631 Catlin Specialty Ins., Co. v. L.A. Contractors, Ltd., CV H-14-261, 2016 WL 4276131 (S.D. Tex. July 25, 2016)
Monday, June 19th, 2017
The following is not a legal opinion. You should consult your attorney if the case may be of significance to you.
Catlin Specialty Ins., Co. v. L.A. Contractors, Ltd., CV H-14-261, 2016 WL 4276131 (S.D. Tex. July 25, 2016), report and recommendation adopted, CV H-14-0261, 2016 WL 4747689 (S.D. Tex. Aug. 15, 2016) (Master Service Agreement and Anti-Indemnity Statute) held that an indemnity agreement within a Master Service Agreement between a trucking contractor and a surface contractor, both providing services to an oil and gas well site, was not void under the Texas Oilfield Anti-Indemnity Act (“TOAIA”), because there was not a “close nexus” to production activities. Shell Oil Company was developing an oil and gas lease, and it contracted with Wolverine Construction, Inc. (“Surface Contractor”) to build well pad sites and to build private roads. Surface Contractor signed a Master Service Agreement (“MSA”) including mutual indemnities with L.A. Contractors, LTD (“Trucking Contractor”) for Trucking Contractor to supply and transport construction materials and aggregate to Surface Contractor. One of Trucking Contractor’s employees involved in transporting and delivering a cattle guard was killed in an automobile accident, and the estate brought a claim against the Surface Contractor. The Surface Contractor made demand upon the Trucking Contractor under the indemnity clause in the MSA, but the Trucking Contractor refused to defend and indemnify. The Surface Contractor settled the case, and the Surface Contractor’s excess liability insurance carrier then brought this subrogation action to recover from the Trucking Contractor under the indemnity clause in the MSA. The issue in the case was whether the indemnity provision was void because it violates the TOAIA.
The TOAIA was created to prevent inequity in certain contractor indemnity agreements, and it states “that an agreement ‘contained in, collateral to, or affecting an agreement pertaining to a well for oil, gas, or water . . . is void if it purports to indemnify a person against loss or liability’ when that damage is based in whole or in part on the indemnitee’s own negligence and arises from personal injury, death, or property injury.” The Trucking Contractor argued that the TOAIA applied because the “TOAIA applies to an agreement concerning the rendering of well or mine services or performing ‘an act collateral’ to well or mine services.” The Surface Contractor argued that the incident was related to the delivery of cattle guards, and not the production of oil, so the TOAIA did not apply, and thus the indemnity agreement was enforceable.
The court held that the TOAIA would only apply if the service provided bears a “close nexus with production activities.” This is narrowly construed to mean that the services called for by the contract “bear a close nexus to a well and are directed toward the goal of obtaining or maintaining production from a well.” Further, it is the agreement itself which governs whether the TOAIA applies, not the specific incident. Although the MSA did not specifically outline the work the Trucking Company was to perform on the Surface Contractor’s behalf, the court relied upon the testimony of the Trucking Company for those facts.
The court discussed Coastal Transport Co. v. Crown Central Petroleum Corp. where the 14th District Court of Appeals considered whether the TOAIA applied between a petroleum company and a transportation company. In that case, the court found that, “the [TOAIA] applied to contracts for services involved in the drilling or servicing of wells, and found that [the petroleum company] was involved in refining, supplying, and transportation of petroleum, and was therefore not involved in the drilling or servicing of wells, so the TOAIA did not apply.” Similarly here, the Surface Contractor is a construction company that is not involved in the drilling and servicing of wells, so a “close nexus” with production activities did not exist, and therefore the TOAIA does not apply to the MSA between the Surface Contractor and the Trucking Contractor.
The significance of this case is the holding that an indemnity agreement in an MSA is not subject to the TOAIA unless there is a “close nexus” to the actual drilling or servicing of wells.