Signal Oil & Gas Co. v. The Barge W-701

A consortium of oil companies (consortium) (plaintiff) owned a drilling platform in the Gulf of Mexico. An underwater pipeline connected the consortium’s platform to the shore. Another oil company, Sun Oil Company (Sun), owned a nearby platform that did not connect to the shore. The consortium agreed to permit Sun to construct a connection to the consortium’s platform, permitting Sun to transport its oil through the consortium’s pipeline. Sun hired J. Ray McDermott (defendant) to construct the connection. McDermott hired Williams-McWilliams (Williams) to provide a barge and crew to help in the construction. Williams did not make any personal guarantees or warranties beyond those implied in any commercial agreement to engage a vessel. With respect to any issue with the construction, Sun agreed to indemnify the consortium, and McDermott agreed to indemnify Sun. Williams and McDermott did not enter into an indemnity agreement. During construction, Williams’s barge’s anchor got stuck on the consortium’s pipeline. The barge’s captain was an experienced shipmaster with a good reputation. Nonetheless, the captain negligently employed an aggressive maneuver to dislodge the anchor and ruptured the consortium’s pipeline. Various parties filed actions to sort out who was liable to whom. The district court consolidated the actions and found that Williams’s captain’s negligence was the sole cause of any damage. The district court then held that, in the first instance, liability for the damage lay with Williams. The court also held, however, that the Limitation of Liability Act limited Williams’s liability to the value of its barge, comprising only a fraction of the total cost of the damage. Accordingly, the district court held McDermott liable for the remainder under the indemnity agreements. McDermott appealed the district court’s use of the act to limit Williams’s liability.