The Expansion of OCSLA to Offshore Indemnity Agreements

OCSLA and Oilfield Indemnity Law in the Fifth Circuit

Overview of OCSLA

In 1953, Congress passed OCSLA, 43 U.S.C. §§ 1331–1356, which allocated to the federal government “jurisdiction, control, and power of disposition” over the subsoil and seabed of the OCS. Engerrand, 4 Loy. Mar. L.J. 19, 24 (2005). The Fifth Circuit has stated that “Congress enacted OCSLA to provide a federal body of law to govern operations on the outer Continental Shelf.” Hufnagel v. Omega Service Indus., Inc. 182 F.3d 340, 349 (5th Cir.1999) citing Rodriguez v. Aetna Cas. and Surety Co., 395 U.S. 352 (1969) (“The purpose of the Lands Act was to define a body of law applicable to the seabed, the subsoil, and the fixed structures . . . on the outer Continental Shelf.”). OCSLA also specifically grants subject-matter jurisdiction to federal district courts over “cases and controversies arising out of, or in connection with any operation conducted on the outer Continental Shelf which involves the exploration, development, or production of the minerals, of the subsoil and seabed of the outer Continental Shelf. . . .” 43 U.S.C. § 1349(b).

Overview of Oilfield Indemnity Law

Under Fifth Circuit jurisprudence, parties have wide latitude to enter into contracts for indemnity. Randall v. Chevron U.S.A., Inc., 788 F. Supp. 1391 (E.D.La.1992). Parties may even contract to be indemnified for consequences of their own negligence, as long as such intent is expressed in clear and specific terms. However, both Texas and Louisiana (along with several other states outside of the Fifth Circuit) have implemented legislation that nullifies indemnity provisions in certain oilfield agreements where a party seeks indemnification for liability arising out of its own negligence. See § 9:2780; La. R.S. and Tex. Civ. Prac. & Rem. Code §§ 127.001, et seq. The purpose of these anti-indemnity statutes “is to protect small contractors engaged in oil and gas service industries in the Gulf of Mexico against overreaching by more powerful oil companies.” 1 Robert Force & Martin J. Norris,The Law of Maritime Personal Injuries § 13:9, at 13-41 (5th ed. 2004).

The Texas and Louisiana anti-indemnity statutes can create problems for oilfield companies that enter contracts to conduct operations in federal waters on the OCS. OCSLA contains a jurisdictional choice-of-law provision that controls which law will govern claims arising on the OCS. (The Fifth Circuit has held that this provision applies mandatorily and trumps parties’ contractual selection of another governing law. Union Texas Petroleum Corp. v. P.L.T. Engineering, Inc., 895 F.2d 1043, 1050 (5th Cir. 1990). Therefore, while parties often choose maritime law or the laws of a particular state to govern their contracts, if OCSLA is invoked, it will disregard the parties’ contractual choice of law.) Section 1333(a)(2)(A) of OCSLA provides:

In short, OCSLA provides that if a dispute arises out of operations conducted on the OCS, the adjacent state’s laws are applied as “surrogate federal law,” and are considered exclusive federal law when applied under OCSLA. 43 U.S.C. § 1333(a)(1). Therefore, when determining whether state law will be incorporated as federal law, the threshold issue is whether the controversy arises on an OCSLA situs. The Fifth Circuit in Union Texas Petroleum Corp. v. PLT Eng’g, Inc. devised a three-part test (referred to as the “PLT test”) to determine whether state law will be adopted as federal law for contractual disputes arising on the OCS: (i) The controversy must arise on a situs covered by OCSLA (i.e., the subsoil seabed or artificial structures permanently or temporarily attached thereto); (ii) federal maritime law must not apply of its own force; and (iii) the state law must not be inconsistent with federal law. 895 F.2d 1043 (5th Cir. 1990).

PLT Test No. 1—Did controversy arise on OCSLA situs? Under the law prior to Grand Isle, courts looked to the location of the underlying tort to determine whether the indemnity controversy arises on an OCSLA situs. For example, the situs requirement was satisfied when an injury occurred on a liftboat that was temporarily jacked up and attached to the seabed of OCS. A.M.C. Liftboats, Inc. v. Apache Corp., 622 F. Supp. 2d 355 (E.D. La. 2008). An accident involving a plaintiff on a vessel who is nevertheless in physical contact with a platform has also been deemed to place the subsequent indemnity dispute on an OCSLA situs. Hodgen v. Forest Oil Corp., 87 F.3d 1512 (5th Cir. 1996). The situs requirement was also satisfied where a platform worker was killed while stepping from a stationary crew boat to an offshore platform. Hollier v. Union Tex. Petroleum Corp.,972 F.2d 662 (5th Cir. 1992).

PLT Test No. 2—Does maritime law apply of its own force? Whether maritime law applies of its own force is simply another way of asking whether the contract at issue in the dispute is “maritime.” Whether a contract is maritime is not always an easy determination. However, as a general statement, courts will analyze the historical treatment by the courts of the nature of the contract at issue, and whether there is a direct link between the contract and a vessel’s operations. Specifically, the Fifth Circuit uses a two-part test set forth in Davis & Sons, Inc. v. Gulf Oil Corp. to determine whether a contract is maritime. 919 F.2d 313 (5th Cir. 1991). The court will look to the “historical treatment” of the contract in jurisprudence. If the jurisprudence does not clearly indicate whether the contract is maritime, the court will employ a six-part fact-intensive inquiry. Id. at 316. The six-part inquiry includes:

Id. In determining whether that contract is a maritime contract, we look to the “nature and subject-matter” of the contract, determining whether it has “reference to maritime service or maritime transactions.” New England Mut. Marine Ins. Co. v. Dunham, 78 U.S. 1, 26–27 (1870); see Exxon Corp. v. Cent. Gulf Lines, Inc., 500 US. 603, 611 (1991) (“[T]he nature and subject-matter of the contract at issue should be the crucial consideration in assessing admiralty jurisdiction.”).

For example, where drilling operations are being conducted off a semi-submersible drilling rig (which is deemed to be a vessel under the law), courts have found that such contracts are maritime because the operations are directly connected to the particular function of the vessel (to drill). But, where the same work is performed on a fixed platform, the contract will be non-maritime. Also, where the vessel is only incidental to the services being performed on the OCS under the contract (e.g., where the vessel is being used as a work platform to service a fixed platform or to transport personnel to and from a fixed platform), the contract is less likely to be considered maritime. If the contract is deemed maritime, federal law will apply of its own force, and OCSLA will not be invoked to apply the laws of the adjacent state. Significantly, parties to a maritime contract governed by maritime law may agree to indemnify each other for liabilities arising out of their own respective negligence.

PLT Test No. 3—Is state law inconsistent with federal law? This final PLT factor analyzes whether the adjacent state’s laws would be inconsistent with federal law. If state law is not inconsistent and does not conflict with federal law, it will be adopted as surrogate federal law. The Fifth Circuit has held that states’ anti-indemnity laws are not inconsistent with federal law. Therefore, the third PLT factor is never in dispute in OCSLA indemnity cases.

The Grand Isle v. Seacor Ruling and Expansion of OCSLA

The Facts

 
Grand Isle Shipyard, Inc. and Seacor Marine, L.L.C were both contractors of BP American Production Company. Grand Isle repaired and maintained BP’s offshore platforms while Seacor provided transportation for BP and its contractors. Plaintiff Denny Neil, an employee of Grand Isle, was being transported from a work platform to a residential platform (each located in federal waters adjacent to Louisiana) by a Seacor vessel when he was injured in a fall while the vessel was in federal waters.

After his injury, Neil sued Seacor for vessel negligence under the Longshore and Harbor Workers Compensation Act. Seacor settled with Neil but sought indemnity from Grand Isle and its liability-insurance carrier Gray Insurance Co. Grand Isle and Gray then filed a declaratory judgment action seeking a determination that Louisiana law applied.

The Law and Holding

The Grand Isle case focuses primarily on the first PLT factor—whether the controversy arose on an OCSLA situs. The court affirmed the lower court’s finding that the BP/Grand Isle contract was not maritime (second PLT factor) and that state law did conflict with federal law (third PLT factor). Seacor apparently did not challenge the district court’s determination that the second and third PLT conditions were met. Therefore, the court only focused on the first PLT factor. This point is important because if the contract had been deemed to be maritime, maritime law would have applied, regardless whether the majority of the work was performed on the OCS. Therefore, this case does not abrogate the second factor of the PLT test; the contract still must be determined to be maritime.

The court stated that whether the contract arises on an OCSLA situs (i.e., the subsoil, seabed, or artificial structure permanently or temporarily attached thereto) will be determined by where the majority of the contracted work is to be performed. If the majority of the work is performed or contemplated to be performed on a situs enumerated in the OCSLA, OCSLA will apply, which will in turn adopt the law of the adjacent state. This represents a significant change in the law.

Grand Isle overruled the longstanding law that the location of the injury determines whether the controversy arose on an OCSLA situs for the purposes of the first PLT test. The Fifth Circuit reasoned that a claim for indemnity is a claim “based in contract rather than in tort,” so focusing on the contract rather than the site of the underlying injury, the court stated, “makes more sense” in determining where the controversy arose. The court went on to state that “[i]t is immaterial whether the underlying incident that triggers the indemnity obligations occurs on navigable waters or on a platform or other OCSLA situs.”

Because most of the work under the Grand Isle maintenance contract was to be performed on stationary platforms on the OCS, the court found that the indemnity dispute arose on an OCSLA situs. It also found that the maintenance contract was not a maritime contract triggering maritime law (part 2 of the PLT test) and that the state law (the Louisiana Oilfield Indemnity Act) does not conflict with federal law (part 3 of the PLT test). Because the three requirements were met, OCSLA was invoked and Louisiana law was adopted as surrogate federal law. The application of Louisiana law to the contractual dispute rendered Louisiana’s anti-indemnity act applicable, which invalidated the parties’ contractual indemnity agreement.

The Import of the Decision

Under this new “focus-of-the-contract” test, courts will look to the nature of the contract where the contract contemplates that most of the work will be performed. If a majority of the contract calls for most of its work to be performed on an OCSLA situs, the OCS will be deemed the situs of the controversy for the purposes of the first factor of the PLT test. If a majority of the work called for by the contract is on a vessel in OCS waters, the OCS will not be the situs of the controversy, and maritime law will apply without further analysis of the remaining two PLT factors.

Conclusion

The Fifth Circuit has shifted the focus of its analysis of the first factor of the PLT test from the underlying injury to the indemnifying contract itself. In the wake of Grand Isle, if the majority of the work contemplated in the contract will occur on stationary platforms on the OCS, it is likely that OCSLA will apply to indemnity claims arising from that contract. The contract must still be non-maritime for OCSLA to apply.

On one hand, Grand Isle offers more predictability to companies as to whether OCSLA will govern indemnity disputes as a result of their offshore contracts. On the other hand, it makes it more likely that state anti-indemnity laws will be applied to potentially change the terms of those indemnities.

Keywords: energy litigation, Grand Isle Shipyard, Seacor, PLT test, maritime law

_{Emile J. Dreuil III is an associate with Slattery, Marino & Roberts in New Orleans, Louisiana.}

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