February 28, 2018 Practice Points

What Is a Maritime Contract?

Fifth Circuit en banc decision clarifies, simplifies and mystifies.

By Douglas W. Truxillo

Over the years, maritime attorneys practicing along the Gulf Coast have been litigating contractual indemnity claims between oil companies and the contractors servicing oil and gas explorations on offshore platforms and vessels in the Gulf. These attorneys have been faced with the nearly impossible task of determining when a master service contract related to such services was considered to be “maritime” or “non-maritime” and therefore subject to the Texas and Louisiana Anti-Indemnity Statutes, which voided any indemnity provisions in those contracts related to oil fields. There had been a six-factor test articulated back in the 1990 case of Davis & Sons, Inc. v. Gulf Oil Corp.¸ 919 F.2d 313 (5th Cir. 1990), which was applied to those contracts and had led to many inconsistent results and created an almost the after-the-fact analysis of whether a contract was going to be considered to be governed by maritime law rather than state law. This six-factor analysis made the task of prospectively advising one’s clients about risk and insurance procurement requirements of a contract prior to any incident very difficult if not impossible.

The en banc decision in the Fifth Circuit case of In re Larry Doiron, Inc., 879 F.3d 568 (5th Cir. 2018) has attempted to rectify these concerns. The original decision in the Doiron case, by the original three-judge panel, had affirmed the district judge’s ruling that an oil-field-related work order for “flow-back services” on an offshore platform, which required the use of a crane barge was as a maritime contract for the purposes of determining the validity and enforceability of the indemnity provisions in the work order. However, in a revised opinion of the original three-judge panel, Judge W. Eugene Davis, a long-time maritime jurist in southern Louisiana very familiar with the issues related to  oil field-related contracts in maritime settings, wrote a concurring opinion suggesting that it was time for the Fifth Circuit to reconsider the contract issue en banc, abandon the prior Davis & Sons test for determining whether a contract was maritime and to simplify the test for determining what makes a contract maritime to allow the parties in these oil field offshore cases to more “accurately allocate risks and determine their insurance needs more reliably.” On January 8, 2018, Judge Davis writing for the en banc court did just that.

In the Doiron en banc opinion, the Fifth Circuit abandoned the Davis & Sons six-factor test, which required the parties and court to characterize the contract by determining: (1) what the specific work order in effect provided; (2) what work the crew assigned under the work order actually did; (3) whether the crew was assigned to work aboard a vessel; (4) to what extent did the work relate to the mission of that vessel; (5) what the principal work of the injured worker was; and (6) what was the injured worker actually doing at the time of injury. Noting that some judges criticized the Davis & Sons approach as “confusing” and fact-intensive, the Fifth Circuit adopted a “simpler, straightforward test consistent with the Supreme Court’s decision in Norfolk Southern Railway Co. v. Kirby, 514 U.S. 14 (2004)” in determining whether an contract related to oil fields is maritime to avoid the unnecessary analysis of Davis & Sons.

In relying on Kirby, the Fifth Circuit clarified that contract principles rather than tort principles should be used to determine whether the contract is maritime. It noted that in Kirby, the Supreme Court focused the inquiry on whether the “principal objective of a contract is maritime commerce” and whether the contract required “substantial” vessel involvement. Thus, in the offshore oil field context, the Court adopted a simple two-prong test: First, “is the contract one to provide services to facilitate the drilling or production of oil and gas on navigable waters” because the cases have long held that drilling and production of oil and gas on navigable waters from a vessel is “commercial maritime activity,” which affects maritime commerce. Second, if so, then next inquiry is “does the contract provide or do the parties expect that a vessel will play a substantial role in the completion of the contract.”

Under the new two-prong test articulated, the determination of whether a specific oil-field-related contract is maritime or not is focused on the contract and the expectation of the parties. It does not necessarily rely on where or how the accident occurred that triggered the indemnity provisions in the contract. However, the Fifth Circuit cautioned that some of the Davis & Sons factors might still be relevant if the scope of a contract is unclear and there needs to be a determination as to whether a vessel was to play a “substantial role” in execution of the contract. For example, if the contract provided only for work by vessel crewmembers, even in an oil field context, there may be “substantial vessel involvement.” Thus, the question of just how discarded the six-factor test will be in practice is yet to be determined.

In any event, applying the new two-prong test to the contract involved in the Doiron matter, the Fifth Circuit concluded that the expectations of the parties and the focus of the contract had actually been on doing work on an offshore platform, and that the involvement of a vessel (a crane barge) was an “insubstantial part of the job and not work the parties expected to be performed.” As such, the contract was found to be non-maritime and controlled by Louisiana law, including the Louisiana Anti-Indemnity Act, which voided the indemnity provisions in the contract. The district court’s summary judgment finding that the contract was maritime and the indemnity provision enforceable was therefore reversed.

Douglas W. Truxillo is a shareholder with Onebane Law Firm in Lafayette, Louisiana.

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