Contract or Tort: Which Applies to Faulty Work on a Liftboat? - Contract Law - U.S. Fifth Circuit
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Contract or Tort: Which Applies to Faulty Work on a Liftboat?

Associated Gas & Oil Company, Limited bought two self-elevating liftboats -- Nicole and Kaitlyn -- from Offshore Marine Inc. (OMI) pursuant to an asset purchase agreement. Under the agreement, OMI agreed to install additional living quarters and accessories on the two vessels. OMI used its sister corporation, Tram Shipyards, Inc. to purchase the materials and complete the additional work.

In the course of installing the additional living quarters on the Nicole, Tram cut, extended, and re-welded the crane boom cradle stanchion of the hydraulic pedestal crane. Transporting the liftboats from Louisiana to Nigeria for an Associated contract proved problematic. The flotilla encountered rough seas, and the stanchion snapped at the site of the weld, causing the crane boom on the Nicole to swing wildly and crash into the additional living quarters.

There was damage. The boats had to divert from their course before ultimately returning to Louisiana for repairs, and they didn't make it to Nigeria for the contract. Associated suffered "a crippling loss of profits." So what's the proper path to remedy? Contract or tort?

Claims and counterclaims began flying between the parties like a wildly-swinging crane boom. After the other parties settled, Tram filed a motion for summary judgment claiming that, despite any factual dispute, the economic loss rule of East River Steamship Corp. v. Transamerica Delaval, Inc. precluded Associated from recovering economic losses against Tram. Both the district court and Fifth Circuit Court of Appeals agreed with Tram.

In East River, the Supreme Court held that a manufacturer in a commercial relationship has no duty under either a negligence or strict products-liability theory to prevent a product from injuring itself. That reasoning has been extended to claims brought against a provider of professional services (construction supervision) to a vessel manufacturer, and a repairer of a vessel.

In Nathaniel Shipping, Inc. v. General Elect. Co., the Fifth Circuit precluded "recovery in maritime tort for purely economic loss stemming from the negligent performance of a contract for professional services where those services are rendered as part of the construction of a vessel." Plaintiffs were therefore limited to their contractual remedies.

Here, the Fifth Circuit concluded that -- based on the purchase agreement -- the damaged crane boom cradle stanchion and living quarters were integral parts of the vessel as it was sold to Associated. Thus, under East River, Associated cannot recover against Tram under tort theories and is relegated to its rights under the contract.

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