A typical oilfield personal injury case in (or off the coast of) Louisiana involves a review of the relevant contracts and an analysis of whether demands for defense and indemnity can be made (and enforced) against other contracting parties. And, typically, the party on the receiving end of such a demand – usually the plaintiff’s employer – evaluates the demand under the Louisiana Oilfield [Anti-]Indemnity Act (“LOIA”), which may entitle the employer to reject the demand.
The LOIA was passed in 1981 as a way to protect contractors from being forced, often for business reasons, by bigger oil companies to pick up their defense in a personal injury lawsuit brought by the contractor’s employee. If the circumstances fit, the LOIA voids the indemnity provisions of the applicable contract. Thus, the LOIA can be a powerful ally to shield an employer from having to defend other parties in a lawsuit in which it is typically itself immune in tort.
The U.S. Fifth Circuit has adopted a two-part test to determine if LOIA applies: (1) “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.” Transco v. Transp. Ins. Co., 953 F.2d 985, 991 (5th Cir. 1992). This factor is guided by the “functional nexus between an agreement and a well or wells.” Verdine v. Ensco Offshore Co., 255 F.3d 246, 252 (5th Cir. 2001). If the agreement has the required nexus to a well, then the second factor is to examine “the contract’s involvement with operations related to the exploration, development, production, or transportation of oil, gas, or water.” Transco, 953 F.2d at 991. This inquiry is usually fact intensive.
There have been many cases since its inception examining whether their circumstances fell under the LOIA. Other cases have established exceptions to the rule. Recently, the U.S. 5th Circuit addressed whether “salvaging a decommissioned platform has a sufficient nexus to a well” for LOIA to apply. This is the first time the 5th Circuit had officially weighed in on the expanse of Verdine, which involved an incident on a platform while it was still in the fabrication yard. There, the Court found the requisite nexus to a well because the services “were performed on a structure intended for use in the exploration and production of oil and gas.” Verdine, 255 F.3d at 254. After Verdine, the law was established that cases involving structures that were to be used in future oil exploration could fall under the LOIA. In Tetra Technologies, Inc. v. Continental Ins. Co., No. 15-30446 (5th Cir. 2/24/16), the 5th Circuit now recognized that oil and gas production facilities that would have no future production could also fall under the LOIA.
In Tetra Technologies, the plaintiff was injured while working to salvage the decommissioned Eugene Island 129 platform. Apparently, the wells had already been plugged and abandoned, and all that remained was to permanently remove the structure from the Gulf of Mexico. Since Verdine, the Eastern District of Louisiana has released three cases that the 5th Circuit found helpful and correct in their LOIA interpretations. In Teaver v. Seatrax of La., 2012 WL 5866042 (E.D. La. Nov. 19, 2012), the Court held that a contract to dismantle a platform crane that had been used to plug the well, “pertained to a well” under LOIA despite the fact that the well itself had been dry for several years. Next, in Howell v. Avante Servs., LLC, 2013 WL 1681436 (E.D. La. Apr. 17, 2013), the Court found that an agreement to plug and abandon an oil well pertained to a well, even though the well was not functioning at the time of the contract performance. Finally, in Wilcox v. Max Welders, LLC, 969 F.Supp.2d 668, 682-4 (E.D. La. 2013), the Court found that an agreement to “provide welding services in connection with the decommissioning of oil and gas platforms” pertained to a well because it was an “agreement to perform an act that is collateral to plugging the well.”
These decisions may have seemed obvious, since “plugging” is expressly enumerated in LOIA as a covered activity, and each of these cases certainly addressed activities at least collateral to plugging a well. In Tetra Tech., Tetra argued that its case was farther removed from “plugging” and thus, distinguishable from Verdine and the line of cases reviewed by the 5th Circuit. The Circuit Court rejected that argument “because it ignores the fact that regulations generally require the removal of an oil platform in connection with a decommissioning operation.” See 30 C.F.R. § 250.1703. Consequently, the 5th Circuit concluded that “a contract for salvaging a platform from a decommissioned oil well has a sufficient nexus to a well under LOIA.” Thus, if Louisiana law applied to the applicable contract and work, then indemnity was prohibited under the LOIA. The Court then remanded the case back to the district court for a determination of the applicable law.