Hicks Thomas LLP attorneys successfully argued that Freeport LNG’s insurance carriers could not recover on subrogation claims

A U.S. bankruptcy judge has dismissed two lawsuits seeking damages totaling $1.3 billion against Zachry Industrial Inc. (Zachry) and its joint venture partners stemming from an explosion that damaged Freeport LNG’s (FLNG) Freeport, Texas facility in June 2022.

Allianz Global Risks US Insurance Co. and other insurers filed a subrogation action against Zachry and its joint venture partners Chiyoda International Corp. and CB&I LLC, claiming they caused the explosion by failing to install proper safeguards that could have alerted facility operators before the explosion. A nearly identical action was filed in the name of FLNG Liquefaction, LLC, et al. on behalf of a separate group of insurers regarding the same incident.

Allianz and several insurers, including certain underwriters at Lloyd’s of London, Great Lakes Insurance SE, GuideOne National Insurance Co. and Tokio Marine America Insurance Co. sought reimbursement from Zachry and the other joint venture partners for insurance payments they made to FLNG for its losses, including profits lost while the facility was shut down for repairs.

In a Nov. 18 hearing on Zachry’s motion to dismiss, Zachry argued that when FLNG and its contractors entered engineering, procurement and construction services contracts, they agreed to an extensive set of risk-allocation provisions which included an obligation by FLNG to obtain its own property insurance that would cover such losses and contained a waiver of subrogation claims against the contractor group, including Zachry.

The waiver of subrogation and release provisions in the applicable construction contracts barred any claims against Zachry and the contractors to the extent FLNG received payment for claims under any insurance policies required by the contract.

Speaking on behalf of Zachry, attorney John Thomas told the court that the risk allocations were essential to safeguarding EPC contractors involved in constructing mega-projects like the Freeport LNG facility, which generates billions of dollars in profits annually for its owners. He emphasized in argument on Monday that the contracts were negotiated at arm's length between sophisticated parties, with the disputed provisions being "mutual," applying equally to both the project owner and the contractors.

Mr. Thomas, a partner at Hicks Thomas LLP, further noted that these mutual risk allocation provisions, including a waiver of consequential damages and business interruption losses, formed the fundamental consideration for the EPC contract and that the insurance carriers stood in the shoes of FLNG for purposes of its claims. He underscored that FLNG’s own investigation attributed the incident to "operator error," placing responsibility squarely on FLNG, rather than on Zachry or its joint venture partners.

U.S. Bankruptcy Judge Marvin Isgur granted Zachry’s motion to dismiss, ruling that the contracts governing the contractor’s construction of the facility precluded the insurance carriers’ lawsuit and finding the insurers did not have standing to file suit against Zachry. Zachry, which filed for Chapter 11 bankruptcy protection in May, is represented by Mr. Thomas and Hicks Thomas partners John Deis, Eric Grant and Cameron Pope and associates Ryan Cordell and Sofia Burnett.

The cases are Allianz Global Risks US Insurance Co. et al. v. Zachry Industrial Inc. et al., Adv. No. 24-03190 and FLNG Liquefaction, LLC et al. v. Zachry Industrial Inc. et al., Adv. No. 24-03189 in the U.S. Bankruptcy Court for the Southern District of Texas.

Founded in 1997, Texas-based Hicks Thomas LLP is a premier litigation firm representing plaintiffs and defendants across the nation. With offices in Houston, Austin, Beaumont, Amarillo, and Sacramento, California, the firm provides in-depth experience in cases involving oil and gas (upstream, midstream, and downstream), construction, environmental, complex commercial, toxic tort, construction, products liability, corporate governance, securities, banking, insurance coverage, transportation, trade secrets, and general business litigation. Learn more: http://www.hicks-thomas.com.

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