Originally published by Charles Sartain.
Co-author Brittany Blakey*
Cardoso-Gonzales v. Anadarko Petroleum Corp. addressed the all-important indemnity and insurance provisions in Master Service Agreements in light of the Outer Continental Shelf Lands Act and the Louisiana Oilfield Indemnity Act.
Cordoso-Gonzales suffered severe injuries while working aboard the LUCIUS spar, an offshore production platform. The defendants in his negligence lawsuit included (among others):
- Anadarko Petroleum (owned and operated the LUCIUS),
- W-Industries (provided electrical services),
- Dolphin (provided construction services),
The “knock-for-knock” indemnity
Dolphin and W-Industries cross-claimed against Anadarko seeking defense and indemnity pursuant to each party’s MSA with Anadarko. The MSAs included so-called “knock for knock” indemnity and insurance provisions obligating each party to indemnify the other for personal injuries sustained by their respective employees and invitees regardless of fault, and to obtain specific amounts of insurance coverage for certain claims, personal injury being one. Each party was required to add the other as an “additional insured.”
Were the choice-of-law provisions valid?
No. The MSA’s provided that Texas law would govern. Anadarko asserted that the indemnities were null and void under Louisiana law because they conflicted with the OCSLA and the LOIA. The platform was governed by OCSLA, which supersedes the agreements’ choice-of-law provisions. Under the OCSLA, the laws of the adjacent state (Louisiana in this case) applied. The choice-of-law provisions were void.
Were the indemnity provisions valid?
No. The LOIA invalidates requirements for indemnification for death or bodily injury where there is fault on the part of the indemnitee. To determine if the LOIA applied to the MSA’s in question, the court engaged in a two-step inquiry
- Did the agreement “pertain to” an oil, gas or water well?
- Was the agreement “related to” exploration, development, production, or transportation of oil, gas, or water?
W-Industries supplied onshore and offshore support for the project. The project involved the installation of equipment related to natural gas production from wells connected to the LUCIUS. Dolphin supplied materials, labor, equipment, and services for onshore and offshore facilities, and the work performed aboard the LUCIUS was related to equipment installation connected to the production of natural gas from nearby wells. Both MSAs easily satisfied each prong of this test. Therefore, the LOIA applied, and the indemnity provisions were invalid.
Were the additional-insured provisions valid?
No. The LOIA prohibits contracting parties from using insurance agreements to circumvent the law’s anti-idemnity provisions. Based on the language of the MSAs, and consistent with case law, the contractual provisions requiring the contractor to extend insurance coverage to the principal’s negligence or fault were null and void under the LOIA because insurance arrangements such as these frustrate the purpose of the Act.
Did the Meloy exception apply?
No. The court declined to apply the Louisiana Supreme Court’s ruling in Meloy v. Conoco, which established an exception to the LOIA that allows for the payment of defense costs when:
- a potentially indemnified party is free from fault, and
- the agreement provides for such an award.
This judicially-created exception only entitles an indemnitee to recover its costs after a trial on the merits. No such trial had occurred, rendering W-Industries’ Meloy claim premature. The potential existence of such a clam does not prohibit summary judgment. In the event that W-Industries is ultimately found free from fault, it could re-urge its Meloy claim.
A New Orleans song that you didn’t know is a New Orleans song.
*Brittany, a Gray Reed summer associate, is a candidate for the Baylor joint JD-MBA program.
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