Reformation of Contract Under GML Court Affirms Insurer Not Prejudiced by Reformation
Reformation of Contract Under GML Court Affirms Insurer Not Prejudiced by Reformation
By: Arthur Crais
Richard v. Anadarko Petroleum Corp., 2017 U.S. App. LEXIS 3812 (5th Cir., Mar. 2, 2017)
The plaintiff, a casing supervisor, was employed by Offshore Energy Service (OES) and injured on a drill ship (BELFORD DOLPHIN) owned by Dolphin Drilling Ltd. and under charter to Anadarko Petroleum Corporation. Suit was filed against Anadarko, Dolphin and Smith International, Inc. and settled for $2.5 million with OES shouldering the full risk pursuant to a series of interlocking reciprocal indemnity agreements. OES then sought reimbursement for the full amount it paid in settlement and its fees in defending the main demand.
The trial judge allowed equitable reformation of the master service contract between Anadarko and OES, awarded OES full reimbursement for the settlement and its costs of defense.
The dispute arose over two paragraphs of the agreement which obligated both OES and Anadarko to indemnify each other’s indemnified group including “subcontractors and their employees.” Initially the trial court held that neither Dolphin nor Smith were within the group of indemnitees as they were “contractors” and not subcontractors. On a Motion to Reconsider, he allowed parol evidence and reformation of the contract on the basis of “mutual mistake” of the contracting parties. Though the contract was a maritime contract, the choice of law clause required Texas law as the applicable law.
The Court of Appeals held that the parol evidence was properly admitted due to the mutual mistake of the parties to include the term “contractors” in the agreement. Liberty Mutual asserted that reformation would affect its obligations as a third party. The trial judge, however, noted that there was not clear maritime rule on the issue of the effect on third parties and then referenced both Louisiana and Texas state law. Finding no conflict, he then applied the law of the forum, Louisiana, to determine the effect contract reformation would have, if any, on the third party.
The choice of law determination by the trial court on this issue was reviewed de novo and affirmed. Though Liberty Mutual asserted it assumed obligations based on the original contract, it was prejudiced by the wider obligations imposed by the reformed agreement to include “contractors” of the group of indemnitees. The Fifth Circuit panel, however, stated the reformation “causes Liberty Mutual no unfair prejudice.” Both OES and Anadarko mutual intended to provide indemnity to the broader group of indemnitees and performed their obligations in the past as such. OES had provided a loss history to Liberty Mutual which evidence its prior claims with another insurer just like the one sub judice.
Next, the court reversed the trial judge in awarding full reimbursement of fees. The dispute arose over two seemingly contradictory endorsements which the trial judge found were ambiguous and interpreted the provisions against the insurer. The Fifth Circuit panel held this was error. Applying the Louisiana rules of contract interpretation, the provisions were read in pari materiae, so that each provision would be given meaning. Hence, the only reasonable interpretation of the provisions was that the insurer was obligation to pay only a pro-rata share of the fees.
