CHAPTER 3 THE TEXAS AND LOUISIANA ANTI-INDEMNITY STATUTES AS APPLIED TO OFFSHORE OIL & GAS INDUSTRY CONTRACTS

• Jurisdiction: United States

Oil and Gas Operations in Federal and Coastal Waters
(May 1989)
CHAPTER 3
THE TEXAS AND LOUISIANA ANTI-INDEMNITY STATUTES AS APPLIED TO OFFSHORE OIL & GAS INDUSTRY CONTRACTS
Jeanmarie B. Tade
McCutchen, Black, Verleger & Shea
Houston, Texas

TABLE OF CONTENTS

SYNOPSIS

INTRODUCTION

Page No.

I. STATE LAW

A. Texas Law

1. Texas Indemnity Law

2. Texas Anti-Indemnity Statute

a. Purpose and Prohibitions

b. Coverage

c. Exclusions and Limitations

B. Louisiana Law

1. Louisiana Indemnity Law

2. Louisiana Anti-Indemnity Statute

a. Purpose and Prohibitions

b. Coverage

c. Exclusions and Limitations

d. Constitutional Challenges

e. Retroactive Application

C. Other States' Anti-Indemnity Statutes

D. Comparison/Contrast of the Texas and Louisiana Anti-Indemnity Statutes

E. Statutory Application for Companies Involved in the Offshore Energy Industry

II. FEDERAL LAW

A. Outer Continental Shelf Lands Act

B. Admiralty/Maritime Indemnity Law

C. Maritime Definitions

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1. Vessel

2. Seaman

3. Jones Act

4. Maritime Workers

5. Longshoremen and Harbor Workers' Compensation Act

6. Admiralty Extension Act ("AEA")

7. Death on the High Seas Act ("DOHSA")

III. CASE LAW

A. Movable Drilling Rigs

1. Drill Ships

2. Semi-submersibles

3. Jackups

4. Problems/Gray Areas

a. State Waters

b. Temporary Assignment of Workers

c. Property Damage/Maritime Nexus Test

5. Movable Drilling Rig Workers/Personal Injury Actions

6. Contracts

7. Application for Companies Involved in the Offshore Energy Industry

B. Fixed Platforms

1. Rodrique and Herb's Welding

2. Fixed Platform Workers/Personal Injury Actions

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3. Contracts Pertaining to Fixed Platforms

4. Exceptions

a. Mixed Contracts

b. Auxiliary Vessels

5. Application for Energy Companies Involved in the Offshore Energy Industry

C. Conflicts of Law Questions

IV. SUMMARY AND APPLICATION FOR COMPANIES INVOLVED IN THE OFFSHORE ENERGY INDUSTRY

A. Drilling Contracts

1. Drilling Vessels

2. Fixed Platforms

3. Indemnity—"Knock for Knock"

4. Limitation on Indemnity Clause

5. Covenants

a. Holden

b. Forms—Covenants

6. Drilling Contracts Indemnity Forms

B. Governing Law

1. State Law

2. Maritime Law

3. Mixed

4. Realistic

C. Platform Contracts

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D. Master Service Agreements

1. Indemnity

2. Indemnity Forms

a. Maritime

b. Maritime with Caveat

c. Texas and Louisiana

3. Governing Law

E. Clear and Express Indemnity Form

CONCLUSION

FOOTNOTES 57-91

APPENDICES

A—Louisiana Statute

B—Texas Statute

C—Drilling Contracts Indemnity Forms

1. Offshore Drilling Contract

2. Jackups 100

3. Turnkey 103

4. Maritime 108

D. Table of Authorities 112

1. Case Law 112

2. Articles 123

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INTRODUCTION

The Texas and Louisiana anti-indemnity statutes¹ are a source of concern to all players in the federal offshore Gulf of Mexico exploration and production arena. The concern from an energy company's perspective is that these statutes may become applicable as federal law through a section of the Outer Continental Shelf Lands Act ("OCSLA")² and thus prevent companies from being indemnified against their own negligence in some contracts that pertain to activities on the Outer Continental Shelf ("OCS"). The concern from a contractor's viewpoint is that energy companies may be able to negotiate a contractual indemnification against their own negligence and avoid the application of the anti-indemnity statutes by designating maritime law as the governing law.

Companies involved in any aspect of the offshore oil industry—whether it be for exploration or production or services rendered to either phase—should be aware of these anti-indemnity statutes. Companies should consider the ramifications under state and federal law for their insurance carriers of using boilerplate indemnity language, and should consult with individuals familiar with the anti-indemnity statutes when reviewing their contracts. This paper discusses the Texas and Louisiana anti-indemnity statutes and considers how the statutes interplay with the OCSLA and federal maritime law. This paper also provides examples for drafting indemnity provisions for use in offshore oil and gas contracts, with comments directed at contractors and energy companies.

I. STATE LAW

A. Texas Law

1. Texas Indemnity Law.

Under general Texas law, parties have wide freedom to contract with respect to indemnification. Indemnification against the consequences of one's own negligence is not against public policy, but requires that such intent be expressed in specific terms.³

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2. Texas Anti-Indemnity Statute. ⁴

a. Purpose and Prohibitions. ⁵

The Texas statute is an exception to general Texas indemnity law. In enacting the statute, the legislature declared that certain agreements for indemnification of a negligent indemnitee were against the public policy of the state.⁶ This declaration was based on the finding of an inequity fostered on certain contractors by indemnity provisions in agreements relating to oil, gas, or water wells, and mines.⁷

The Texas statute makes void and unenforceable any provision in an agreement pertaining to a well for oil, gas, or water or to a mine for a mineral if it purports to indemnify a person against certain loss or liability for damage caused by or resulting from the sole or concurrent negligence on the part of the indemnitee, his agent or employee, or an individual contractor directly responsible to the indemnitee.⁸ The damages are defined as those arising from personal injury or death, property injury or any other loss, damage, or expense that arises from personal injury, death, or property injury.⁹

b. Coverage. ¹⁰

The applicability of the Texas statute is broad. An indemnity provision relating to an agreement in almost any phase of the oil, gas, or mineral exploration, production, and service industry probably will be within the statute's purview. The contract relating to the oil, gas, or hard minerals industry not subject to the Texas statute will be the exception and not the rule. While the coverage of the Texas statute appears to be broad, one of the few cases that has discussed the statute has held it inapplicable to "the repair of an offshore drilling rig where there is absolutely no connection with the drilling of a well."¹¹

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An agreement under the Texas statute means any oral or written agreement concerning all, or part of, or any act collateral to the rendering of well or mine services.¹² These services include any rendered in connection with a well drilled to produce or dispose of oil, gas, or other minerals or water, such as drilling, reworking, perforating, or logging.¹³ The Texas statute covers agreements for services rendered "in connection with a mine shaft, drift, or other structure intended for use in exploring for or producing a mineral."¹⁴ Acts collateral to the services include the furnishing or renting of equipment, incidental transportation, or other goods and services.¹⁵

c. Exclusions and Limitations.

The Texas statute does not prohibit indemnity agreements for personal injury, death, or property injury resulting from radioactivity, indemnity agreements for property injury resulting from pollution, or indemnity agreements for property injury resulting from reservoir or underground damage.¹⁶ The statute does not apply to death or property injury resulting from the performance of services to control a wild well either to protect the safety of the general public or to prevent depletion of vital natural resources.¹⁷

The Texas statute does not apply to an agreement that provides for indemnity against liability for death or personal injury to the indemnitor's employees or agents if the parties agree in writing that the indemnity obligation will be supported by available liability coverage furnished by the indemnitor.¹⁸ The insurance furnished by the indemnitor cannot exceed twelve times the state's basic limits for bodily injury.¹⁹ The Texas Board of Insurance Commissioners set the state's basic limits for personal injury at $25,000.²⁰ Twelve times the limit is $300,000. Thus, parties may agree to indemnify the indemnitee against liability from its sole or concurrent negligence in

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injuring the indemnitor's employees and agents, or employees and agents of the indemnitor's contractors, but that indemnity will only be valid where supported by insurance and only up to $300,000. The statute otherwise does not affect the validity of any insurance contract or any benefit conferred by the workers' compensation laws.²¹ The statute does not deprive the owner of the surface estate of the right to secure an indemnity from a lessee, operator, contractor, or other person conducting operations for the exploration or production of minerals on the owner's land.²²

B. Louisiana Law.

1. Louisiana Indemnity Law. ²³

In Louisiana the general rule of law is that it is not against public policy to provide for indemnification against one's own negligence,²⁴ as long as the indemnification is expressed in unequivocal terms.²⁵ A contract of indemnity must clearly define two things: the scope of the indemnity and the legal reach of the indemnity once it applies.²⁶ Normally, to determine the scope of the indemnity, courts focus on words such as "losses resulting out of" or "losses arising out of" or "losses sustained in connection with" a certain event or condition.²⁷ To determine the legal reach of an indemnity against one's own negligence, Louisiana courts focus on the presence or absence of clearly expressed language.²⁸

2. Louisiana Anti-Indemnity Statute ²⁹

a. Purpose and Prohibitions. ³⁰

The Louisiana statute is an exception to the general rule of Louisiana indemnity law. In enacting the...