Chesapeake Operating, Inc. v. Nabors Drilling USA, Inc.

94 S.W.3d 163, 156 Oil & Gas Rep. 100, 2002 Tex. App. LEXIS 8239, 2002 WL 31628769
CourtCourt of Appeals of Texas
DecidedNovember 21, 2002
Docket14-00-00173-CV, 14-00-00580-CV
StatusPublished
Cited by47 cases

This text of 94 S.W.3d 163 (Chesapeake Operating, Inc. v. Nabors Drilling USA, Inc.) is published on Counsel Stack Legal Research, covering Court of Appeals of Texas primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Chesapeake Operating, Inc. v. Nabors Drilling USA, Inc., 94 S.W.3d 163, 156 Oil & Gas Rep. 100, 2002 Tex. App. LEXIS 8239, 2002 WL 31628769 (Tex. Ct. App. 2002).

Opinions

MAJORITY OPINION

SCOTT BRISTER, Chief Justice.

Two personal injury claims emerged from a drilling site in a Louisiana wood. Both followed the strangely well-worn path to trial courts in Texas. There, the tangle of Texas and Louisiana oilfield indemnity statutes led two very experienced trial judges to split results, and produced a similar split in this Court on both appeals. With the help of a specially appointed eleventh justice, we find Texas law has the better claim, and follow it for the reasons described below.

The applicable facts are undisputed. In December 1996, Chesapeake Operating, Inc. contracted with Nicklos-Hinton Drilling Company to drill an oil well in Vernon Parish in western Louisiana. Less than a month later — before any injuries occurred — Nabors Industries acquired Nick-los-Hinton, and all rights and obligations under the contract were assigned to Na-bors Drilling USA, Inc. (with Chesapeake’s consent). Nabors and Nicklos-Hinton were both Texas corporations, Chesapeake an Oklahoma corporation. It appears from the contracts and correspondence that each party negotiated and signed these agreements in its home state.

The contract was a standard form day-work drilling contract supplied by the International Association of Drilling Contractors (IADC). It contained mutual indemnity provisions protecting each party against suits by the other’s employees or subcontractors, regardless of who was at fault.1 Each party agreed to obtain $1 million in insurance to back up these indemnities. The contract also contained a “Governing Law” paragraph in which the parties agreed that:

This contract shall be construed, governed, interpreted, enforced and litigated, and the relations between the parties determined in accordance with the laws of Texas.

[blank typed-in in original].

Chesapeake hired several subcontractors to perform drilling-related services at the well, including Reeled Tubing, Inc. (“RTI”), a company based in Louisiana, and Quality Pressure Testing (“QPT”), a [167]*167Texas company. On February 15, 1997, Danny Alms, a Texas resident employed by RTI, injured his shoulder and back while working at the well.2 Four days later, Dennis Fritz, a Texas resident employed by QPT, slipped, fell, and suffered injuries at the well.

From this common starting point, the paths of Alms and Fritz diverged. Fritz filed suit against Chesapeake, Nabors, and others in Harris County, Texas; Alms sued Chesapeake, Nabors, and others in Brazoria County, Texas. Since both men worked for Chesapeake’s subcontractors, Nabors filed cross-actions against Chesapeake in both suits seeking indemnification for all liability and defense costs incurred. In nearly identical motions, Nabors moved for summary judgment on the cross-claims.

The Alms court applied Texas law, granted Nabors’ indemnity claim, and severed that claim from the rest of the suit for this appeal. The Fritz court first tried the underlying claims (resulting in a take-nothing judgment against Fritz),3 then applied Louisiana law, and denied Nabors’ indemnity claim for defense costs.

On appeal, a panel of this Court initially reversed the Alms court. Thereafter, Na-bors’ appeal in Fritz was submitted to a different panel (without mention by either party that an identical case was pending), and Nabors moved for rehearing in Alms.4 We granted Nabors’ motion for rehearing, consolidated the two appeals, and now withdraw the panel opinion and issue this en banc opinion. Our review of the trial courts’ opposite rulings on essentially the same summary judgment evidence is de novo. Minnesota Mining & Mfg. Co. v. Nishika Ltd., 955 S.W.2d 858, 856 (Tex.1996) (stating which state’s law governs is a question of law).

I. The Purpose of Indemnities

Before considering each state’s indemnity laws, we consider briefly the clauses they limit. At first glance, it appears suspect that an innocent party would agree in advance to pay the costs of a liable party, no matter what happens. Yet indemnity clauses are widespread in oilfield contracts (hence their inclusion in IADC form contracts). Both operators and drilling contractors have urged the Texas Legislature to encourage indemnity provisions under certain conditions.5 A comparison with sit[168]*168uations in which there is no indemnity suggests why.

Drilling sites, of course, can be hazardous places. When injuries occur, it is often difficult to tell who is at fault due to the complex nature of the enterprise, the large number of subcontractors usually involved, difficult questions regarding the right to control,6 and the intersection of premises liability and agency law in drilling operations.7 As a result, there are usually two disputes to resolve — one pitting the injured party against all those potentially responsible, and another among the defendants to allocate fault and the resulting burden of any settlement or judgment.

Mutual indemnity provisions (if routinely enforced) eliminate the latter dispute. In the standard drilling contract, they allocate costs and liability according to who hired the injured party, not who caused the accident. This eliminates liability and coverage disputes between drilling operators and contractors. In the event of a lawsuit, they need not file cross-actions for contribution, conduct discovery between themselves, or even hire separate lawyers. This may result in a “united front” against a plaintiff, but it may also work to a plaintiffs advantage by shifting money from duplicative defense costs to settlement funds.

But indemnity provisions often fall short of this purpose. This Court and others have been kept busy in recent years resolving indemnity disputes.8 In the choice-of-law analysis that follows, it must be kept in mind that these clauses will never accomplish their primary purpose as long as there is substantial uncertainty about whether they will be enforced.

II. The Conflicting Indemnity Laws

The parties disagree whether their indemnity clauses should be judged by Texas or Louisiana law.9 They also disagree whether it makes any difference. As we need not decide which law applies if it makes no difference, we first review the law of each state.

A. Texas Law

Under Texas law, oilfield indemnity clauses are generally void. Tex. Civ. PRac. & Rem.Code § 127.003. But there are several exceptions, including one for indemnities that are mutual and supported by liability insurance. Id. § 127.005; Ken Pe[169]*169troleum Corp. v. Questor Drilling Corp., 24 S.W.3d 344, 346 (Tex.2000). Additionally, indemnity clauses must meet certain fair notice requirements. Dresser Indus., Inc. v. Page Petroleum, Inc., 853 S.W.2d 505, 509 (Tex.1993). Chesapeake does not dispute that these clauses meet the former, but argues they fail to comply with the latter.

To give fair notice, an exculpatory indemnity clause must be express and conspicuous. Id. at 508-09. Compliance with these requirements is a question of law for the court. Id. at 510.

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Bluebook (online)
94 S.W.3d 163, 156 Oil & Gas Rep. 100, 2002 Tex. App. LEXIS 8239, 2002 WL 31628769, Counsel Stack Legal Research, https://law.counselstack.com/opinion/chesapeake-operating-inc-v-nabors-drilling-usa-inc-texapp-2002.