Seth Blackledge August 24 2022 Knock-for-knock provisions and maritime law Wilson Elser | Shipping & Transport - USA Seth Blackledge Shipping & Transport By and large, express reciprocal indemnity agreements, if they are properly written and absent a statutory or judicial precedent to the contrary, are enforced under general maritime law, even if they serve to protect a party from its own negligence. Under general maritime law, a contract of indemnity must clearly and unequivocally show that the parties intended to afford protection to an indemnitee against the consequences of its own negligence.(1)The judicial rulings in towage cases are quite different. The US courts hold that a clause in a towing contract purporting to release the tug from liability for the tug's negligence is invalid and unenforceable.(2) However, parties now invariably achieve a similar result by arranging for cross-insurance endorsements in which the tug is named as an additional insured and subrogation is waived. The "express negligence" rule also applies where there is concurring negligence of the indemnitor and the indemnitee.In Young v Kilroy Oil Co of Texas, Inc, the First Circuit Court of Appeals of Texas stated that federal law on indemnity provides that:[a] contractual provision should not be construed to permit an indemnitee to recover for his own negligence unless the court is firmly convinced that such an interpretation reflects the intentions of the parties. This principle . . . is accepted with virtual unanimity among American jurisdictions.(3)The knock-for-knock provisions are thus typically intended to apply regardless of fault. However, federal courts applying general maritime law feel that it is against public policy to be indemnified for gross negligence or wilful misconduct. Several judgments acknowledged such an approach, but there is also authority to the contrary. In the latter context, a decision issued by the US District Court for the Southern District of Texas in Energy XXI, GOM, LLC v New Tech Engineering addressed the problem of whether an indemnity under a master service agreement governed by US maritime law would be enforceable in the event of gross negligence.(4)In considering the issue, the Court found more support for the position that, under general maritime law, an indemnification clause purporting to exempt a party from liability for its own gross negligence is invalid, rather than viewing such clauses as an appropriate means of risk shifting.(5) In a seemingly fatalistic blow to companies in the offshore industry, the Court held "that the indemnity provision in this case, to the extent it encompasses claims for gross negligence, is unenforceable".(6)However, the Energy XXI decision is of questionable precedential value since it was issued by a lower court and focused on the wording of a specific indemnity provision. On the other hand, a decision on a summary judgment motion in the "Deepwater Horizon" litigation held that the pollution indemnity in the drilling contract, which was governed by US general maritime law, would be applicable even in the event of gross negligence.(7) However, according to the Court's later order, issued in relation to partial summary judgment cross-motions in the BP/Halliburton Macondo litigation, public policy would not permit indemnification in the case of fraud, given that fraud involves wilful misconduct exceeding gross negligence.(8)For further information on this topic please contact Seth Blackledge at Wilson Elser by telephone (+1 312 704 0550) or email ([email protected]). The Wilson Elser website can be accessed at www.wilsonelser.com.Endnotes(1) G Hughes, Fundamentals of American law, New York 1996, p 13, 50 836 F Supp 411, 412 (SD Tex 1993).(2) See Bisso v Inland Waterways Corp, 349 US 85 (1955).(3) Young v Kilroy Oil Texas, 673 SW2d 236 (Tex App 1984).(4) Energy XXI, Gom, LLC v New Tech Engineering, LP, 787 F Supp 2d 590, 597 (SD Tex 2011).(5) See, eg, id.(6) Id at 608.(7) In re Oil Spill by the Oil Rig "Deepwater Horizon" in the Gulf of Mexico, 2012 WL 246455 (ED La 2012).(8) Id.