5th Circuit Simplifies Test to Determine if a Service Contract for an Offshore Gas Well Is Subject to Maritime Law

The United States Court of Appeals for the Fifth Circuit issued an opinion that simplifies the test to determine when maritime law applies to service contracts relating to the production of oil and gas in navigable waters. Under the new two pronged test, a services contract is subject to maritime law when: 1) the contract is for providing services to facilitate production of oil and gas in navigable waters; and 2) the contract provides or the parties expect that a vessel will play a substantial role in performing the services.  If both are present, maritime law applies.

Contracts Should Indicate Whether or Not a Vessel Is Expected to Play a Substantial Role

Parties that make contracts for services to facilitate oil and gas production in navigable waters should consider if they expect a vessel to play a substantial role in performing the services.  Stating explicitly in the contract whether or not a vessel is expected to play a substantial role will make it easier to determine the law that will apply to the contract.

Crane Barge Supplier Could Not Enforce an Indemnity Clause

The 5th Circuit’s opinion in Larry Dorian, Inc. v. Specialty Rental Tools & Supply illustrates the importance of knowing the law that will apply to a contract.   Specialty Rental Tools & Supply (“STS”) needed some unexpected help in servicing a gas well in navigable waters.  The well owner contracted with Larry Dorian, Inc. (“LDI”) to supply a crane barge.  The crane barge injured a worker.  LDI demanded that STS indemnify it regarding the claim by that worker, because STS’s contract with the well owner required STS to indemnify the owner and the owner’s contractors.

The indemnity clause was enforceable under maritime law but unenforceable under Louisiana law.  The 5th Circuit adopted and used the new test to determine that maritime law did not apply, because a vessel was not expected to play a substantial role in providing the services when STS made its contract with the well owner.  Therefore, under Louisiana law, LDI could not enforce the indemnity clause.

Vessel Expectation May Be Key in Non-Oil and Gas Contracts

While the Court noted that the case dealt only with contracts involving the exploration, drilling, and production of oil and gas, the court suggested that this test might also apply to activities in the non-oil and gas sector.  Thus, service contracts for work in navigable waters should generally state whether or not a vessel is expected to play a substantial role in providing the services, as this may provide clarity as to the law that will apply to the contract.

For a copy of the opinion, Click Here.

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