Opinion
CIVIL ACTION NO. 02-2225, SECTION "J" (4).
May 30, 2003.
ORDER AND REASONS
Before the Court is Intervenor Ace American Indemnity Insurance Company d/b/a Montlake Casualty Company's ("Ace") Motion for Summary Judgment (Rec. Doc. 37) on the merits of its intervention claim asserted against Forest Oil Corporation ("Forest Oil") and its insurer Zurich American Insurance Company ("Zurich"). The motion was set for a hearing on the briefs on April 30, 2003. Forest Oil and Zurich have filed an opposition memorandum (Rec. Doc. 38) and a reply memorandum (Rec. Doc. 46). Ace also filed a reply memorandum (Rec. Doc. 41). Upon consideration of the briefs submitted by counsel, the summary judgment evidence, the record, and the applicable law, the Court concludes that Ace's motion should be DENIED. Furthermore, Ace's intervention claim against Forest Oil and Zurich should be DISMISSED WITH PREJUDICE.
Background
Ace's intervention claim is the only remaining claim in the above-captioned matter. The lawsuit was originally filed by Terry Hudson ("Hudson") and his wife Judy against Forest Oil and Zurich to recover damages that resulted from an accident aboard Forest Oil's fixed platform the SATURDAY ISLAND in Barataria Bay, Louisiana. Hudson was formally employed as an operator by Coastal Production Services ("Coastal"). However, through a labor supply agreement between Coastal and Forest Oil, Hudson worked exclusively for Forest Oil aboard the SATURDAY ISLAND. On August 11, 2001, Hudson was injured while attempting to repair the saltwater disposal well motor aboard the SATURDAY ISLAND.Subsequent to the accident, Hudson received workers' compensation benefits through Coastal and its insurer, Ace, until May 2002. Hudson's benefits were paid pursuant to the Longshore and Harbor Workers' Compensation Act ("LHWCA"), 33 U.S.C. § 901-950. Hudson and his wife then filed suit against Forest Oil on July 22, 2002. Forest Oil's liability insurer, Zurich, was joined as a defendant on August 27, 2002. On September 13, 2002, Ace filed its intervention claim against Forest Oil and Zurich, seeking to be reimbursed for the workers' compensation benefits it had paid to and on behalf of Hudson.
On March 7, 2003, Forest Oil and Zurich filed a motion for summary judgment seeking the dismissal of Hudson's claims against them. Forest Oil and Zurich's motion argued that Forest Oil was the "borrowing employer" of Hudson and thus entitled to immunity from tort liability under the LHWCA. Under the "borrowed employee" doctrine, Hudson's exclusive remedy for the injuries he suffered while aboard the SATURDAY ISLAND were the LHWCA workers' compensation benefits paid to him by Coastal and Ace. On April 28, 2003, the Court granted the summary judgment motion on the grounds that Forest Oil was the "borrowing employer" of Hudson and thus entitled to tort immunity. Hudson and his wife's claims against Forest Oil and Zurich were dismissed with prejudice.
Thus, only Ace's intervention claim against Forest Oil and Zurich remains. In the instant summary judgment motion, Ace contends that it is entitled to judgment as a matter of law under the principles set out by the United States Fifth Circuit Court of Appeals in Total Marine Servs., Inc. v. Director, Office of Workers' Compensation Programs, U.S. Dep't of Labor, 87 F.3d 774 (5th Cir. 1996). Ace argues that Total Marine stands for the proposition that as a matter of law, Forest Oil, as Hudson's "borrowing employer" is required to reimburse Ace, the insurer of Hudson's "formal employer", for Hudson's LHWCA workers' compensation benefits. In opposition, Forest Oil and Zurich argue that indemnification and waiver of subrogation clauses contained in contracts between the parties serve to except them from the reimbursement requirement spelled out inTotal Marine. Ace replies by arguing that the indemnification and waiver of subrogation clauses are invalid and unenforceable under the Louisiana Oilfield Anti-Indemnity Act ("LOAIA"), La. R.S. § 9:2780. Alternatively, Ace contends that the Court should not apply these clauses under the theory that Forest Oil, in the execution of its agreement with Coastal, modified the core terms of such agreement. As such, Ace contends that this modification renders the other provisions of the agreement, and the collateral insurance policy, inapplicable to the instant case. Ace requests that this Court enter judgment as a matter of law in its favor and against Forest Oil and Zurich on the intervention claim.
Discussion
I. Standard of Review
Summary judgment is appropriate where the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (citing FED. R. Civ. PROC. 56(c)). The moving party bears the initial burden of demonstrating to the court that there is an absence of genuine factual issues. Topalian v. Ehrmann, 954 F.2d 1125, 1132 (5th Cir. 1992). Once the movant meets that burden, the non-moving party must produce evidence sufficient to establish that there is a genuine issue of material fact in dispute. Id. Accordingly, a factual controversy exists when both parties have submitted evidence of contradictory facts. Little, 37 F.3d at 1075. On summary judgment, factual controversies are resolved in favor of the non-moving party. Id.
II. Ace's Motion for Summary Judgment
Ace first contends that it paid Hudson's workers' compensation benefits pursuant to the LHWCA. Thus, under Total Marine, Forest Oil and Zurich are required to reimburse Ace for the benefits it paid to and on behalf of Hudson. In Total Marine, the Fifth Circuit held that a "borrowing employer" under the LHWCA is liable for the employee's workers' compensation benefits under 33 U.S.C. § 904(a). 87 F.3d at 779. Where the "formal employer" has already paid such benefits, it is entitled to reimbursement from the "borrowing employer". Id. However, the Fifth Circuit conditioned its holding on the fact that no valid and enforceable indemnification agreement existed between the parties in Total Marine. Id. Where such an agreement exists, the "formal employer" is not entitled to reimbursement from the "borrowing employer". Id.
In the instant case, it is clear from the summary judgment evidence that Ace paid Hudson's benefits pursuant to the LHWCA.See Rec. Doc. 41, exhibits I-III. Therefore, Total Marine is applicable. Since Ace, as the insurer of Hudson's "formal employer", paid the workers' compensation benefits, it is entitled to reimbursement from Forest Oil and Zurich, absent a valid and enforceable indemnification agreement between the parties. The Court must thus address whether such a valid and enforceable agreement exists in this matter.
In the contract between Coastal and Forest Oil ("the master contract"), Coastal agreed to
indemnify, defend, and save harmless [Forest Oil] . . . from and against any and all claims, demands, judgments, defense costs, or suits (including, but not limited to, claims, demands, judgments, or suits for . . . bodily injury . . . or for loss of services, or wages or for loss of consortium) by . . . any [employee of Coastal] . . . in any way, directly or indirectly, arising out of or related to the performance of [the master contract] or the use by [Coastal] or its employees of, or their presence on, any premises owned, operated, chartered or controlled by [Forest Oil] . . . expressly including any claims, demands, judgments or suits actually or allegedly caused by the . . . sole, concurrent or partial negligence . . ., fault or strict liability of [Forest Oil].See Rec. Doc. 37, exhibit D, paragraph 4.1. Coastal additionally agreed to indemnify Forest Oil from and against other claims brought by any other person or entity against Forest Oil arising out of the performance of the master contract or the use by or presence of a Coastal employee on any premises owned and operated by Forest Oil, with the exception of claims attributable solely and exclusively to the negligence of Forest Oil. See id., paragraph 4.2. The master contract also included an insurance provision whereby Coastal was required to procure and maintain insurance policies in favor of Forest Oil.See id., paragraph 3.1. Each policy was to name Forest Oil as an additional insured (with the exception of workers' compensation policies) and waive subrogation against Forest Oil and its insurers. See id. Furthermore, the workers' compensation liability insurance policy issued to Coastal by Ace ("the Ace policy") included a waiver of subrogation clause whereby Ace agreed to waive its subrogation rights in exchange for an extra premium paid by Coastal. See Rec. Doc. 38, exhibit A.
Generally, indemnification and waivers of subrogation clauses in maritime contracts are enforceable under federal maritime law. 1 THOMAS J. SCHOENBAUM, ADMIRALTY AND MARITIME LAW § 7-14 at 476 (3d ed. 2001). However, Ace contends that the indemnification and waiver of subrogation clauses either 1) have been rendered inapplicable by Forest Oil's actions in executing the master contract, and, or, 2) are invalid and unenforceable under the LOAIA.
Ace first argues that the clauses have been rendered inapplicable to the instant case because of the Court's prior holding that Forest Oil is Hudson's "borrowing employer" under the LHWCA. See Rec. Doc. 43. Under the master contract, the parties "expressly understood that [Coastal] is an independent contractor and that neither [Coastal] nor [its] . . . employees . . . are servants,
employers. Id. at 1247-48.
Thus, the inapplicability of the independent contractor clause in the master contract between Coastal and Forest Oil does not require the Court to also conclude that the indemnification and waiver of subrogation clauses must also be inapplicable. Furthermore, Ace cites no authority on point for its contractual interpretation argument. Ace cites Hiern v. St. Paul-Mercury Indemnity Co., 262 F.2d 526, 528 (5th Cir. 1959) for the rule that an indemnitee's false misrepresentations of material fact vitiate any liability owed by an indemnitor under an indemnity agreement. Ace also contends that under Hiern, "any act on the part of an indemnitee which materially increases the risk, or prejudices the rights, of the indemnitor, will discharge the indemnitor under the contract of indemnity." Id. at 529. Ace's problem is that there is no evidence that Forest Oil made any misrepresentations of material fact regarding Hudson's employee status, or acted in any way which caused an increase in the risk, or prejudiced the rights of Coastal and Ace, as indemnitors.
Additionally, it is difficult for Ace to make these legal arguments in light of the express waiver of subrogation clause it included in the Ace policy. Finally, Ace cannot reasonably argue that the parties fully intended Coastal and its employees to be independent contractors in light of paragraph 2.2 of the master contract. In paragraph 2.2, for purposes of Louisiana workers' compensation law, the parties agreed that "Forest [Oil] is the statutory employer of [Coastal's] employees . . . and that Forest [Oil] shall be entitled to the protections that are afforded a statutory employer under Louisiana law." See Rec. Doc. 38, exhibit D. Coastal also agreed to indemnify Forest Oil pursuant to paragraphs 4.1 and 4.2 of the master contract even where an employee of Coastal is also held to be an employee of Forest Oil, whether statutory, special, or "borrowed". See id. Thus, in entering into the master contract, Coastal clearly envisioned a "borrowed employee" relationship between its employees and Forest Oil.
Ace next argues that the indemnification and waiver of subrogation clauses are invalid and unenforceable. Generally, indemnity and waiver of subrogation clauses in maritime contracts are enforceable under federal maritime law. 1 SCHOENBAUM at 476. However, Ace contends that the Court must apply Louisiana law in resolving the validity and enforceability of the clauses in question. Specifically, Ace maintains that the clauses are invalid and unenforceable under the LOAIA, LA. R.S. § 9:2780. Forest Oil and Zurich agree with Ace that the Court must apply Louisiana law to resolve this issue. However, Forest Oil and Zurich contend that under Fontenot v. Chevron U.S.A., Inc., 676 So.2d 557 (La. 1996), the LOAIA does not apply to the clauses in the instant matter. Since both Louisiana and federal maritime law generally allow indemnification and waiver of subrogation provisions, the clauses contained in the master contract and the Ace policy must be upheld.
Forest Oil and Zurich make additional arguments as to the enforceability of the clauses. However, if the Fontenot case is on point and the LOAIA is not applicable, the clauses are valid and enforceable. Therefore, the additional arguments made by Forest Oil and Zurich will not need to be addressed.
The LOAIA was passed in response to the Louisiana legislature's finding that "an inequity is foisted on certain contractors and their employees by the defense or indemnity provisions, either or both, contained in some agreements pertaining to wells for oil . . . to the extent those provisions apply to death or bodily injury to persons." LA. R.S. § 9:2780(A). The legislature's intent behind the passage of the LOAIA was to "declare null and void and against public policy of the state of Louisiana any provision in any agreement which requires defense and/or indemnification, for . . . bodily injury to persons, where there is negligence or fault (strict liability) on the part of the indemnitee, or an agent or employee of the indemnitee, or an independent contractor who is directly responsible to the indemnitee." Id. As the Louisiana Supreme Court stated in Fontenot, the LOAIA "arose out of a concern about the unequal bargaining power of oil companies and contractors and was an attempt to avoid adhesionary contracts under which contractors would have no choice but to agree to indemnify the oil company, lest they risk losing the contract." 676 So.2d at 563.
Subsection B of the LOAIA provides that
[a]ny provision contained in, collateral to, or affecting an agreement pertaining to a well for oil . . . is void and unenforceable to the extent that it purports to or does provide for defense or indemnity, or either, to the indemnitee against loss or liability for damages arising out of or resulting from death or bodily injury to persons, which is caused by or results from the sole or concurrent negligence or fault (strict liability) of the indemnitee, or an agent, employee, or an independent contractor who is directly responsible to the indemnitee.
LA. R.S. § 9:2780(B). Subsection G, which expands upon subsection B and specifically addresses waiver of subrogation provisions, additionally provides that
[a]ny provision in any agreement arising out of the operations, services, or activities listed in Subsection C . . . which requires waivers of subrogation, additional named insured endorsements, or any other form of insurance protection which would frustrate or circumvent the prohibitions of this Section, shall be null and void and of no force and effect.
§ 9:2780(G). Lastly, Subsection I expands the coverage of the LOAIA to "certain provisions contained in, collateral to or affecting agreements" covered by the LOAIA. § 9:2780(I).
The Fontenot court set out a two-part test to determine the applicability of the LOAIA. 676 So.2d at 564. There must be (1) an agreement that "pertains to" an oil, gas, or water well, and (2) that agreement "must be related to exploration, development, production, or transportation of oil, gas, or water. Id. An insurance contract that is ancillary to an agreement such as the master contract satisfies the Fontenot test. Id. Neither side disputes that the master contract and the Ace policy satisfy this two-part test.
In Fontenot, the Louisiana Supreme Court was presented the issue of whether a waiver of subrogation clause contained in a workers' compensation insurance contract fell within the scope of the LOAIA, and if so, whether the purposes of the LOAIA would be promoted by the invalidation of such waiver. Id. The facts of Fontenot are very similar to those underlying the instant case. Fontenot was employed by Hercules Offshore Drilling Company ("Hercules"). Id. at 559. Hercules entered into a workover contract with Chevron, USA, Inc. ("Chevron") to perform remedial well services on Chevron platforms located in the Gulf of Mexico. Id. Hercules, like Coastal, agreed to provide LHWCA insurance for its employees and to waive any subrogation rights it might have. Id. Hercules contracted with Aetna Casualty and Surety Company ("Aetna") to purchase workers' compensation insurance. Id. In the insurance policy, Aetna agreed to waive its subrogation rights in exchange for an increased premium paid by Hercules. Id.
Fontenot was injured in the course and scope of his employment with Hercules while being transferred from a Chevron platform to a transport vessel owned by a third party. Id. at 560. Aetna paid Fontenot's workers' compensation benefits and then intervened in his state court lawsuit against Chevron and two other defendants. Id. at 569. Aetna sought reimbursement from Fontenot for the benefits it had paid. Id. Fontenot settled his claims against the defendants and then filed a motion for summary judgment against Aetna, arguing that Aetna was not entitled to reimbursement because it had waived its right to subrogation under the workers' compensation insurance policy it issued to Hercules. Id. Aetna filed a cross motion arguing that its waiver of subrogation was invalid and unenforceable under the LOAIA. Id. The Louisiana Supreme Court rejected Aetna's argument and held that the LOAIA was inapplicable to the circumstances underlying that case. Id. at 560.
The court in Fontenot began by stating that the LOAIA only invalidates waivers of subrogation "which would frustrate or circumvent the prohibitions of [the act]." Id. at 564. The court concluded that the waiver in question did not frustrate the prohibitions of the LOAIA. Id. The court reasoned that "the [LOAIA's] prohibition of a waiver of subrogation clause only benefits the oil company, or indemnitee, when it is applied in conjunction with an indemnification clause." Id. In that type of case, the oil company, or indemnitee, is relieved from both tort and workers' compensation liability by the contractor and its insurer. Id. "Instead of being liable for either tort damages or workers compensation, the [contractor is] liable for both." Id. This type of set up flies in the face of the purpose behind the LOAIA-which is to "avoid adhesionary contracts under which contractors would have no choice but to agree to indemnify the oil company, lest they risk losing the contract." Id. at 563. However, when Used alone, a waiver of subrogation clause does not create this problem. Id. at 565. Thus, "voiding a waiver of subrogation clause only achieves the purpose of the [LOAIA] when such a clause is sought to be enforced in conjunction with the enforcement of an indemnification clause." Id.
The court then concluded that Chevron never made an attempt to claim indemnification from Hercules. Id. While an indemnity agreement did exist between the two parties, Chevron never attempted to enforce it. Id. Therefore, the Court held that Aetna's waiver of subrogation clause did not frustrate the prohibitions of the LOAIA. Id. Furthermore, the court noted that Chevron was never adjudicated at fault because it settled Fontenot's claims. Id. Chevron would thus not be liable in any way for the payment of Fontenot's damages or reimbursement to Hercules or Aetna for the workers' compensation benefits. Id. There was no shifting of liability under an indemnification clause from Chevron to Hercules and thus no frustration of the purposes behind the LOAIA. Id.
While Fontenot did not involve a "borrowed employee" scenario, it appears that the case is applicable to the instant matter. Both cases involve indemnification agreements between an oil company and a contractor, as well as a waiver of subrogation clause included in a workers' compensation insurance policy. Like in Fontenot, Ace agreed to waive its subrogation rights for reimbursement in exchange for an increased premium paid by Coastal. Ace argues that Fontenot is factually dissimilar because Forest Oil actually made a claim for indemnification from Coastal, where Chevron did not. It is clear that Forest Oil did originally seek indemnification from Coastal for and against Hudson's tort claim. However, Coastal rejected Forest Oil's demand and Forest Oil proceeded to defend the claim on its own. No third-party demand was ever filed against Coastal by Forest Oil. As stated earlier, Hudson's claim against Forest Oil was dismissed with prejudice. Like in Fontenot, Forest Oil was never adjudicated at fault. As a result, there was no shifting of liability under the indemnification clause and Coastal thus was never on the hook for any tort damages suffered by Hudson.
In Fontenot, the court stressed the fact that Aetna received extra compensation from Hercules in exchange for its waiver of subrogation rights. Id. at 565-66. The court stated that "the [LOAIA's] purposes are not served by giving the benefit of the waiver of subrogation to Aetna which was paid for its waiver." Id. at 566.
As in Fontenot, the waiver of subrogation clause in the Ace policy does not appear to frustrate the purposes behind the LOAIA. Therefore, the LOAIA is inapplicable to the instant case. Since Louisiana law and federal maritime law generally uphold indemnification and waiver of subrogation clauses, the clauses at issue in the instant matter must be upheld absent any other grounds for invalidation.
Lastly, Ace argues that under the principles of equitable subrogation it is entitled to be reimbursed by Forest Oil and Zurich. Ace frames the general rule of subrogation as "any person who, pursuant to a legal obligation to do so, has paid directly or even indirectly for a loss or injury resulting from the wrong or default of another, will be subrogated to the rights of the creditor or injured person against the wrongdoer or defaulter." See Rec. Doc. 37, at 8. The problem for Ace is that it cites no cases which support its argument that it can recover under equitable subrogation where it has expressly waived its subrogation rights in exchange for compensation. Thus, Ace's final argument for subrogation also fails.
Conclusion
The indemnification and waiver of subrogation clauses contained in the master contract and the Ace policy are valid and enforceable. Thus, even though Forest Oil was held to be Hudson's "borrowing employer", Ace, as insurer for Hudson's "formal employer" Coastal, is not entitled to reimbursement from Forest Oil and Zurich for the workers' compensation benefits paid to and on behalf of Hudson. Accordingly, Ace's Motion for Summary Judgment should be denied and its intervention claim dismissed with prejudice.
Therefore;
It is HEREBY ORDERED that Intervenor Ace's Motion for Summary Judgment (Rec. Doc. 37) is DENIED.
It is FURTHER ORDERED that Ace's intervention claim against Forest Oil and Zurich is DISMISSED WITH PREJUDICE.