Vessel Owner Prevails in Dispute Over Contractual Indemnity
On November 20, 2024, the U.S. Fifth Circuit Court of Appeals, in the case Willis v. Barry Graham Oil Service, LLC, reversed a district ruling in favor of an offshore contractor. The ruling is significant because it addresses a matter of first impression.
A. Background
Barry Graham Oil Service, LLC ("Barry Graham") operates vessels in the Gulf of Mexico. Barry Graham contracted with Kilgore Marine Services, LLC ("Kilgore Marine") to market Barry Graham's vessels. Kilgore Marine executed a Master Time Charter Agreement with Fieldwood Energy, LLC ("Fieldwood") to provide Fieldwood with vessel services for its fixed platforms. Fieldwood in turn executed a Master Service Contract with contractor Shamrock Management LLC ("Shamrock") for work on the Fieldwood platform (the "Platform").
On February 10, 2018, a Barry Graham vessel delivered groceries to the Platform. John Willis ("Willis"), a Shamrock crane rigger, was using a tag line to guide the crane as it received a box from the vessel. The tag line slipped off the box causing Willis to fall and injure himself. Willis sued Barry Graham for negligence. Barry Graham filed a Third-Party Complaint against Shamrock and Shamrock's insurer for contractual defense, indemnity, and insurance coverage. The parties filed cross motions for summary judgment on this issue. The district court determined that Barry Graham did not fall within the defense, indemnification, and insurance provisions of the Shamrock-Fieldwood Master Service Contract ("MSC") so it dismissed Barry Graham's Third-Party Complaint. Barry Graham appealed. Willis settled with Barry Graham and his suit was dismissed.
B. Discussion
The issues raised by Barry Graham on appeal were contractual interpretation and the impact, if any, of the Louisiana Oilfield Anti-Indemnity Act ("LOAIA"). The Fifth Circuit focused on the Shamrock-Fieldwood MSC that required Shamrock to obtain indemnification insurance that it acquired and Fieldwood paid for. The MSC obligated Shamrock to defend, indemnify and insure Barry Graham because Barry Graham was covered by the plain terms of the MSC. Next, the Court examined whether the LOAIA voided Shamrock's obligation to Barry Graham. The Court noted that in cases like this one the LOAIA ordinarily voids agreements in which "the employer of the injured employee is required to provide insurance coverage indemnifying a third party." But it recognized an exception to the LOAIA when an indemnitee fully pays the indemnitor's insurance premiums for the indemnitee's coverage. Shamrock and Aspen maintained that Fieldwood could not pay Shamrock's insurance premium for the benefit of indemnitee Barry Graham. The Fifth Circuit disagreed.
C. Conclusion
The Fifth Circuit held that Barry Graham was one of Shamrock's contractually required indemnitiees. Because Fieldwood paid insurance premiums to extend all of Shamrock's insurance policies to include coverage for their respective indemnitees Shamrock's contractual defense, indemnity, and insurance obligations were enforceable.
D. Why Is This Important?
- In the new year endeavor to improve your understanding of master service contracts.
- A well-trained lawyer can help your team clarify the definition and potential impact of each defined term in a proposed master service contract.
- A third-party contractor that did not pay insurance premium for coverage for contractor's contractual indemnity can avail itself of the principal's premium payment made with intent to cover third-party contractor as an exception to the LOAIA.