A Master Service Agreement is a standard form of contract that is frequently used for doing business on the Outer Continental Shelf (OCS) in energy-related operations. These agreements usually contain indemnity and insurance obligations that are sought to be enforced when an OCS claim arises. Which law governs is important, and choice of law provisions is not automatically enforceable. State law may void or limit these obligations. Maritime law will generally enforce contractually assumed insurance and indemnity obligations.

The Outer Continental Shelf Lands Act (OCSLA) extends federal law to installations attached to the seabed of the OCS. OCSLA allows for the application of state law as surrogate federal law (1) when an incident occurs at an OCSLA situs (the subsoil, seabed, or installation or other structure permanently or temporarily attached to the seabed); (2) where state law is not inconsistent with federal law; and (3) where maritime law does not apply by its own force.

Whether a contract is maritime depends on the nature of the contract and whether it references maritime services or maritime transactions. The Fifth Circuit Court of Appeal applies a two-part test to determine whether a contract is maritime in the context of OCS operations: (1) Is the contract one to provide services to facilitate the drilling or production of oil and gas on navigable waters? (2) Does the contract provide or do the parties expect that a vessel will play a substantial role in the completion of the contract? In Re Larry Doiron, Inc., 879 F.3d 568 (5th Cir.) (en banc), cert. denied, 138 S.Ct. 2033 (2018). If the answer to both of these questions is “yes,” then the contract is a maritime contract.

While maritime law enforces clearly expressed contractual indemnity and insurance procurement obligations, Louisiana law prohibits contractual indemnity and insurance procurement for an indemnitee’s negligence for personal injury claims. La. R.S. 9:2780, the Louisiana Oilfield Anti-Indemnity Act (LOAIA). In 1994, the Fifth Circuit recognized an exception to LOAIA’s insurance prohibitions where an indemnitee fully paid the indemnitor’s insurance premium to be named as an additional insured. Marcel v. Placid Oil Co.,11 F.3d 563 (5th Cir. 1994). Thus, under Louisiana law, a company/principal is allowed to directly pay the full cost of the premium to be named as an additional insured under a contractor’s insurance policy. But what if a company pays the premium for a defined company group (including a company’s other contractors) to be named as an additional insured? Marcel does not address that question.

The Fifth Circuit answered this question 30 years after rendering its Marcel decision. In Willis v. Barry Graham Oil Service, LLC, ____ F. 4th ____, 2024 WL 4834490(5th Cir. 2024), the panel held that a third-party contractor, who did not pay in whole or part the Marcel insurance premium, was entitled to avail itself of its principal’s (company’s) payment of the Marcel premium when made with the intent to cover the third-party contractor. This fiscal arrangement satisfied Marcel because the indemnitee/principal/company paid the cost of the insurance coverage: “There is no shifting of the economic burden at which the LOAIA is aimed when the principal pays the full premium for its contractor, so long as the indemnitor bears no part of that cost.” Slip. Op. at 10.

The Fifth Circuit panel extended the Marcel insurance procurement exception to the LOAIA but did not decide whether the insurance policy at issue provided for a defense or indemnity under its terms, conditions, or exclusions. While the Marcel exception was extended to include the company group when the additional insurance coverage was procured, the insurance policy must still be read in order to determine whether coverage is afforded. Willis has expanded the exception to the LOAIA as first delineated in Marcel 30 years ago.