In Ace Am. Ins. Co. v. M-I, L.L.C., 699 F.3d 826 (5th Cir. 2012), the Fifth Circuit recently applied the Outer Continental Shelf Lands Act (OCSLA) and Louisiana law to an indemnity provision of a Master Services Agreement (MSA).
Indemnity Under Master Service Agreement
In Ace, two companies—M-I, L.L.C. (M-I) and British Petroleum (BP)—entered into a MSA governing the companies’ business affairs on vessels and stationary platforms in the Gulf of Mexico. That MSA obligated M-I to indemnify BP for personal injury claims asserted by M-I employees arising from or relating to performance of the MSA. The issue in the case was whether Louisiana law governs the indemnity provision pursuant to OCSLA.
Under OCSLA, either maritime law or state law (as surrogate federal law) may apply to the controversy. Courts utilize the three-prong “PLT test” in determining which law to use: (1) the controversy must arise on an OCSLA situs (i.e. a structure attached to the outer continental shelf); (2) maritime law must not apply of its own force; and (3) state law must not be inconsistent with federal law.
With respect to the first factor, M-I’s service tickets and time sheets evidenced that the “majority of the work” was to be performed on a stationary platform attached to the shelf. Therefore, the OCSLA situs requirement was met.
However, in addressing the second factor, the Court held that maritime law did not apply of its own force. It stated, “Because the relevant contract here . . . was performed on a stationary platform, not a traditional maritime activity, it follows that maritime law does not apply of its own force to the indemnity dispute.”
Applying the third factor, the Court held that Louisiana law and maritime law were inconsistent. Contractual indemnity provisions are generally permissible under maritime law, but Louisiana’s Oilfield Indemnity Act (LOIA) (La. R.S. § 9:2780(B)) invalidates such agreements.
Louisiana Law Governs Dispute
The Court’s application of the “PLT test” ultimately provided that Louisiana law governed the contractual indemnity dispute. Because Louisiana law applied, LOIA operated to invalidate the indemnity provision of the MSA.
Allen & Gooch is providing this legal update for informational purposes only. This article should not be construed as legal advice or a legal opinion as to any specific facts or circumstances. You should consult your own attorney concerning your particular situation and any specific legal questions you may have.