An issue often arises in property damage claims about whether the loss was caused by a single “occurrence”, or more than one “occurrence”, since deductibles are per-occurrence. In a recent Fifth Circuit case, that was a $17 million question, with the court holding that damage suffered by an oil rig was caused by two separate storms, and thus neither one satisfied the policy’s $10 million deductible. The court held that it did not matter that the initial storm was a “but for” cause of the rig damage; since the second storm was the “proximate” cause of the damage.

The policyholder in front of the court was Seahawk Liquidating Trust, and the policy was underwritten by five insurers. The policy covered an oil rig, known as the J/U SEAHAWK 3000 in use by Seahawk since 1974. The rig suffered damage in February 2010 during severe weather, which resulted in misaligned legs, among other issues. Seahawk learned that the rig’s legs were misaligned at some point in May 2010, but did not fix the issue at that time due to cost considerations. The rig stayed in use throughout this period with the crew making modifications to compensate for the misaligned legs. On July 21, 2010, the rig experienced another severe weather event. It was damaged again, in part because of the modifications caused a portion of the rig to detach and float out to sea, where it remained for nearly thirty hours in rough waters.

Seahawk sent the rig to dry dock for repairs after the July storm and submitted an insurance policy claim to cover the cost of repairs between February and December 2010, alleged to be nearly $17 million. Seahawk claimed that these repairs were all part of a singular occurrence, defined in the policy as “a sequence of losses or damages arising from the same occurrence.” The first storm in February, according to Seahawk, caused the legs of the rig to become misaligned, and this misalignment was a “but for” cause of the damage suffered by the rig in the July storm. According to this theory, all of the damages between February and December 2010 arose from the same February occurrence that caused the rig’s legs to become misaligned and thus were part of one occurrence. The Insurers disagreed, contending that each storm was a separate occurrence under the policy, and that neither occurrence met the policy’s $10 million deductible. The dispute went to trial and the trial court agreed with the insurers.

The Fifth Circuit affirmed the district court ruling in favor of the insurers. Applying Texas law, it found that the policy required that the occurrence be the proximate cause of the “sequence of losses or damages.” The court considered earlier cases where a cause, such as a single arsonist or a defectively installed plumbing system in an apartment complex, caused multiple events that led to loss, such as multiple fires or leaks in numerous buildings. Despite arguments in those cases that the loss events should be considered a single occurrence, as they shared the same “but for” cause, Texas courts disagreed. Instead, an occurrence is defined by the specific events that caused the loss. If an arsonist lights two separate fires, each is an event. If many different buildings suffer damage from a leak, each is a separate event–even though all the leaks stemmed from the same faulty installation.

The Fifth Circuit applied this reasoning here. Even if the February storm damage was the “but for” cause of the later events, since it led to the misaligned legs that required the modifications, the July storm was the proximate cause of the damages suffered in and after that storm. In support of this finding, the Fifth Circuit noted testimony that indicated the modifications used to compensate for the misaligned legs worked fine in calm weather and that the rig has had no further issues since the July storm, even though Seahawk never repaired the misaligned legs. According to the court, these were two separate occurrences.

The Fifth Circuit also affirmed the district court’s rejection of Seahawk’s claim that it lost a contract as a result of the damaged rig, enforcing the (anti) “concurrent cause” doctrine. Under that doctrine, a policyholder can only recover on losses caused solely by covered perils. Although the misaligned legs that were damaged in the storm would have been a covered cause, the court found that the rig’s history of problems with its hydraulic jacking system, which was not a covered cause, contributed to the loss.