United States: Fifth Circuit Sets Limits On Indemnity Obligations Where Indemnitor's Contractual Performance Is Completely Independent Of Another Party's Negligent Act

In International Marine, L.L.C., et al. v. Integrity Fisheries, Inc., the U.S. Court of Appeals for the Fifth Circuit set limits on indemnity obligations when an indemnitor's contractual performance is completely independent of another party's negligent act. The Fifth Circuit applied this limitation despite the normally broadly construed "in connection with" or "related to" language.

In Integrity, an offshore survey company, Tesla, chartered two vessels to perform an archaeological sonar survey in the Gulf of Mexico. One vessel, the M/V INTERNATIONAL THUNDER ("THUNDER") served as the "tow vessel," which towed a "tow fish" that relayed sonar signals to Tesla equipment on the "chase vessel," the F/V JOANNA. The JOANNA's responsibility was to stay within a specified radius of the tow fish in order to intercept any approaching vessels which could damage the tow cables.

One of the tow fish's cables allided with a submerged mooring line on the M/V NAUTILUS, a mobile offshore drilling unit. Shortly before the allision, Tesla deployed the tow fish near the NAUTILUS, and JOANNA's captain informed Tesla's onboard chief that the THUNDER was getting too close to the NAUTILUS. Tesla's chief radioed the THUNDER to warn of the danger, but THUNDER personnel advised everything was okay. It was not. Shell, the owner of the NAUTILUS, sued Tesla. Tesla sued the JOANNA interests for contractual indemnity and insurance obligations.

Master service agreements governed the contractual relationships between Tesla and the JOANNA interests. The MSAs provided that the JOANNA interests were liable to Tesla and its contractors for damage to third-party property "arising out of or related in any way to the operation of any vessel ... [used] ... to perform work under the agreement except to the extent such loss, harm, infringement, destruction, or damages is caused by [Tesla's or its contractor's] gross negligence or willful misconduct." The MSAs further required the JOANNA interests to provide insurance coverage for "third-party claims arising out of or connected with the performance of Service hereunder."

Both sides filed motions for summary judgment. The district court granted the JOANNA interests' motion on Tesla's claim for indemnity. Further, because the district court found there was no indemnity obligation, the court concluded the insurers did not have any obligation toward Tesla and dismissed all claims against the insurers. Tesla appealed.

The Fifth Circuit reinforced limits on indemnity provisions to prevent "occurring in connection with" language from covering a limitless number of unforeseeable casualties that might occur. The Fifth Circuit held that Tesla and the THUNDER's negligence, as well as resulting damage to the NAUTILUS, was independent of the maneuvering of the JOANNA. Nothing about the JOANNA's successful maneuvering of the chase vessel related to Tesla's decision to deploy the tow fish near the NAUTILUS and take a route that caused the allision. The JOANNA's job was simply to follow the THUNDER and stay above the tow fish. Despite Fifth Circuit precedent requiring courts to broadly read language such as "arising out of," the maneuvering of the JOANNA was completely independent of Tesla's decision to redeploy the tow fish near the NAUTILUS. The summary judgment evidence supported only the conclusion that the maneuvering of the JOANNA made no contribution to the negligent act that caused the damages to the NAUTILUS. The Fifth Circuit therefore affirmed summary judgment as to Tesla's indemnity claim.

The Fifth Circuit vacated summary judgment on the insurance issue because none of the insurance policies were in the record. The Fifth Circuit refused to affirm summary judgment on the insurance claims without first reviewing the insurance policies and determining their scope, leaving open the possibility that the insurance policies provided more coverage than set forth in the MSAs.

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