The Interplay of Insurance Indemnity Agreements and the Louisiana Oilfield Anti-Indemnity Act.

The Interplay of Insurance Indemnity Agreements and the Louisiana Oilfield Anti-Indemnity Act.

By: Andrea Jones

Edited by: Tiffany Morales

Armijo v. Tetra Technologies, Inc., 936 F.Supp.2d 675 (E. D. LA Mar. 27, 2013)This case presented the Eastern District of Louisiana with cross motions for summary judgment regarding an insurance indemnity claim that arose out of injuries sustained in the process of dismantling a bridge connecting two sides of an oil production platform in the Gulf of Mexico.Defendant, Maritech Resources (“Maritech”), owned the oil platform. Defendant, Tetra Technologies Inc. (“Tetra”), owned and operated the derrick barge, the D/B Tetra Arapaho, that carried the crane that was to be used to lift the dismantled bridge off of Maritech’s platforms during decommission. It was alleged that Tetra supervisors directed plaintiffs to make several cuts to the bridge’s support structures and to attach nylon straps to the bridge in order to lift the decommissioned bridge onto an adjacent barge utilizing a crane. After the cuts were made and the straps were attached, the crane operator attempted to lift the bridge away from the supports, but the bridge would not break free. The plaintiffs were then instructed by Tetra supervisors to inspect the bridge and attempt to remedy the problem. While the plaintiffs were on the bridge, the north end of the bridge collapsed and the attached nylon straps gave way, causing the bridge and the plaintiffs to fall 80 ft. into the Gulf of Mexico.The plaintiffs filed suit against Tetra and Maritech alleging negligence and/or unseaworthiness of the D/B Tetra Arapaho. Tetra and Maritech then filed an indemnity action against Vertex Services L.L.C. (“Vertex” is a welding subcontractor and employer of one of the injured plaintiffs, Abraham Mayorga) and Vertex’s insurer, Continental Insurance Co. (“Continental”). Tetra and Maritech alleged that Vertex was obligated to defend and indemnify them in regards to Plaintiff Mayorga’s claims based upon a Master Service Agreement between Vertex and Tetra; it was additionally alleged that Tetra and Maritech were entitled to indemnity as “additional insureds” under Vertex’s General Liability Insurance policy.Continental sought dismissal of the indemnity claims, arguing that the agreement between Tetra and Vertex should be found void under the Louisiana Oilfield Anti-Indemnity Act (“LOIA”) applicable through the Outer Continental Shelf Lands Act (“OCSLA”). In the alternative, Continental argued that even if the indemnity agreement was not void, insurance coverage was still unavailable under the terms of the policy itself.The Eastern District of Louisiana applied the Fifth Circuit’s test from Union Texas Petroleum Corp. v. PLT Eng’g, Inc., 895 F.2d 1043 (5th Cir. 1990) in order to determine whether or not the OSCLA provision that adopts the adjacent state’s law would apply in these particular circumstances. The injuries to the plaintiffs occurred in the Gulf of Mexico in an area that lay above the Continental shelf; thus, Louisiana law would not apply to the claims by its own force. In the Master Service Agreement, the parties had agreed that Texas law would apply. However, under particular circumstances, the OCSLA borrows the law of the adjacent state (here, Louisiana) to stand in as federal law. Under OSCLA, state law will apply as surrogate federal law if three conditions are met: (1) the controversy must arise on a situs covered by OSCLA (2) federal maritime law must not apply by its own force; and (3) the state law must not be inconsistent with federal law.Continental argued that the situs requirement ((1) above) was satisfied because the incident occurred on a fixed platform located on the outer continental shelf (OCS). Tetra and Maritech successfully argued that Continental was backing the wrong test. When a claim arises out of contract, rather than tort, the situs of the accident does not control, rather, the relevant inquiry is where the majority of the contractual performance was performed. This is known as the “focus-of-the-contract” test. Accordingly, the Court looked at the Master Service Agreement and Plaintiff Mayorga’s work order, but were ultimately met with very little relevant evidence to shed light on the issue and held that neither party was entitled to judgment as a matter of law on the first issue.The second requirement, that federal maritime law must not apply by its own force, is determined by classifying the contract in question. Applying the Fifth Circuit’s “six-factor-fact-specific-inquiry” test and analyzing jurisprudence for historic treatment of similar contracts, the Eastern District concluded that the evidence was insufficient to support a favorable finding for either side in the dispute. This lack of sufficient evidence to guide the court on this issue primarily focused on the same Master Service Agreement and work order that proved fatally problematic to the first issue.The Third requirement, that state law must not be incompatible with federal law, was the only requirement that the Eastern District found to be satisfied. Tetra and Maritech argued that the LOIA is inconsistent with federal law because the Longshore and Harbor Workers Compensation Act specifically allows for indemnity agreements between vessel owners and employees provided that the agreements are reciprocal. The Court reasoned that Tetra contracted with Vertex in its capacity as a contractor, rather than as a vessel owner, and therefore the laws did not conflict.The court determined that the record did not support a conclusion in favor of either Tetra or Continental on the issue of whether Louisiana law should apply as surrogate federal law regarding the Master Service Agreement; however, Tetra and Maritech argued that they were entitled to summary judgment regardless of whether or not Louisiana law applied. This argument was based on the assertion that the contract at issue did not “pertain to a well” and, therefore, fell outside the scope of the LOIA in the first place. The Fifth Circuit has established a two-step inquiry to determine whether or not the LOIA applies in any given situation. First, the agreement must pertain to an oil, gas, or water well; if it does not, the inquiry ends. This required “nexus to a well” is determined through stringent, fact intensive case-by-case analysis. Tetra and Maritech argued that Mayorga’s work order did not pertain to a well because the work took place on platforms that had already been decommissioned and, therefore, were not “wells” as required for the LOIA to apply. Continental was unable to establish the required “nexus to a well” to counter Maritech and Tetra’s arguments. Thus, the court ultimately held that Tetra and Maritech were entitled to a judgment as a matter of law, declaring the indemnity agreement in the Master Service Agreement valid and enforceable as it related to plaintiff Mayorga’s claims.With respect to the claims as additional insureds under the policy, Continental argued that even if Tetra and Maritech qualify as “additional insureds” under the policy at issue coverage is still lacking under various exclusions contained within the policy itself. The Court concluded that Tetra and Maritech’s interpretations of the listed exclusions were “reasonable” and, thus, the policy language must be strictly construed against the insurer (Continental).For the reasons outlined above, the Court denied Tetra and Maritech’s motion for summary judgment with respect to additional insured coverage relating to Tetra and Maritech’s ownership of the D/B Tetra Arapaho, but granted summary judgment in their favor in all other respects. The Court also granted Continental’s motion for summary judgment insofar as the additional insured coverage was concerned and denied it in all other respects.