$1.3 billion lawsuits for damages arising from explosion at US LNG facility thrown out of court

Texas-based litigation firm Hicks Thomas LLP, whose attorneys argued that insurance carriers could not recover on subrogation claims, has confirmed its win in two legal battles related to lawsuits amounting to $1.3 billion against builders of a liquefied natural gas (LNG) export facility in Texas, United States (U.S.).

Stemming from an explosion that damaged the Freeport LNG (FLNG) Freeport Texas facility in June 2022, the two lawsuits, which sought damages of $1.3 billion against Zachry Industrial (Zachry) and its joint venture partners, got dismissed by the U.S. Bankruptcy Court for the Southern District of Texas, according to the litigation firm.

A subrogation action, which was filed by Allianz Global Risks US Insurance Co. and other insurers against Zachry and its joint venture partners, Chiyoda International Corp. and CB&I, claimed the builders caused the explosion by failing to install proper safeguards that could have alerted facility operators before the explosion. Another, almost identical action was also filed in the name of FLNG Liquefaction, et al. on behalf of a separate group of insurers.

Furthermore, Allianz and several insurers, including certain underwriters at Lloyd’s of London, Great Lakes Insurance SE, GuideOne National Insurance Co., and Tokio Marine America Insurance Co. sought reimbursement from Zachry and the other joint venture partners for insurance payments made to FLNG for its losses, including profits lost during the time the facility was offline for repairs.

At the hearing in November 2024, concerning its motion to dismiss, the firm argued that when FLNG and its contractors entered engineering, procurement, and construction (EPC) services contracts, they agreed to an extensive set of risk-allocation provisions, including an obligation by FLNG to obtain its own property insurance that would cover such losses.

Since this contained a waiver of subrogation claims against the contractor group, Hicks Thomas firm underlined that the waiver of subrogation and release provisions in the applicable construction contracts barred any claims against Zachry and the contractors to the extent FLNG received payment for claims under any insurance policies required by the contract.

John Thomas, an attorney who spoke on behalf of Zachry, told the court that the risk allocations were essential to safeguarding EPC contractors involved in constructing mega-projects like the Freeport LNG facility, which generates billions of dollars in profits annually for its owners.

Thomas also emphasized the contracts were negotiated at arm’s length between sophisticated parties, with the disputed provisions being “mutual,” applying equally to both the project owner and the contractors.

The lawyer further noted that these mutual risk allocation provisions, including a waiver of consequential damages and business interruption losses, formed the fundamental consideration for the EPC contract and that the insurance carriers stood in the shoes of FLNG for purposes of its claims.

Moreover, Thomas underscored that FLNG’s own investigation attributed the incident to “operator error,” placing responsibility squarely on FLNG’s shoulders rather than on those of Zachry or its joint venture partners. As a result, Marvin Isgur, U.S. Bankruptcy Judge, granted the firm’s motion to dismiss the case.

The judge’s ruling pointed out that the contracts governing the contractor’s construction of the facility precluded the insurance carriers’ lawsuit; thus, the insurers did not have standing to file suit claims against Zachry.

Thomas and Hicks Thomas partners John Deis, Eric Grant, and Cameron Pope, and associates Ryan Cordell and Sofia Burnett represented the company, which filed for Chapter 11 bankruptcy protection in May 2024.

The development of the Freeport LNG liquefaction project started in 2010, with the construction phase coming a few years later, in late 2014. The terminal’s liquefaction trains can produce more than 600 MMcf/d of LNG, respectively.

With an additional LNG train (Train 4) under development, the facility was expected to expand its capacity to over 20 mpta. Train 4 was designed to use electric motors with variable-frequency drive for the cooling and liquefaction compression power to curb emissions, just like the first three trains.