5th Circuit Asks Whether Oilfield Law Protects Contracts for Work on Salt Mines

A federal appellate court is asking the Louisiana Supreme Court whether a law that was passed to protect oilfield contractors from demands by big oil companies that they be indemnified for their own mistakes also applies to contractors who work on salt mines.

If the answer is yes, QBE Syndicate 1036 may be off the hook for the cost of a wrongful death lawsuit filed by the family of a worker who was electrocuted while working on a fire suppression system at a salt mine owed by Compass Minerals.

In a decision Thursday, a panel of the 5th Circuit Court of Appeals sent two certified questions to the Louisiana’s highest court: 1. Does the Louisiana Oilfield Anti-Indemnity Act apply to agreements that pertain to “drilling for minerals” where the agreement does not pertain to a well? 2. If so, does the act invalidate indemnification and additional-insured provisions in contracts for fire suppression and electrical work in a mine that was using a “drill-and-blast” method for mining salt?

The attorney who represents Compass, Dominic J. Gianna, said the legislative history shows that state lawmakers clearly intended to protect well-drilling contractors when they passed the Anti-Indemnity Act in 1981.

“The history is clear that they never meant it to apply to a salt mine,” he said. “Certainly not a salt mine that doesn’t use a well.”

Compass hired Fire Suppression & Safety Specialists and MC Electric LLC to provide an electrical system and fire suppression for its 1,500-foot-deep salt mine on Corte Blanch Island in St. Mary Parish. The mine produces 15% of the US supply of rock salt used to de-ice road ways, according to the panel’s opinion.

The purchase orders for each contract included a provision that required them to indemnify Compass from liability for all claims for damage, injury or death related to the agreement. The purchase orders also required the contractors to name Compass as an additional insured on insurance policies required by the contract.

On Aug. 15, 2019, MCE electrician Shawn Clements was fatally injured when he came into contact with an energized electrical circuit while attempting to install a new circuit for a fire suppression system. Clements’ family filed a wrongful-death suit against Compass, alleging that one of its employees and a technician for FSS incorrectly told Clements that the fire-suppression system had been de-energized.

QBE insured both contractors. The insurer, a Lloyd’s of London syndicate, filed a lawsuit in federal court seeking a declaration that the indemnity provisions in the purchase orders are null and void because of the Oilfield Anti-Indemnity Act.

QBE said that Compass uses a “drill-and-blast” method of mining for salt. The Anti-Indemnity act applies to agreements that pertain to “a well for oil, gas, or water, or drilling for minerals,” the insurer argued.

QBE and Compass both filed motions for summary judgment. The US District Court for Western Louisiana ruled in favor of Compass, citing a 1992 5th Circuit Court decision that found the Anti-Indemnity Act applies only to contractor agreements that pertain to drilling wells. The parties did not dispute that no well was present at Compass’ salt mine.

QBE appealed. The insurer said the decision sited by Compass isn’t as clear as it seems. In fact, a footnote in the decisions indicates that the act applies to agreements “pertaining to wells” or “drilling for minerals.” QBE noted another 5th Circuit decision that found the Anti-Indemnity Act applied to a sulphur mining facility.

The 5th Circuit panel said the Louisiana Supreme Court has heard cases relating to the Oilfield Anti-Indemnity Act on three occasions since the law was passed, but it is still unclear whether an agreement for “drilling for minerals” must also pertain to a well for the law to apply.

Gianna, who is with the Aaron & Gianna law firm in New Orleans, said his reading of state lawmakers’ discussions during deliberations over the Anti-Indemnity Act shows that the legislature intended to protect well drillers, not contractors hired by salt mines. He said the sulphur mine case cited byQBE’s lawyers used a well to extract the material, which exists below the earth’s surface in liquid form, much like oil.

Gianna said the 5th Circuit’s decision was the first time in his experience that the court turned to a state Supreme Court to answer a question of law.

“This is law school stuff,” he said. “I have been practicing 40 years and I’ve never seen this happen before. The court of appeals punted.”

Top photo courtesy of Compass Minerals.