Pina v. Gruy Petroleum Management Company

• Decision Date: 12 April 2006
• Docket Number: No. 24,960.,No. 25,219.,25,219.,24,960.
• Citation: 2006 NMCA 063,136 P.3d 1029
• Court: Court of Appeals of New Mexico
• Parties: Nora PIÑA Individually and as Temporary Administratrix of the Estate of Daniel H. Piña, Deceased, and as Next Friend of Santiago Piña, Daniel A. Piña, and Daniel Ray Piña, Plaintiffs, and Banta Oilfield Services, Inc., Plaintiff in Intervention-Appellee, Bituminous Insurance Companies, Plaintiff in Intervention-Appellee, v. GRUY PETROLEUM MANAGEMENT COMPANY, Defendant-Appellant, National Union Fire Insurance Company of Pittsburgh, PA, Intervenor-Appellant.

136 P.3d 1029

2006 NMCA 063

Nora PIÑA Individually and as Temporary Administratrix of the Estate of Daniel H. Piña, Deceased, and as Next Friend of Santiago Piña, Daniel A. Piña, and Daniel Ray Piña, Plaintiffs, and Banta Oilfield Services, Inc., Plaintiff in Intervention-Appellee Bituminous Insurance Companies, Plaintiff in Intervention-Appellee, v. GRUY PETROLEUM MANAGEMENT COMPANY, Defendant-Appellant National Union Fire Insurance Company of Pittsburgh, PA, Intervenor-Appellant.

No. 25,219.

No. 24,960.

Court of Appeals of New Mexico.

April 12, 2006.

Beall & Biehler, Larry D. Beall, José R. Blanton, Albuquerque, NM, for Appellee Banta Oilfield Services.

Keleher & McLeod, PA, Robert C. Conklin, Thomas C. Bird, Benjamin F. Feuchter, Albuquerque, NM, for Appellee Bituminous Insurance Companies.

Rodey, Dickason, Sloan, Akin & Robb, PA, Edward Ricco, Albuquerque, NM, Strasburger & Price, LLP, Jack M. Murchison, Houston, TX, Andrews Kurth, LLP, Stuart C. Hollimon, Dallas, TX, for Appellants Gruy Petroleum Management Co. and National Union Fire Ins. Co. of Pittsburgh, PA.

OPINION

ALARID, Judge.

{1} This case turns upon the interpretation of NMSA 1978, § 56-7-2 (1999), commonly known as the Oilfield Anti-Indemnity Statute. We hold that Section 56-7-2, as amended in 1999, is an expression of a "fundamental principle of justice," which is to insure the safety of persons and property at well sites within New Mexico, and that a choice of law provision applying Texas law, by which an indemnitee may be indemnified against its own negligence, is void as violative of the public policy of New Mexico. Recognizing that previously we may have underestimated the force of the public policy expressed by Section 56-7-2, we limit our decision in Reagan v. McGee Drilling Corp., 1997-NMCA-014, 123 N.M. 68, 933 P.2d 867, to the pre-1999 version of Section 56-7-2.

BACKGROUND

{2} Appellant, Gruy Petroleum Management Co. (Gruy), is a Texas Corporation. Appellee, Banta Oilfield Services, Inc. (Banta), is a New Mexico Corporation. Appellee, Bituminous Insurance Companies (Bituminous), is a foreign insurer authorized to conduct business in New Mexico.

{3} In July 2000, Banta and Gruy entered into a Master Service Contract (MSC) under which Banta agreed to perform work at an oil well site operated by Gruy in Lea County, New Mexico. Article 10 of the MSC provided that

[t]o the fullest extent permitted by law, [Banta] shall indemnify, defend and hold harmless GRUY ... from and against all claims, damages, losses, liens, causes of action, suits, judgments, fines and expenses, including, but not limited to reasonable attorneys' fees (collectively referred to and defined as "Liabilities"), of any person or entity arising out of, caused by or resulting directly or indirectly from the performance of the work under this Contract, ... regardless of whether the Liabilities are caused in part by the negligence of any Indemnitee.

Article 11 of the MSC required Banta to maintain a $1,000,000 commercial general liability policy adding Gruy as an "additional insured" and to waive any rights of subrogation that Banta and its insurer otherwise would have against Gruy. Article 24 of the MSC provided that it "shall be construed and interpreted in accordance with the laws of the state of Texas." Gruy drafted the MSC and signed it in Texas; Banta signed the MSC in New Mexico.¹

{4} Banta purchased liability insurance from Bituminous. The policy insured Banta against tort liability assumed by contract and named Gruy as an additional insured.

{5} In March 2003, Nora Piña filed a wrongful death action against Gruy, alleging that her husband, Daniel, suffered fatal burns in 2002 while employed by Banta at a well site located in Lea County, New Mexico, and owned and operated by Gruy. Piña alleged that her husband's injuries were caused by the wrongful conduct of Gruy's agents or employees. Piña sought compensatory and punitive damages.

{6} Banta intervened in the wrongful death action. Banta alleged that Gruy had invoked Article 10 of the MSC, demanding that Banta defend and indemnify Gruy. Banta sought a declaratory judgment invalidating the indemnity provision as violative of Section 56-7-2. Gruy cross-claimed against Banta, seeking enforcement of the indemnity provision and a declaratory judgment validating the provision. Banta and Gruy filed cross-motions for summary judgment. The district court granted Banta's motion and denied Gruy's motion, ruling that the indemnity provision of the MSC was against the public policy of New Mexico as expressed in "[Section] 56-7-2 (1999)" (emphasis added) and therefore was "void and unenforceable." Gruy appealed.

{7} Thereafter, Bituminous intervened in the wrongful death action. Citing Section 56-7-2, Bituminous sought a declaratory judgment relieving it on grounds of public policy of any responsibility to defend or indemnify Gruy. Gruy filed a counter-claim seeking a declaratory judgment that Bituminous was required to defend and indemnify Gruy against Piña's claims. Bituminous and Gruy filed cross-motions for summary judgment. The district court granted Bituminous' motion and denied Gruy's motion. Gruy appealed.

{8} We consolidated the two appeals.

DISCUSSION

{9} The Oilfield Anti-Indemnity Statute was enacted in 1971. 1971 N.M. Laws, ch. 205, § 1. In its original form, Section 56-7-2 [then codified as NMSA 1953, § 28-2-2] provided as follows:

A. Any agreement, covenant or promise contained in, collateral to or affecting any agreement pertaining to any well for oil, gas or water ... which purports to indemnify the indemnitee against loss or liability for damages, for:

(1) death or bodily injury to persons; or

(2) injury to property; or

(3) any other loss, damage or expense arising under either Paragraph (1) or (2) or both; or

(4) any combination of these, arising from the sole or concurrent negligence of the indemnitee or the agents or employees of the indemnitee ... is against public policy and is void and unenforceable. This provision shall not affect the validity of any insurance contract or any benefit conferred by the Workmen's Compensation Act . . . .

{10} We construed Section 56-7-2 in Guitard v. Gulf Oil Co., 100 N.M. 358, 670 P.2d 969 (Ct.App.1983). In Guitard, we recognized that the public policy underlying Section 56-7-2 is to promote safety. Guitard, 100 N.M. at 361, 670 P.2d at 972. We construed Section 56-7-2 to permit indemnity agreements that do not purport to relieve the indemnitee from liability for its own negligence, since in the case of such agreements, "[b]oth the operator [indemnitee] and the subcontractor [indemnitor] will have incentive to monitor the safety of the operation knowing that they will be responsible for their respective percentage of negligence." Guitard, 100 N.M. at 362, 670 P.2d at 973. We upheld the indemnity agreement at issue in Guitard because we interpreted it to require the indemnitor to indemnify the indemnitee only for the indemnitor's percentage of negligence.

{11} Our Supreme Court construed Section 56-7-2 in Amoco Production Co. v. Action Well Service, Inc., 107 N.M. 208, 755 P.2d 52 (1988). Amoco turned upon the clause "this provision shall not affect the validity of any insurance contract" contained in the final sentence of Section 56-7-2(A)(4). Amoco Prod. Co., 107 N.M. at 210, 755 P.2d at 54 (internal quotation marks and citation omitted). The Supreme Court held that this language allows a party to obtain insurance against its own negligence, but that it does not permit indemnification agreements whereby the indemnitor is required to obtain insurance that insures an indemnitee from liability for the indemnitee's own negligence.

{12} Subsequently, in Reagan, we considered Section 56-7-2 in a conflict-of-laws context. In Reagan, a Texas drilling contractor sought indemnification from the Texas operator of an oil well located in Lea County, New Mexico, against liability for injuries to a third-party's employee caused by a defective platform belonging to the drilling contractor and under the drilling contractor's sole control and custody. The indemnity agreement at issue in Reagan provided that it was "governed and interpreted under the laws of TEXAS." Reagan, 1997-NMCA-014, ¶ 4, 123 N.M. 68, 933 P.2d 867. We observed that Texas' anti-indemnity statute allowed indemnity agreements indemnifying a party against its own negligence where the indemnitor's obligation is covered by liability insurance, an arrangement nevertheless unlawful under Section 56-7-2 as interpreted by our Supreme Court in Amoco. Reagan, 1997-NMCA-014, ¶ 11, 123 N.M. 68, 933 P.2d 867. We acknowledged that New Mexico policy of not enforcing indemnity agreements was stricter than that of Texas and that under New Mexico law the indemnity agreement would be void and unenforceable. Id. ¶ 12.

{13} Examining conflict-of-laws principles, we observed that New Mexico courts may decline to enforce a choice-of-law provision in a contract incorporating foreign law if application of foreign law would offend New Mexico public policy. Id. ¶ 8. We immediately qualified this apparently broad public policy exception to freedom of contract:

It is said that courts should invoke this public policy exception only in "extremely limited" circumstances. Mere differences among state laws should not be enough to invoke the public policy exception. Otherwise, since every law is an expression of a state's public policy, the forum law would always prevail unless the foreign law were identical, and the exception would swallow the rule. The threshold, under Justice Cardozo's classic articulation, is whether giving effect to another state's policies would "violate some fundamental principle of justice, some prevalent conception of good morals, some deep-rooted tradition of the common weal" of the forum state.

Id. ¶ 9 (citations omitted). We concluded that the diametrically opposed outcomes that would...