Recently, the U.S. Court of Appeals for the Fifth Circuit rendered a decision affecting work on the Outer Continental Shelf. The OCS is an artificial offshore boundary where the United States claims jurisdiction over its use, including the exploration for oil and gas. For Texas, state jurisdiction extends three marine leagues seaward from the baseline from which the breadth of the territorial sea is measured. The Outer Continental Shelf Lands Act (OCSLA), 43 U.S.C. §1331, provides the federal authority to govern and regulate OCS operations and extends at least 200 nautical miles seaward from its baseline. Contracts and incidents on the OCS often create a legal conundrum where maritime, federal and state law interests intersect because offshore operations involve maritime and nonmaritime services. A practitioner advising a client on the enforceability of certain contract provisions must determine the applicable law.
Mixed Contracts Create Mixed Interpretations
Energy exploration, production and transmission of product on the OCS involves the use of vessels and aircraft servicing fixed and floating facilities involved in exploration and production and pipeline construction. The contracts binding the parties involve the coordination of maritime and nonmaritime activities. When a dispute arises, what law applies to the various claims, cross-claims, indemnities and insurance? For example, in 1971, the Fifth Circuit was asked to review an insurance and indemnity issue where a platform crane dropped some cargo on a time chartered vessel injuring a deckhand. Prophetically, Judge Brown began his opinion by stating:
“This is another one of those seagoing donnybrooks in which all generously claim that someone else must bear the burden of amounts paid to a seaman for injuries sustained during a typical offshore drilling operation in Louisiana shelf waters. Aside from the usual complexities arising from impleaders, cross-claims, direct actions against underwriters and demands for indemnity, it is also a case in which the party that wrote the contract claims it does not mean what it says and means what it does not say.”
Lanasse v. Travelers Ins., 450 F.2d 580 (5th Cir. 1971).
In Lanasse, the court held that the time chartered vessel’s P&I policy would not afford coverage to Chevron, the time charterer and platform operator, because Chevron’s primary operation was platform centered and platform negligence. Clearly, the time charter was a maritime contract between it and Chevron, but the claim did not arise from vessel operations. The P&I vessel coverage did not relate to the crane platform services and Chevron’s negligence. It did not matter that the situs of the injury was a vessel.
What law applies to a service contract that includes maritime and nonmaritime elements is important because it affects various remedies. Both Louisiana and Texas have oil field indemnity acts restricting the rights of indemnity. La. R.S. 9:2780; Tex. Civ. Prac. & Rem. Code 127.0003. In 1990, Judge Rubin, for the Fifth Circuit, offered a six-part test in Davis & Sons v. Gulf Oil, 919 F.2d 313 (5th Cir. 1990), to determine whether an offshore oil field services contract was maritime. The test focused on the nature of the work, where the work was performed, the situs where the claim occurred and the intent of the parties in drafting the contract. The test provided guidance but also allowed for either subjective inferences or “a minute parsing of facts.” Hoda v. Rowan, 419 F.3d 379 (5th Cir. 2005).
The Davis & Sons decision was undisturbed for over a decade until the Fifth Circuit recognized in In re Doiron, 879 F.3d 586 (5th Cir. 2018), that Norfolk So. R.R. v. Kirby, 543 U.S. 14 (2004), had established a new test. Kirby involved a dispute arising from a transshipment between rail and water. The question presented to the U.S. Supreme Court was whether admiralty jurisdiction extended to cargo damaged on the rail leg of the delivery. Although the “situs” of the damage was on land, the nature and character or “primary objective” of the contract was a maritime transaction and commerce as reflected in the controlling bill of lading. In determining maritime jurisdiction over the contractual claims, the Supreme Court focused on the contract’s intent rather than the tort situs. The concept of “mixed contracts” providing “mixed services” was disapproved. Every contract should have a primary focus.
Doiron, followed the Kirby rationale. It involved a master service agreement to provide flow back services on a platform gas well located in OCS waters. A crane barge was used to lift equipment into place on the platform. In a “reverse Lanasse” scenario, the vessel crane struck a worker on the platform. Indemnity demands were exchanged. The application of maritime law to the contract would favor insurance and indemnity. In an en banc opinion, Judge Davis concluded that the contract providing the well services was not maritime. The new Kirby-inspired test asked, (1) Is the contract to provide services to facilitate the drilling or production of oil and gas on navigable waters? and (2) If yes, is it anticipated that a vessel will play a substantial role in the completion of the contract? The test focused on the nature of the contract and not the situs of the tort. Although the Doiron test is simplified, it is likely that the parties will still dispute the nature of the services and the substantial role of the vessel and lean back on the Davis & Sons factors. Whether the Doiron test will simplify litigation or harken back to Davis & Sons factors where services are truly mixed and not incidental is yet to be determined. Contracts involving maritime and nonmaritime services on the OCS require an analysis of the intent and focus of the operations.
A partner in Jones Walker’s Admiralty and Maritime Practice, Grady S. Hurley has focused on maritime, oil field, and energy litigation since 1979. In his maritime practice, Hurley has engaged in both brown water, offshore, and blue water litigation. He is also a certified mediator focused on maritime, offshore industry, and energy disputes.
Robert T. Lemon II is also a partner in Jones Walker’s Admiralty and Maritime Practice. He has more than 30 years of experience in both litigation and transactions, handling all aspects of domestic and international maritime law.