Going Back To The Well – A Curious Opinion By The Fifth Circuit Resolves District Court Split Regarding Application Of The Louisiana Anti-Indemnity Act To Decommissioning Work

As previously reported on Striding the Quarterdeck, district courts within the federal Fifth Circuit had split over recent years as to whether the Texas and Louisiana Oilfield Anti-Indemnity Acts (TOAIA, Tex. Civ. Prac. & Rem. Code §127.001 et seq., and LOAIA, La. Rev. Stat. §9:2780) applied to platform decommissioning work. Both statutes in general prohibit indemnity and additional insured agreements in contracts for work “pertaining to a well,” a broadly worded operative clause that has been interpreted to include everything from catering work on production platforms to shoreside fabrication of a platform that would eventually be used at a producing well.

That said, the question of whether decommissioning work – which by definition involves non-producing wells – “pertains to a well” for purposes of triggering the indemnity prohibitions of the LOAIA/TOAIA had split several Louisiana district courts within the Fifth Circuit.

The primary district court decision holding that decommissioning work on “dead” wells did not pertain to a well (such that the LOAIA did not apply thus allowing for indemnity) was originally issued in Armijo v. Tetra Technologies, Inc., 2013 WL 1288210 (E.D. La. Mar. 27, 2013).

However, the Fifth Circuit has recently “gone back to the well” and reversed Armijo (after a prior decision in the same case remanding for lack of jurisdiction, 755 F.3d 222 (5th Cir. 2014)) holding specifically that “a contract for salvaging a platform from a decommissioned oil well has a sufficient nexus to a well under LO[A]IA” to prohibit indemnity and additional insurance obligations in such a contract. Thus, the Fifth Circuit sided with the analysis of the district courts in Howell v. Avante Servs., LLC, 2013 WL 1681436 (E.D. La. Apr. 17, 2013) and Wilcox v. Max Welders, LLC, 2013 WL 4591162 (E.D. La. Aug. 28, 2013).

Notably, however, the Fifth Circuit’s opinion reached this conclusion via a curiously circuitous route.

Armijo involved the decommissioning of a platform by Tetra Technologies, Inc. (“Tetra”), pursuant to a Salvage Plan agreement between Tetra and Maritech Resources, Inc. (“Maritech,” the platform owner), further to which Tetra in turn entered a master services agreement (“MSA”) with Vertex Services (“Vertex”). Under these agreements, Vertex was obligated to defend, indemnify and provide additional insurance to Tetra and Maritech (as part of Tetra’s indemnified contractor “group” under the Salvage Plan) for any personal injury claims by Vertex personnel working on Tetra’s decommissioning project. The plaintiff in the underlying action sued Tetra and Maritech; they both sought defense/indemnity/additional insurance from Vertex and its insurer Continental Insurance Company (“Continental”); and Vertex/Continental denied any such obligations asserting that the LOAIA prohibited indemnity/additional insurance for the decommissioning work.

Interestingly, the bulk of the Fifth Circuit’s Armijo decision focused on a fundamental prerequisite question separate from the LOAIA issue – namely, whether the Salvage Plan and/or MSA were contracts governed by the Outer Continental Shelf Lands Act (“OCSLA”) under the three-part PLT test,[1] analyzed under the so-called “focus-of-the-contract test,” such that Louisiana law (adopted as surrogate federal law) and the LOAIA would apply to them. Notably, the court held (after a painstaking review of the factual context of the contracts) that there was not enough evidence to determine whether the majority of actual work performed under the MSA (i.e. the contract pursuant to which the plaintiff was working for Vertex on Tetra’s project), as opposed to the Salvage Plan (between Tetra and Maritech) took place on an OCSLA situs (i.e. the Maritech platform being decommissioned) or on the non-OCSLA situs of the work barge where plaintiff had been assigned for the entire two years of the project. If the discrete “focus of the contract” under the MSA, as opposed to the Salvage Plan, did not involve the platform, then the general maritime law, not LOAIA, would apply and the indemnity/additional insurance obligations would be enforceable.

Notwithstanding this initial holding that it was simply impossible to determine whether or not the LOAIA applied (thus requiring another remand for further evidence), the Court did go on to hold that if the LOAIA applied, the decommissioning work sufficiently “pertained to a well” so as to prohibit indemnity, even if the well was no necessarily no longer in production. In other words, the court essentially issued an advisory opinion (typically constitutionally prohibited) on the applicability of LOAIA if on remand the district court held that Louisiana law applied.

And the curious pseudo-advisory opinion in Armijo did not stop there. The Court also considered the outcome of the additional insurance dispute if the LOAIA did not apply, and if instead the general maritime law governed the case such that the defense/indemnity/additional insurance obligations were upheld. Specifically, Continental argued that even if the additional insurance clause were valid, its policy would not provide additional insured coverage to Tetra/Maritech based on an exclusion of coverage (phrased in language typically used for worker’s compensation or employer-liability-based exclusions) for any claims “under . . . the Jones Act . . . General Maritime Law . . . or any similar law.” Tetra/Maritech argued (pursuant to the Texas insurance law applicable by the choice-of-law clause in the policy) that the broad/vague reference to “any other law” rendered this exclusion impermissibly ambiguous, thus requiring a finding of coverage under Texas law. Continental, for its part, argued that the exclusion applied not only to employer-liability-based claims but to any claims under the general maritime law. The Court ultimately held that Tetra/Maritech’s construction of the phrase “any similar law” as applying solely to employer-liability-type claims – which resulted in a more specific construction for the phrase than Continental’s, which would have effectively rendered the phrase “any similar law” meaningless.

Armijo is a very interesting and important decision with respect to all three issues it addressed: (1) the fact-intensive analysis necessary to determine whether the OCSLA governs a contract; (2) the applicability of LOAIA (and presumably the pertinently identical provisions of TOAIA) to decommissioning work; and (3) the effect of an “any other law” clause in a coverage exclusion.

But for decommissioning contractors (including, inter alia, labor providers, welders, subsea cutting/explosive contractors, and the like) the resolution of the district court split concluding that LOAIA/TOAIA apply to prohibit indemnity in decommissioning jobs is the most critically important holding. While the applicability of the LOAIA in Armijo will potentially protect the service contractor in the specific facts of case, the LOAIA/TOAIA indemnity prohibition is a blade that cuts both ways – i.e. the platform owner in charge of a decommissioning project could equally deny indemnity to its service contractors under the LOAIA/TOAIA in the event one of its personnel sues the service contractors for injuries.

Accordingly, in the wake of Armijo, any service contractors with existing MSAs/contracts related to decommissioning work should revisit the terms of those agreements and ensure that the proper insurance provisions – including if necessary any Louisiana Marcel exception requirements and the reciprocal insurance provisions of Tex. Civ. Prac. & Rem. Code §127.005 – are in place to protect any defense/indemnity obligations. Moreover, service contractors should discuss with their insurance brokers the potential effects of Armijo on their insurance programs, including with respect to any provisions potentially affected by the Armijo court’s ruling on the “any other law” exclusion.

[1] Specifically: (1) whether the controversy arises on an OCSLA situs (i.e. subsoil, seabed, or artificial structures permanently or temporarily attached thereto; (2) whether general maritime law applies on its own; and (3) whether state law is inconsistent with maritime law. Union Texas Petroleum Corp. v. PLT Engineering, Inc., 895 F. 2d 1043 (5th Cir. 1991).