Admiralty and Maritime

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By Zoe Vermeulen

Indemnity provisions are widely used in the energy industry as a method of contractually apportioning liability between parties.  These provisions are a staple in Master Service Agreements and can be unilateral or mutual.  Often, agreements contain knock-for-knock provisions where each party assumes responsibility for claims made by its own employees or subcontractors.  When disputes arise, indemnity provisions are often the first thing reviewed, because of their potential to dramatically affect the liability (or lack thereof) of one of the contracting parties.  But many states limit contractual indemnity agreements, particularly those that attempt to indemnify a party for its own negligence.  And four states – Louisiana, New Mexico, Texas, and Wyoming – have “anti-indemnity” acts specific to oilfield contracts.

While the primary purpose and language of these Oilfield Anti-Indemnity Acts are similar, there are some significant differences between them.  Some of the biggest differences relate to what agreements are covered, the treatment of property damage claims, and whether additional insured/waiver of subrogation provisions are permitted to cover indemnity obligations.  Given the importance of these indemnity provisions, oil and gas transactional and litigation attorneys should be well-versed in the laws governing them.

A brief treatment of the four Oilfield Anti-Indemnity Acts follows, but there are various nuances to each and years of case law that are beyond the scope of this article.  Contract drafters and litigators alike should familiarize themselves with the statute for the state in which their contract work is performed.  This is particularly important with Anti-Indemnity Acts because courts typically reject attempts to avoid such acts through choice-of-law provisions selecting more favorable state laws or general maritime law.

Texas Oilfield Anti-Indemnity Act

The Texas Oilfield Anti-Indemnity Act (“TOAIA”) applies to agreements pertaining to a well for oil, gas, or water or to a mine for a mineral.[1]  The TOAIA applies not only to agreements for production activities at the wellhead, but also to agreements for collateral services including furnishing or renting equipment, incidental transportation, and other goods and services furnished in connection with such services.  But the TOAIA expressly excludes construction, repair, and maintenance of pipelines.

The TOAIA voids indemnification obligations that purport to indemnify a person against loss or liability for damage that (1) is caused by or results from the sole or concurrent negligence of the indemnitee; and (2) arises from (a) personal injury or death; (b) property injury; or (c) other loss, damage, or expense that arises from personal injury, death or property injury.

The TOAIA is the only Oilfield Anti-Indemnity Act that expressly allows limited insurance coverage of indemnity agreements that are otherwise void under the Act.  With respect to a mutual indemnity obligation, the indemnity obligation is limited to the extent of the coverage and dollar limits of insurance or qualified self-insurance each party (as indemnitor) has agreed to obtain for the benefit of the other party (as indemnitee).  If the indemnity obligation is unilateral, the amount of insurance required may not exceed $500,000.

Additionally, for any indemnity provision to be valid in Texas, Texas case law requires that it comply with fair notice and conspicuousness requirements.  Generally the contract must clearly establish the indemnitor’s express intent to indemnify for the indemnitee’s own negligence, and the indemnity language must be conspicuous enough to put a reasonable person on notice that the obligation provides indemnity for the other party’s own negligence.  For this reason, many Texas-based indemnity provisions are written in some combination of all capital letters, bold, and underline – or all three.

Louisiana Oilfield Anti-Indemnity Act

The Louisiana Oilfield Anti-Indemnity Act (“LOAIA”) applies to agreements pertaining to a well for oil, gas, or water, or drilling for minerals.[2]  The LOAIA prohibits indemnification for an indemnitee’s own negligence or fault that causes death or bodily injury to another person.  Unlike the other three Oilfield Indemnity Acts, the LOAIA does not prohibit indemnification for property damage.

The LOAIA also differs from the TOAIA because it expressly prohibits agreements requiring waivers of subrogation, additional named insured endorsements, or any other form of insurance protection that would frustrate or circumvent the prohibitions on defense and indemnity agreements.  In other words, contracting parties cannot avoid the LOAIA by merely requiring insurance coverage to support indemnity obligations.  But, there is an important jurisprudential exception to this insurance prohibition, known as the Marcel exception.[3]  Under the Marcel exception, the LOAIA will not invalidate an indemnity provision and additional insured coverage if the party being indemnified pays the premiums for the insurance and no material part of the cost of the insurance is borne by the party procuring the coverage.

New Mexico Oilfield Anti-Indemnity Act

The New Mexico Oilfield Anti-Indemnity Act (“NMOAIA”) also applies to oilfield services, but its application is limited to production activities at the well head and does not cover all services rendered in connection with the well.[4]  New Mexico case law has provided that the NMOAIA does not apply to the distribution, processing, or transportation of oil or gas.  Unlike the LOAIA, the NMOAIA is not expressly limited to death or bodily injury, but, instead applies generally to “loss or liability for damages.”

The NMOAIA also prohibits additional insured provisions or waivers of subrogation that would have the effect of imposing a duty of indemnification on the primary insured party.

Wyoming Oilfield Anti-Indemnity Act

The Wyoming Oilfield Anti-Indemnity Act (“WOAIA”) applies to agreements pertaining to any well for oil, gas or water, or mine for any mineral.[5]  The WOAIA prohibits agreements that purport to relieve the indemnitee from loss or liability for his own negligence.  It also applies to death or bodily injury to persons, property damage, and any other loss, damage or expenses arising from death or bodily injury or property damage.

The WOAIA contains no language specifically addressing the effect of the Act on insurance coverage for an indemnity agreement prohibited under the Act.  It simply states that the anti-indemnity act “shall not affect the validity of any insurance contract or any benefit conferred by the Worker’s Compensation Law . . . of this state.”

Construction Anti-Indemnity Acts

While this article specifically addresses Oilfield Anti-Indemnity Acts, practitioners are cautioned that many more states have enacted construction anti-indemnity statutes.  While not specifically targeted to oilfield contracts, some of these construction anti-indemnity statutes can certainly apply to work in the energy industry.  Imagine, for example, an indemnity provision in a Louisiana contract for sandblasting and painting an offshore platform.  While this may or may not be a contract “pertaining to a well,” it arguably could be considered a “construction contract” under Louisiana’s definition, and the indemnity provision could be invalidated by the construction anti-indemnity act.

Like the Oilfield Anti-Indemnity Acts, these construction anti-indemnity acts vary widely from state to state and have many exceptions and nuances.  And awareness of and familiarity with these statutes is also critical to adequately evaluating the viability of a contractual indemnity provision.

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[1] Tex. Civ. Prac. & Rem. Code § 127.001, et seq.

[2] La. Rev. Stat. Ann. § 9:2780.

[3] Marcel v. Placid Oil Co., 11 F.3d 563, 569–70 (5th Cir. 1994).

[4] N.M. Stat. Ann. § 56-7-2.

[5] Wyo. Stat. Ann. § 30-1-131.

 

By Anjali Gillette

On August 29, 2018, the U.S. Court of Appeals for the Fifth Circuit dismissed an appeal for lack of appellate jurisdiction involving the issue of whether a vessel’s primary and excess insurers may limit their liabilities to the same extent available to the vessel. See SCF Waxler Marine, L.L.C. v. ARIS T M/V, No. 17-30805 (5th Cir. August 29, 2018). SCF Waxler addressed the interplay between the Louisiana Direct Action Statute, La. R.S. § 22:1269, that allows third party claimants to bring claims directly against a tortfeasor’s insurer and the U.S. Shipowner’s Limitation of Liability Act, 46 U.S.C. § 30501, a federal statute that permits a vessel owner (and some vessel charterers) to limit their liability to the post-casualty value of the vessel and the pending freight.

SCF Waxler involved an accident in which the M/V ARIS T collided with multiple vessels and facilities along the Mississippi River, allegedly resulting in damages expected to exceed $60 million. The M/V ARIS T blamed the accident on unsafe maneuvering by two tugs.  The owner and operator of one of the tugs, Cenac Marine Services (“Cenac”), filed a Limitation action in defense of the claims against it seeking to limit its liability to the value of the vessels involved. Claims were filed against Cenac’s primary and excess insurers directly pursuant to the Louisiana Direct Action Statute. Cenac’s insurers filed defenses arguing that their liability, if any, was derived solely from their policies’ terms and conditions and that they were entitled to limit their liability to the extent Cenac was entitled to limit its liability to the subject vessels and pending freight.

In a motion for partial summary judgment, Claimants asked Judge Zainey to resolve whether the excess insurers could limit their liability to the value of Cenac’s insured vessel. They argued that Cenac’s insurance policies did not contain the requisite language allowing them to limit their liability vis-à-vis an injured third party (the primary insurers advised that they had no interest in the outcome of motion because their primary $1 million limits of coverage were less than the $14.6 million limitation fund posted by Cenac). Judge Zainey rejected their arguments holding that the policies in question were excess follow-form policies, and accordingly the legal question turned on the language of the primary P&I cover to which they followed form. Judge Zainey noted controlling U.S. Fifth Circuit precedent, which provides that a P&I insurer “may limit its liability to that of the vessel owner’s liability when the terms of the policy allow it to do so.”

Claimants appealed, asserting that the Fifth Circuit had jurisdiction to hear an appeal of that interlocutory order under 28 U.S.C. §1292(a)(3), which provides that appellate courts may entertain appeals from district courts’ interlocutory orders that determine the rights and liabilities of the parties to admiralty cases. The Fifth Circuit stated that “the heartland of this court’s jurisdiction over an interlocutory appeal under § 1292(a)(3) is a conclusive determination of the rights and liabilities as to the claim on appeal.” Claimants argued that because the district court, in denying their motion for partial summary judgment, granted the excess insurers rights to limit their liability, then that determination was the final order on the extent of the excess insurers’ liability in this case. Because the district court’s order determined “the rights and liability of the parties” in an admiralty case, Claimants contend that section 1292(a)(3) applied and the Fifth Circuit was afforded jurisdiction over the case.

The Fifth Circuit disagreed with their contentions. Instead, the Court focused on whether Claimants were legally permitted to recover anything from the excess insurers and if so, the amount of that liability. The Circuit Court determined that the limitation of liability question was ancillary to the main question regarding the extent of the insurer’s liability. Further, the Court found no compelling reason to distinguish between a district court’s determination of a contractual entitlement rather than statutory entitlement to limit liability. The Court joined the Eleventh Circuit in holding that neither decision was reviewable on appeal under section 1292(a)(3).

Conversely, the Court stated that if the district court had decided that the excess insurers were not entitled to limitation of liability, jurisdiction would be appropriate. A denial of exoneration or limitation of liability would require a district court to conclude that a party was negligent and not entitled to limitation.

Thus, the Fifth Circuit would not exercise jurisdiction when a district court determines whether a party may, under a contractual provision, limit his liability should the liability question be determined in that party’s favor. The Fifth Circuit’s decision to not exercise jurisdiction in cases where a final adjudication of the liability has not been made is not surprising considering their history in narrowly construing section 1292(a)(3). However, it assists in guiding vessel owners and insurers on the costs involved in doing business in the maritime arena.

By Stephen C. Hanemann

“A big day for trade!” was President Donald Trump’s enthusiastic announcement concerning the bilateral negotiations recently reached between the United States and Mexico on August 27, 2018, merely three months away from the North American Free Trade Agreement’s 25th birthday.

While ratified by the Legislatures of Canada, Mexico, and the United States in 1993, and signed into law by President Bill Clinton on December 8, 1993, NAFTA, which became effective on January 1, 1994, traces its direct origins to 1980 when the three North American nations first sought an accord to establish mutual trading, cost reduction, increased business investment, and heightened competition in the global market place. Shortly thereafter, President Ronald Reagan – whose campaign platform included provisions advancing a North American common market – supported the 1984 Congressional passage of the Trade and Tariff Act, which gave the U.S. President unilateral authority to negotiate free trade agreements. The Act facilitated the U.S. Chief Executive’s ability to expedite trade negotiations. Since its passage, Congress retains only the ability to approve or reject the complete agreement as negotiated, but not to alter it or suggest revisions. President Reagan and Canadian Prime Minister Brian Mulroney negotiated a Canada-U.S. Free Trade Agreement in 1998, which was signed in that year, and went into effect in 1999. Reagan’s successor, President George H. W. Bush, negotiated with Mexican President Carlos Salinas de Gortari to reduce Mexican tariffs on U.S. imports, which before NAFTA were 250% higher than U.S. tariffs on Mexican imports. In conjunction with the Bush-Salinas negotiations, in 1991, Canadian Prime Minister Mulroney requested a trilateral agreement, from which NAFTA was born.

Citing a compelling need to revitalize and modernize the aging NAFTA content, the United States and Mexico recently commenced and completed preliminary negotiations in support of a mutually-beneficial trade agreement to promote vibrant economic growth, balanced trade, and less-restricted markets to help North America keep pace with the 21st century-global economy. The recent discussions, which excluded Canada, have seemingly created more of a path to replace NAFTA than to revise it. In fact, President Trump has been quite vocal about the name of the new agreement, which he says will not be NAFTA.

The negotiations seek to modernize NAFTA to conform with recent technological, digital, and environmental innovations, as well as address the arenas of intellectual property, copyright, digital trade, and financial services. Other developments focus on eliminating customs duties on low-valued goods, levying prohibitions on local data storage requirements for information accessible to financial regulators, and establishing new trade rules of origin, vastly improving the North American labor force benefits and upping local content requirements in the automotive industry. Bolstering their commitment to technological and ever-changing labor market advancements, the United States-Mexico negotiations also brought to bear a heavy import on environmental concerns and obligations pertaining to wildlife, timber, fish, and air quality.

Despite the newly-developed and comprehensive enforcement provisions pertaining to intellectual property and trade secret protections, the key points of negotiations also involved added benefits for innovators and stronger disciplines on digital trade; all of which tend to provide a firm foundation for the expansion of trade and investment in products and services where the United States has a competitive advantage.

An additional noteworthy development involves the increased de minimis shipment value of cross-border goods, which will facilitate greater trade between the United States and Mexico by reducing or eliminating customs duties and taxes on shipments valued up to $100. Increasing the de minimis value will significantly lower costs to small and medium-size enterprises, which do not have the resources to pay shipping costs on small shipments. The cost savings will also trickle down to the new traders entering Mexico’s market, and of course, the consumers.

On the labor front, the new trade rules of origin in the automotive manufacturing industry will require at least 75% of a car’s value to be manufactured in North America (compared to 62.5% previously). And at least 40% of each vehicle manufactured in North America must be made by workers earning at least $16 per hour. These and other labor revisions seek to create more U.S. jobs carrying competitive wages, as well as stimulate the domestic automotive industry’s overall production and global competitiveness.

The proposed content of the environmental chapter marks the first ever articles of a Free Trade Agreement to directly improve air quality, prevent and reduce marine litter, support sustainable forest management, and to create and implement procedures for environmental impact studies and assessments, and modernize mechanisms for public participation and environmental cooperation.  Other enforceable-environmental obligations seek to combat unlawful trafficking in wildlife, timber, and fish, and address pertinent environmental issues related to air quality and marine dumping.

Indeed, Canada’s absence during the NAFTA re-negotiations likely bodes well in favor of a NAFTA replacement rather than revision. While Mexico’s administration has contacted Canada requesting a return to the negotiating table, in hopes of a trilateral NAFTA deal, the Trump administration has unequivocally expressed its concerns about multi-lateral agreements and voiced a strong preference for bilateral ones.

By Michael J. O’Brien

A “no claims bonus” is an attractive carrot that insurers can write into a policy to attract more customers. Indeed, the recovery of a “no claims bonus” can result in a substantial payoff for an insured. Given the maxim: “accidents happen”, the question arises, can the “no claims bonus” be recovered as an element of damages if a third party causes you to forfeit the bonus through their fault. Currently, this exact issue is making its way through the Eastern District of Louisiana in Cox Operation, LLC v. Settoon Towing, LLC et al., Civil Action No. 17-1933 c/w 17-2087.

Cox Operation concerns a September 13, 2016, accident where a Settoon vessel allided with a well owned by Cox. In addition to its property damage claims, Cox seeks to recover the loss of its “no claims bonus”, allegedly due to Settoon’s neglect.

Specifically, Cox had insured the well with a policy that provided a “10% no claims bonus payable at expiry subject to a total gross earned premium exceeding USD 2,000,000 hereon.” Accordingly, if Cox submitted no claims under the applicable policy, then the insurer would refund Cox 10% of the total premium amount for the policy period, assuming that total premium amount exceeded two million dollars (which it did). If Cox submitted a claim during the policy period, then no refund would issue. Interestingly, Cox also insured the potential loss of its “no claims bonus” through a separate policy.

As a result of the subject allision, Cox was forced to submit a claim under the policy. It then became obligated to repay the “no claims bonus” which the insurer had prepaid to Cox. Critically, the claim associated with the allision was the only claim Cox filed during the applicable policy period. Thus, it was Cox’s contention that Settoon’s negligence caused a loss/damage to Cox in the amount of the loss “no claims bonus.” Settoon challenged Cox’s entitlement to the “no claims bonus” and moved for summary judgment arguing that Cox was precluded as a matter of law from pursuing recovery of the “no claims bonus.” Settoon also put at issue the policy insuring Cox’s loss of the bonus, which Cox argued should be excluded as a collateral source.

Settoon argued that Cox could not recovery the no claims bonus under either the General Maritime Law or the Oil Pollution Act (OPA). Cox did not address Settoon’s arguments that the no claims bonus was not recoverable under the OPA. Instead, Cox focused on the recoverability of the “no claims bonus” under the General Maritime Law.

In analyzing this issue, the EDLA cited the U.S. Fifth Circuit’s opinion in Louisiana ex rel., Guste v. M/V TESTBANK, 752 F.2d 1019 (5th Cir. 1985) (en banc), which holds that “physical injury to a proprietary interest is a pre-requisite to recovery of economic damages in cases of unintentional maritime tort.” Next, the District Court reviewed Corpus Christi Oil & Gas Co. v. Zapata Gulf Marine Corp., 71 F.3d 198, 203. (5th Cir. 1995) where the Fifth Circuit interpreted the TESTBANK rule and held that simply meeting the requirement of showing physical damage of a proprietary interest does not automatically open the door to all foreseeable economic consequences.” Rather, “economic consequences” must be “attendant” to the physical damage to a Plaintiff’s own property to be recoverable economic damages under TESTBANK.

Based on the facts that had been established to date, the District Court held that TESTBANK’s pre-requisites were satisfied. Thus, the door to the recoverability of the “no claims bonus” was opened.  The alleged damage to Cox’s well constituted physical damages to Cox’s own property. Cox’s loss of the “no claims bonus” was tied to the physical damage to Cox’s well. Bottom line: if Cox suffered physical damage to its property and suffered an economic loss that was attendant to that damage, then “all of the TESTBANK rules boxes have been checked.” As such, Cox could pursue recovery of the “no claims bonus.”

After concluding that recovery of the “no claims bonus” was an allowable element of damages, the District Judge next addressed whether the Collateral Source Rule barred Settoon from introducing evidence of the separate insurance policy that insured Cox against the loss of the bonus. It is longstanding jurisprudence that the Collateral Source Rule bars a tortfeasor from reducing the quantum of damages owed to a Plaintiff by the amount of recovery the Plaintiff receives from other sources of compensation that are independent of (or collateral to) the tortfeasor. Davis v. Odeco, Inc., 18 F.3d 1237, 1243 (5th Cir. 1994). The underlying rationale of the Collateral Source Rule is that Plaintiffs should not be penalized because they have the foresight and prudence (or good fortune) to establish and maintain collateral sources of compensation, such as insurance. Insurance policies, such as the one purchased by Cox, clearly fall within the definition of a collateral source. As such, the District Court concluded that Settoon could not introduce – and the Court could not consider – evidence that Cox was, in fact, insured against the loss of the “no claims bonus.”

Ultimately, Cox was not legally precluded from seeking recovery of the no claims bonus. However, at trial Cox must still prove the value of its loss related to the “no claims bonus” in order to recover that loss. Be on the lookout for future updates as this matter proceeds to a final resolution.

By Tod J. Everage

Contractual indemnities are important and valuable in the oil patch. When they are enforceable, they have the potential to end litigation completely or at least the financial burden for a particularly well-positioned indemnitee. But, with “anti-indemnity” statutes in play in several jurisdictions (including Louisiana), the enforceability of these indemnity provisions rely (barring exceptions) on the application of general maritime law.

It is a common practice to select general maritime law as the governing law in any oilfield MSA – at least within the Fifth Circuit – but simply saying it applies doesn’t actually make it so. As a result, jurisprudential tests have emerged to determine what law actually applies to torts depending on where the incident occurred, as well as to the contracts themselves. When the services provided under the contract are obviously maritime in nature, such as a contract for vessel support services, there is little to dispute. But, especially when there is a high-dollar potential exposure riding on the enforceability of an indemnity obligation, there have been persuasive arguments made on both sides of the maritime vs. state law debate governing contracts for other, less obvious, oilfield services.

Most recently, the US Fifth Circuit addressed this dispute over plugging and abandoning services (“P&A work”) on three wells in coastal Louisiana waters in In re: Crescent Energy Services, No. 16-31214 (5th Cir. July 13, 2018). Crescent agreed, amongst other things, to provide three vessels to perform the work and to indemnify Carrizo against any claims for bodily injury, death, or damage to property. One of Crescent’s employees was injured on one of Carrizo’s fixed platforms during the P&A work, and unsurprisingly, Carrizo’s indemnity demand from the resulting claim was denied by Crescent under the Louisiana Oilfield Indemnity Act. The district court, applying the former Davis & Sons test, found the contract between Carrizo and Crescent to be a maritime contract and granted summary judgment in favor of Carrizo on its indemnity claim.

In January, the US Fifth Circuit pared down its maritime contract test (from Davis & Sons) to focus on only two factors: (1) “is the contract one to provide services to facilitate the drilling or production of oil and gas on navigable waters?” and (2) “does the contract provide or do the parties expect that a vessel will play a substantial role in the completion of the contract?” In re Larry Doiron, Inc., 879 F.3d 568, 576 (5th Cir. 2018). Both factors must be affirmed before maritime law may be applied to the contract.

On the first factor, Carrizo asserted a creative and ultimately successful argument that P&A work is “part of the total life cycle of oil and gas drilling.” Because plugging and abandoning a drilled well is part of the agreement with the State of Louisiana to get an initial permit to drill, the US Fifth Circuit was persuaded that the contract for P&A work involved “the drilling and production of oil and gas.” The Court then re-iterated its departure from Davis & Sons and its concern about where the incident occurred. In Doiron, the US Fifth Circuit stated: “The facts surrounding the accident are relevant to whether the worker was injured in a maritime tort, but they are immaterial in determining whether the workers’ employer entered into a maritime contract.” Doiron, 879 F.3d at 573-74. The US Fifth Circuit is “no longer concerned about whether the worker was on a platform or vessel.” Rather, the question is whether the contract concerned the drilling and production of oil and gas on navigable waters.

On this point, Crescent’s insurers argued that Doiron’s analysis on the P&A work resulted in inconsistencies with other Fifth Circuit precedents finding that torts occurring on and during the construction of fixed, offshore production platforms on the OCS are generally not governed by maritime law. Also, wireline work – which comprises much of the P&A work – had also traditionally been found to not be a maritime activity. The Court declined the invitation to review those OCSLA cases: “We are not concerned here with those OCSLA issues of whether to borrow state law as surrogate federal law, which leads to analyzing whether maritime law applies of its own force, which requires determining the historical treatment of certain contracts. We do need to analyze, though, whether this is a maritime contract. Doiron now controls that endeavor.” But these statements do not make clear whether the rejection of the OCSLA cases was because Crescent Energy Services is not an OCSLA case itself, or whether that distinction no longer has a difference in oil and gas contract review.

The Fifth Circuit then quoted commentary from Professor David W. Robertson discussing contract disputes on the OCS: “If the contract is a maritime contract, federal maritime law applies of its own force, and state law does not apply. If the contract calling for indemnity is not a maritime contract, the governing law will be adjacent-state law made surrogate federal law by OCSLA § 1333(a)(2)(A).” Why bring this up if the Court is ignoring OCSLA cases on the grounds of distinction? The Court doesn’t directly clarify. Instead, it said the reference was “to show that Davis previously and Doiron now are performing the task of determining how to classify contracts.” It further stated that Davis (a Louisiana waters case) did not offend OCSLA cases, so neither does Doiron.

The Fifth Circuit seemed concerned about this argument though and the perception of the Court’s abandonment of long-standing precedent. Surely, this will be the continued topic of attack from potential indemnitors. In addressing those criticisms, the Court stuck with its more back-to-basics theme: “We are here classifying a contract for a certain purpose, a juridical activity that has been done consistently with the 1969 Rodrigue decision at least since our 1990 Davis decision. We en banc eliminated most of the factors, narrowing our focus, but we did not fundamentally change the task. Doiron is the law we must apply.” On the one hand, the Court’s statements seem to firmly reiterate that Doiron is the law going forward when analyzing the maritime nature of a contract regardless of the location of the work. But, the Court’s avoidance of the OCSLA issues and the narrowed “certain purpose” of their decision begs for more direct guidance from the Fifth Circuit on Doiron’s geographic reach.

The Fifth Circuit could have unequivocally proclaimed that the breadth of Doiron extended to OCSLA cases, in whatever capacity, if that were its intent; but it did not. So then, what is the expected effect of Doiron on those contract cases involving a controversy on the OCS, where OCSLA statutorily provides its own choice-of-law provision? Does Doiron actually supplant Grand Isle Shipyard, Inc. v. Seacor Marine, LLC, 589 F.3d 778 (5th Cir. 2009), since it called the case “un-useful” to its task? If the situs of the controversy is no longer appropriate, then it seems that Doiron may be the answer.

Grand Isle was a contractual application of test articulated in Union Texas Petroleum Corp. v. PLT Engineering, Inc., 895 F.2d 1043 (5th Cir. 1990) which starts by finding that the dispute arises on the OCS; otherwise, now, Doiron surely is the test. The second PLT factor determines whether the OCSLA choice-of-law provision applies by looking to see if federal maritime law applies of its own force. This is where Crescent’s insurers’ historical argument would come into play. To determine whether federal maritime law applies of its own force, the US Fifth Circuit: (1) identified the historical treatment of contracts such as the one at issue, and (2) applied Davis & Sons. It seems obvious that this factor will likely at least be revised to substitute Doiron for Davis & Sons. The less obvious question is whether the historical treatment factor is relevant at all going forward.

In Doiron, the Fifth Circuit criticized those “historical” opinions that “improperly focus[ed] on whether the services were inherently maritime as opposed to whether a substantial amount of the work was to be performed from a vessel.” Thus, it is possible that the second PLT factor simply becomes the Doiron test. But, if so, then that would effectively eliminate the necessity of the PLT test for OCS contract law disputes, because the Courts have long since acknowledged that the relevant application of Louisiana law to the contract does not conflict with federal law. If this analysis is correct then Doiron should be the standing legal test for the determination of applicable law in an oilfield contract regardless of the location of the work (OCS vs. State waters).

A comment the Fifth Circuit made in its analysis of another earlier issue seems to bolster that conclusion: “If the contract here is maritime, the fact that it was to be performed in the territorial waters of Louisiana does not justify causing the outcome of this lawsuit to be different than if the contract was for work on the high seas. Consistency and predictability are hard enough to come by in maritime jurisprudence, but we at least should not intentionally create distortions.” After lauding the directness of its new test in Doiron (notwithstanding their use of the unpredictably applied term “substantial role”), the Fifth Circuit could have assisted practitioners with a bit more directness in Crescent Energy Services.

Despite the historically non-maritime nature of P&A work in the Fifth Circuit, the outcome of Crescent Energy Services is not surprising given the necessity of the vessels used for the work. In that respect, this decision is consistent with the Fifth Circuit’s continued primacy – now, by way of the Doiron test highlighting its importance – of the “substantial role” that a vessel will play in the work being done under the contract. While the Fifth Circuit may have left a gap in its recent holdings for the next OCSLA-based contract dispute, we see no reason why Doiron would not be at least a part of that new analysis.

By Michael J. O’Brien

Punitive damages are designed to punish a tortfeasor. They are available as a remedy in general maritime actions where a tortfeasor’s intentional or wanton and reckless conduct amounted to a conscious disregard for the rights of others. The punitive damage standard requires a much higher degree of fault than simple negligence. The amount of a punitive damage award must be considered on a case-by-case basis; however, prior punitive damage awards can provide insight as to what is appropriate.  In the matter of Warren v. Shelter Mutual Ins. Co., et al., 233 So 3d 568 (La. 2017) the Louisiana Supreme Court provided guidance as to when a jury’s punitive damage award was grossly excessive.

The Warren case centered around the wrongful death of Derrick Hebert in a recreational boating accident.  The facts surrounding Derrick Hebert’s death are tragic.  In May 2005, Hebert was a passenger in a boat that suddenly, and without warning, turned violently when the hydraulic steering system failed.  Hebert and four of the other passengers were ejected from the boat. The boat continued to spin around (the kill switch had not been engaged) and its propeller struck Hebert 19 times. Hebert died at the scene. The decedent’s family and estate sought to recover damages under the General Maritime Law and Louisiana Products Liability. Included in the Warren Plaintiffs’ demand was a punitive damage claim under the General Maritime Law.

Nine years after Warren’s untimely death later, the case was tried.  At the close of the 2014 litigation, the jury returning a finding of no liability on the part of the Defendants.  However, the trial court granted the Warren Plaintiffs a new trial based on what it believed to be prejudicial error during the first trial. The second trial resulted in a jury verdict in favor of the Warren Plaintiffs.  The jury awarded compensatory damages of $125,000 and punitive damages of $23,000,000. The Louisiana Third Circuit later affirmed the punitive damage award. A full discussion of the Third Circuit’s decision can be found here.

Defendants successfully applied for writs to the Louisiana Supreme Court.  The Louisiana Supreme Court addressed several assignments of error proffered by the Defendants; however, this article will only address the punitive damage review. After reviewing the record, the Louisiana Supreme Court held that an award of punitive damages was correct. The tortfeasor knew of the serious risks of its steering system and failed to warn its customers that ejection, severe injury, and death could result. Further, the Louisiana Supreme Court agreed with the Third Circuit that the tortfeasor’s conduct was reprehensible and resulted in great harm to the decedent and his family. However, Plaintiffs failed to prove that Defendant acted maliciously or that its behavior was driven primarily for design or gain. While the compensatory damages of $125,000 were deemed low, the harm caused was great and opened the door to higher awards. Yet, the Louisiana Supreme Court found that the award of punitive damages in the amount of $23,000,000 (a ratio of 184:1) was higher than reasonably required to satisfy the objective of punitive damage awards, namely punishment, general deterrence, and specific deterrence. Indeed, the $23,000,000 in punitive damages awarded by the jury did not, in the eyes of the Louisiana Supreme Court, further the goals of punitive damages. While the Defendant was considered a “wealthy corporation,” wealth should not be a driving factor between a punitive damage award and the absence of a showing that the Defendant’s conduct was motivated by greed or malice.  Accordingly, the Louisiana Supreme Court found that the award of $23,000,000 violated the Defendant’s due process rights.

Thereafter, the Louisiana Supreme Court took it upon itself to set the punitive damage award. In its view, based on the actual harm, it found that a punitive damage award of $4,250,000 (a reduction of $18,750,000) more appropriately furthered the goal of punitive damages while protecting the Defendant’s right to due process. Otherwise, the decision of the Third Circuit was affirmed.

by Stephen C. Hanemann

Increasingly common in coastal Louisiana – and even more so during a depressed, offshore, oilfield-services market – is the strained relationship between a marine lender and a vessel owner secondary to the lender asserting creditor’s rights against the vessel through a pre-existing security instrument. In one such dispute, lender, South Lafourche Bank & Trust Co. filed an action to enforce a Promissory Note secured by a Preferred Ship Mortgage against Guilbeau Boat Rentals, owner of the marine vessel NOONIE G.[1]

Conforming to the vessel finance protocol, Gilbeau’s authorized representative executed a Preferred Ship Mortgage encumbering the NOONIE G, pledging the vessel as collateral for the loan made by the Bank. A note, also executed by Gilbeau, was issued with and further secured by the Preferred Ship Mortgage. After several months of alleged non-payment on the note, the Bank instituted legal action to collect the debt owed. The Bank filed a Motion for Summary Judgment seeking a declaration that its mortgage was valid under the Ship Mortgage Act. Guilbeau filed a Motion to Dismiss the Bank’s action, alleging that the mortgage was invalid under Louisiana law and therefore not valid under the Act. Guilbeau claimed that the Act did not provide a valid basis for the Court to exercise subject matter jurisdiction over Guilbeau because the Bank’s financing documents were structured in the form of a Louisiana collateral chattel mortgage, and that such instrument was no longer valid for mortgaging immovable property under Louisiana law.

In its analysis, the Court examined the origin of the Ship Mortgage Act and determined that it was passed by Congress so that vessel-mortgage liens could be enforced in federal courts under admiralty jurisdiction. The Court examined the historically-ineffective nature of state court enforcement of ship mortgages. The Court found that state courts were not permitted to affect maritime liens and ship mortgages executed before the Act, and found that those instruments executed before the Act provided unsatisfactory protection of a ship mortgagee’s security interest.

Thus, the Act was designed to stimulate private investment in U.S. shipping and to protect the United States as the principal source of credit for shipping activities. Further, the Act aimed to induce private-investment capital in shipping projects and to create certainty in financing U.S. vessels. In passing the Act, Congress recognized the need for exclusive admiralty court jurisdiction in vessel foreclosure proceedings. And while state law may serve to supplement maritime law, it must yield when it interferes with a determination made under the Act.

In the matter of the NOONIE G, the Court considered the vessel owner’s argument that a mortgage held to be invalid under state law disqualifies the instrument as valid under the Act. The Court found that the Act itself included no requirement that a mortgage on a U.S. vessel be valid under the laws of the particular state to be an enforceable Preferred Ship Mortgage. The Act actually contains six (6) principal requirements, which are conditions precedent for a valid Preferred Ship Mortgage.[2] The Guilbeau Court found that the Bank’s mortgage met each of the six (6) requirements of the Act and was, therefore, a valid ship mortgage. The Court decided that it need not determine whether the mortgage would have been a valid collateral chattel mortgage under Louisiana law. But the Court did recognize the maxim that state law may otherwise be instructive to resolve mortgage disputes when the Act does not provide sufficient guidance.[3]

In conclusion, notwithstanding the validity of a Preferred Ship Mortgage under the laws of a particular state, if a vessel mortgage meets the six (6) basic requirements under the Act, it shall be a valid Preferred Ship Mortgage. Accordingly, a federal court determining the question of enforcement of a valid Preferred Ship Mortgage shall enjoy federal question admiralty jurisdiction over the subject dispute.[4] The Court, consequently, denied Guilbeau’s motion to dismiss for lack of subject-matter jurisdiction, and granted the Bank’s motion seeking a declaration of its mortgage validity.

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[1] S. Lafourche Bank & Trust Co. v. M/V NOONIE G, No. 16-2880, 2017 WL 2634204 (E.D. La. June 19, 2017).

[2] 46 U.S.C. § 31301 (2017).

[3] The Court determined that it need not address the validity of the collateral mortgages on movable property under state law secondary to Louisiana’s adoption of the Uniform Commercial Code Art. 9. But this commentator feels strongly that the concept of the collateral mortgage, as it pertains to vessels, is alive and well in Louisiana, provided that such document meets the requirements of a UCC Art. 9 security instrument.

[4] 46 U.S.C. § 31325(c) (2017).

by Tod J. Everage

On February 12, 2017, a fishing charter boat, the M/V SUPER STRIKE, carrying several paying customers collided with an offshore service boat, the M/V MISS IDA, during a fishing trip. Claims were asserted by the passengers against both vessels and operators in their respective limitation suits. Recently, dispositive motions were filed against the claims asserted by two passengers – whose only alleged damages were for emotional distress resulting from the collision – claiming they were within the “zone of danger.” See In re TK Boat Rentals, (Civ. No. 14-1545) (E.D. La. March 21, 2018).

According to the U.S. 5th Circuit, the “zone of danger” rule permits a plaintiff to recover for emotional injuries that “result from the witnessing of peril or harm to another if the plaintiff is also threatened with physical harm as a consequence of the defendant’s negligence.” Plaisance v. Texaco, Inc., 966 F.2d 166, 168 (5th Cir. 1992). This rule extends to Jones Act seaman for fear of physical injury to themselves as well. Naquin v. Elevating Boats, LLC, 744 F.3d 927, 938 (5th Cir. 2014). Like many similar issues, the Jones Act extension was borne out of a FELA case from the U.S. Supreme Court. See Consol. Rail Corp. v. Gottshall, 51 US 532, 548 (1994). In order to recover though, the plaintiff must show that he suffered actual injuries.

The U.S. 5th Circuit has not yet recognized recovery under the “zone of danger” rule for passengers under the general maritime law. See Barker v. Hercules Offshore, Inc., 713 F.3d 208, 224 (5th Cir. 2013). In TK Boat Rentals, the district court commented that the “zone of danger” rule was merely a threshold requirement for a plaintiff to recover for emotional injuries. Because the plaintiffs could not prove they suffered any objective injuries, the Court dismissed their claims without having to make the determination of whether the “zone of danger” rule even applied to them.

One plaintiff, Nick Siria, admitted that he did not suffer any personal injuries as a result of the collision and that he had not and did not plan to seek any medical or psychological treatment as a result of the collision. He claimed he had a few “tense” moments and reactions when he returned to the water and later dealt with a car pulling out in front of him, but he did not elaborate any further. The Court found these statements to be too vague and conclusory to demonstrate an emotional injury and dismissed his claims. The second plaintiff, Tracy Edwards, argued he should recover damages because he too was in the “zone of danger” of the collision. Edwards similarly offered a vague affidavit wherein he alleged he suffered emotional and physical injuries, but provided no description of either injury. Looking to his deposition, the Court could only find testimony that Edwards jumped into the river at the time of the collision and that he found the water to be cold. He sought no medical or psychological treatment. Edwards testified that he now has a fear of the water and could not participate in a snorkeling trip because of the collision; he had no problems fishing from a boat though. The Court was not persuaded that Edwards could support his claims with such limited evidence and dismissed his emotional injury claims as well.

The idea of a physical or real manifestation of injuries is a common one among the courts. While a physical injury (in the traditional sense of the word) is not necessarily needed, there must be some evidence that the plaintiff suffered an injury sufficient to be compensated for it. For example, emotional distress may “physically” manifest itself as a psychological disorder or condition – so long as it is capable of objective determination. See, e.g., Haught v. Maceluch, 681 F.2d 291, 299 n.9 (5th Cir. 1982). It seems that a threshold point would be to show that the plaintiff sought some sort of treatment for his complained of “injuries.” Self-serving affidavits and vague testimony will not cut it. Given the fact-intensive question, courts will evaluate these claims on a case-by-case basis.

The U.S. 1st Circuit more recently commented on this issue in Sawyer Brothers, Inc. v. Island Transporter, No. 16-2470 (1st Cir. April 3, 2018). Though the U.S. 5th Circuit hasn’t yet extended the “zone of danger” rule to passengers under the general maritime law, the U.S. 1st Circuit officially took that step. “Given its application to seaman, we see no principled basis for imposing the more restrictive physical impact test upon passengers alleging NIED under the general maritime law.” In so doing, the 1st Circuit joined the 11th Circuit (Chaparro v. Carnival Corp., 693 F.3d 1333, 1338 (11th Cir. 2012) (per curiam) and the 9th Circuit (Stacy v. Rederiet Otto Danielsen, A.S., 609 F.3d 1033, 1035 (9th Cir. 2010), affirmatively allowing such claims. This is not to say that the U.S. 5th Circuit would not join these Circuits, they simply have not yet been forced to pick a side.

The Sawyer Brothers Court dropped a notable footnote in its opinion – the Court would not extend the prohibition of bystander claims set forth in Gottshall to general maritime claims. The Court reasoned that the likelihood of witnessing a death or serious injury of a family member is far greater on the water than on a railroad. In other words, a maritime plaintiff in the 1st Circuit may be allowed to recover if he/she suffered an objective emotional injury as a result of witnessing a death or serious bodily harm to a close family member. Such claims are forbidden under FELA. The 1st Circuit went on to analyze the scope of the “zone of danger” and the provided examples of sufficient physical manifestations of emotional injuries. The plaintiffs in Sawyer Brothers suffered gastrointestinal distress, limb and chest pain, stress-induced shingles, and high fever – all of which were deemed satisfactory to maintain a claim.

While the U.S. 5th and 9th Circuits disagree often on major issues, it remains to be seen if the 5th would disagree with the aforementioned Circuits who have extended “zone of danger” rule to passengers under the general maritime law.

by R. Blake Crohan

The EDLA recently determined that the Insurance Service Office’s (ISO) “Louisiana Changes” endorsement does not expand the scope of Louisiana’s direct action statute. In Menard v. Gibson Applied Technology and Engineering, 2017 WL 6610466 (E.D. La. Dec. 27, 2017), the plaintiff was a senior field technician working offshore in the Gulf of Mexico and was allegedly injured during a personnel basket transfer from a support vessel to a floating, semi-submersible oil-exploration platform. Plaintiff sued several companies along with one of their insurers, ACE American Insurance Company (ACE). ACE filed a motion for summary judgment arguing that the plaintiff could not maintain a direct action against ACE. ACE argued that because its policy was not written or delivered in Louisiana, and neither the accident nor alleged injury occurred in Louisiana, Louisiana’s direct action statute did not apply and the plaintiff could not file a lawsuit directly against ACE.

The parties did not dispute that the policy was not written or delivered in Louisiana – the policy was not issued in Louisiana and the policy was delivered to the insured in Texas. Further, the accident occurred on the Outer Continental Shelf in the Gulf of Mexico. It is well settled in the EDLA that an accident or injury occurring in the Gulf of Mexico or on the Outer Continental Shelf does not occur “within Louisiana” for purposes of Louisiana’s direct action statute. See Signal Oil & Gas Co. v. Barge W-701, 654 F.2d 1164, 1175 (5th Cir. 1981); Joyner v. Ensco Offshore Co., No. 99-3754, 2001 WL 333114, at *2-3 (E.D. La. Apr. 5, 2001).

Nevertheless, the plaintiff argued that the ISO’s “Louisiana Changes” policy endorsement made him a third-party beneficiary and granted him a right to bring a direct action against ACE. The endorsement was entitled “Louisiana Changes – Legal Action Against Us” and was numbered “CG 01 18 12 04.” The court recognized that these ISO endorsements must be attached to all commercial general liability policies covering risk in Louisiana. The endorsement provided: “A person or organization may bring a ‘suit’ against us including, but not limited to a ‘suit’ to recover on an agreed settlement or on a final judgment against an insured. . . .” Plaintiff argued that the endorsement expanded the right of action described in the Louisiana direct action statute; and alternatively, if it is ambiguous, it should be construed against the drafter – ACE. The court held that the endorsement did not make plaintiff a third-party beneficiary because the parties to the contract had no such intent. Rather, the endorsement merely embodied Louisiana’s direct action statute. Therefore, the endorsement did not expand the plaintiff’s right to bring a direct action against ACE, when he could not satisfy the direct action factors themselves. Accordingly, the Court granted ACE’s motion for summary judgment and dismissed the plaintiff’s direct action claims against ACE.

The Eastern District’s decision in Menard reaffirms that all prerequisites to Louisiana’s direct action statute must be satisfied or a plaintiff’s direct action suit will be dismissed. Further, Menard makes clear that insurers including the ISO’s Louisiana Changes – Legal Action Against Us policy endorsement number CG 01 18 12 04 are not contractually expanding their risk to unwanted and unexpected litigation in Louisiana, where the elements of the direct action statute are not met.

By Stephen C. Hanemann

In matters of international trade, a bill of lading often serves as the contract of carriage between a shipper and carrier for transportation of goods. A Himalaya clause is a provision contained in certain bills of lading protecting carrier’s servants, agents, and independent contractors from third-party claims by limiting shipper’s rights to bring suit against carrier only. When courts enforce the Himalaya clause contained in such a bill of lading, carrier’s agents, servants, and independent contractors are generally immune from legal actions brought by the shipper. Global Oil Tools, Inc. v. Expeditors International of Washington, Inc., et al, a recent case out of the Eastern District of Louisiana, illustrates the concept of claim preclusion secondary to Himalaya clause enforcement.

Global Oil Tools, Inc., (“Shipper”) contracted with Expeditors International of Washington, Inc. (“Carrier”) to arrange for the transatlantic shipment of two containers from New Orleans, Louisiana to Constanta, Romania. Carrier booked carriage for the containers aboard the M/V BAVARIA, a ship operated by Hapag-Lloyd. Ports America, a stevedoring company, loaded the containers onto the M/V BAVARIA.

Shipper twice delayed the shipment of goods, but ultimately, due to a miscommunication between Hapag-Lloyd and Ports America, the ship set sail on March 28, 2016 with Shipper’s containers. The containers arrived at Constanta, Romania, on April 23, 2016. On May 27, 2016 Shipper approved Carrier’s issued bill of lading dated March 28, 2016. Shipper had intended to sell its cargo on arrival in Romania, but the sale was never consummated. Shipper filed suit against Carrier, Hapag-Lloyd, and Ports America seeking damages for the allegedly erroneous shipment of goods.

Hapag-Lloyd and Ports America filed motions for summary judgment invoking the application of the Himalaya clause in the bill of lading. While bills of lading are customarily construed against a carrier, the issuing party, contracts for carriage of goods by sea must be interpreted by their terms, consistent with the intent of the parties. In this transaction Carrier’s bill of lading, by inclusion of a clause paramount, incorporated the provisions of COGSA (“Carriage of Goods by Sea Act”). 46 U.S.C. § 30701 note sec., 13. Although COGSA applies of its own force from the time when the goods are loaded on to the ship until the time when they are discharged from the ship, the clause paramount provides that COGSA shall govern before loading as well.

The Himalaya clause in Carrier’s bill of lading stated that Shipper shall make no claim or allegation against any person other than Carrier, including Carrier’s servants, agents, or independent contractors. By approving the bill of lading terms, Shipper entered a covenant not to sue any party involved in the transportation of its containers except for Carrier. Under the simple language of the bill of lading itself, Shipper contractually relinquished any rights it may have had to sue either Hapag-Lloyd or Ports America.

Despite Shipper’s arguments attacking the enforceability of the bill of lading, there exists significant custom under general maritime law in favor of enforcing bills of lading even when executed after the shipment of goods is complete. In holding that the bill of lading and its terms, including the Himalaya clause, applied to Shipper’s shipment, the Court found that the Shipper had sufficient notice of the bill of lading, and that Shipper explicitly approved the bill of lading after the goods arrived in Romania. Following in line with the jurisprudential precedent of the Second Circuit, Fifth Circuit, Ninth Circuit, and U.S. Supreme Court, the Eastern District held that the Himalaya clause in the bill of lading, containing a covenant not to sue Carrier’s subcontractors, was enforceable.  Notwithstanding the inclusion of the Himalaya clause, the Bill of Lading preserved Shipper’s right to sue Carrier, as well as Carrier’s right to sue its subcontractors. Thus, the bill of lading did not violate public policy or any fairness doctrine. Shipper’s covenant not to sue parties other than Carrier precluded Shipper’s right to sue Hapag-Lloyd and Ports America. Thus, Hapag-Lloyd and Ports America were entitled to summary judgment dismissing Shipper’s claims.