A Never-Ending Story: Louisiana Oilfield Indemnity Act Stirs More Litigation

QBE Syndicate 1036 v. Compass Minerals Louisiana, Incorporated, 2024 WL 1151749, 2024 U.S. App. LEXIS 6432 *, No. 23-30076 (5th Cir. 2024).

            Compass Minerals is a multinational company operating salt mines in the North America and the U.K. One such operation is Cote Blanche salt mine in St. Mary Parish. Compass contracted with Fire & Safety Specialists, Inc. (“FSS”) and MC Electric, LLC. (MCE) for fire prevention and electrical support at the mine. An employee of MCE was killed at the mine when installing new electrical circuits. His beneficiaries filed a wrongful death and survival action in St. Mary Parish state court.

            The contracts between Compass and its contractors included indemnity agreements and additional insured provisions requiring Compass to be named as an additional assured. FSS and MCE had a commercial general liability policy with QBE. Once sued, Compass demanded defense, indemnity and coverage under the QBE policy which was denied. QBE brought a declaratory judgment action in federal court asserting the LOIA voided the indemnity and additional assured provisions. After the trial court denied QBE relief, it appealed to the Fifth Circuit.

            In its initial opinion, the Fifth Circuit certified questions regarding the interpretation of the Louisiana Oilfield Indemnity Act to the Louisiana Supreme Court in October 2023.  (See: 83 F.4th 986 [5th Cir. 2023]; certification denied, 374 So.3d 979 [La. 2023][1] Now back in the hands of the U.S. 5th Circuit, it has answered only the first of the certified questions.

            The LOIA applies to “agreements pertaining to wells for oil, gas, or water, or drilling for minerals.”[2] The question was whether the use of a drill and blast method in a salt mine required a nexus with a well. No party disputed that the mining operations did not pertain to a well.[3]

            Compass asserted that the language of the act required a nexus with a well. QBE maintained that the well requirement applied to oil, gas or water and that drilling for minerals was separate and disjunctive.

            In a technical analysis of the language of the act, Judge Higginson for the unanimous court agreed with QBE. “The textual nexus to ‘any well drilled’ is confined to category [1]. Category [2] makes no mention of a well, and in this way reinforces a disjunctive interpretation of subsection (B)'s reference to an agreement pertaining to a well for oil, gas, or water, or drilling for minerals.’”[4] In so concluding, he noted that this harmonizes the Louisiana act with similar acts of Texas and New Mexico.[5]

            Thus, the LOIA does not have a universal well requirement. But does it void the indemnity provision? Alas, the court remanded the matter to the district court to determine whether the agreements for fire-suppression and electrical work at a salt mine pertain to “drilling for minerals."[6]. The wrongful death and survival action remains pending in the Sixteenth Judicial District Court for the Parish of St. Mary.[7]

A PDF version of the opinion is available here.

[1] “We certify the following questions to the Louisiana Supreme Court:

1. Does the Louisiana Oilfield Anti-Indemnity Act, LA. STAT. ANN. § 9:2780, apply to provisions in agreements that pertain to ‘drilling for minerals,’ even where the agreement does not ‘pertain[ ] to a well’?

2. If the Act applies to agreements that pertain to “drilling for minerals,” irrespective of the agreement's nexus to a well, does the Act apply to invalidate these indemnification and additional-insured provisions, contained in contracts for fire suppression and electrical work in a salt mine, by virtue of the salt mine's use of a ‘drill-and-blast’ method for mining salt?” 83 F.4th at 993-994.

[2] La. Stat. Ann. § 9:2780(A).

[3] 2024 WL 1151749 at *2.

[4] Id. at *10.

[5] Id. at *11.

[6] Id.

[7] Id. at *1.