Presenting a live 90-minute webinar with interactive Q&A Oil & Gas Contracts: Structuring Indemnification and Additional Insured Provisions Navigating Anti-Indemnity Statutes and Negotiating Risk Allocation TUESDAY, DECEMBER 2, 2014 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: John H. Denton, Senior Vice President, Marsh USA , New York Harold J. Flanagan, Attorney, Flanagan Partners , New Orleans C. Brannon Robertson, Partner, King & Spalding , Houston Marcus R. Tucker , Partner, Royston Rayzor , Houston The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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Oil & Gas Contracts: Structuring Indemnification and Additional Insured Provisions Risk sk Al Allocati cation on Terms s and d Ch Choice ce of L f Law December 2, 2014 Haro rold ld J. Flanag agan an F LANAGA GAN P ARTNERS LLP LLP
Risk Allocation Terms 6
Terms such as “indemnity” and “arising from” are used casually But there are important differences among risk allocation terms Using the wrong term creates risk Learn the vocabulary and the nuance of each term 7
Common risk shifting terms: ◦ Indemnify ◦ Release ◦ Hold harmless ◦ Defend Scope terms: ◦ “For” ◦ “Arising from” ◦ “Related to” 8
Narrow Broad “Arising “Related “For” from” to” 9
Broad reciprocal – includes contractors and subcontractors Narrow – each party responsible for its own employees and property Variations – modified reciprocal; fault-based reciprocal; hybrid Fault- based or “at law” – not really risk allocation Type I, II, III – based on the degree of fault to be considered 10
Pass through indemnity Carve-outs “Catastrophic” or “special” events 11
Know the terms Use the right term to meet the common intent “Chalk talk” or whiteboard the provision Will it work the way you expect? 12
Choice of Law 13
Basic considerations Restatement approach OCSLA Maritime Special issues 14
Selection of applicable law should not be made mechanically, i.e. , the law of the parent company’s headquarters Serious consideration must be given to the effect of the chosen state’s law: ◦ anti-indemnity acts ◦ implied warranty law ◦ the location of the majority of work or contacts ◦ whether that selection of law will be enforceable under state law Applicable law can easily mean success or failure 15
Parties are generally free to insert a choice of law provision in a contract, however choice of law provisions are not absolute Most states follow the Restatement (Second) of Conflicts of Law Restatement 187: 1. The law of the chosen state will be applied if the parties could have inserted a specific and valid provision in the contract (instead of selecting a certain state’s law) 16
If there is a conflict between the chosen law and the forum, the chosen law will be upheld unless: Lack of substantial relationship, or 1. Contrary to a fundamental public policy of a state 2. which has a materially greater interest 17
State with most signification relationship to the parties and the transaction using Section 188 factors State with most significant relationship to the issue has a “materially greater interest” than chosen state If state with most significant relationship does not have a materially greater interest than the chosen state: ◦ choice of law provision is upheld If state with the most significant relationship has materially greater interest: ◦ court decides whether law of chosen state would be contrary to a “fundamental policy” of state with most significant relationship 18
State law applies as surrogate federal law if each of the following is satisfied: OCSLA “ situs ” ◦ Focus-of-the-contract test ◦ Where most of the work is to be performed ◦ Location of underlying tort unimportant Federal maritime law does not apply State law not inconsistent with federal law Super choice of law clause 19
Consider: ◦ Geographic proximity ◦ Federal agency determinations ◦ Extension of traditional boundaries ◦ Prior court decisions Do not consider: ◦ Evidence of the parties’ intent 20
Must be a link between the contract services and the operation of a vessel ◦ Contractor need not provide a vessel ◦ Involvement of a vessel is not determinative 21
Personal Injury ◦ Davis & Sons Part 1 – historical treatment Part 2 What does the specific work order in effect at the time of the injury 1. provide? What work did the crew assigned under the work order actually do? 2. Was the crew assigned to work aboard a vessel in navigable waters? 3. 22
To what extent did the work being done relate to the mission of that 4. vessel? What was the principal work of the injured worker? 5. What work was the injured worker actually doing at the time of the 6. injury? Property Damage ◦ Principal obligation of the contract? 23
Lewis, Theriot, Dupre, Dupont – contract to provide drilling services aboard a special purpose vessel is maritime Corbitt, Campbell, Demette – contract to provide casing services aboard a vessel provided by another party is maritime Lefler – contract to provide catering services on a fixed platform and cleaning services on a vessel adjacent to the platform is maritime where claim arises out of latter obligation Hoda - torquing down BOP stacks from jack-up drilling rig used as a work platform 24
Thurmond – contract to provide wireline services on fixed structures using a transportation barge is non-maritime Laredo – contract to construct a stationary platform is non- maritime Union Texas Petroleum – contract to construct an offshore pipeline is non-maritime Alleman – contract to provide helicopter services is non- maritime 25
Product liability claim Damage caused when defective crane dropped platform module in GOM All parties assume maritime law applies Fifth Circuit concludes there is OCSLA jurisdiction Maritime law held not to apply – not related to maritime commerce 26
Maritime Choice of Law Clause OCSLA – unenforceable Non-OCSLA – depends State Choice of Law Clause Maritime – enforceable OCSLA – unenforceable State – apply conflicts of laws rules 27
Multi-state; wet and dry operations ◦ Alternate provisions? New Mexico ◦ No relief ◦ Plan for indemnity not to work ◦ Forum Wyoming - Seems to allow application of Texas law Louisiana – Cannot contract out of LOIA 28
Belt and suspenders approach ◦ Savings/severability clause ◦ Alternative provisions ◦ Specify that the law chosen is the “substantive law of the state, exclusive of its conflicts of law principals.” 29
Identify the potentially applicable law Apply law for all circumstances Have a back-up plan 30
“ Everybody has a plan until they get punched in the face.” - Mike Tyson 31
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