Indemnity Denied When Negligent Act “Arises out of” Independent Act of Negligence which Causes Damage

Indemnity Denied When Negligent Act “Arises out of” Independent Act of Negligence which Causes Damage

By Jena Mura

Int’l Marine, L.L.C. v. Integrity Fisheries, Inc., 860 F.3d 754 (5th Cir. 2017); No. 16-30456, 2017 U.S. App. LEXIS 11041 (5th Cir. June 21, 2017)Tesla, an offshore survey company, was performing a sonar survey in the Gulf of Mexico. This survey involved two vessels, a larger tow vessel which tows a sonar device called a “towfish” near the ocean floor along a survey grid, and a chase vessel which receives signals from the towfish. For the tow vessel, Tesla contracted with International Marine which owned and operated the M/V INTERNATIONAL THUNDER. For the chase vessel, Tesla originally contracted with Integrity Fishers (“Integrity”) which substituted the F/V LADY JOANNA, owned and operated by Sea Eagle Fisheries (“Sea Eagle”).During the survey, the towfish experienced technical difficulties. While it was being repaired, the THUNDER temporarily went off the grid. Tesla decided to redeploy the repaired towfish after being warned by the JOANNNA’s captain that the THUNDER was getting too close to an offshore drilling unit MODU NAUTILUS. The towfish cable allided with the mooring line of the mobile offshore drilling unit under contract to Shell. In a separate action, Shell sued Tesla and International for negligence where Tesla was found to be 70% at fault and International 20% at fault.Tesla and International each filed Motions for Summary Judgment claiming each were contractually entitled to indemnity from Sea Eagle and Integrity. They also claimed they were entitled to insurance coverage because they were added as additional insureds on Integrity’s and Sea Eagle’s insurance policies. The contracts between the parties were master service agreements which contained an indemnity clause stating that the indemnitors (Integrity and Sea Eagle) are liable for damage to third party property “arising out of or related in any way to the operation” of the JOANNA.The district court denied the motion, holding that Shell’s claim for damages did not arise out of, and are not related to the operation of the JOANNA. The district court also found that because there was no indemnity obligation, there was no insurance obligation and dismissed all claims against the insurers. Tesla and International appealed to the Fifth Circuit arguing that the JOANNA’s operation was related to the damage because it was JOANNA’s job to receive and relay sonar signals to the THUNDER for proper navigation and the JOANNA played an essential role in the joint sonar survey.The Fifth Circuit noted that under maritime law, indemnity contracts that contain the term “arising out of” should be read broadly. The only limitation to this general rule is when the indemnitors contractual performance is completely independent of the negligent act that caused damage.The Court of Appeals affirmed the district court’s decision, holding that indemnity is not owed because the JOANNA’s operation was independent of Telsa and International’s negligence which caused damage to the NAUTILUS. The court reasoned that the JOANNA successfully performed its job as a “chase vessel” following the THUNDER and remained above the towfish. The JOANNA’s involvement in the sonar survey did not cause the damage or contribute to Tesla/International’s decision to redeploy the towfish and cross the NAUTILUS’ mooring line.The denial of the insurance claim was vacated and the issue was remanded back to the district court. The Fifth Circuit stated that insurance coverage is determined by the language of the insurance policy. However, because the insurance policies were not in the record the court could not determine if Tesla and International were afforded insurance coverage without first reviewing the policy.