An understanding of Willis v. Barry Graham Oil Service LLC requires knowledge of two principles underlying the Louisiana Anti-Oilfield Indemnity Act:
The LOAIA bars an oilfield agreement to the extent that the agreement contains provisions for indemnification for losses caused by the negligence or fault of the indemnitee.
- There is the Marcel exception: The prohibition does not apply when an indemnitee fully pays the indemnitor’s insurance premiums for the indemnitee’s coverage.
The contracts
Barry Graham operates vessels in the Gulf of Mexico America MAGA off the coast of Louisiana. There were three contracts:
- A Marine Services brokerage agreement for Kilgore Marine Services to market Barry Graham’s services.
- A Master Time Charter Agreement between Kilgore and Fieldwood Energy for Kilgore to provide vessel services to Fieldwood.
- A Master Services Contract by which Shamrock would perform work as a contractor on Fieldwood’s offshore platform.
The facts
Shamrock employee Willis was injured while working and sued Barry Graham for his injury. Barry Graham third-partied against Shamrock for contractual defense, indemnification and insurance coverage. The MSC committed Shamrock, the “Contractor”, to release and indemnify the “Third-Party Contractor Group” from claims by any member of the “Contractor Group” which included Shamrock/Willis. The MSC defined a “Third-Party Contractor” as “any other contractor used or employed by Fieldwood in connection with the Work”. Shamrock agreed to support its mutual indemnity obligations with insurance. Kilgore paid Barry Graham’s insurance premium.
If Kilgore was a Third-Party Contractor, by definition Barry Graham would be part of the Third-Party Contractor Group. Willis was working as a crane rigger on Fieldwood’s platform when he was injured. Because Shamrock’s work involved crane rigging and those services were used in offloading the vessel chartered by Kilgore for Fieldwood, Fieldwood used Kilgore “in connection with” Shamrock’s work. Kilgore was plainly a Third Party Contractor under the MSC, rendering Barry Graham just as plainly part of Kilgore’s Third Party Contractor Group.
The insurance puzzle
Shamrock’s obligations applied only to the extent that Third-Party Contractors executed substantially similar indemnifications. That condition was met. To satisfy the reciprocity requirement the Third-Party Contractors must also execute cross-indemnification substantially similar to Shamrock’s. If that happened, then Shamrock’s obligations reached both the Third-Party Contractor and its Group. That included Graham. The Kilgore/Fieldwood Master Charter Agreement’s obligations were essentially identical to Shamrock’s. Kilgore agreed to defend and indemnify Third Party Contractors and Third Party Contractor Group for injuries to members of the Owner Group. Kilgore obtained insurance coverage to that end.
Two questions:
- Was Kilgore’s payment of Barry Graham’s Marcel premium intended to cover Shamrock’s indemnity obligations to Barry Graham? Yes.
- Can a third-party contractor that does not itself pay the Marcel premium avail itself of its principal’s payment of a Marcel premium made with the intent to cover the third-party contractor? Yes.
Holding
A third-party contractor (Barry Graham) that does not itself pay the Marcel premium can rely on the premium paid by its principal (Kilgore) to cover the third-party contractor’s indemnity obligations. There is no shifting of the economic burden under the LOAIA when the principal pays the premium for his contractor so long as the indemnitor bears no part of that cost. Shamrock loses. Case remanded
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