The Fifth Circuit in Tetra Technologies, Inc. v. Continental Insurance Company addresses a common and important issue for companies brought into litigation under the indemnity provision of a Master Service Agreement ("MSA"); whether the Louisiana Oilfield Indemnity Act ("LOIA") voids an MSA's indemnity provision.
This case arises from injuries sustained by a platform worker, Abraham Mayorga, employed by Vertex Services ("Vertex") while decommissioning an oil production platform owned by Maritech Resources, Inc. ("Maritec"). Tetra Technologies, Inc. ("Tetra") and Vertex entered into a MSA, under which Vertex employees would perform work for Tetra. The MSA required Vertex to indemnity Tetra for injuries sustained by Vertex Employees while working for Tetra and list Tetra as an additional insured under its general liability policy with Continental Insurance Co. ("Continental").
Tetra filed an indemnity action against Vertex and Continental. Tetra and Continental filed cross motions for summary judgment and the district court found that Continental and Vertex were required to indemnify Tetra because LOIA did not apply and that the policy did not preclude coverage.
At issue before the Fifth Circuit was: (1) whether the Outer Continental Shelf Lands Act ("OCSLA") required the court to adopt Louisiana law as surrogate federal law; (2) if Louisiana law applies then whether LOIA voids the indemnity agreement; and (3) If LOIA does not void the indemnity agreement, whether the Policy excludes coverage.
Under Union Texas Petroleum Corp. v. PLT Engineering, Inc. three requirements must be met for state law to apply as a surrogate federal law under the OCSLA: (1) the controversy must arise on a situs covered by OCSLA; (2) federal maritime law must not apply of its own force; and (3) state law must not be inconsistent with federal law.
In regards to the first prong of the PLT test, the Fifth Circuit applies the "focus-of-the-contract test to determine whether a controversy arises on an OCSLA situs. Under this test a dispute arises on an OCSLA situs if a majority of the performance under the contract is to be performed on stationary platforms or other OCSLA situses enumerated in the statute. If the majority of the work was performed on a platform, then the Louisiana Oilfield Indemnity Act would void the indemnity provision. Despite a review of the MSA, deposition testimony of the plaintiff and the salvage contract, the court concluded it simply did not have sufficient evidence in the record before it to conclude where Vertex was to perform a majority of its work and could not reach a decision on whether this was an OCSLA situs.
In regards to the second prong of the PLT test, to determine whether maritime law applies of its own force the court applies a two part test. First, the court must examine the historical treatment of contracts of that type. Second the court makes a six-factor fact specific injury into the nature of the contract. If federal maritime law applied, then the indemnity provision would not be void as a matter of law. Because of the paucity of evidence explaining exactly what Vertex was hired to do or what work was actually done by its crew, the court was similarly unable to determine whether federal maritime law applied of its own force.
In regards to the third prong of the PLT test, the court noted that nothing in LOIA is inconsistent with federal law.
The Fifth Circuit remanded the case to the district court because the summary judgment evidence was insufficient to determine the first two PLT prongs.
If the OCSLA requires the adoption of Louisiana law as a surrogate to federal law, the court next considered whether LOIA applies to the dispute and voids the indemnity provision. If an agreement (1) pertains to a well and (2) is related to exploration, development, production, or transportation of oil, gas, or water, LOIA will invalidate an indemnity provision.
After reviewing its jurisprudence and developments in the district courts, the Fifth Circuit concluded that "a contract for salvaging a platform from a decommissioned oil well has a sufficient nexus to a well under LOIA."
The final issue for consideration was whether Exclusion d of the policy was ambiguous as found by the district court, and therefore could not be used to deny coverage. The exclusion provided as follows:
This insurance does not apply to ...
d. Any obligation of the insured under a worker's compensation, United States Longshoremen's and Harbor Workers' Compensation Act, Jones Act, Death on the High Seas Act, General Maritime Law, Federal Employers' Liability Act, disability benefits or unemployment compensation law or any similar law ...."
Following its review of the Exclusion d, the court concluded that the exclusion was ambiguous because of the "any similar law" language. In reaching its decision, the court questioned "how the enumerated laws are similar," noting that while Tetra correctly observed that the "similar thread" was the employer/employee relationship throughout each enumerated law, Continentals' construction would apply it to a general tort claim. Applying Texas law (presumably provided for in the MSA), the court stated that it was required to "examine the policy as a whole, seeking to harmonize all provisions and render none meaningless", and that Continental's construction failed to account for the phrase "any similar law" in Exclusion d, while Tetra's construction did account for it.
Because of the evidentiary issues noted above, the court remanded the case to the district court for a determination of whether Louisiana law applies as surrogate federal law under OCSLA, concluding that:
" On remand, if the district court concludes that Louisiana law applies to this dispute, LOIA will void the indemnity agreement .... If the district court concludes that Louisiana law does not apply, then Tetra and Maritech will be entitled to judgment against Continental and Vertex because the Policy does not exclude coverage."