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Energy Insurance, Indemnities, & Risk Management 2014 Presentation
- 1. Important Insurance Coverage & Indemnification Issues Impacting Energy Industry Sarah E. Stogner Carver, Darden, Koretzky, Tessier, Finn, Blossman & Areaux, LLC Energy Centre - 1100 Poydras Street - Suite 3100 New Orleans, Louisiana 70163 Telephone: (504) 585-3845 Cell: (504) 201-0140 stogner@carverdarden.com - www.carverdarden.com
- 2. The next 45 minutes… Some practical tips to make your business less susceptible to litigation Short lecture on ineffective indemnification provisions Insurance policy fundamentals relevant for oil and gas industry
- 4. The Parties Hutch Henry property owner Chevaco operator Atapaz drilling sub Joe Nimrod negligent employee Clumsy’s Tool Rent-All tool sub Floyd’s of Florence EED Insurer Aries Ins. Co. CGL Insurer Bill Deceased dead employee
- 5. principal action indemnity tender & 3rd party demand 3rd party demand on separate indemnity insurance & indemnity issues Mrs. Deceased Atapaz Chevaco Clumsy’s Tool Rent-All Insurance Companies The Drama
- 6. Insurance READ THE POLICY – Policy anatomy – 1st party vs. 3rd party • Well control & CGL – Claims vs. occurrence policy – Burden of proof – coverage, exclusions, exceptions – Other insurance – overlapping layers & prolonged events
- 7. Indemnity Generally • Simply a right to reimbursement – indemnifying party = indemnitor (pays) – indemnified party = indemnitee (receives payment) • Generally indemnity where indemnitee is indemnified against own negligence is strictly construed and will not be construed to indemnify an indemnitee against losses resulting to him unless “express” or “clear and unequivocal.”
- 9. knock for knock Each party shall defend any third party claim against the other party arising from the death of or physical injury to any person or damage to the indemnified party's property to the extent caused, in whole or in part, by the negligence or intentional conduct of the indemnifying party or its agents or employees, and indemnify and hold harmless the other party and its respective officers, directors and employees from and against damages, liabilities and reasonable costs and expenses, including reasonable legal fees incurred in connection therewith. • Look closely at what types of liabilities are covered – torts, contracts, any and all…
- 10. Indemnity • Goal - reduce litigation expenses by agreeing to allocate certain risks between the parties ahead of time – All risk of losses to a defined group’s people and things in exchange for the other party doing similarly for a different group – Leveraged party has other party agree to assume all risk of loss arising out of the event – Consider anti-indemnity legislation – Exceptions or carve-outs tend to reduce efficacy • Reality – usually more litigation
- 11. Anti-Indemnity Statutes Louisiana • indemnification generally allowed – strict construction • Louisiana Oilfield Indemnity Act – La. R.S. 9:2780 (any agreement for mineral exploration) – statutory prohibition against the enforcement in a personal injury/wrongful death for indemnitee’s own negligence – exceptions
- 12. • Texas – indemnification generally allowed • must be express and conspicuous – Texas Oilfield Anti-Indemnity Statute • Tex. CPRC § 127.001-127.007 • prohibits agreement to indemnify a person against liability that is caused by their sole or concurrent negligence for an agreement pertaining to a well for oil, gas, or water or to a mine for a mineral • exceptions
- 13. Insurance & Indemnity collide • As part of the ongoing insurance coverage dispute following the sinking of the Transocean offshore drilling unit Deepwater Horizon, the United States Court of Appeals for the Fifth Circuit has issued, and the Texas Supreme Court has accepted, two certified questions that have the potential to tremendously impact every business in Texas. • On August 29, 2013, the Fifth Circuit, by unanimous decision, withdrew its March 1, 2013 opinion that had awarded "additional insured" coverage to BP under Transocean’s excess insurance policies. In re Deepwater Horizon, Case No. 12-30230, Slip Op. (5th Cir. Aug. 29, 2013). In its place, the Fifth Circuit certified two questions to the Texas Supreme Court: 1. Whether BP is covered as an additional insured, based solely on the language of the insurance policies; and 2. Whether the contra proferentum doctrine of requiring insurance policies to be interpreted against insurers and in favor of insureds applies to sophisticated parties. • Still waiting for the Texas Supreme Court decision.
- 14. Concluding Words of Wisdom • READ your policy • READ your contracts • make sure congruent • eliminate vague language • avoid carve-outs • invest on the front end to avoid costly disputes after an incident
- 15. Questions?
Editor's Notes
- policyholder has burden of proving loss covered, burden then shifts to insurer to prove exclusion or some other justification to deny coverage, then back to policyholder to prove exception anatomy of the policy declarations page – usually first page (basic summary of insured, broker, policy limits, deductible) but NOT the policy schedule of forms – lists form numbers and names of each form included in the policy (this is where a certified copy comes into play – certified that all forms included) insuring agreement (aka coverage) – advises what is covered first party: protection against loss caused by physical loss or damage to policyholder’s property all risk & named-perils (e.g. well control) business interruption & contingent business interruption CGL coverage B third party: protect policyholder from liability to others, e.g. bodily injury or property damage definitions – defines terms either in quotation marks, bold, all caps insurance is a contract, follows general contract principles apply common and ordinary meaning of terms do not create ambiguity where none exists ambiguity construed in favor or insured reasonable expectations if both parties give reasonable interpretation the policyholder’s interpretation will be adopted even if insurer’s more reasonable who is an insured – may include names not on declarations, and lists other additional named insureds (such as other parties involved in a project) important that “who is an insured” coincides with contractual obligations from JOA, MSA, drilling contracts do not assume you are an additional insured under another entity’s insurance many policies contain endorsements with additional insured information all subsidiaries should be named employees, volunteers, lessors, independent contractors limits of insurance – specifies how the policy limits apply as to each occurrence/claim, as well as event limit and aggregate limit exclusions well control – unintended or uncontrolled flow pollution vs. absolute pollution (is there buy-back or separate policy?) evolution of pollution from “accidental” to “sudden and unintended” to “abrupt and instantaneous” plethora of litigation and still not clear care, custody or control (personal [as opposed to real, e.g. buildings] property in care, custody, or control of insured) e.g. rented equipment damaged during blow-out intentional acts, workers’ comp, employee indemnification/liability, fellow employee completed operations war aircraft, auto, watercraft damage to insured’s property what is the insured’s property? scope of exclusion – e.g. drilling bit vs. casing vs. entire well damage to your product, work, impaired property or property not physically injured loss in progress crime/fraud conditions – prerequisites for coverage, including notice, and other obligations of the policyholder other insurance – states how the policy’s coverage is prioritized against the coverage of other applicable policies under which the named insured or the additional insured is also covered both primary excess true excess/umbrella policies supplementary payments – monies insurer will pay in addition to the policy limits endorsements – change the policy – can add new coverage, conditions, restrictions, or exclusions – they can affect every provision of the policy care has reference to temporary charge, custody implies a keeping or guarding and a necessity for an accounting, and control refers to power or authority to manage, superintend, direct or oversee Hardware Mut. Cas. Co. v. Crafton, 350 S.W. 2d 506 (Ark. 1961).
- The term "agreement," as it pertains to a well for oil, gas, or water, or drilling for minerals which occur in a solid, liquid, gaseous, or other state, as used in this Section, means any agreement or understanding, written or oral, concerning any operations related to the exploration, development, production, or transportation of oil, gas, or water, or drilling for minerals which occur in a solid, liquid, gaseous, or other state, including but not limited to drilling, deepening, reworking, repairing, improving, testing, treating, perforating, acidizing, logging, conditioning, altering, plugging, or otherwise rendering services in or in connection with any well drilled for the purpose of producing or excavating, constructing, improving, or otherwise rendering services in connection with any mine shaft, drift, or other structure intended for use in the exploration for or production of any mineral, or an agreement to perform any portion of any such work or services or any act collateral thereto, including the furnishing or rental of equipment, incidental transportation, and other goods and services furnished in connection with any such service or operation.