Legal Watch: Volume 5

Prepared by William H. Bode
Bode & Grenier, LLP
1150 Connecticut Ave., NW
Washington, D.C. 20036
Telephone: 202-862-4300 | Email: wbode@bode.com

SUBCONTRACTOR NOT REQUIRED TO INDEMNIFY PROPERTY OWNER FOR LIABILITY RESULTING FROM OWNER'S NEGLIGENCE

Case Summary: In 2000, James Blackmon, an employee of M-I, LLC, was injured while working on the Chevron Genesis Spar, a work platform. M-I, LLC was a Chevron subcontractor at the time of the incident. On June 29, 2000, Blackmon sued Chevron and M-I in Louisiana, alleging that they were at fault for the accident that caused his injuries. Chevron requested defense and indemnity from M-I in accordance with a Master Service Agreement between the companies that contained indemnity provisions. M-I notified its insurer, AIG. AIG informed Chevron that it believed the indemnity provisions of the Master Service Agreement to be invalid, and settled Blackmon's claims for $2 million. In February 2002, AIG sued Chevron to recover the settlement amount and attorneys' fees. AIG contended that, under Louisiana law, the indemnity provisions of the Master Service Agreement do not apply if Chevron was negligent or at fault for Blackmon's injuries. The United States Court of Appeals ruled against Chevron on February 10, 2005. The Court stated that, under Louisiana law, the indemnity provisions of the Master Service Agreement do not apply if Chevron was negligent or at fault for Blackmon's injuries. Therefore, AIG can recover the settlement amount and attorneys' fees if it proves that Chevron was at fault.

LESSON: The inclusion of indemnity provisions in Master Service Agreements and other contracts is advisable. However, it is vital to retain competent counsel to determine what, if any, state laws limit indemnity provisions and expose companies to liability for workers' injuries despite clear indemnity provision. This is particularly important as the law of some states permits an insurer to settle a worker's claim, and later seek reimbursement for the settlement amount and attorneys' fees from the property owner. (American Home Assurance Company, et al., v. Chevron, USA, et al.)

OIL AND GAS PLATFORM OWNER NOT LIABLE FOR INJURIES TO SUBCONTRACTOR BECAUSE OWNER DID NOT GIVE ON-SITE ORDERS

Case Summary: On November 2, 2000, Dalton Arsement, Jr. was injured when working aboard an oil and gas production platform owned by Spinnaker in the Gulf of Mexico. While Arsement, an independent contractor, was assisting in the installation of a prefabricated sump-deck, a 500-pound block crushed his foot. The block was utilized as part of a block and tackle rigging lifting the 6-ton sump deck. Arsement sued Spinnaker, claiming that the owner provided an unsafe working environment. Arsement also sued several Spinnaker subcontractors. A Texas jury awarded Arsement $2.5 million against Spinnaker and the subcontractors on January 27, 2004. On February 9, 2005, the United States Court of Appeals overturned the jury's decision and Spinnaker's portion of the $2.5 million award. The Court of Appeals overturned the jury's decision because Spinnaker did not "give on-site orders or provide detailed instructions" regarding the work that injured Arsement. Therefore, the Court reasoned, Spinnaker was not liable for Arsement's injuries.

LESSON: Companies are generally responsible for the injury of independent contractors on their property only when the company retains control of the manner and method of the contractor's work. Companies should ensure that all work performed under their control by independent contractors is safe. In addition, companies should explicitly refuse to give on-site orders or provide detailed instructions to independent contractors whose safety and work the company does not wish to supervise. (Arsement, Jr., et al., v. Spinnaker Exploration Company, LLC, et al.)

BUYER OF ABANDONED SERVICE STATION ELIGIBLE FOR INSURANCE COVERAGE EVEN THOUGH POLLUTION DISCHARGE DISCOVERED AFTER INSURANCE POLICY EXPIRED

Case Summary: The buyer of an abandoned service station in Florida purchased a $1 million petroleum liability policy from Commerce and Industry Insurance Company for the period from September 3, 1997 to September 3, 1998. On September 15, 1998, after the policy expired, a large petroleum discharge was discovered by Pipeline Industries, the company removing the underground tanks. Pipeline Industries reported the discharge to the Florida Department of Environment (DEP) and, thereafter, the Buyer applied to the DEP for restoration coverage under the Florida Petroleum Liability and Restoration Program (FPLRIP). The DEP denied "first dollar coverage" of $150,000 ruling that no private insurance coverage for costs over $150,000 was in effect when the Buyer registered with the FPLRIP, as required by regulation. The Florida Court of Appeals reversed and held that the policy with the private insurance carrier was an "occurrence" based policy. Because evidence at trial showed the discharge occurred prior to September 3 (when the policy expired), the excess insurance policy provided coverage. The Court reasoned that it was not material that the policy had expired when the discharge was first discovered, so long as coverage existed. The Court concluded that because the requirement for excess insurance under the FPLRIP was satisfied, the FPLRIP must pay the first $150,000 in restoration costs.

LESSON: The evidence critical to the finding of the Court - that the discharge occurred prior to September 3, 1998 - was actually presented not by the Buyer, but by the Seller who had intervened in the proceeding. Specifically, the Seller retained a professional engineer whose testimony was accepted on the time of discharge. When property is sold where contamination may be an issue, the sales agreement should require that the buyer notify the seller upon the filing of a release report with any environmental authority. By so doing, the Seller can make sure its interests are protected. (Sullivan, Jr. St. Augustine Trust v. Florida Department of Environmental Protection, et al.)

Please address any comments or questions to Mr. Bode at 202-862-4300 or wbode@bode.com.

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