Louisiana Court Interprets Indemnity Provision in MSA Narrowly to Preclude Indemnity

Case: Underwriters at Lloyd's Syndicate 1036 v. Danos & Curole Marine Contrs., L.L.C.
Louisiana Third Circuit Court of Appeal
2014 La. App. LEXIS 2350 (10/1/2014)

An employee of Danos & Curole Marine Contractors, L.L.C. was injured while working on a fixed platform that was owned and operated by Badger Oil Corporation on the Outer Continental Shelf (“OCS”) off the coast of Texas. The accident occurred as the employee was attempting to swing from the platform to a utility vessel owned and operated by Kevin Gros Offshore, L.L.C.

The employee filed suit against both Badger Oil and Kevin Gros. Pursuant to a Master Service Agreement (“MSA”) between Kevin Gros and Badger Oil, Kevin Gros demanded that Badger Oil defend and indemnify it against the employee’s claims. In response, Badger Oil sought defense and indemnity from Danos & Curole for its contractual liability to Kevin Gros pursuant to a separate MSA between Badger Oil and Danos & Curole. Danos & Curole denied this demand, contending that the language of the MSA between Badger Oil and Danos & Curole did not explicitly require Danos & Curole to defend and indemnify Badger Oil against its contractual obligations to third parties.

Badger Oil and its insurer then filed a Declaratory Judgment Action in Louisiana, seeking a ruling that Danos & Curole had a duty to defend and indemnify Badger Oil against the contractual claims of Kevin Gros. The trial court granted summary judgment in favor of Badger Oil and its insurer and denied the cross motions of Danos & Curole and its insurer, reasoning the expansive language in the MSA between Badger Oil and Danos & Curole, providing indemnity against “any and all claims, demands, causes of action and lawsuits of every kind and character...for personal injury, death, disease or illness” extended indemnity protection beyond tort liability to contractual liability with third parties.

On appeal, the Third Circuit first addressed the law applicable to the claims, as the trial court had found the result was the same whether Texas or maritime law applied. The court noted, to determine whether adjacent state law applies as surrogate federal law (1) the controversy must arise on a situs covered by OCSLA; (2) federal maritime law must not apply on its own force; and (3) state law must not be inconsistent with federal law. Union Texas Petroleum Corp. v. PLT Engineering, Inc., 895 F.2d 1043 (5th Cir.), cert. denied, 498 U.S. 848, 111 S. Ct. 136, 112 L. Ed. 2d 103 (1990) ( citing Rodrigue, 395 U.S. 352, 89 S. Ct. 1835, 23 L. Ed. 2d 360). The court concluded that Texas law, as the adjacent state law, governed the interpretation of the MSA in question. In doing so, the court found the contracts called for work (painting and sandblasting) on a stationary platform, such that the controversy arose on an OCSLA situs, the contract was not maritime in nature/federal maritime law did not govern on its own force and Texas law was not inconsistent with federal law.

The court then went on to conclude the parties did not intend for Danos & Curole to indemnify Badger Oil against its contractual liabilities to third parties. The court pointed out that the Badger Oil indemnitees covered under provision of the MSA at issue regarding the underlying claim were “owes indemnification” as indemnitees. The court reasoned, when reading the contract in its entirety to achieve harmony among the different provisions, the noticeable absence of third parties from the relevant indemnity provision indicated the parties did not intend for contractual indemnity claims of third parties to be covered by that provision of the MSA. To hold otherwise, the court recognized, would render this indemnitee clause meaningless and run afoul of the well-established principles of Texas contract interpretation.

The court further found, although the language of the indemnity provision was indeed expansive, it must be read within the context of the entire provision, which limited the scope of this language to claims “for personal injury, death, disease or illness.” Relying on prior federal Fifth Circuit authority, the court determined that indemnity provisions containing qualifying language limiting coverage to claims “for injury or death” effectively limited the indemnity obligation to claims grounded in tort. Finally, the court noted, had the parties intended to include contractual claims that are consequences of personal injuries, they could have easily used such language.

The Third Circuit thus reversed the summary judgment entered by the district court, holding the MSA between Danos & Curole and Badger Oil did not require Danos & Curole to indemnify and defend Badger Oil against its contractual liabilities to Kevin Gros.