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.