley v. Offshore Painting Contractors, Inc.,

711 F.2d 602 (5th Cir.), on reh’g, 716 F.2d 256 (5th Cir. 1983)). Our key decision

is Marathon Oil, in which Judge Rubin explained:

[W]hen underwriters issue a policy covering an additional assured

and waiving ‘all subrogation’ rights against it, they cannot recoup

from the additional assured any portion of the sums they have paid

to settle a risk covered by the policy, even on the theory that the

recoupment is based on the additional assured’s exposure for risks not

covered by the policy.

786 F.2d at 1302 (emphasis added); see also AGIP, 920 F. Supp. at 1329

(Marathon Oil “determined . . . that waiver of subrogation is not co-extensive

with, but is broader than, coverage under the insurance policy”); and see, e.g.,

Lanasse v. Travelers Ins. Co., 450 F.2d 580 (5th Cir. 1971) (op. of Brown, C.J.)

(underwriters could not recover against additional assured “in the face of the

explicit policy provision waiving subrogation” even though the “additional

assured . . . cannot claim the affirmative benefit of the [policy] coverage”).

Underwriters’ awkward yoking of “Other Assured” status to the Special

Conditions clause would bring their suit perilously close to the anti-

subrogation danger zone. Recall Underwriters’ theory: Despite the Policy

definition, they say FloaTEC is not an “Other Assured” (and thus can be sued

via subrogation) solely because the Contract withholds full Policy coverage

from FloaTEC. This is precisely the forbidden scenario laid out in Judge

Rubin’s Marathon Oil opinion: (1) Underwriters would “recoup from [an]

additional assured [i.e., FloaTEC] sums they have paid to settle a risk covered

by the policy”; (2) the Policy “waiv[es] . . . subrogation” against an “additional

assured”; and (3) Underwriters rely “on the theory that the recoupment is

based on [FloaTEC’s] exposure for risks not covered by the [P]olicy.” Marathon

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Oil, 786 F.2d at 1302 (brackets added). Thus FloaTEC, understandably, urges

us to rule that the anti-subrogation principle bars Underwriters’ suit as a

matter of public policy. See, e.g., Peavey, 971 F.2d at 1177 (describing anti-

subrogation rule as based on “public policy”). But we need not go that far. It is

enough to say that avoiding conflict with the anti-subrogation rule provides yet

another reason—over and above the textual and contextual reasons already

discussed—to give the Policy definition of “Other Assured” the straightforward

reading the district court did. See, e.g., In re Katrina Canal Breaches Litig.,

2010-1823 (La. 5/10/11); 63 So.3d 955, 963 (assessing whether certain

insurance provisions “violate public policy”); Peterson, 729 So.2d at 1031

(explaining that insurance contracts should be construed to “give[ ] effect to

the long-standing public policy of this State”).

IV.

To sum up, we conclude that the district court properly ruled on

FloaTEC’s motion to dismiss Underwriters’ claims before considering

arbitrability. We also conclude that the district court correctly found FloaTEC

was an “Other Assured” under the Policy and could thus invoke the

subrogation waiver. We therefore affirm the district court’s judgment

dismissing Underwriters’ claims with prejudice.

AFFIRMED.

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