In its en banc decision in In re: Larry Doiron, Inc., No. 16-30217 (5th Cir. Jan. 8, 2018), the Fifth Circuit considered whether a contract for performance of specialty services to facilitate the drilling or production of oil and gas on navigable waters was a maritime contract. The issue is important because if it were determined not to be a maritime contract, it would be governed by Louisiana law as opposed to federal maritime law, which would impact the enforceability of indemnity provisions in the contract.
In concluding that the particular contract at issue was non-maritime, the Fifth Circuit stated that the standard six-factor test for maritime status was “unnecessary and unduly complicated,” and opted for a much simpler two-prong test.
Just Because a Vessel Is Being Used, Are All Related Contracts Maritime Contracts?
This ruling suggests the answer is “no.” In Doiron, Specialty Rental Tools & Supply, L.L.P. (STS) was working for Apache Corporation, pursuant to a master services contract (STS/Apache MSC), which contained an indemnity provision running in favor of Apache and its contractors. Apache ordered STS to perform “flow-back” services on a gas well in navigable waters off Louisiana. The work did not initially require a vessel and neither Apache nor STS anticipated one would be needed. After unsuccessful attempts at performing the work, STS determined that a crane barge would be required. Apache contracted with Larry Doiron, Inc. (LDI) to provide such a vessel. During operations on the platform, the LDI crane operator struck and injured an STS employee.
The injured worker filed a claim in the limitation of liability proceedings, following which LDI filed a third-party complaint against STS seeking indemnity under the STS/Apache MSC as a contractor of Apache. The central issue in the case was whether the STS/Apache MSC was a “maritime” contract: if it was, general maritime law applied and the indemnity provision would be enforced; if not, the Louisiana Oilfield Indemnity Act (LOIA) applied and the indemnity provision would be unenforceable.
Both the district court and a panel of the Fifth Circuit on appeal concluded that the contract was maritime in nature and, therefore, that LDI was entitled to the benefit of indemnity protection.
The Fifth Circuit’s en banc Ruling
Prior to Doiron, the test for maritime contracts in the Fifth Circuit was a complex fact-intensive six-factor inquiry, established in Davis & Sons, Inc. v. Gulf Oil Corp., 919 F.2d 313 (5th Cir. 1990). The test considered specific work orders; what the crew was doing; vessel involvement; the mission of the vessel; the main work of the injured worker; and what the injured worker was doing at the time of injury.
The Fifth Circuit’s en banc decision in Doiron requires a much simpler analysis to determine whether a contract relating to the drilling or production of oil and gas is a maritime contract. It asks: (1) Is the contract one to provide services to facilitate the drilling or production of oil and gas on navigable waters? If the answer is “yes”, the court should go to the next step. (2) Does the contract provide or do the parties expect that a vessel will play a substantial role in the completion of the contract? If the answer to both questions is “yes,” the contract is maritime in nature.
The Fifth Circuit explained that this new test places the focus on the contract and the expectations of the parties, which would assist the parties in evaluating their risks, particularly in the context of indemnity agreements. Applying the test to the case at hand, the Fifth Circuit concluded that use of a vessel to lift equipment was an insubstantial part of the job and not work the parties expected to be performed. The STS/Apache MSC was therefore not maritime, was instead subject to Louisiana law, and the indemnity provision relied on by LDI was, therefore, unenforceable.
Conclusion: Vessel Owners Should Check the Indemnity Agreements in All Contracts
The Fifth Circuit anticipates that this simpler test should assist parties in determining risk allocation after an incident. However, parties to offshore oil and gas service and drilling contracts should be careful to assess this before any incident occurs and to clarify if indemnification agreements are in fact enforceable. As a party providing a vessel, LDI may well have thought it was engaged in maritime activity and need not be concerned with the enforceability of the indemnity provisions in the MSC. Doiron suggests that all offshore service providers should seek to determine ahead of time whether contracts with indemnification provisions are maritime or not and whether indemnity provisions are, therefore, enforceable or not.