Contract to Salvage a Platform Covered Under LOIA

15
Mar

Contract to Salvage a Platform Covered Under LOIA

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A contract for salvaging a fixed oil and gas platform in the Gulf of Mexico on the Outer Continental Shelf that supported a decommissioned well requires the application of the Louisiana Oilfield Indemnity Act (“LOIA”), according to a recent U.S. Fifth Circuit decision.  In the same decision, the Fifth Circuit found a maritime employment exclusion in a liability policy ambiguous.

Interestingly, the Fifth Circuit determined the question regarding the applicability of the LOIA, even though the procedural aspects of the case did not require a decision.  The decision arose out of a contract between Tetra Technologies and another company, Maritech, to salvage a decommissioned oil production platform on the Outer Continental Shelf of the Gulf of Mexico in Louisiana waters.   Tetra, in turn, entered into a Master Service Agreement with Vertex to perform a portion of the salvage work.  Their MSA included a typical indemnity provision whereby Vertex agreed to indemnify Tetra for injuries to Vertex’s employees, and to name Tetra as an additional insured on Vertex’s general liability policy.  The plaintiff in the underlying litigation worked for Vertex.  He suffered an injury when a bridge between two sections of the platform failed, dropping the plaintiff and other workers 70 feet into the Gulf.  The plaintiff sued Tetra, alleging negligence.  Tetra then turned to Vertex and its insurer for indemnification and insurance.

Beginning its analysis of the issues, the Fifth Circuit panel easily concluded that the Outer Continental Shelf Lands Act (“OCSLA”) applied because the plaintiff’s accident occurred in the Gulf of Mexico above the Outer Continental Shelf.  This determination guided the court’s analysis, because the OCSLA adopts the law of the adjacent state, in this case, Louisiana, to the extent it is not inconsistent with federal law.  According to the court, if Louisiana law applied to this controversy, then the LOIA would void the indemnity and insurance provisions of the Tetra-Vertex MSA.

The court then turned to its well-known test under Union Texas Petroleum Corp. v. PLT Engineering, Inc., to determine whether Louisiana law should supplant federal law.  The PLT test examines whether the controversy arises on an OCSLA situs, whether federal maritime law must apply of its own force, and whether the state law is not inconsistent with federal law.  Although the court examined all three aspects of this test, it found the record before it insufficient to determine whether federal maritime law must apply.  As a result, the court remanded the case for determination of this issue.

Although this remand seems as if it should have ended the court’s work, the court continued its analysis and essentially issued an advisory opinion on the remaining issues.  Moving on from the remanded issue, the court stated that “[i]f OCSLA requires the adoption of Louisiana law as surrogate federal law, the next question is whether LOIA applies to this dispute.”  The court proceed to address the applicability of the LOIA.  The court explained that it uses a two-part test to determine whether the LOIA applies to a contract.  “First, there must be an agreement that ‘pertains to’ an oil, gas or water well.  If the contract does not pertain to a well, the inquiry ends.  In determining whether an agreement pertains to a well, ‘[t]he decisive factor in most cases has been the functional nexus between an agreement and a well or wells.’”  (footnotes omitted.)  The court then discussed earlier precedent which held that work done in connection with plugging and abandoning a well fell under the LOIA, noting that the Act specifically covers the “plugging, or otherwise rendering services in or in connection with any well.”  However, Tetra argued that “salvaging a decommissioned platform is not collateral to plugging or decommissioning the well but is effectively one step further removed.”  The court rejected this argument “because it ignores the fact that regulations generally require the removal of an oil platform in connection with a decommissioning operation.”  As a result, the court decided  that salvaging a platform supporting a decommissioned well has the required nexus with a well to require the application of the LOIA.  According to the Fifth Circuit, this meant that, if the district court finds that Louisiana law applies to the MSA, then it must conclude that the indemnity and insurance provisions of the Tetra-Vertex MSA are void.

The Fifth Circuit acknowledged, however, that if the district court determines that maritime law applies, Vertex’s insurer may deny coverage to Tetra only if the language of its insurance policy excludes coverage.  Although it seems that, in most instances, the Fifth Circuit would not have proceeded to decide what seems to be a purely advisory opinion, the court continued with an analysis of the policy.  According to the court, the applicable liability policy contained the following exclusion:  “This insurance does not apply to … Any obligation of the insured under a workers compensation, United States Longshoremen’s and Harbor Workers’ Compensation Act, Jones Act, Death on the High Seas Act, General Maritime Law, Federal Employers’ Liability Act, disability benefits or unemployment compensation law or any similar law . . . .”  The court held that the “any similar law” language rendered the policy ambiguous.

According to the court, the “inclusion of the phrase ‘any similar law’ prompts the court to ask how the enumerated laws are similar.”  The court answered the question by observing that the enumerated laws are similar in that they all relate to employer’s liability.  However, Vertex’s insurer argued that the exclusion covers any maritime law claim, pointing to the direct language of the exclusion mentioning “General Maritime Law.”  Because the plaintiff in the underlying litigation alleged maritime law in his complaint, the insurer alleged that the exclusion precluded coverage for Tetra.  The court rejected that argument, finding that “[t]hough superficially plausible, that argument is inadequate.”  The court found that the insurer’s argument ignored the manner in which the “any similar law” ties the enumerated laws together.  “We agree that the employer/employee relationship is the ‘similar’ thread throughout each enumerated law.”  Then, although the court easily determined the common elements of the enumerated laws from the language of the exclusion, the court found the exclusion ambiguous because it allowed for a different interpretation, the interpretation alleged by Vertex’s insurer.  “We also conclude that Continental’s construction of Exclusion d, which would apply it to a general tort claim, renders the policy ambiguous.”  Therefore, the court instructed that, if the district court finds that maritime law applies to the insurance policy, it affords coverage to Tetra for the underlying claim.

This decision adds to the judicial interpretation of the LOIA, albeit in a fairly limited context.  However, this decision may become more important as older oil and gas assets in the Gulf of Mexico are decommissioned.

Tetra Technologies v. Continental Insurance Co., No. 15-30446 (5th Circ. 2/24/16)

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