An oil and gas company involved in engineering consulting and supervision faced a damaging lawsuit as the result of a serious accident at oil well.
The company, a large oilfield consultancy firm with approximately $4.5 million in revenue, utilised a vast number of 1099 contractors to provide its consulting services. At the time of the accident, two such 1099s were at the well site in a supervisory capacity. The oilfield consultancy’s insurance policies with CFC covered a flexible definition of services - ranging from oilfield consulting to well site supervision.
The incident
In 2018, well site workers at a well were instructed to change a heavy-duty radiator, weighing over 3,000lbs, which belonged to an engine used for drilling operations. While the radiator was being moved, it became detached from the forklift and crashed onto a worker, causing severe and debilitating injuries. It was alleged that those providing direction on the replacement of the radiator were negligent, and that the instructions given to the drilling crew on how to go about the task were inadequate.
As with a huge number of oilfield accident claims, legal action is swift and aims to bring in any and all contributing parties. At times, all parties who are simply physically present at the site are named in litigation until the responsible parties are identified. This is immensely costly for all involved - valuable earnings are being paid out in defense costs from the very outset, despite many parties often being innocent of involvement.
There were several companies involved in this incident, and five separate parties were named as defendants in the lawsuit that followed. The two independent
contractors working for the consultancy were named, having been asked to witness the changing of the radiator, along with the insured itself.
The allegations of negligence included hazardous working conditions, a lack of warning about potential dangers, failure to prevent the accident, failure to provide a safe workplace and failure to develop adequate safety policies and procedures.
The litigation
A very protracted case followed. Despite evidence that proper safety procedures were not followed by the well operator’s workers, and despite the insured having a coherent version of events which should have helped their case, they were still contending with a plaintiff-friendly jurisdiction where juries are known for awarding
large damages. It was also beyond doubt that the independent contractors working for insured were present when the incident occurred, were representing the insured at the time and were providing professional services in the form of supervision.
The resolution
Fortunately, CFC’s professional liability insurance designed for oil and gas companies worked to protect not only the consultant but also their 1099 employees from financial harm.
First, the policy offered two separate towers of coverage - professional liability and general liability. Both towers had broad coverage - including bodily injury and property damage cover. In the oil and gas industry, many master service agreements require only general liability to be held by contractors and
consultants alike. However, professional liability is essential for any firm providing consulting, engineering, supervision, or any other kind of observation, advice, opinion or recommendation as a service.
The insured had also been issued a blanket ‘subcontractor’ extension to their policy, which covered all independent contractors, as if they were full employees of the consultant.
Additionally, the insured had purchased an excess policy from CFC which offered generous limits and protected the consultancy above and beyond their primary policy.
The claim settled at a cost of nearly $6,000,000 which was covered by the professional liability and general liability primary towers, as well as the following excess. CFC’s significant oil and gas risk management, underwriting and claims expertise, combined with a broad and flexible wording enabled a smooth and positive outcome. Most importantly, the insured was protected and able to return to work.
