party to a contract will ultimately bear
the risk of injury to a third party.
Under maritime law, express indemnity
provisions are generally enforceable.
However, indemnity clauses that
relieve a party from liability for its
own negligence must be “specific
18 and stated in clear
and unequivocal terms.
19 A more
difficult question, however, is whether
indemnity provisions will be enforced
with respect to gross negligence.
The courts are split on this issue.
The law applicable to an indemnity
provision could potentially shift
billions of dollars of liability between
parties, notwithstanding the express
terms of the contract providing
indemnification for gross negligence.
In the litigation between Transocean
and BP associated with the Macondo
Well blowout, the U.S. District Court
for the Eastern District of Louisiana
was asked to determine whether the
indemnity agreement between the
parties was enforceable under maritime
law with respect to damages caused
by Transocean’s gross negligence.
The court noted that the “issue
creates tension between two policies:
freedom of contract, which weighs
in favor of enforcing the indemnity,
and a reluctance to encourage grossly
negligent behavior, which weighs
against enforcing the indemnity.”
The court ultimately found, inter
alia, that because the indemnity
provision was reciprocal and that the
parties had roughly equal bargaining
power, public policy would not bar
Transocean’s indemnity from BP
in the event that Transocean was
found to be grossly negligent.
to indemnify a person for his or her
own negligence is generally void:
a covenant, promise, agreement, or
understanding contained in, collateral
to, or affecting an agreement pertaining
to a well for oil, gas, or water ... is void
if it purports to indemnify a person
against loss or liability for damage that:
ordinary negligence in performance
of contractual duty.30 In the 5th Circuit,
such releases may even provide
for complete exculpation, thereby
releasing the party from any and all
claims caused by its negligence.
contrast, some jurisdictions, including
the 1st and 11th Circuits, require that
releases be supported by some potential
liability to the releasee to enforce such
provisions (i.e., a damages cap).
respect to releases for gross negligence,
however, it is generally held that
such releases are unenforceable.
However, other courts, including the 9th
and 1st Circuits, have determined that
indemnities for gross negligence are
24 Thus, if the Macondo
Well blowout had occurred in Alaska
and 9th Circuit law was determined
to apply, the indemnity provisions
for gross negligence would likely
have been invalidated, shifting any
damages from such conduct back to
Transocean. Thus, the law applicable to
an indemnity provision could potentially
shift billions of dollars of liability
between parties, notwithstanding the
express terms of the contract providing
indemnification for gross negligence.
( 1) is caused by or results from the sole
or concurrent negligence of the
indemnitee, his agent or employee,
or an individual contractor directly
responsible to the indemnitee; and
( 2) arises from:
(A) personal injury or death;
(B) property injury; or
(C) any other loss, damage, or
expense that arises from personal
injury, death, or property injury.
As shown by the Macondo Well blowout,
oil and gas operations on the OCS
have the potential to cause billions of
dollars worth of damages. While parties
can attempt to allocate the risk among
themselves through indemnities and
releases, their attempts may be frustrated,
depending on the law applicable to such
provisions. As a result, the selection of
applicable law under a contract may end
up being a multibillion dollar decision. J
While indemnity agreements subject
to the TOAIS are generally void to
the extent they indemnify a person
for negligence, the TOAIS does not
apply to such an agreement in which
the parties agree in writing that the
indemnity will be supported by liability
27 If the agreement
provides for mutual indemnity
obligations, the indemnity obligation
is limited to the extent of the coverage
and dollar limits of insurance;
the agreement provides a unilateral
indemnity obligation, the amount of
insurance may not exceed $500,000.29
Accordingly, while a party can receive
indemnification for negligence under
the TOAIS, that indemnification
obligation is limited to the amount
of insurance. In the event of a large
disaster similar to the Macondo
Well, the insurance coverage would
likely be woefully insufficient.
Texas has specifically addressed the
limits and enforceability of indemnity
provisions in agreements that involve
an oil or gas well. Under the Texas
Oilfield Anti-Indemnity Statute (TOAIS),
an indemnity provision that seeks
Under maritime law, it is generally
held that parties may obtain a release
from liability for harm caused by their
1 To date, BP PLC has stated that it has spent
approximately $22.1 billion related to the
Macondo Well blowout. See online.
(last visited May 10, 2012).
2 The OCS begins about three to nine
nautical miles offshore and extends
for approximately 200 miles.
3 Roberts v. Energy Dev. Corp., 104 F.3d 782,
786 (5th Cir. 1997) (“OCSLA ... essentially acts
as a choice-of-law [provision] trump card.”).
4 The “adjacent state” is defined by OCSLA as “the
state that would house the seabed or structure
in question if the state’s boundaries were
extended seaward toward the outer margin of
the Outer Continental Shelf. 43 U.S.C. § 1333(a)
( 2)(A). See also Snyder Oil Corp. v. Samedan Oil
Corp., 208 F.3d 521, 523-24 (5th Cir. 2000).
5 Demette v. Falcon Drilling Co., 280 F.3d 492, 497
(5th Cir. 2002); Union Texas Petroleum Corp. v.
PLT Eng’g, Inc., 895 F.2d 1043 (5th Cir. 1990).
6 This article focuses on the application of
OCSLA and maritime law and does not
address other federal laws that may be
applicable under certain circumstances,