Dive Brief:
- A bankruptcy judge has dismissed two lawsuits seeking total damages of $1.3 billion from the builders of Freeport LNG’s $14 billion gas export terminal, after a June 2022 explosion knocked the Freeport, Texas, facility offline for eight months, per a Nov. 21 news release.
- Insurers filed suit on 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, claiming they caused the explosion by failing to install safeguards that could have alerted facility operators before the incident, according to the release from Houston-based Hicks Thomas, the builders’ legal representative.
- The judge in the U.S. Bankruptcy Court for the Southern District of Texas ruled that the contracts governing the project’s construction precluded the insurers’ lawsuit and said that they didn’t have standing to file suit against the builders, according to the release.
Dive Insight:
The builders’ attorney said the case highlights the importance of risk allocation for contractors involved in multibillion-dollar projects.
Speaking on behalf of Zachry in a November hearing on its motion to dismiss, attorney John Thomas said that risk allocations were essential to safeguarding contractors that build megaprojects like the Freeport LNG facility, according to the news release. Thomas underscored that Freeport LNG’s own investigation attributed the incident to “operator error.”
In the lawsuit, Allianz 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 suit was filed on the same day in the same court on behalf of a separate group of insurers regarding 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 engineering, procurement and construction services contracts, they agreed to various risk-allocation provisions, per the release. Those included 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 and ruled that the contracts governing Zachry’s construction of the facility precluded the insurers’ lawsuit.
It’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 that construction of the facility was at least $2.4 billion over the original budget, causing it to hemorrhage money and eventually exit the project.
