Section 905(b) of the LHWCA Applied to Void Indemnity Under Contract and Insurance Policy

Case: Holden v. U.S. United Ocean Servs., L.L.C.
United States Court of Appeals for the Fifth Circuit (Louisiana)
2014 U.S. App. LEXIS 15954

United entered into a General Services Agreement with Buck Kreihs Company, Inc. (“Buck Kreihs”) under which Buck Kreihs would perform ship repair work for United. The Agreement contained an indemnity provision in which Buck Kreihs agreed to indemnify United for all liabilities arising out of or related in any way to the work or services performed by Buck Kreihs for United or to Buck Kreihs’s presence on United’s property. The only exception stated was for liability caused solely by United’s fault or negligence. The Agreement also required Buck Kreihs to procure a general liability policy and to name United as an additional insured under that policy. Buck Kreihs procured insurance through St. Paul, and it was undisputed that United qualified as an additional insured under the St. Paul policy.

Paul Holden, a longshore employee of Buck Kreihs, was injured while preparing to remove a gangway that led from a dock at a Buck Kreihs’s facility to the M/V BARGE BARBARA VAUGHT, a barge owned and operated by United. Holden sued United, which in turn tendered the suit to St. Paul for indemnity, defense, and coverage as an additional insured. St. Paul initially offered a defense, presumably under a reservation of rights, but later denied coverage under the policy’s Watercraft Exclusion. United filed a third-party claim against St. Paul, seeking coverage under the policy. United then settled with Holden and pursued St. Paul for reimbursement of the settlement and defense costs.

On appeal, the Fifth Circuit correctly determined there were two possible avenues in which there could be coverage for the Holden settlement: (1) if Buck Kreihs were liable to United for defense and indemnity under the General Services Agreement, then United would sue Buck Kreihs which in turn would seek coverage from St. Paul as the named insured (“insured contract exposure”); or (2) if the Holden claim against United were covered by the policy pursuant to United’s status as an additional insured under the policy, thereby insuring United directly for its own liability (“additional insured exposure”). The Fifth Circuit ultimately held coverage was not afforded under either scenario.

The Court first considered Buck Kreihs’s liability to United under the General Services Agreement. The Court recognized Section 905(b) of the Longshore and Harbor Workers’ Compensation Act voided Buck Kreihs’s agreement to indemnify United. To explain, a longshoreman who is injured due to the negligence of a vessel may bring a tort claim against the vessel and/or its owner or operator. 33 U.S.C. 902(21). Section 905(b) of LHWCA, however, prohibits indemnity provisions between an injured longshoreman’s employer and the vessel upon which he is injured. Moreover, the savings provisions of Section 905(c) did not apply in this case.

The Court then turned to the first avenue of recovery under the St. Paul policy, the insured contract exposure. The Court noted the general insuring clause of the St. Paul policy extended coverage only to those obligations that the insured “shall become legally obligated to pay.” Since Buck Kreihs could not, as a matter of law, be “legally obligated to pay” the Holden claim against United, the Court concluded Buck Kreihs’s attempted assumption of liability as to the Holden claim did not fall within coverage under the St. Paul policy.

The Court next evaluated St. Paul’s additional insured exposure to United, and in particular, whether the Watercraft Exclusion applied. The Exclusion specifically excepted “Liability assumed under an ‘insured contract’, but only that portion of the ‘insured contract’ under which the ‘Named Insured’ assumes the tort liability of another party for ‘bodily injury’ or ‘property damage’ to a third person or organization. Tort liability means a liability that would be imposed by law in the absence of any contract or agreement.” United argued the exception to the Exclusion applied, such that United was afforded coverage as an additional insured under St. Paul’s policy. The Court rejected United’s position, cautioning United had conflated the two means by which the policy could potentially apply to the claims against United.

The Court looked to the policy’s plain language, finding the exception only applies to that liability which the named insured, Buck Kreihs, assumed under an insured contract. The Court determined the exception did not apply in this case because United did not seek coverage as an injured claimant against Buck Kreihs as insured under the policy for
“[l]iability assumed under an ‘insured contract.’” Rather, United sought coverage as an additional insured directly under the policy for its own liability.

The Court also discounted the dissenting opinion of Judge Priscilla Owen, who suggested that, if the Agreement’s indemnity provision was enforceable, the exception would serve to insure Buck Kreihs for the liability that it assumed on behalf of United. The Court clarified that the majority opinion did not find that the unenforceability of the indemnity provision in any way changed the meaning of the insured-contract exception. Instead, according to the majority, the unenforceability of the indemnity provision precluded the exact type of liability to which the exception applied. The Court explained, because Buck Kreihs was not subject to liability assumed under the General Services Agreement, the policy did not apply to such liability in the first instance, since it only applied to obligations that the insured “shall become legally obligated to pay.” Conversely, while United was an additional insured under the policy and might be legally obligated to pay the Holden claim, the Court reasoned the insured-contract exception did not apply to United’s liability to Holden because United was not the named insured and was not subject to “[l]iability assumed under an ‘insured contract.’”