Fifth Circuit Holds Master Services Contract To Provide Workers For Offshore Oil & Gas Platforms Governed By Louisiana—not Maritime—Law

The United States Court of Appeals for the Fifth Circuit recently affirmed a district court's partial grant of summary judgment holding a Master Services Contract ("MSC") was governed by Louisiana, rather than maritime, law. ¹Because Louisiana law applied, the Louisiana Oilfield Indemnity Act ("LOIA") rendered the indemnity provision in the MSC unenforceable. Both the district court and Fifth Circuit decisions relied on the Fifth Circuit's test in In re Larry Doiron, Inc., 879 F.3d 568, 569 (5th Cir. 2018) (en banc) and the Court's more recent decision, Earnest v. Palfinger Marine U.S.A., Inc., 90 F.4th 804 (5th Cir. 2024), in deciding whether the parties to the MSC expected a vessel to play a substantial role in the completion of the work.

This ruling is yet another example of the Fifth Circuit's ongoing attempt to clarify how the test set forth in In re Doiron should be applied and is significant for operators and contractors involved in offshore oil and gas operations, especially those who frequently seek defense and indemnity for offshore personal injury claims. A detailed discussion of the case and the Court's analysis is discussed in the sections below.

Background

Island Operating Company, Inc. ("Island") employee, Tyrone Felix, was injured during a personnel basket transfer from the M/V ANNA M to a platform owned and operated by Fieldwood Energy LLC ("Fieldwood"). The ANNA M was owned and operated by Offshore Oil Services, Incorporated ("OOSI"). Fieldwood and Island entered into a Master Services Contract in 2014, through which Island provided production operators to man Fieldwood's offshore production platforms. In that agreement, Island agreed to indemnify Fieldwood's "third party contractors", such as OOSI from and against claims resulting from injuries to Island employees. OOSI filed a limitation action and a third-party demand against Island seeking pass-through indemnity and insurance coverage from Island pursuant to the terms of the MSC between Island and Fieldwood. Island moved for summary judgment arguing that the defense, indemnity, and insurance coverage provisions in the MSC were null and void under the LOIA.

In determining the enforceability of the indemnity provision of the MSC, the district court first analyzed what law applied to the contract. To determine whether the OCSLA choice-of-law provision applied, the court had to determine whether federal maritime law applied of its own force. Following the two-part test from the Fifth Circuit's ruling in In re Larry Doiron, Inc., 879 F.3d 568, 569 (5th Cir. 2018) (en banc) (i.e., (1) Is the contract one to provide services to facilitate the drilling or production of oil and gas on navigable water? (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 district court found the second prong of Doiron was not met.

Specifically, the district court noted that the parties expected that the use of vessels under the MSC would be solely as a means of transportation to relocate production workers as necessary amount the field platforms and/or transport them back to shore. Such maritime activity is ignored in the analysis of whether the parties had an expectation that vessels would play a substantial role. See also In re Crescent Energy Services, L.L.C., 896 F.3d 350, 360 (5th Cir. 2018). (citing Doiron at 576 n.47). The district court found that this reasoning also extended to loading and unloading items from a vessel, even though that is generally considered a maritime activity.

The court ultimately concluded that the MSC failed the second prong of the Doiron test and was therefore non-maritime, meaning the OCSLA mandatory choice-of-law provision applied and the MSC's contractual choice-of-law provision was void. As a result, the court determined that LOIA applied, which invalidated the indemnity and insurance provisions in the MSC.

Fifth Circuit Appeal and Ruling

On appeal, the Fifth Circuit noted that under its recent decision in Earnest v. Palfinger Marine U.S.A., Inc., 90 F.4th 804 (5th Cir. 2024), the actual use of the vessels is only considered when the expectations of the parties or the terms of the contract regarding the use of vessels in completing the work are unclear. The MSC's terms and the parties' expectations were clear, thus, consideration of the actual use of the vessels was unnecessary. Further the court focused on the fact that the MSC only contemplated the use of vessels for transporting workers to the job site, which was not representative of the actual work that the MSC contemplated. Similarly, the Court held that the fact that the plaintiff occasionally load and unload equipment from a vessel to the platform does not alter the language of the contract, which made no mention of such work. Ultimately, the Court affirmed the district court's ruling that the MSC was for nonmaritime services and just because it might have required personnel to conduct "atypical and incidental vessel-related maritime tasks" does not make it a maritime contract. LOIA applied to the MSC and the indemnity provision was unenforceable. Thus, summary judgment in favor of Island was affirmed.

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