Significant Changes to Maritime Contract Jurisdiction May Be On The Way
Whether a contract is maritime or non-maritime is often a crucial issue that may affect the enforceability of indemnity and insurance obligations in a contract. Some states, such as Texas and Louisiana, have anti-indemnity statutes that render some indemnity agreements void in non-maritime contracts involving oil and gas operations or provide strict requirements that must be met in order to meet exceptions to these prohibitions on indemnity. Maritime contracts are not generally subject to these state anti-indemnity laws.
Unfortunately, it is not always easy to determine whether or not a contract is maritime in nature. Courts have adopted a two part test for determining whether a contract is maritime or non-maritime. First, courts look to the historical treatment of similar contracts to determine if it is maritime. Davis & Sons, Inc. v. Gulf Oil Corp., 919 F.3d 313 (5th Cir. 1990). If the historical treatment of similar contracts is unclear, the court will next apply a six factor test to determine if the contract is maritime in nature. If the contract involves two parts, such as a blanket master contract followed by a work order, the two contracts must be interpreted together. The following six factors are considered by the court, although no single factor is dispositive:
What does the specific work order in effect at the time of the injury provide?;
What work did the crew assigned under the work order actually do?;
Was the crew assigned to work aboard a vessel in navigable waters?;
To what extent did the work being done relate to the mission of that vessel?;
What was the principal work of the injured worker?; and
What work was the injured worker actually doing at the time of the injury?
While it remains valid law in the Fifth Circuit, the Davis test has been criticized by many judges for requiring an inexact "minute parsing of the facts," lacking any guidance regarding the weight to give each factor, using tort principles in a contract dispute, creating uncertainty, spawning litigation, and hindering the rational calculation of costs and risks by companies. A recent case highlights the deficiencies in the current Davis test.
In In re: Larry Doiron, Inc., 849 F.3d 602 (5th Cir. 2017), an operator and service provider entered into a master service contract, which contained an indemnity provision requiring the service provider to indemnify the operator and its contractors against all claims for bodily injury. Pursuant to the master service agreement, the service provider later provided flow-back services for the operator in accordance with a subsequent work order. It was initially anticipated that the flow-back services would be performed from a fixed platform. However, complications arose requiring the use of a crane barge, which was owned by the operator’s contractor. An employee of the service provider was then injured on the crane barge during the performance of flow-back operations. The contractor sought defense and indemnity under the terms of the master service contract. The service provider argued that the contract was non-maritime and, therefore, subject to Louisiana's anti-indemnity laws.
The court applied the Davis test in holding that the contract was maritime in nature. The court noted that although flow-back services may not require the use of a vessel and "have little to do with traditional maritime activity or commerce," the application of the Davis test nonetheless requires the application of maritime law to the master service contract in question. The court also noted that "incidental or preparatory use of a vessel" does not render a contract maritime in nature; only work that is "inextricably intertwined with maritime activities" will be considered maritime. In this case, the court found that the flow-back operations were "inextricably intertwined with maritime activities" because the work could not have been performed without the use of a crane barge.
One complicating factor in applying the Davis test to the facts of this case, and many like it, is that the services were originally non-maritime in nature. Only when complications arose was the use of a vessel necessary, thus rendering the contract maritime in nature. The current Davis test does not always allow businesses to accurately foresee the risks involved in a contract such that it can manage those risks through indemnity and insurance.
In a well-reasoned concurrence, Judge Davis recognized the failings of the Davis test and requested that the Fifth Circuit take the case en banc in order to simplify the test for determining whether a contract is a maritime contract. Under Judge Davis' proposed test, the court would look to "the nature and character of the contract," and "whether it has 'reference to maritime service or maritime transaction.'"
There is currently a pending request for en banc rehearing before the full Fifth Circuit. Should the court hear the case en banc, the subsequent decision could have a profound effect, particularly upon oil and gas contracts and the enforceability of indemnity and insurance obligations therein.