Indemnity? Insurance? Neither? Both? Fifth Circuit Denies Indemnity Claim but Remands for Determination of Additional Insured Coverage

Case: International Marine, et al. v. Integrity Fisheries, et al.,
          U.S. Fifth Circuit Court of Appeals
          No. 16-30456, 2017 U.S. App. LEXIS 11041 (5th Cir., June 21, 2017)

A towing vessel damaged a Shell mooring line attached to a Shell a mobile offshore drilling unit in the Gulf of Mexico. After paying Shell’s damages, the towing vessel owner sued the owner of the assist towboat, claiming indemnity under the Master Service Agreement (“MSA”) between them. Although the MSA extended indemnity to the towing vessel for damages “arising out of or related to the operation of [the assist vessel],” regardless of who was at fault, the district court found that in this case Shell’s damages did not arise out of the operation of the assist vessel, but only arose out of the operation of the towing vessel itself, so no indemnity was owed. The U.S. Fifth Circuit affirmed, stating:

To be clear, we continue to subscribe to the general rule...that indemnity agreements containing language such as “arising out of” should be read broadly....It is only when the alleged indemnitor’s contractual performance is completely independent of another party’s negligent act that caused damage that we apply a limitation to this general rule.

The MSA also obligated the assist vessel to name the towing vessel and its owner as additional assureds on the former’s policies. The Fifth Circuit reasoned, although indemnity and insurance obligations may rise and fall together, such is not always the case. The scope of coverage is determined by the language of the policy, and, since the court did not have the policy before it, it sent the case back to the district court for an analysis of the policy vis-à-vis the claims of the parties. 

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