Products Liability Law Daily Insurer’s failure to establish proximate causation dooms negligence claims against Caterpillar in well site fire case
Friday, November 6, 2020

Insurer’s failure to establish proximate causation dooms negligence claims against Caterpillar in well site fire case

By Nicholas Kaster, J.D.

As the Texas Supreme Court has held, cause in fact is not established when the defendant’s negligence does no more than furnish a condition that makes the injuries possible.

In an action arising from a fire at an oil and gas well site, the U.S. Court of Appeals for the Fifth Circuit affirmed a federal district court’s grant of summary judgment on an insurance company’s negligence claims against Caterpillar, Inc. The insurer failed to show that an engine hour meter installed by Caterpillar in one of the pumping units was the proximate cause of the fire. In addition, the lower court properly excluded the insurer’s expert reports. The expert’s initial report was grossly deficient, and his supplemental report was untimely because it was filed on the final day of the discovery period (AIG Europe, Ltd. v. Caterpillar, Inc., November 4, 2020, per curiam).

Baker Hughes Inc. (BHI) had contracted with another firm to conduct 34 stages of hydraulic fracturing at an oil and gas well site in Texas. BHI owned and maintained the 16 pumping units used at the well site. Each unit contained a Caterpillar 3512C engine. When one of the pumping units began to overheat, it was removed and replaced with another unit, but about half an hour later, the replacement unit caught fire. As a result, BHI shut down all 16 pumping units. Before the fire was extinguished, many of the units were damaged.

BHI had ordered the replacement unit from Dragon Products, LLC. Before the unit was delivered to BHI, it was sold through several entities in the chain of commerce. Caterpillar manufactured the engine and sold it to an authorized Caterpillar dealer. Together with Dragon, BHI completed assembly of the pumping unit and installed its own proprietary controls and engine hour meter. The engine had three engine hour meters that recorded engine run time. One was installed by Caterpillar and was located on the inside of the engine. The second, also installed by Caterpillar, was located on the outside of the engine. This meter did not function until it was repaired by an independent Caterpillar dealer. BHI never reported a problem with this hour meter. The third was BHI’s own hour meter. This was the only meter BHI used and relied on.

Caterpillar recommended that each 3512C engine’s oil be changed after 250 hours of run time. BHI had its own policy of changing engine oil every 800 hours. The unit’s oil was changed for the only time in May 2016. At that time, BHI’s hour meter showed the engine had run for about 800 hours. The engine’s internal hour meter showed it had run for 1,911 hours. After the fire, an investigation indicated that the fire originated from the replacement unit and that the engine had a disconnected crankshaft counterweight and broken connecting rod.

AIG Europe, Ltd., as BHI’s insurer, sued Caterpillar and Dragon, asserting Texas law claims of negligence, design defect, manufacturing defect, and breach of implied warranty. The district court, among other rulings, struck the report of one of AIG’s causation experts and granted summary judgment for Caterpillar and Dragon on each of AIG’s claims. On appeal, AIG challenged the district court’s exclusion of the expert’s report and its grant of summary judgment on AIG’s negligence and breach of implied warranty claims against Caterpillar and Dragon.

Expert testimony. AIG argued that the district court erred in striking the expert’s report and deposition. The district court had excluded the initial report because it failed to comply with Federal Rule of Civil Procedure 26(a). Under this rule, expert reports must be "detailed and complete so as to avoid the disclosure of sketchy and vague expert information." The expert admitted that his initial report was "preliminary," contained "no real opinions," and lacked a "complete analysis or findings section." After reviewing the initial report, the Fifth Circuit agreed with the district court that it was "grossly deficient."

The district court had excluded the expert’s supplemental report as untimely because AIG filed it on the final day of the discovery period. In determining whether a district court abused its discretion by excluding expert testimony as untimely, the Fifth Circuit looked to four factors: (1) the explanation for the failure to produce the report earlier; (2) the importance of the testimony; (3) potential prejudice in allowing the testimony; and (4) the availability of a continuance to cure such prejudice.

First, AIG argued that it did not submit the final report earlier because Caterpillar delayed the deposition of its representatives. The appellate panel found this explanation unsatisfactory. If AIG needed information from Caterpillar’s experts to allow the expert to complete his report, the court explained, AIG should have moved to compel the depositions of those experts. There was no indication that AIG made such a motion. Thus, the district court was correct to find that this first factor favored exclusion, the Fifth Circuit held.

Second, AIG argued that causation was the critical issue in this case and, therefore, the expert report and testimony were essential. However, the appellate panel noted that the lower court did not exclude AIG’s other two causation experts. Thus, it found that AIG’s claims did not turn on this expert’s report. Third, AIG argued that Caterpillar and Dragon would not be prejudiced if the district court admitted the expert’s report. The panel disagreed, finding that the report contained new analyses and conclusions that Caterpillar was not given the opportunity to challenge.

Finally, AIG argued that a continuance would have removed any potential prejudice before trial. While the district court agreed that a continuance could have removed the prejudice, it had determined that a continuance was impractical and improper. The appellate court noted that this case has been pending for more than two years and that the district court had granted several continuances because of "AIG’s dilatory prosecution of this action." While continuances are the preferred means of dealing with untimely expert reports, the Fifth Circuit opined, they are the exception. Accordingly, a district court is not required to grant a continuance at such a late date in the litigation.

Negligence claim. AIG argued that Caterpillar’s defective engine hour meter demonstrated negligence in inspecting and assembling the engine. Negligence requires a showing of proximate cause, which consists of "cause in fact" and foreseeability. Cause in fact means that the defendant’s act or omission was a substantial factor in bringing about the injury, which would not otherwise have occurred.

Here, AIG conceded that the engine hour meter itself was not the cause of the fire. Rather, it argued that, had the meter worked, BHI would have been able to take action to prevent the fire. Even still, the court said, AIG pointed to no evidence that the meter’s inoperability or BHI’s lack of knowledge of the discrepancy in engine hours caused the fire.

BHI relied solely on its own proprietary engine hour meter, the appeals court noted. BHI did not notify Caterpillar at any point that the engine hour meter was not working, which indicated that BHI did not even attempt to rely on this hour meter. Further, even if the meter had been working, there was no indication that this would have prevented the fire, as BHI had adopted its own oil change policy. Thus, the court stated, because BHI did not use or rely on the engine hour meter, it was not the proximate cause of the fire.

The district court was correct to grant summary judgment to Caterpillar on the causation element, the Fifth Circuit concluded. With respect to Dragon, the court found that AIG offered no argument that Dragon was negligent. Negligence requires evidence that the defendant owed the plaintiff a duty and that it breached that duty. Every argument AIG made was directed to Caterpillar, the court noted.

Breach of implied warranty. AIG also challenged the lower court’s grant of summary judgment on its claim of breach of implied warranty. The Fifth Circuit ruled that there was no evidence in the record that BHI notified Dragon of any breach of warranty. Thus, the panel found that the district court was correct to award summary judgment to Caterpillar and Dragon on AIG’s implied warranty claim.

Accordingly, the Fifth Circuit affirmed the lower court’s grant of summary judgment to Caterpillar and Dragon.

This case is No. 19-40934.

Attorneys: Dana Keith Martin (Hill Rivkins LLP) for AIG Europe, Ltd. Mark R. Trachtenberg (Haynes and Boone, LLP) for Caterpillar, Inc. Sean Higgins (Lewis Brisbois Bisgaard & Smith LLP) for Dragon Products, LLC

Companies: AIG Europe, Ltd.; Caterpillar, Inc.; Dragon Products, LLC

MainStory: TopStory ExpertEvidenceNews DesignManufacturingNews EvidentiaryNews CausationNews

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