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Dive Brief:
- A bankruptcy judge has dismissed two demands seeking total damages of $1.3 billion from builders of the $14 billion Freeport LNG gas export terminal after a June 2022 explosion Freeport, Texas, facility offline for eight monthsaccording to a November 21 press release.
- The insurers filed a lawsuit July 5 against San Antonio-based Zachry and its joint venture partners, Japanese engineering firm Chiyoda International Corp. and CB&I of The Woodlands, Texas, alleging they caused the explosion by failing to install safety measures that could have alerted facility operators earlier. the incident, according to a statement from Houston-based Hicks Thomas, the builders’ legal representative.
- A judge in the U.S. Bankruptcy Court for the Southern District of Texas ruled that the contracts governing the project’s construction barred the insurers from suit and said they had no standing to file suit against the builders, according to the statement.
Diving knowledge:
The builders’ lawyer said the case highlights the importance of risk allocation for contractors involved in multimillion-dollar projects.
Speaking on Zachry’s behalf at a November hearing on his motion to dismiss, attorney John Thomas said risk allocations were essential to safeguard contractors building megaprojects like the Freeport LNG facility, according to the press release Thomas stressed that Freeport LNG’s own investigation attributed the incident to “operator error.”
In the lawsuitAllianz and other insurers —Lloyd’s of London, Great Lakes Insurance SE, GuideOne National Insurance Co. and Tokio Marine America Insurance Co.— sought reimbursement from the builders for insurance payments they made to Freeport LNG for its losses, including profits wiped out while the facility was shut down for repairs.
Another lawsuit was filed on the same day in the same court on behalf of a separate group of insurers for the same incident.
Lloyd’s of London and Freeport LNG declined to comment on the case. The other insurers did not immediately respond to Construction Dive’s request for comment.
In both lawsuits, Zachry argued that when Freeport LNG and its contractors entered into contracts for engineering, procurement and construction services, they agreed to various risk allocation provisions, according to the release. These include an obligation for Freeport LNG to obtain its own property insurance to cover such losses and a waiver of subrogation claims against the contractor group.
Judge Marvin Isgur agreed, ruling that the contracts governing the construction of Zachry’s facility precluded the insurers’ suit.
That’s good news for the embattled builder: Zachry already filed for Chapter 11 bankruptcy protection in May due to cost overruns on another massive methane gas project, the Golden Pass LNG Export Terminal in Port Arthur, Texas, owned by ExxonMobil and Qatar Energy. Zachry said construction of the facility was at least $2.4 billion over the original budget, leading to hemorrhaging money and eventually exiting the project.
