Indemnity Provisions May Be Unenforceable Under “Focus-of-the Contract” Test

The Fifth Circuit Court of Appeals, sitting en banc, recently clarified what law governs a contractual dispute, such as the enforceability of an indemnity provision in a contract, when the event causing the underlying tort that triggered the contractual indemnity claim occurred on navigable waters on the Outer Continental Shelf. In its opinion issued in Grand Isle Shipyard, Inc. v. Gray Ins. Co., the Fifth Circuit will now apply a “focus-of-the-contract” test when determining the situs of controversy for contract cases involving the Outer Continental Shelf Lands Act (OCSLA). If the majority of the contract is performed on stationary platforms on the Outer Continental Shelf, then state law can apply as a surrogate to federal law.

Here, an indemnity dispute arose between Grand Isle Shipyard, Inc. and Seacor Marine, two contractors of BP American Production Co. Grand Isle’s duties included the repair and maintenance of BP’s offshore platforms. Seacor was responsible for transporting workers for BP out to stationary platforms situated on the Outer Continental Shelf. The indemnity-triggering event was an injury suffered by a Grand Isle employee while traveling the Gulf of Mexico in a Seacor-owned vessel. When the worker sued Seacor, it sought indemnity under the contract between Grand Isle and BP.

The Fifth Circuit admitted that confusion reigned in these situations because the court could not previously agree on whether to consider similar indemnity disputes using a tort or contract-based analysis. Ultimately, the court held that contract principles should be used. In other words, if a majority of the contract’s work is performed on stationary platforms on the Shelf, then the platforms’ location controls and state law may apply, depending on the location of the incident.

In this case, the vast majority of the work called for in the contract was to be performed on stationary platforms. As a result, Louisiana law applied, and the Louisiana Oilfield Indemnity Act rendered unenforceable the indemnity agreement at issue. Seacor’s demand for indemnity was rejected.

Grand Isle Shipyard, Inc. v. Gray Ins. Co., 589 F.3d 778 (5th Cir. 2009).