Enacted in 1981, the Louisiana Oilfield Anti-Indemnity Act (LOAIA) renders “void and unenforceable” certain contractual defense and indemnification provisions in “agreement[s] pertaining to a well for oil, gas, or water, or drilling for minerals which occur in a solid, liquid, gaseous, or other state.” As explained by the Louisiana Supreme Court, the LOAIA “arose out of a concern about the unequal bargaining power of oil companies and contractors and was an attempt to avoid adhesionary contracts under which contractors would have no choice but to agree to indemnify the oil company, lest they risk losing the contract.”
Louisiana courts have traditionally utilized a two-step analysis to determine the application of the LOAIA: the agreement in question must (1) “pertain to” an oil, gas, or water well and (2) be related to the exploration of oil, gas, or water. However, in a case of first impression, the United States Court of Appeals for the Fifth Circuit recently clarified that this so-called “nexus to a well” requirement is not absolute; that is, the rule that the agreement must “pertain to” a well only applies if the agreement does not otherwise pertain to the “drilling for minerals.” In other words, only if a party invokes the “wells for oil, gas, or water” clause in the LOAIA’s main text does it need to show a nexus to a well. Otherwise, LOAIA can apply so long as the agreement “pertain[s] to … drilling for minerals.”
The case is QBE Syndicate 1036 v. Compass Minerals Louisiana, Inc., 2024 WL 1151749, 2024 U.S. App. LEXIS 6432, No. 23-30076 (5th Cir. 2024), which involved a declaratory judgment action brought by QBE as insurer of two local companies that contracted to perform fire prevention and electrical support at a Louisiana salt mine. QBE sought a declaratory judgment that the LOAIA invalidated the indemnity and additional-insured provisions in the contract between the mine owner and the contractors, arguing that the salt mine’s “drill-and-blast” operations constituted “drilling for minerals,” which fell under the Act’s scope. The district court ruled that the LOAIA only applied to agreements “pertaining to” a “well,” which the salt mine operations did not involve. In a unanimous decision, the Fifth Circuit reversed this ruling, agreeing with QBE’s interpretation and finding no universal “well” requirement in the Act.
The Fifth Circuit’s decision portends a broader application of LOAIA to contracts beyond those strictly relating to wells, particularly in connection with mining and mineral drilling operations.
