After three decades of developed jurisprudence regarding whether offshore energy services agreements are maritime contracts, the United States Court of Appeals for the Fifth Circuit has replaced the established Davis & Sons test with the Doiron test. Generally speaking, indemnity provisions that indemnify a party for its own negligence are valid and enforceable under maritime law. Many states, including Texas and Louisiana, have anti-indemnity statutes that render some indemnity and insurance clauses void and unenforceable. These statutes have requirements that must be strictly followed for certain, but not all, indemnity and insurance provisions to remain enforceable. Whether an offshore services agreement is a “maritime contract” will determine whether maritime or state law applies, and, in an offshore indemnity dispute, the choice of applicable law can be outcome-determinative.
In its 1990 decision in Davis & Sons, Inc. v. Gulf Oil Corp., 919 F.2d 313 (5th Cir. 1990), the Fifth Circuit established a six-part test to determine whether a contract was maritime or nonmaritime. The questions focused on the nature of the work described in the contract, the type of work actually performed, whether the crew was required to perform the work on a vessel, whether the work performed related to the mission of the vessel, the principal work of the injured worker, and the work the injured worker was performing when injured. Courts also considered the historical treatment of similar contracts in jurisprudence, which, over time, provided some predictability to the choice-of-law question.
In In re Larry Doiron, Inc., 879 F.3d 568 (5th Cir. 2018), the court revisited the test for a maritime contract and created a “simpler, more straightforward” methodology that “places the focus on the contract and the expectations of the parties.” In the en banc opinion in Doiron, the Fifth Circuit trimmed its test to a pair of questions: “Is the contract one to provide services to facilitate the drilling or production of oil and gas on navigable waters?” If so, “does the contract provide or do the parties expect that a vessel will play a substantial role in the completion of the contract?” If yes, then the contract is maritime and its indemnity provisions are likely enforceable.
Recently, in In re Crescent Energy Servs., LLC v. Carrizo Oil & Gas, Inc., 896 F.3d 350 (5th Cir. 2018) the Fifth Circuit considered whether a contract for plug and abandonment and wireline services with a five-person crew and three vessels in Louisiana waters was a maritime contract, in spite of historical jurisprudence which held wireline services were nonmaritime. Following the instruction of the Doiron en banc court, the Fifth Circuit panel in Crescent did not consider the location of the injured worker at the time of the incident. Instead, the court focused on the parties’ intentions and recognition of the need for a vessel. Similarly, in Mays v. C-Dive LLC, C.A. No. 16-13139, 2018 U.S. Dist. LEXIS 128539 (E.D. La. August 1, 2018), the district court held that a contract to provide plug and abandonment services with the use of a dive support vessel was a maritime contract. In both cases, the courts held that the parties expected the use of a vessel to play a substantial role in the completion of the services and the contracts were maritime. Thus, while each case will be decided on its facts, Crescent and Mays are support for finding that a contract to provide plug and abandonment services with the use of a vessel is a maritime contract.
On its face, the Doiron test does appear more straightforward, particularly where contracts for offshore oil and gas services specifically involve the provision of a vessel to enable specific activities. But as the services get further away from a contract that requires the provision of a vessel and instead only involve performing services from a vessel serving as a work platform, the answer is less clear.
The scant jurisprudence under Doiron has not addressed yet whether subcontract agreements to provide services from a vessel would be considered maritime contracts. In Crescent, if the vessel owner had subcontracted the wireline services, would the contract between Crescent and the wireline company be a maritime contract? The wireline services meet the first part of the Doiron test: services to facilitate drilling or production of oil and gas on navigable waters. The second question is more difficult to predict: Does the contract provide or do the parties expect that a vessel will play a substantial role in the completion of the contract? In other words, if a vessel serves as a work platform, does it “play a substantial role” in the completion of separate contracts for services onboard the vessel? If not, a general contractor who provides the vessel may owe indemnity to its customer under its maritime contract and may not be able to enforce indemnity from its subcontractors, whose personnel are likely housed on and work from the vessel.
Being caught “in the gap” on indemnities is not new to general contractors, and some in-house practitioners have come to accept that fact-based tests, whether under Davis or Doiron, will continue to leave general contractors vulnerable to different applicable laws in their contracts for any given project. The Doiron test is a factual inquiry that will render results based on the facts of each case. A new body of jurisprudence, perhaps guided by historical precedence, will develop and provide guidance, affecting parties’ expectations and possibly predictability of outcomes. Until that jurisprudence develops, in-house practitioners and transactional lawyers will have limited visibility on the enforceability of risk allocation provisions.
Cindy Matherne Muller is special counsel at Jones Walker in its Houston office. After serving as in-house and general counsel to oil field service providers for more than a decade, Ms. Muller relies on her in house experience to distill theoretical legal issues into practical advice for in-house practitioners.