The Fifth Circuit standard for determining whether a contract is maritime in nature has often been criticized by practitioners and members of the court for its complexity. In a January 8, 2018, en banc decision, the court lessened that complexity, announcing a new two-part test to determine the nature of such contracts. The new test carries important implications because if the contract is determined to be non-maritime in nature, state law rather than maritime law will likely apply, carrying with it the possibility of negating indemnity obligations between the parties under state anti-indemnity acts.
In a unanimous en banc opinion authored by Judge Davis, the Fifth Circuit examined its prior jurisprudence surrounding determination of whether a contract is maritime or non-maritime in nature, and adopted a new and streamlined test grounded in the United States Supreme Court opinion in Norfolk Southern Railway Co. v. Kirby.
In Larry Doiron, Inc., the court addressed a factual scenario in which Apache Corporation (“Apache”) entered into a blanket master services agreement with Specialty Rental Tools & Supply, L.L.P. (“STS”) that included an indemnity agreement in favor of Apache and its contractors. Apache then instructed STS to perform flow back services on a gas well in navigable waters off the coast of Louisiana. A stationary platform was to be used to access the gas well, and neither Apache not STS anticipated a vessel would be necessary to perform the work. Complications were encountered that required Apache to engage a barge with a crane to lift heavy equipment. While moving the equipment, the crane struck and injured an STS employee.
The crane contractor filed a limitation of liability suit in which the injured employee filed a claim. The crane contractor then filed a third-party action, as Apache’s contractor, seeking indemnity from STS. The district court determined that maritime law applied and affirmed STS’s indemnity obligation. The original Fifth Circuit panel decision affirmed the district court’s judgment, after which the Fifth Circuit granted en banc review.
In its en banc opinion, the court recognized the important implications of its decision: if maritime law applied, the indemnity was enforceable; if maritime law did not apply, Louisiana law would apply making the indemnity agreement void as against public policy under the Louisiana Oilfield Indemnity Act (“LOIA”).
After acknowledging the court’s own criticism of its prior six-inquiry test for determining the nature of a contract for offshore services, the en banc court announced a new, streamlined two-part test based upon the following questions:
- Is the contract one to provide services to facilitate the drilling or production of oil and gas on navigable waters?
- If the answer to question 1 is yes, does the contract provide or do the parties expect that a vessel will play a substantial role in the completion of the contract?
Only if the answer to both questions is yes will the contract be considered maritime in nature. In the instant case, the court noted that neither Apache not STS anticipated that a vessel would be required to complete the contracted work. Therefore, the contract was determined to be non-maritime, and STS was excused from its indemnity obligations under the LOIA.
This opinion will have obvious implications for the determination of indemnity obligations. Importantly, the court indicates that if a vessel is involved, the test would lean toward maritime law. For example, if access to the gas well had been from a dynamically positioned vessel rather than a fixed platform, the result may have been different. Thus, while simplifying the test, parties will still need to perform a fact specific inquiry to understand the implications of the test in any given situation.
Client Alert 2018-013