Union Pacific Resources Co. v. Dolenc, 03-75.

• Citation: 86 P.3d 1287,2004 WY 36
• Decision Date: 02 April 2004
• Docket Number: No. 03-75.,03-75.
• Parties: UNION PACIFIC RESOURCES COMPANY, Appellant (Cross-Claim Plaintiff), v. William DOLENC, d/b/a Dolenc Welding Service, Appellee (Cross-Claim Defendant.).
• Court: United States State Supreme Court of Wyoming

86 P.3d 1287

2004 WY 36

UNION PACIFIC RESOURCES COMPANY, Appellant (Cross-Claim Plaintiff), v. William DOLENC, d/b/a Dolenc Welding Service, Appellee (Cross-Claim Defendant.).

No. 03-75.

Supreme Court of Wyoming.

April 2, 2004.

Representing Appellant: Richard H. Honaker of Honaker Law Offices, LC, Rock Springs, Wyoming.

Representing Appellee: J. Kent Rutledge and Kevin C. Cook of Lathrop & Rutledge, P.C., Cheyenne, Wyoming.

Before HILL, C.J., and GOLDEN, LEHMAN, KITE, and VOIGT, JJ.

KITE, Justice.

[¶ 1] Union Pacific Resources Company (UPRC) sought indemnification from Dolenc Welding Service (Dolenc) when an injured employee of a subcontractor working on a UPRC water line sued to recover for his injuries. The district court granted summary judgment in favor of Dolenc holding the indemnification provision of the contract between UPRC and Dolenc was void and unenforceable pursuant to Wyo. Stat. Ann. § 30-1-131 (LexisNexis 2003). We reverse and hold that the anti-indemnity statute did not cover a contract involving work on a water plant used for purposes of secondary recovery in an oil field because it was not an agreement pertaining to an oil or gas well within the meaning of the statute.

ISSUES

[¶ 2] UPRC states the issue as:

Is the modification of water piping in a water plant directly related to an oil, gas or water well itself, such that Wyoming's anti-indemnity statute applies to void an agreement indemnifying an indemnitee against its own negligence?

[¶ 3] The issues as stated by Dolenc are:¹

1. Does the agreement for services pertain to any well for oil, gas, or water, as described in W.S. § 30-1-131?

2. Is the provision in the contract between the parties void and unenforceable because it is otherwise against public policy?

STANDARD OF REVIEW

[¶ 4] Summary judgment is appropriate when there is no genuine issue of material fact and the prevailing party is entitled to judgment as a matter of law. Wyoming Rules of Civil Procedure, 56(c). A genuine issue of material fact exists when a disputed fact, if proven, would have the effect of establishing or refuting an essential element of the cause of action or defense asserted by the parties. Baker v. Pena, 2001 WY 122, 36 P.3d 602 (Wyo.2001). This case involves cross-motions for summary judgment in which neither party disputes the relevant facts. Therefore, this Court must only determine whether summary judgment was proper as a matter of law. Cities Service Oil and Gas Corp. v. State, 838 P.2d 146 (Wyo. 1992). We review matters of law de novo without affording any deference to the decision of the district court. Wadi Petroleum, Inc. v. Ultra Resources, Inc., 2003 WY 41, 65 P.3d 703 (Wyo.2003).

FACTS

[¶ 5] UPRC operates an oil field near Patrick Draw in southwest Wyoming. As is typical in many oil fields, water known as "raw water" is produced with the oil. One way of handling the raw water is to treat it and then re-inject it into the field as part of a water flood operation, which improves and enhances the production of oil. During such an operation, the raw water is separated from the oil and transported from the field to a water plant through a system of pipes. The plant combines the raw water with fresh water produced from a water well, treats the water to remove excess sediment, and then stores it in a clear water tank. Pipes then carry the water to injection pumps where it is pumped under high pressure back to the oil field and down into the formation. The re-injection accomplishes two purposes—disposal of the raw water and enhancement of oil production by moving oil through the formation to a producing well bore where it can be brought to the surface. In a water flood operation, the operator takes steps to prevent bacteria, which can produce dangerous hydrogen sulfide gas, from forming in the water. This is accomplished by injecting chemicals into the raw water tanks, and keeping oxygen out of the tanks by piping natural gas into the water tanks to form a blanket on top of the water.

[¶ 6] UPRC's operation included a water plant, however, it had not been functioning consistently due to leaking and dilapidated tanks and engines. Two of the engines had been out of service for over ten years because the clear water tank they were connected to had developed leaks and, therefore, UPRC had the pipelines leading to and from the tank blocked off with valves. The other three engines were either out of service or in such a state of disrepair that they were frequently shut down. In an effort to improve operation of the plant, UPRC decided to modify the piping so that engines one and two could be connected to the functional tank, thus relieving the other three dilapidated engines.

[¶ 7] Dolenc contracted with UPRC through a Master Service Contract to perform welding services as necessary. The terms of the contract provided Dolenc would indemnify UPRC for any "loss, cost, damage or expense ... arising out of bodily injury... to ... any subcontractor ... arising out of the performance of the work, WHETHER OR NOT RESULTING IN WHOLE OR IN PART FROM THE SOLE, CONCURRENT, OR COMPARATIVE NEGLIGENCE, OR STRICT LIABILITY OF THE UPRC GROUP." Another contractor, Elkhorn Construction, entered into a similar contract with UPRC to provide labor on an as-needed, day-to-day basis.

[¶ 8] Pursuant to the contract, UPRC directed Dolenc to make the piping changes required in the water plant. Before welders undertook work in which they could potentially come into contact with hydrocarbons or other explosive material, UPRC typically issued them a "hot work permit." None was issued for Dolenc's work on the water plant piping because UPRC did not consider the water plant "a hot work permit area in that it was a water facility." Ordinarily, when a welder like Mr. Dolenc performs work, he has an assistant called a firewatch, who is equipped with a fire extinguisher. One of the firewatch's job duties is to make sure sparks thrown from the welder's torch do not start a fire. On this job, Luis Gomez, an employee of Elkhorn Construction, served as Mr. Dolenc's firewatch. When Mr. Dolenc started to cut the first pipe with his welding torch, there was an explosion. Mr. Gomez was knocked unconscious and suffered lacerations, burns, and other injuries. He filed suit against Dolenc and UPRC alleging both were negligent in failing to discover the water lines contained hydrocarbons and claiming damages for the injuries he suffered in the explosion.

[¶ 9] UPRC filed a cross-claim against Dolenc seeking indemnification pursuant to the Master Service Contract in effect at the time of the explosion. Mr. Gomez entered into a stipulation with UPRC to dismiss it from the case leaving Dolenc as the only defendant. Dolenc then moved for summary judgment against UPRC claiming the anti-indemnification statute prevented UPRC from enforcing the indemnification provision of the contract. UPRC filed a cross-motion for summary judgment seeking a determination that the statute did not apply and the contract was enforceable. The district court granted summary judgment in favor of Dolenc and UPRC filed this appeal.

DISCUSSION

[¶ 10] UPRC argues the anti-indemnity statute does not apply to the facts in this case because the work being performed was not "in connection with any well" drilled for purposes of producing oil, gas or water as required by the anti-indemnification statute, which it asserts must be strictly construed because it constricts the common law right of freedom to contract. UPRC relies upon Reliance Insurance Co. v. Chevron U.S.A. Inc., 713 P.2d 766 (Wyo.1986) and Gainsco Insurance Co. v. Amoco Production Co., 2002 WY 122, 53 P.3d 1051 (Wyo.2002), in which we held contracts for work related to oil and gas production, but not to the wells themselves, were not covered by the statute.

[¶ 11] In response, Dolenc contends the language of the statute, which includes work done "in connection with" oil and gas wells, is broad enough to cover work performed on the water plant because the ultimate purpose was enhancement of oil production. With regard to Reliance and Gainsco, Dolenc claims they are factually different from this case and are not controlling.

[¶ 12] The anti-indemnification statutes provide:

§ 30-1-131. Provisions for indemnity in certain contracts; invalidity

(a) All agreements, covenants or promises contained in, collateral to or affecting any agreement pertaining to any well for oil, gas or water, or mine for any mineral, which purport to indemnify the indemnitee against loss or liability for damages for:

(i) Death or bodily injury to persons;

(ii) Injury to property; or

(iii) Any other loss, damage, or expense arising under either

(i) or (ii) from:

(A) The sole or concurrent negligence of the indemnitee or the agents or employees of the indemnitee or any independent contractor who is directly responsible to such indemnitee; or

(B) From any accident which occurs in operations carried on at the direction or under the supervision of the indemnitee or an employee or representative of the indemnitee or in accordance with methods and means specified by the indemnitee or employees or representatives of the indemnitee, are against public policy and are void and unenforceable to the extent that such contract of indemnity by its terms purports to relieve the indemnitee from loss or liability for his own negligence. This provision shall not affect the validity of any insurance contract or any benefit conferred by the Worker's Compensation Law [§§ 27-14-101 through XX-XX-XXX] of this state.

§ 30-1-132. Provisions for indemnity in certain contracts; definition

The term "agreement pertaining to any well for oil, gas, or water, or mine for any mineral" as used in section 1 hereof [§ 30-1-131], means any agreement or understanding, written or oral, concerning any operations related to drilling, deepening, reworking, repairing, improving, testing, treating, perforating, acidizing,

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