On September 26, 2024, Judge Phillip Brimmer of the U.S. District Court for the District of Colorado issued an unpublished opinion holding that Colorado's Construction Anti-Indemnification Statute, C.R.S. § 13-21-111.5(6)(b) applies to repair work conducted near a well site and that certain indemnification provisions requiring a contractor to indemnify an operator for its own negligence under a master service contract ("MSC") were void as a result. BKV Barnett, LLC v. Elec. Drilling Tech., LLC, Case No. 23-CV-00139-PAB-SBP (D. Colo. Sept. 26, 2024). The following summarizes key aspects of this decision.
Case Background: BKV Barnett, LLC ("BKV") is an operator of an onshore oil and gas well site in Texas that lost power due to a lightning strike. BKV contracted with Electric Drilling Technologies, LLC ("EDT") to supply electric power to the well site and to provide related rental equipment pursuant to an MSC.
The MSC included a customary "regardless of fault" indemnity structure providing that EDT would indemnify, defend, release, protect, and hold harmless all members of Company (BKV) Group from all claims made or asserted by, or arising in favor of, any member of Contractor (EDT) Group, except to the extent that the claims are caused by, result from, or arise out of the gross negligence or willful misconduct of Company Group. Generally, each party's Group included all contractors of any tier and their employees, among others.
There was no dispute between the parties that the injured individual was a member of Contractor Group or that Colorado law applied pursuant to the express terms of the MSC.
EDT engaged a subcontractor to repair the electric facilities and restore power to the well site. The subcontractor's employee alleged that he was injured from an electric arc flash during the repair effort and filed a lawsuit against several parties, including BKV and EDT. BKV asked EDT to indemnify and defend BKV pursuant to the MSC. When EDT refused, BKV filed a declaratory judgment action against EDT in Colorado seeking to enforce the indemnify and defense obligations in the MSC.
EDT moved to dismiss BKV's claims asserting that the indemnity and defense provisions were invalid under Colorado's Anti-Indemnification Statute, C.R.S. § 13-21-111.5(6)(b), which provides that any provision in a "construction agreement" that "requires a person to indemnify, insure, or defend in litigation another person against liability for damage arising out of death or bodily injury to persons or damage to property caused by the negligence or fault of the indemnitee or a third party under the control or supervision of indemnitee is void as against public policy and unenforceable." The statute also defines "construction agreement" as "a contract, subcontract, or agreement for materials or labor for the construction, alteration, renovation, repair, maintenance, design, planning, supervision, inspection, testing, or observation of any building, building site, structure, highway, street, roadway, bridge, viaduct, water or sewer system, gas or other distribution system, or other work dealing with construction or for any moving, demolition, or excavation connected with such construction." C.R.S. § 13-21-111.5(6)(l). EDT claimed that Colorado's Anti-Indemnification Statute applied because the work at the well site giving rise to the injuries involved "the repair of a structure." In contrast, BKV argued the contracted scope of work involved providing electricity to the site and drilling operations and that any repairs to a structure were merely incidental.
The Decision: On EDT's motion to dismiss, the court held as follows: (a) the language of the submitted invoice described the repair work as installing a pole, overhead wires, above ground cable and drive-overs, setting pad mounted switches, and repairing cable, (b) these activities constituted "repair of a structure," (c) Colorado's Anti-Indemnification Statute lacks an express carveout for "incidental" work, (d) the MSC was a construction agreement, and (e) the indemnification and defense provisions were void because they required EDT to indemnify BKV for its own negligence. The court also issued an order to show cause as to why summary judgment should not be issued in favor of the EDT. BKV's deadline to respond to the court's order to show cause is October 28, 2024.
The Takeaway: While the opinion arguably is limited to the facts presented, it could have broad ramifications for MSCs with "no fault" indemnity provisions and Colorado choice of law provisions. Colorado's Anti-Indemnification Statute may void such provisions to the extent that they are viewed as a "construction agreement" and injuries or damages occur during the course of performing work on a structure. Operators should assess current risks in existing MSC programs.
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