Insurer Wins Dec Judgment Action in 5th Circuit on Indemnity Provisions in Contract

In Ace American Ins. Co. v. M-I, L.L.C., Case No. 12-20080, (5th Cir. Oct. 19, 2012), the Fifth Circuit Court of Appeals affirmed the district court's grant of partial summary judgment on behalf of an insurer, finding that the Outer Continental Shelf Lands Act ("OCSLA"), 43 U.S.C. 1333(a), applied to the parties' contractual dispute. As a result, the court found that pursuant to the OCSLA choice of law provision, Louisiana law applied, under which the Louisiana Oilfield Indemnity Act ("LOIA"), La. Rev. Stat. 9:2780(B), invalidated the indemnity provisions.

The dispute concerned a Master Service Agreement ("MSA") between BP and a service company. Contained within the MSA was an indemnification provision, which contained an insurance agreement supporting the service company's indemnification obligations. An employee of the service company was injured, sued BP and the service company, BP tendered the employee's claims to the service company, which in turn settled all claims with the employee. The service company's insurer then filed an action for declaratory judgment, seeking a declaration that it did not owe coverage payments to the service company. The service company countersued the insurer for breach of contract.

At issue in the case was whether Louisiana law governed the indemnity provisions. The Fifth Circuit agreed with the district court that in order for the OCSLA indemnity provision in the MSA to apply, maritime law must not apply upon its own force. The court agreed that the employee's work on a oil field platform was not maritime in nature. Therefore, Louisiana law applied, invalidating the indemnity provisions in the MSA.

If you are interested in receiving a copy of the complete decision, please feel free to contact me at mov@chaloslaw.com.

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