A group of insurance companies seeking more than $1.3 billion from the Zachry Group and joint venture partners related to work at the Freeport, Texas, LNG export terminal that exploded more than two years ago and remained closed for months, they are appealing a judge’s dismissal of their lawsuit. last month
The insurers filed their appeal in U.S. Bankruptcy Court in a case related to the June 2022 fire and explosion at the Gulf Coast plant. A heavily worded report released by the U.S. Pipeline and Hazardous Materials Safety Administration later that year found that a poorly insulated pressure relief valve allowed the heating and expansion of LNG inside the pipe, which increased the pressure and caused a rupture that released the gas in both steam and vapor. liquid form The LNG vapor then ignited, causing a fireball that ruptured other nearby pipes and started a secondary fire. The report cited human error and noted that a large number of plant staff were working overtime.
After Zachry filed for federal bankruptcy protection last May related to a dispute over the Golden Pass LNG project, a Texas LNG plant now under construction, insurers Allianz Global Risks US Insurance Co., Great Lakes Insurance SE , Guideone National Insurance Co., Tokyo Marine Insurance Co., certain underwriters of Lloyd’s of London, as well as FLNG Liquefaction LLC, filed a pair of lawsuits claiming the contractor and its partners McDermott International and Chiyoda were responsible for the explosion. The lawsuits said the companies failed to install safety measures that could have alerted operators before the explosion. The insurers sought reimbursement, known as subrogation, from the contractors for the damages they paid the owner of Freeport LNG for the damages.
Attorney John Thomas, who represents Zachry, argued before U.S. Bankruptcy Judge Marvin Isgur in Texas last month that the engineering, procurement and construction agreement between the project owner and contractors had provisions allocation of risks that included a waiver of subrogation claims against the construction companies.
Thomas said risk allocations are essential to safeguard EPC contractors involved in projects such as the Freeport LNG facility.
“Imagine the situation of trying to get financing when you’re potentially facing a potential long-term loss of billions of dollars,” Thomas said, according to a copy of his remarks. “You couldn’t do these projects. These EPC companies could not do these projects, and the companies like them [Freeport LNG] and Golden Pass would not have these highly profitable facilities without these types of provisions that prevent a tail of long-term liability from following them for decades into the future.”
The judge agreed, dismissing the cases on Nov. 21 and telling the court that the insurers “have no standing here,” according to a transcript attached to the insurers’ appeal. However, Isgur also said he did not want to comment on whether the insurers could have a liability claim under other provisions of the contract.
An attorney representing the insurers did not immediately respond to inquiries, and Thomas did not share any comment beyond his court comments.
Zachry Group is ranked #28 among the top 400 ENR contractors with more than $5.4 billion in revenue by 2023. A subsidiary of Zachry, along with Chiyoda International Corp. and CB&I LLC, a unit of McDermott, worked on three total LNG processing “trains” at the Freeport facility that came online between 2019 and 2020.
After the fire, Freeport LNG hired Kiewit Construction to restore the plant and was able to resume operations about eight months after the incident. The company plans to expand the plant with a fourth LNG train, having already won approval from the Federal Energy Regulatory Commission in 2019 for the project and raising more than $1 billion to finance it.
