The Enforcement of an Indemnity Clause: Federal Maritime Law vs. Louisiana Law

The Enforcement of an Indemnity Clause: Federal Maritime Law vs. Louisiana Law

By: Jamie Johnson

Edited By: Molly MacKenzie

Baloney v. Ensco Offshore Company, 2014 WL 2526851 (5th Cir. 2014)

On June 5, 2014, the United States Court of Appeals for the Fifth Circuit decided a case concerning the enforceability of an indemnity clause in a contract. The case turned on whether the contract was considered a maritime contract or a Louisiana contract. If it were found to be a maritime contract, the indemnity clause would be enforceable, whereas if it were found to be a Louisiana contract, the indemnity clause would not be enforceable, as Louisiana does not recognize the validity of indemnity clauses.

Ensco Offshore Company (“Ensco”) is a drilling company that makes mobile offshore drilling units (“MODUs”) for energy companies. Stone Energy Offshore (“Stone”) is the owner of an offshore lease in the Gulf of Mexico. Bayou Inspection Services (“Bayou”) is a company that performs tests on welded surfaces, and Darnell Baloney (“Baloney”), the plaintiff in this case, is an employee of Bayou.Stone entered into a contract with Ensco to provide well drilling services on their leased MODU. Pursuant to the contract, the ENSCO 99, a “jack-up” drill rig, was placed in the Gulf. Ensco and Bayou entered into a master services agreement (“MSA”), which governs any future contract between the two. In the MSA, Bayou agreed to indemnify Ensco against any claims made by Bayou’s employees.In November 2012, Ensco called in a job to Bayou for testing on the ENSCO 99. Baloney, as an employee of Bayou, worked on the rig. While inspecting welds, Baloney was injured due to the jarring of a basket he was suspended in while performing the inspection.Baloney sued Ensco and Stone in federal court. Ensco and Stone filed a third-party complaint against Bayou for defense and indemnification. The claims against Stone were dismissed and the remaining claims were settled. However, the contract dispute between Ensco, Stone, and Bayou still remained. All parties filed motions for summary judgment. The district court ruled in favor of Ensco and Stone, concluding that the contract was a maritime contract and, because indemnity clauses are enforceable under maritime law, the indemnity contract was upheld. Bayou appealed, claiming that the contract was non-maritime and that Louisiana law thus applied, making the indemnity clause null and void under the Louisiana Oilfield Indemnity Act.On appeal, the principal issue was to determine which kind of law applied, federal maritime law or Louisiana law. The Fifth Circuit began its discussion explaining the law under the Outer Continental Shelf Lands Act (“OCSLA”). Where OCSLA is applied, federal law governs. OCSLA applies to devices attached to the seabed within the geographical reach of the Act. In the court’s opinion, a “jack-up” rig temporarily attached to the seabed in the outer continental shelf falls under OCSLA jurisdiction. State law will only apply as a substitute to federal law if the following three conditions are met: “1) The controversy must arise on a situs covered by OCSLA; 2) Federal maritime law must not apply of its own force; and 3) The state law must not be inconsistent with Federal law.” The second condition is the focus of dispute in this case. Precedent has ruled that if the contract is a maritime contract, then the second condition is not met, meaning that federal maritime law applies of its own force and state law thus does not apply.Two factors are considered when determining whether a contract is considered to be a maritime contract: 1) historical treatment of similar contracts and 2) a test with six fact-specific questions. The court analyzed the contract between Ensco and Bayou under each of these factors.First, the court addressed the historical treatment of similar contracts. It quickly agreed with the district court and stated that the case law is neither clear nor definitive. As a result, the court moved on to the “necessary” fact-specific inquiry.When a historical inquiry does not resolve the issue, a fact-specific inquiry is needed, involving the following six questions: “1) What does the specific work order in effect at the time of injury provide?; 2) What work did the crew assigned under the work order actually do?; 3) Was the crew assigned to work aboard a vessel in navigable waters?; 4) To what extent did the work being done relate to the mission of that vessel?; 5) What was the principal work of the injured worker?; and 6) What work was the injured worker actually doing at the time of the injury?”The court began the fact-specific analysis by addressing question number three, which asks whether the crew was assigned to work aboard a vessel in navigable waters. They concluded that a jack-up rig is a vessel. They continued by addressing question number one, stating that the specific work order provided for testing on a crane attached to the vessel, and that work, characterized as “vessel repair services,” is maritime work. They resolved questions number two and six quickly by stating that Baloney was actually doing testing on a crane when he was injured.The main issue in the case related to question number four, whether the work performed on the vessel was related to its mission. When analyzing this question, the Fifth Circuit looked to the Campbell, Hoda, and Domingue cases. Ensco relied on Campbell and Hoda, which both involved well-casing services performed on jack-up rigs. In both cases, the courts concluded that the work was “inextricably intertwined with maritime activities.” Alternatively, Bayou relied on the Domingue case, which involved wireline services performed on jack-up rigs.  The Fifth Circuit in that case held that the contract involved was non-maritime.After reviewing the precedent relied upon by the separate parties, the court opined that the Domingue case had no effect on the current case because the plaintiff in that case was neither employed by the contracting parties nor injured while performing services related to the wireline services. Here, Baloney was both employed by a party in the case, Bayou, and was injured while performing services pursuant to the work order.In conclusion, the Fifth Circuit affirmed the district court, ruling that “Baloney was performing work under a maritime contract, which recognizes the enforceability of indemnity clauses.”