Face Challenges Confidently

422 Sonerra Res. Corp. v. Helmerich & Payne Intern. Drilling Co.

Tuesday, September 1st, 2015

Richard F. Brown
The following is not a legal opinion.  You should consult your attorney if the case may be of significance to you.
Sonerra Resources Corporation v. Helmerich & Payne Intern. Drilling Co., No. 01-11-00459-CV, 2012 WL 3776428 (Tex. App.—Houston [1st Dist.] Aug. 30, 2012, pet. denied) (mem. op.), held that under the indemnity provisions of a standard international daywork contract, the operator was required to indemnify the contractor against injuries suffered by the contractor’s employee caused by equipment furnished by the operator.  Sonerra Resources Corporation (“Operator”) hired Helmerich & Payne International Drilling Co. (“Contractor”) under an International Association of Drilling Contractors Drilling Bid Proposal and Daywork Drilling Contract (“Contract”).  While working on the well, an employee of Contractor was injured when stripper rubber inside a rotating-control device (“RCD”) failed.  The RCD and the stripper rubber in the RCD were furnished by Operator to Contractor for use in drilling operations.  Contractor claimed that article 14.7 of the Contract required Operator to indemnify and defend Contractor.  Operator claimed that article 14.8 of the Contract required Contractor to indemnify and defend Operator.
Article 14.7 of the Contract provided that Contractor would “not be liable for any loss or damage resulting from the use of materials furnished by Operator” and that Operator would “protect, defend and indemnify Contractor from and against, any such liability.”  Article 14.8 of the Contract provided that Contractor would “release Operator of any liability for and shall protect, defend and indemnify Operator from and against all claims . . . in favor of Contractor’s employees . . . on account of bodily injury, death, or damage to property.”  The case was resolved under competing motions for summary judgment.
Operator argued that: (1) “equipment” was at issue in this case and that article 14.7 of the Contract applied only to “materials,” (2) article 14.7 did not apply because it was limited to property damage and economic loss, not bodily injuries, and (3) the more specific article 14.8 required Contractor to indemnify and defend Operator because the injury claimant was Contractor’s employee.  Operator claimed that because the RCD and stripper rubber are “clearly equipment” and article 14.7 covers only “materials,” the indemnity in article 14.7 was not applicable.  The court held that the Contract used the terms “equipment” and “materials” somewhat interchangeably.  Further, the Court analyzed the plain meaning of “materials” in the context of the Contract and determined that it is a broad term meant to “generally refer to the physical items that were to be provided by [Operator] at the well.”
Second, the court disagreed with Operator’s contention that article 14.7 did not apply because it was limited to property damage and economic loss.  Because article 14.7 provides indemnity for “any loss or damage” without any limitation to economic or property losses, the court reasoned that the plain meaning of this phrase included losses or damages related to bodily injury.
Third, the court ultimately determined that article 14.7 trumped article 14.8.  Articles 14.8 and 14.9 were reciprocal provisions under which each party indemnified the other for bodily injuries suffered by the indemnitor’s employees.  The injured employee was an employee of Contractor, seemingly requiring Contractor to indemnify Operator under article 14.8.  However, the Contractor’s employee was injured by materials furnished by Operator, seemingly requiring Operator to indemnify Contractor pursuant to article 14.7.  The court determined that article 14.7’s indemnity for loss or damage caused by materials furnished by Operator was more specific in nature, and article 14.8’s indemnity for all claims of any kind asserted by Contractor’s employees was a more general provision.  Citing authorities holding that a more specific contractual provision controls over general provisions, the court held that “[w]hen all of the articles of the drilling contract are harmonized, it is evident that the indemnity obligation and release in article 14.7 carve out a set of claims that might otherwise be covered by the indemnity provision in article 14.8.”  The court reasoned that this interpretation made the most sense considering the purpose of article 14.7 and that article 14.7 contained no language suggesting that it should be limited by article 14.8.
The significance of this case is that article 14.7 of the form international daywork contract is broadly construed to impose an indemnity obligation on the Operator as to all claims based on equipment or materials furnished by the Operator.