United States Court of Appeals

Fifth Circuit



## FILED

June 4, 2004

Charles R. Fulbruge III

Clerk UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 03-30751

JUDY HUDSON, ET AL.,

Plaintiffs,

versus

FOREST OIL CORP.; ZURICH AMERICAN INSURANCE CO.,

Defendants-Appellees,

versus

ACE AMERICAN INDEMNITY INSURANCE CO.,

DOING BUSINESS AS MONTLAKE CASUALTY CO.,

Intervenor-Appellant.

Appeal from the United States District Court

For the Eastern District of Louisiana

Before GARWOOD, WIENER, and DeMOSS, Circuit Judges.

DeMOSS, Circuit Judge:

Intervenor-Appellant Ace American Indemnity Insurance Co.,

d/b/a Montlake Casualty Co. (“Ace”), seeks reversal of the district

court’s judgment denying Ace’s motion for summary judgment and

dismissing its petition to intervene in the underlying suit filed

by Pl aintiff Terry Hudson against Defendant-Appellee Forest Oil2

Corp. (“Forest”) and its insurer Defendant-Appellee Zurich American

Insurance Co. (“Zurich”) with prejudice, and the district court’s

denial of Ace’s motion for reconsideration. Ace argues that the

district court erred in not applying the Louisiana Oilfield AntiI ndemnity Act (“LOAIA”) such that the waiver of subrogation

provisions in favor of Forest would be invalid; in failing to find

that Forest and Zurich were solely responsible for Mr. Hudson’s

future worker’s compensation benefits; and in failing to grant Ace

reimbursement under the doctrine of equitable or legal subrogation.

This Court concludes the district court was correct in finding that

LOAIA did not apply such that the waiver of subrogation by Ace was

valid; we thus AFFIRM the decisions of the district court.

BACKGROUND

Terry H u dson was formally employed by Coastal Production

Services, Inc. (“Coastal”) as an operator who was contracted out to

work for Forest on its SATURDAY ISLAND oil production fixed

platform in waters near or off the coast of Louisiana. On August

11, 2001, Mr. Hudson sustained injuries as a result of an

accidental motor explosion on the platform. At the time of the

accident, Coastal had a worker’s compensation insurance policy

through Ace. Ace paid Mr. Hudson worker’s compensation benefits

according to this policy until May 2002. This policy contained a

waiver of subrogation rights by Ace, which was secured by Coastal

for an additional premium.3

On July 22, 2002, Terry and Judy Hudson filed a tort suit

against Forest in district court based on diversity; they later

amended it to add Forest’s insurer Zurich as a defendant. On

September 13, 2002, Ace petitioned to intervene in this lawsuit in

order to recoup the payments it had made to or on Mr. Hudson’s

behalf. At the time of Mr. Hudson’s injury, Forest and Coastal had

a master service agreement that provided fo r defense and

indemnification. The indemnity provision read, in part, as

follows:

[Coastal agrees to] indemnify, defend, and save harmless

[Forest]

. . . from and against any and all claims,

demands, judgments, defense costs, or suits (including,

but not limited to, claims, demands, judgments or suits

for

. . . bodily injury

. . . or for loss of services, or

wages or for loss of consortium or society) by

. . . any

[employee of Coastal]

. . . in any way, directly or

indirectly, arising out of or related to the performance

of [the master contract] or the use by [Coastal] or its

employees of, or their presence on, any premises owned,

operated, chartered or controlled by [Forest]

. . . expressly including any claims, demands, judgments or

suits actually or allegedly caused by the

. . . sole,

concurrent or partial negligence . . ., fault or strict

liability of [Forest] . . . .

This master service contract also provided that Coastal would carry

worker’s compensation insurance, which policy would “name [Forest]

as additional insured and wai ve subrogation against [Forest] and

its ins urers.” This waiver of subrogation provision was located

within the insurance coverage provision.

Forest and Zurich filed a motion for summary judgment, which

the d istrict court granted, finding that Forest was Mr. Hudson’s

borrowing employer and, as such, the Hudsons’ sole remedy was a4

claim for worker’s compensation benefits. Hudson v. Forest

,

No. Civ.A. 02-2225, 2003 WL 2004445, at *6 (E.D. La. Apr. 28, 2003)

(unpublished). This action left only Ace’s intervention claim

against Forest and Zurich. Ace filed a motion for summary judgment

seeking a judgment directing Forest and Zurich to reimburse Ace for

compensation benefits already paid to Mr. Hudson along with an

order t hat Forest and Zurich be responsible for all future

compensation benefits. The district court denied this motion,

dismissed the intervention claim with prejudice, and entered final

judgment to that effect on June 9, 2003. The district court denied

Ace’s motion for reconsideration on July 3, 2003, and Ace timely

appealed.

DISCUSSION

This Court reviews a district cou rt’s grant of summary

judgment de novo

. F iesel v. Cherry , 294 F.3d 664, 667 (5th Cir.

2002) (cita tion omitted). Under Federal Rule of Civil Procedure

56(c), “[s]ummary judgment is proper when, viewing the evidence in

the light most favorable to the nonmovant, there is no genuine

issue as to any material fact an d . . . the moving party is

entitled to judgment as a matter of law.” I d. (internal quotations

and citation omitted); see also Anderson v. Liberty Lobby, Inc.

,

477 U.S. 242, 251-52 (1986). Here, Forest and Zurich never filed

a cross-motion for summary judgment, just two respo nses in

opposition to Ace’s motion. However, the district court’s decision5

to deny Ace’s motion for summary judgment was in effect a grant of

summary judgment in favor of Forest and Z urich in that the court

dismissed Ace’s intervention claim with prejudice, so we apply de

novo review.

Whether the district court erred in determining that the waiver of

subrogation provisions located in t h e master service contract

between Coastal and Forest and in the insurance policy between Ace

and Coastal were valid.

When granting summary judgment in favor of Forest and Zurich

and against the Hudsons in the underlying tort suit, the district

court determined that as a borrowed employee, Mr. Hudso n’s only

remedy was through worker’s compensation benefits, Hudson v. Forest

Oil Corp. , No. Civ.A. 02-2225, 2003 WL 21276385, at *1 (E.D. La.

June 2, 2003) (unpublished). Thus, Forest and Zurich were immune

from any tort suit related to Mr. Hudson’s injury on SATURDAY

ISLAND. Id. No party disputes this finding. What the parties

dispute is whether LOAIA applies to the master service contract and

the worker’s compensation policy to invalidate the wa iver of

subrogation provisions, upon which Forest and Zurich defended Ace’s

intervention.

LOAIA, Section 9:2780 of the Louisiana Revised Statutes, was

designed to a lleviate the inequity “foisted upon certain

contractors by agreements which purported to grant indemnification

to the oil companies for their own negligence or strict liability.”

Fontenot v. Chevron U.S.A. Inc.

, 676 So. 2d 557, 562 ( La. 1996)6

(citation omitted). LOAIA was also designed to protect oil

contractor employees. I d. at 563. Subsection (B) of LOAIA states:

Any provision contained in, collateral to, or affecting

an agreement pertaining to a well for oil, gas, or water,

or drilling for minerals which occur in a solid, liquid,

gaseous, or other state, is void and unenforceable to the

extent that it purports to or does provide for defense or

indemnity, or either, to the indemnitee against loss or

liability for damages arising o ut of or resulting from

death or bodily injury to persons, which is caused by or

results from the sole or concurrent negligence or fault

(strict liability) of the indemnitee . . . .

La. Rev. Stat. Ann. § 9:2780(B) (West 2004). Thus, both master

service contracts betwe en a contractor and an oil company and

insurance policies between a contractor or an oil company and an

insurance company, which contain indemnification provisions, are

presumptively covered by LOAIA. In addition to the prohibition on

indemnification clauses, Subsection (G) of the LOAIA provides:

Any provision in any agreement

. . . w hich requires

waivers of subrogation

, additional named insured

endorsements, or any other form of insurance protection

which would frustrate or circumvent the prohibitions of

this Section, shall be null and void and of no force and

effect.

Id. § 9:2780(G) (emphasis added).

Courts employ a two-part test to see whether LOAIA generally

applies to an agreement’s provisions: (1) whether the agreement

perta ins to an oil, gas, or water well; and (2) whether the

agreement relates to the exploration, development, production, or

transportation of oil, gas, or water. F ontenot

, 676 So. 2d at 564.

The parties agree that both agreements at issue satisfy this test.1 Although Ace requests that this Court look outside and

supplement the record to determine whether Forest now seeks to

invoke indemnification, we find no reason to do so. See, e.g.,

Dickerson v. Alabama , 667 F.2d 1364, 1367 (11th Cir. 1982)

(“Whether an appellate record should be supplemented under the

particular circumstances of a case is a matter left to the

discretion of the federal courts of appeals.”). Any possible use

of the indemnification clause in any other proceeding among the

parties does not bear on the instant nonuse of such clause by

Forest and Zurich in Ace’s attempted intervention in the Hudsons’

tort suit.

7 Here, however, Forest and Zurich’s defense to Ace’s intervention

involved only the waiver of subrogation by Coastal on behalf of Ace

in the master service contract and by Ace itself in Coastal’s

w orker’s compensation policy; there has not been any reliance on

any indemnification clause because Forest defended the Hudsons’

suit on its own when Coastal refused to provide a defense. Forest

also has not so ught indemnification for any defense costs it

incurred defending the Hudsons’ suit. 1 Therefore, Forest and

Zurich argue that Subsection (G) of LOAIA, as interpreted by the

Louisiana Supreme Court in Fontenot v. Chevron

, only applies to bar

waivers of subrogation whic h are used in conjunction with an

indemnification clause and thus frustrate o r circumvent the

prohibitions of LOAIA. Forest and Zurich maintain that waivers

used on their own are not covered by LOAIA.

In Fontenot , an operator employee (Fontenot) of a contractor

(Hercules) brought an action against the owner of an oil drilling

platform (Chevron). 676 So. 2d at 560. Hercules had a workover

contract with Chevron that designated Chevron as an alternate8

e mployer, provided Hercules would take out worker’s compensatio n

insurance on its employees, and agreed to an unrestricted waiver of

Hercules’s and consequently its insurer Aetna’s right s of

subrogation for reimbursement of worker’s compensation payments in

favor of Chevron. I d. at 559. Aetna received a premium payment in

exchange for waiving its subrogation rights in its policy with

Hercules. I d. Aetna petitioned to intervene in Fontenot’s suit to

seek reimbu rsement of the worker’s compensation benefits it had

paid out to him. I d. The court determined that because an

indemnification c lause allows the oil company to shift liability

and a waiver of subrogation means the oil company would not have to

reimburse for any compensation payments, the two clauses u sed in

combination would frustrate the purpose of LOAIA. Id. at 564-65.

However, the court determined that use of a waiver of

subrogation clause alone would be permissible because it does not

shift liability from the tortfeasor oil company back to the

oilfield service contractor. I d. at 565. The F ontenot court

further explained that it would not “make sense to void a waiver of

subrogation clause where there is no indemnification clause sought

to be enforced or where the oil company is not found to be

n egligent or strictly liable” because in these circumstances the

waiver of subrogation d oes not frustrate or circumvent the

prohibitions of LOAIA. I d. In fact, invalidation of such waivers

“might very well do damage to basic concepts of contract law9

(agreement for payment in exchange for the waiver, normally a valid

contractual provision).” Id. at 567.

Moreover, the Fontenot court made several arguments that

suggest a waiver of subrogation provis ion in a worker’s

compensation insurance policy primarily invoked on its own should

not fall under LOAIA:

While it may be true that the indemnity clause and the

required waiver of subrogation in the workover contract

are invalid vis a vis Hercules and Chevron, that is of no

moment here for sev eral reasons. First, we are not

concerned today with the workover contract but rather we

are only addressing the insurance contract between Aetna

and Hercules. Second, Hercules was the party which

undertook the obligations of indemnification and waiver

of subrogation in the workover contract, but Hercules is

not before us at this time asking for any relief. Third,

the party which is asking for relief, Aetna, was not a

party to the wo rkover contract, and fourth, Aetna

received compensation for waiving its subrogation rights.

The Act’s purposes are not served by giving the benefit

of the waiver of subrogation to Aetna which was paid for

its waiver. Our conclusion might be otherwise if we were

considering Hercules’ request for relief from any of the

obligations it undertook in the workover contract because

of the statutory invalidity of these obligations.

Id. at 566. The court ultimately found the waiver of subrogation

by Aetna to be valid regarding any claims against Chevron. I d. at

567.

Forest and Zurich argue the very same logic applies here.

First, the explicit waiver of subrogation by Ace in the worker’s

compensation policy it issued to Coastal is the primary waiver at

issue. Second, Coastal is not here asking for relief based on the

master service contract it undertook with Forest. Third, Ace was10

not a party to the master service contract. Fourth, Ace received

an additional premium as compensation for waiving its right of

subrogation. Also, as in F ontenot

, there is no historical inequity

between oilfield contractors like Coastal and insurance companies

like Ace, “unlike the historical inequity in bargaining power

between oil companies and oilfield contractors which [LOAIA] sought

to rectify.” Id. at 567.

Ace argues that Fontenot is distinguishable and does not apply

because in that case Chevron settled the case against it, whereas

here Forest and Z urich were granted summary judgment against the

Hudsons because of immunity. Also, F ontenot did not involve a

borrowed employee issue. Finally, Ace contends that, contrary to

what the district court found, Forest did assert a claim for

indemnification as indicated in an August 2002 demand letter and a

November 2002 letter where Forest indicated it wished to file a

third-party demand against Coastal.

Th e district court sided with Forest and Zurich, citing

Fontenot ’s clear application. H udson

, 2003 WL 21276385, at *7. We

agree that Fontenot properly applies. Although in F ontenot Chevron

settled and here there is a borrowed employee issue which immunized

Forest and Zurich from the Hudsons’ suit, the most important aspect

of Fontenot is that “voiding a waiver of subrogation clause only

achieves the purpose of [LOAIA] when such a clause is sought to be

enforced in conjunction with the enforcement of an indemnification11

clause.” 676 So. 2d a t 565. F ontenot tackled the validity of

waivers of subrogation used on their own: precisely the situation

here because Forest and Zur ich solely and formally invoked Ace’s

waiver of subrogation as a defense to Ace’s intervention, not an

indemnity provision.

Whether the district court erred in not deciding the question of

Terry Hudson’s future worker’s compensation benefits.

Ace argues first that the district court’s judgment releases

Forest and Zurich from future benefits owed; that is, because Ace

sought a judicial declaration and release as to future benefits,

dismissal of its intervention will have a preclusive effect on the

Administrative Law Judge worker’s compensation proceedings. In the

alternative, Ace argues that the district court erred in not

deciding if Terry Hudson is still owed future compensation benefits

and who should pay them. Forest and Zurich respond that any

statement made by the district court regarding Mr. Hudson’s future

wo rker’s compensation benefits is mere dicta because the final

judgment only has preclusive effect with regard to the borrowed

employee status of Mr. Hudson. Forest and Zurich also maintain the

district court properly declined to rule on future benefits as that

issue was not properly entertainable or justiciable.

Although the district court in denying Ace’s motion for

reconsideration did state that “Ace has failed to show that

Plaintiff will be entitled to future workers’ compensation benefits

beyond the benefits that have been previously paid,” the court at12

no point actually addressed whether Forest and Zurich would be

relieved from any future benefits owed. Therefore, the only

preclusive finding “actually litigated and determined” in the

district court was that Mr. Hudson was a borrowed employee and his

exclusive remedy was worker’s compensation

. See T ex. Employers’

Ins. Ass’n v. Jackson

, 862 F .2d 491, 500 (5th Cir. 1988). As to

the argument that it was error for the district court not to rule

on the issue of future benefits, based on the status of the case at

the time, the district court had no need to address future benefits

because it had already determined that Mr. Hudson was a borrowed

employee whose sole remedy was worker’s c ompensation, and that

Ace’s waiver of subrogation was valid and thus it could not

intervene.

Whether the district court erred in not granting Ace reimbursement

for the benefits paid based on the doctrine of legal subrogation.

Finally, Ace argues the district court should have granted it

reimbursement for the worker’s compensation benefits it paid to Mr.

Hudson under a theory of equitable or legal subrogation, as the

master service contract did not preclude this. What Ace actually

attempts to invoke is not equitable subrogation, which is not

recognized in Louisiana, but legal subrogati o n, recognized in

Article 1825 of the Louisiana Code of Civil Procedure. Article

1825 defines subrogation as “the substitution of one person to the

rights of another.” La. Civ. Code Ann. art. 1825 (West 2004); s ee

also Inst. of London Underwriters v. Firs t Horizon Ins. Co.

,13

972 F.2d 125, 127 (5th Cir. 1992) (quoting Article 1825).

Ace clearly has no conventional “by contrac t” claim to

subrogation, First Horizon

, 972 F.2d at 127, because it did not

contract with Coastal for the ability to assert Coastal’s rights.

In fact, Ace expressly waived the ability to subrogate in the

policy it issued to Coastal in exchange for a separate premium.

Though Article 1825 is silent on its application in the case of a

“person” (Ace) having explicitly waived his right to subrogation by

contract, that is clearly because legal subrogation is properly not

available in such a case. Moreover, Ace “cannot have it both ways.

It cannot be compensated to waive a right and then claim that the

waiver is prohibited by law,” see Fontenot

, 676 So. 2d at 567

(referring to Aetna’s attempted reliance on LOAIA), or is somehow

reinstated by law.

CONCLUSION

Having carefully reviewed the record of this case and the

parties’ respective briefing and arguments, and for the reasons set

forth above, we conclude th at the district court correctly

determined that LOAIA did not apply to bar the waiver of

subrogation clauses such that Ace could not recover the worker’s

compensation benefits it paid to Mr. Hudson by intervening against

Forest and Zurich. Therefore, we AFFIRM the district court’s

decisions to deny Ace’s motion f or summary judgment, to dismiss

Ace’s petition for intervention with prejudice, and to deny Ace’s14

motion for reconsideration.

AFFIRMED.