Frilot Secures Landmark Fifth Circuit Ruling Impacting Oilfield Contract Disputes

Barry Graham Oil Service, LLC v. Shamrock Management, LLC et.al.

Frilot’s Maritime and Energy Group secured a major victory in the United States Court of Appeals for Fifth Circuit in a case addressing multiple, complex issues regarding the interpretation of oilfield contracts.  The Fifth Circuit reversed a District Court’s ruling adverse to Frilot’s client and also agreed with Frilot on a res nova issue impacting oilfield contracts across Louisiana and the Gulf of Mexico.  

The case arose out of an injury to an employee of Shamrock Management onboard an offshore oil platform.  The plaintiff sued Frilot’s client, Barry Graham Oil Service (“BGOS”).  BGOS demanded defense, indemnity and additional insured coverage from Shamrock pursuant to Shamrock’s contract with the platform owner, Fieldwood.  The demand was denied, and BGOS asserted a claim against Shamrock and its insurers.

Following a significant settlement with the injured Shamrock employee, the District Court ruled against BGOS on the contractual issues, finding that Shamrock did not owe Shamrock defense, indemnity or insurance coverage.  Frilot then took over as counsel for BGOS to handle the appeal of the District Court’s ruling.

Patrick Ray of Frilot’s Maritime and Energy Group wrote briefing to the Fifth Circuit, and presented oral argument to the three judge panel.  After considering the arguments presented, the Fifth Circuit ruled in BGOS’s favor on every issue considered. The Fifth Circuit readily reversed the District Court’s erroneous interpretation of the subject contracts, finding that Shamrock was required to defense, indemnify and provide insurance coverage for BGOS.  With the interpretation of the contract corrected, the Court turned to a more nuanced legal issue.

This case presented a question that has never been previously addressed by the Fifth Circuit.  Frilot prevailed on this issue on behalf of BGOS.  The Louisiana Oilfield Anti-Indemnity Act (“LOAIA”) prohibits enforcement of defense, indemnity and insuring provisions In oilfield contracts.  LOAIA applied to the contract at issue in this case, because the work was performed on a platform off the Coast of Louisiana.  However, when the indemnitee pays the additional premium required for coverage as an additional insured on the indemnitor’s policies, the insuring provisions are enforceable under LOAIA.  This is known as the Marcel Exception, named after the Fifth Circuit case that created the doctrine.  In this case, BGOS did not pay any Marcel Premium, but Fieldwood did.  The novel legal question was whether a Marcel Premium paid by one party (Fieldwood) can benefit another party (BGOS). 

The Fifth Circuit held that it can, ruling for the first time that payment of a Marcel Premium by one party can benefit another party that paid no premium.  Given the multi-party nature of offshore oilfield work, this doctrine is sure to impact contractual risk allocation disputes for years to come.