ACC Houston Chapter Meeting

Transcription

1 ACC Houston Chapter Meeting Indemnities and Insurance: Managing Risks Via Contracts in the Post-Macondo World April 9, 2013

2 Panelists Lisa Brown Managing Counsel, Oxy Permian Former outside counsel. Received her Bachelor and Juris Doctor degree from the University of Texas. John Eldridge Partner, Haynes and Boone, LLP 30 years of experience in environmental transactional, litigation and regulatory practice. Represents clients in contract negotiations and disputes Argued several appeals before the Fifth Circuit and tried cases in various courts. Received his Bachelor of Arts from Rice University and his Juris Doctor from the University of Texas. 2

3 Panelists Continued Micah Skidmore Partner, Haynes and Boone, LLP Represents policyholders in significant insurance coverage disputes. Advises clients on the insurance implications of corporate transactions, including mergers and acquisitions. He obtained his Bachelor of Science and his Juris Doctor from Brigham Young University. Jessica Rivera Associate, Haynes and Boone, LLP Worked one year in-house for a power plant and marine engine supplier. Proficient in Spanish and Portuguese. She obtained her Bachelor of Arts from Messiah College and her Juris Doctor from Duke University. 3

4 Risks and Contracts Risk has changed: nature and scope - Macondo incident - $50 Billion?? - Multiple parties - Government/political responses - Litigation ongoing 4

5 Contracts Address Risks Multiple types (service, drilling, transportation, cleanup, etc). Indemnity and release clauses are key features. Insurance contracts are also a key to risk management. Macondo rulings affect energy industry most, but also other situations where the rulings have effect. 5

6 Discussion Plan Re-cap the recent rulings. Discuss reactions in the industries and how contract terms are being re-evaluated. Identify key distinctions of Texas and New York law. Describe the changes in the insurance landscape. 6

7 Type of Damage Arising from Third Party Indemnity Claims Enforceability of Indemnity Claims Recent Macondo Litigation Rulings Based on Maritime Law Negligence or Strict Liability Level of Negligence/Culpability Gross Negligence Intentional/Willful or Fraud Compensatory / Actual Damages for Common Law Tort Claims (including personal injury, property damage, and unseaworthiness) Yes if expressly stated in the contract that indemnifying party is responsible even if claim arises from indemnified party s negligence. Yes if expressly stated in the contract that indemnifying party is responsible even if claim arises from indemnified party s gross negligence. No always against public policy. Punitive Damages for Common Law Tort Claims (including personal injury, property damage, and unseaworthiness) [Punitive damages are usually not available for ordinary negligence] No always against public policy. No always against public policy. Civil Penalties Under the Clean Water Act ( CWA ) No always against public policy. No always against public policy. No always against public policy Damages Under the Oil Pollution Act Yes if expressly stated in the contract that indemnifying party is responsible even if claim arises from indemnified party s negligence. Yes if expressly stated in the contract that indemnifying party is responsible even if claim arises from indemnified party s gross negligence. No always against public policy. 7

8 What Does the Duty to Indemnify a Party Include? Recent Macondo Litigation Rulings Issue Answer Payment of attorneys fees to prove that the party has a right to be indemnified? No, unless expressly stated in the contract. When does the indemnifying party have to pay or begin paying the indemnified party s attorneys fees? Not until the final determination of the claims on the merits, unless expressly stated otherwise in the contract. 8

9 Industry Reactions to Macondo and Trends in Contract Drafting More specificity in wording what is included in environmental indemnities (pollution, clean-up, etc.). More attention to indemnities for fines and penalties arising out of statutory violations. Service companies want pollution liability limited to pollution: Actually caused by the service company. Emanating from service company s equipment. Located above-ground. Service companies cap on certain types of liability: Example: Caps on liability for gross negligence and willful misconduct. Are these caps legally enforceable? 9

10 Enforceability of Indemnities Under Texas Law Texas courts generally enforce indemnity agreements except where: The provision violates the constitution or a statutory duty. Agreement violates public policy. 10

11 Fair Notice Requirements Express Negligence Doctrine: Must express intent to indemnify for other party s negligence in unambiguous terms within the four corners of the document. Conspicuous: A reasonable person would notice the language. Capital headings Large font Contrasting type or color 11

12 Exception to Fair Notice Requirements Proof of Actual Knowledge Fair Notice Requirements are irrelevant where there is proof of actual knowledge. Evidence that a party read the agreement is evidence of actual knowledge: Proof that a party requested or made changes to an agreement s language could prove actual knowledge. RLI Ins. Co. v. Union Pacific Railroad Co., 463 F.Supp.2d 646, 650 (S.D. Tex. 2006). 12

13 Enforceability of Indemnities for a Party s Gross Negligence Enforcement of indemnity for gross negligence does not offend public policy when parties are sophisticated and bargain from positions of substantially equal strength. Two different outcomes based on bargaining power of parties: Valero Energy Corp. v. M.W. Kellogg Const. Co. Smith v. Golden Triangle Raceway 13

14 Valero Energy Corp. v. M.W. Kellogg Const. Co. 866 S.W.2d 252 (Tex. App. Corpus Christi 1993, writ denied) Valero hired Ingersoll-Rand and Kellogg to supply machinery for a refinery expansion. A piece of this machinery failed and exploded, causing extensive damage to the Valero plant. The Court upheld a provision disclaiming all of the contractor s liability for negligence, despite Valero s contention that the clause was unconscionable. Parties were both represented by counsel, they had engaged in extensive negotiations, and they had equal bargaining power. Indemnity agreement did not expressly state gross negligence. 14

15 Smith v. Golden Triangle Raceway, 708 S.W.2d 574 (Tex. App. Beaumont 1986, no writ). In order to be a spectator in the pit of a raceway, Jerry Smith had signed a document releasing the race promoter for negligence and gross negligence. The release was upheld with respect to the race promoter s ordinary negligence. Court held that the release for gross negligence was unenforceable because it violated public policy. 15

16 Enforceability of Indemnity Agreements under New York Law Indemnity agreements are usually enforceable unless they are: Prohibited by statute (construction anti-indemnity statute) Against public policy 16

17 Language Requirement: Clear and Unmistakable Intent to Indemnify Enforceable provisions: any and all loss occasioned directly or indirectly by the act of the negligence of the indemnitor or otherwise. against any and all liability including any and all expense, legal or otherwise. Unenforceable provision: other obligations and liabilities arising in the ordinary course of business. 17

18 Distinction Between Release and Indemnity Release deprives the contracting party of the right to recover for damages suffered as the result of the exonerated party s tortious act. Indemnity Contracts shift the source of compensation without restricting the injured party s ability to recover. 18

19 Enforceability of Releases and Indemnities under New York Law for Negligence, Gross Negligence and Willful Misconduct Type of Claim Release Indemnity Negligence Yes Yes Gross Negligence Compensatory Damages Gross Negligence Punitive Damages No No Yes No Willful Misconduct No No 19

20 Interplay Between Insurance & Indemnity Does the scope of additional insured coverage depend on the underlying indemnity? If the underlying indemnity is unenforceable, what is the effect on the supporting insurance? What coverage does a general liability policy provide for contractual liability? 20

21 Additional Insured Coverage & Indemnity In re Deepwater Horizon, F.3d (5th Cir. Mar. 1, 2013) The scope of additional insured coverage: Determined by insurance policy terms Not underlying indemnity contract Separate and independent insurance and indemnity provisions Need not be physically separate Insurance provision can mandate coverage for contractual liabilities What if insurance and indemnity provisions are not separate and independent? 21

22 Unenforceable Indemnity & Insurance Texas Law Getty Oil Co. v. Ins. Co. of N. Am., 845 S.W.2d 794 (Tex. 1992) Mid-Continent Cas. Co. v. Swift Energy Co., 206 F.3d 487 (5th Cir. 2000) Texas Oilfield Anti-Indemnity Act Mutual indemnity enforceable up to the lowest limit of insurance obtained by indemnitor. Unilateral indemnity enforceable up to $500,000. No effect on validity of insurance contracts. Consolidated Insurance Programs (TEX. INS. CODE , et seq.) Indemnity in construction contracts for indemnitor s conduct void and unenforceable. Additional Insured coverage unenforceable if required to support unenforceable indemnity. Other Jurisdictions 22

23 Coverage for Contractual Liability Standard Contractual Liability Exclusion Exception for liability in the absence of a contract or agreement Liability assumed under an insured contract Gilbert Tex. Constr., L.P. v. Underwriters at Lloyd's, London, 327 S.W.3d 118 (Tex. 2010) Ewing Constr. Co. v. Amerisure Ins. Co., 2012 U.S. App. LEXIS (5th Cir. Tex. June 15, 2012) 23

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