American Home Assur. Co. v. Chevron, Usa, Inc.

• Decision Date: 10 February 2005
• Docket Number: No. 03-31014.,03-31014.
• Citation: 400 F.3d 265
• Parties: AMERICAN HOME ASSURANCE COMPANY and National Union Fire Insurance Company of Pittsburgh, Pennsylvania, Plaintiffs-Appellants, v. CHEVRON, USA, INC., and Halliburton Energy Services, Inc., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

400 F.3d 265

AMERICAN HOME ASSURANCE COMPANY and National Union Fire Insurance Company of Pittsburgh, Pennsylvania, Plaintiffs-Appellants, v. CHEVRON, USA, INC., and Halliburton Energy Services, Inc., Defendants-Appellees.

No. 03-31014.

United States Court of Appeals, Fifth Circuit.

February 10, 2005.

Robert I. Siegel (argued), Gieger, Laborde & Laperouse, Shawn Louise Holahan, Simon, Peragine, Smith & Redfearn, New Orleans, LA, for Plaintiffs-Appellants.

Tobin J. Eason (argued), Weiss & Eason, New Orleans, LA, for Defendants-Appellees.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before REAVLEY, JONES and DENNIS, Circuit Judges.

DENNIS, Circuit Judge:

The issue is whether an oil company may call upon the courts to enforce an indemnity clause requiring its oilfield service contractor to indemnify the oil company against its own negligence without affording the contractor an opportunity to show that the indemnity clause is invalid under the Louisiana Oilfield Anti-Indemnity Act (LOAIA). The LOAIA prohibits the enforcement of such provisions in cases in which the oil company's negligence or fault (strict liability) has contributed to the third party's injury or death.

In this case, the district court rendered summary judgment dismissing suit by the service contractor's insurer (AIG) for reimbursement of sums expended in settling an oilfield worker's claim against the oil companies (Chevron and Halliburton) despite a genuine dispute as to the material issue of whether the companies' negligence or fault contributed causally to the worker's injury. We reverse. When an oilfield contractor reasonably settles such a claim against its oil company principal in the face of an indemnity clause requiring it to defend and indemnify the oil company against all claims incident to the contractor's work, the contractor is entitled to seek reimbursement for the reasonable settlement by showing that the indemnity contract was void as to that claim under the LOAIA due to the oil company's fault or negligence.

Background

On June 29, 2000, James Blackmon, an employee of M-I L.L.C (M-I), brought a Jones Act suit against M-I, Chevron U.S.A., and Halliburton Energy Services (oil companies) seeking compensation for injuries he suffered on the Chevron Genesis Spar while working with Halliburton employees. Chevron requested defense and indemnity from M-I in accordance with a Master Service Agreement (MSA). Halliburton, pursuant to a Mutual Indemnity and Waiver Recourse Agreement (MIA), also requested defense and indemnity from M-I. M-I agreed to assume the defense of the oil companies.

After Blackmon filed his suit, which alleged causes of action arising under the Jones Act, it was determined that the Genesis Spar, on which Blackmon was injured, was a work platform rather than a vessel. Thus, pursuant to the Outer Continental Land Shelf Act, the law of Louisiana applied and Blackmon's remedies against M-I were limited to worker's compensation. M-I was dismissed as a defendant and subsequently joined the suit as a plaintiff-in-intervention seeking to recover worker's compensation benefits paid to Blackmon.

M-I gave notice of Blackmon's claims to its primary and excess liability insurer, American Home Assurance and National Fire Insurance Company of Pittsburgh, Pennsylvania (collectively: AIG). AIG did not agree that M-I owed defense and indemnity to the defendants. M-I and AIG subsequently reached a settlement, pursuant to which AIG agreed to negotiate and fully fund a settlement in the Blackmon case or, in the alternative, to pay any judgment rendered against the oil companies, in exchange for M-I assigning to AIG its right to seek reimbursement of the cost of defense and indemnity from the oil companies.

Thereafter, AIG sent a letter to the oil companies explaining its position that the defense and indemnity provisions of both the MSA and MIA were unenforceable under Louisiana law. AIG further claimed that since M-I's contractual obligations to defend and indemnify the oil companies were void and unenforceable, M-I's acceptances of the duty to defend and indemnify the oil companies were without effect. Finally, AIG informed the oil companies that it intended to pursue a settlement with Blackmon and, also, intended to pursue recovery from the oil companies for any amounts paid. AIG requested that the oil companies either stipulate to the reasonableness of any settlement with Blackmon or, in the alternative, accept the re-tender of their defense and liability. The oil companies declined to either undertake their own defense or to participate in the settlement. Thereafter, AIG settled Blackmon's claims against the oil companies for two million dollars.

In February 2002, AIG filed a complaint against the oil companies seeking recovery of the amount paid in settlement plus all attorneys' fees and costs incurred in defending against Blackmon's claims. AIG subsequently filed a motion for summary judgment arguing that, pursuant to the Louisiana Oilfield Anti-Indemnity Act (LOAIA), La.Rev.Stat. § 9:2780, the defense and indemnity provisions of the contracts between M-I and the oil companies were void and unenforceable. AIG further argued that since the LOAIA renders the defense and indemnity provisions unenforceable, neither M-I nor its insurers were obliged to defend or indemnify the oil companies and that any agreement by M-I to assume such a defense was without effect. Thus, AIG claimed that it was entitled, as a matter of law, to recover all sums expended in settling Blackmon's claims.

The oil companies also moved for summary judgment. They argued that the LOAIA only renders defense and indemnity provisions unenforceable where the indemnitee is found to be wholly or concurrently at fault. Thus, according to the oil companies, because there had been no judicial determination of fault in the Blackmon litigation, the LOAIA did not apply and the contractual provisions requiring M-I to provide defense and indemnification to the defendants were valid and enforceable.

The district court granted the oil companies' motion and denied AIG's motion, concluding that the indemnification clauses were not void under the LOAIA. The district court did not, however, make any factual findings regarding the negligence or fault of the oil companies. Rather, the district court determined that the LOAIA only applies when an indemnitee has been adjudicated at fault, that AIG prevented any adjudication of fault by settling with Blackmon and that, therefore, the LOAIA did not apply. AIG timely appealed.

I.

We review a district court's decision to grant or deny summary judgment de novo, applying the same legal standards as the district court.¹ Summary judgment is proper if, when viewing the evidence in the light most favorable to the nonmoving party, the record indicates that there is "no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law."²

II.

The central issue in this case is whether, with respect to the injured worker's claims, the oil companies were wholly or concurrently at fault, so that the LOAIA renders void and unenforceable the defense and indemnity clauses in the contracts between M-I and the oil companies. The LOAIA states, in relevant part, that "[a]ny provision contained in, collateral to, or affecting an agreement pertaining to a well for oil, gas, or water, or drilling for minerals ... is void and unenforceable to the extent that it purports to or does provide for defense or indemnity, or either, to the indemnitee against loss or liability for damages arising out of or resulting from death or bodily injury to persons, which is caused by or results from the sole or concurrent negligence or fault (strict liability) of the indemnitee...."³ Thus, the LOAIA, by its express terms, "only prohibits indemnity for cost of defense where there is negligence or fault (strict liability) on the part of the indemnitee."⁴

The Louisiana Supreme Court, in response to questions certified by this court, has plainly stated that "the indemnitor's obligation for cost of defense cannot be determined until there has been a judicial finding that the indemnitee is liable or that the charges against it were baseless."⁵ In other words, "[w]hether an oil company (indemnitee) is free from fault and thus outside the scope of the Act can only be determined after trial on the merits."⁶ In the present case, the district court rendered summary judgment for the oil companies without determining that there was no genuine dispute as to any material fact issue regarding the oil companies' negligence or fault relevant to this case.⁷ Thus, the district court's granting of summary judgment to the defendants was premature.

The clear intent of the LOAIA is to protect oilfield contractors and their employees from adhesionary contracts requiring contractors to indemnify oil companies for their negligence or fault. The Louisiana legislature stated, in the very text of the statute, that "an inequity is foisted on certain contractors and their employees by the defense or indemnity provisions... contained in some agreements pertaining to wells for oil, gas, or water...."⁸ Because of this inequity, the legislature sought, by enacting the LOAIA, "to declare null and void and against public policy of the state of Louisiana any provision in any agreement which requires defense and/or indemnification, for death or bodily injury to persons, where there is negligence or fault (strict liability) on the part of the indemnitee."⁹ Thus, the LOAIA "arose out of a concern about the unequal bargaining power of oil companies and contractors and was an attempt to avoid adhesionary contracts under which contractors would have no choice but to agree to indemnify the oil company, lest they risk losing the contract."¹⁰ The "purpose of the legislature, and thus the policy interest of the state, is to protect...