Avoiding unexpected costs and litigation requires a thorough understanding of industry and state-specific regulations such as the Louisiana Oilfield Anti-Indemnity Act (LOAIA).
Not knowing how laws from different states can affect existing agreements can result in significant costs — both litigation costs and potentially out-of-pocket claims costs.
Louisiana Oilfield Anti-Indemnity Act
Enacted in 1981, the LOAIA prohibits the defense or indemnification of an indemnitee’s negligence or fault that causes bodily injury or death in agreements concerning a well for oil, gas or water, or drilling for minerals (La. R.S. 9:2780). It does not, however, prohibit indemnification for property damage.
The LOAIA also prohibits agreements requiring any form of insurance protection that would sidestep the prohibition of the defense or indemnification of an indemnitee’s negligence. An important exception to this is the "Marcel Exception," which allows the indemnitee to be named as an additional insured on the indemnitor’s policy, provided that the indemnitee covers the material costs for this benefit (Marcel v. Placid Oil Co., 11 F.3d 563, 569–70 (5th Cir. 1994)).
Contracts covered by LOAIA
The LOAIA’s definition of what counts as a mining or O&G contract is broad. Some specific examples provided by the LOAIA include drilling, repairing, plugging, excavating, constructing or otherwise rendering services in connection with any well drilled or any mineshaft, drift or other structure for use in the exploration or production of oil, gas, water or other minerals — including contracts to furnish or rent equipment, incidental transportation or other goods and services furnished in connection with the well or mine services.
This broad definition of what counts as an O&G or mining contract led to an inconsistent application of the LOAIA. Accordingly, in order to achieve a more consistent application of the LOAIA, courts now use a two-step analysis. Agreements should (1) "pertain to" an oil, gas or water well and (2) be related to the exploration, development, production or transportation of oil, gas or water (Transcon. Gas Pipe Line Corp. v. Transp. Ins. Co., 953 F.2d 985 (5th Cir.1992)).
The LOAIA specifically does not govern contracts related to public utilities, forest and sulphur industries, bodily injury or death arising from radioactivity, a wild well or other pollution events, indemnity provisions related to property damage, operating agreements, farmout agreements or activities related to the protection of the public.
Navigating oilfield anti-indemnity laws
Being unaware of the nuances of industry and state-specific statutes affecting a company’s contracts can lead to unexpected costs and litigation in the event of a claim, placing the future of a company in jeopardy.
When partnering with Higginbotham in the contract review process, a company will obtain the needed tools to make informed decisions about accepting risk in contracts, transactions and operations to understand which risks can be insured and which cannot. With Higginbotham’s seasoned team of contract analysts standing in a company’s corner, it can rest easy knowing it’s working with some of the best in the business.
For more information, visit higginbotham.com.
