Opinion ID: 450408
Heading Depth: 1
Heading Rank: 2

Heading: the summary judgment issues

Text: 10 At trial, Cities sought to recover from ODECO its costs involved in controlling the blow out and extinguishing the fire, as well as its lost profits attributable to deferred or delayed production. ODECO responded as a defense that certain provisions in the drilling contract allocated those risks to Cities. The district court granted summary judgment based on those contractual provisions. 4
11 As one facet of its case, Cities sought to recover from ODECO its (Cities') costs incurred in controlling the blow out and extinguishing the resultant fire. In defense, ODECO asserts that Article 12 of the drilling contract allocated those risks and costs to Cities. Article 12 provides:In the event a well drilled hereunder shall blow out or crater from any cause it is understood that operator [Cities] shall bear the entire cost and full liability of killing the well and bringing it under control (emphasis added). 12 Based on this provision, the district court granted ODECO summary judgment. After reviewing Louisiana law, 5 this Court concludes that the district court was correct in its assessment. 13 On appeal, appellant (Cities) asserts that Article 12 of the drilling contract does not bar its claims against ODECO for the costs of extinguishing the fire and controlling the blow out because that provision does not expressly state that it relieves ODECO of its own negligence. Cities suggests that a specific reference to ODECO's negligence must be included in the contract for the court to find that ODECO is released from its own negligence. In support of its position, Cities refers this Court to several Louisiana and Fifth Circuit cases that might be read to require an express reference to negligence in the context of indemnity agreements. See, e.g., Mott v. ODECO, 577 F.2d 273 (5th Cir.1978), cert. denied, 440 U.S. 912, 99 S.Ct. 1226, 59 L.Ed.2d 461 (1979); Aymond v. Texaco, Inc., 554 F.2d 206 (5th Cir.1977); Law v. Sea Drilling Corp., 510 F.2d 242, on rehearing, 523 F.2d 793 (5th Cir.1975) (rehearing denied on other grounds); Green v. Taca International Airlines, 304 So.2d 357 (La.1974); Carriage Meat Co., Inc. v. Honeywell, Inc., 442 So.2d 796 (La.App. 4th Cir.1983); Alan Abis, Inc. v. Burns Electronic Security Services, Inc., 283 So.2d 822 (La.App. 2d Cir.1973). 6 Cf. Seal Offshore, Inc. v. American Standard, Inc., 736 F.2d 1078 (5th Cir.1984). This Court notes, however, that the instant case involves an allocation of risk provision in the drilling contract rather than an indemnity provision. 14 After reviewing these cases, and particularly the more recent cases, this Court concludes Louisiana law does not require an express reference to negligence in an allocation of risk provision contained in a drilling contract. Rather, the intent of the parties to the contract is deemed to be the most important consideration. The question here is whether the drilling contract unambiguously demonstrates that the parties intended the negligence of ODECO to be covered in Article 12. If so, that provision is enforceable by summary judgment. Seal Offshore, Inc., 736 F.2d at 1080. 15 In Polozola v. Garlock, Inc., 343 So.2d 1000 (La.1977) (Polozola I ), the Louisiana Supreme Court held that although a contract that provides for an indemnitee to be indemnified against the consequences of his own negligence is to be strictly construed, the contract will be enforced if the intention to indemnify the indemnitee against losses resulting from his own negligence is expressed in unequivocal terms. The contract involved in Polozola I did contain an express reference to negligence, but this Court has found that the reference to negligence was not controlling in the Louisiana Supreme Court's decision. Battig v. Hartford Accident and Indemnity Co., 482 F.Supp. 338, 343 (W.D.La.1977), approved in, Hyde v. Chevron U.S.A., Inc., 697 F.2d 614 (5th Cir.1983). See Polozola I, 343 So.2d at 1004 (the intent of the parties, rather than the literal terms of the contract, is controlling). 16 Our conclusion that the intent of the parties controls is corroborated by the subsequent decision of the Louisiana Court of Appeals in the same case, Polozola v. Garlock, Inc., 376 So.2d 1009 (La.App. 1st Cir.1979), cert. denied, 379 So.2d 1103 (La.1980) (Polozola II ). In Polozola II, the indemnity agreement at issue lacked an express reference to negligence. Nevertheless, the court determined that the indemnitee was to be indemnified for its own negligence. The court stated: 17 The effect to be given to the indemnity agreement under consideration in the present matter depends upon the intention of the parties, which is the foremost requirement in the interpretation of any contract. 18 The Court concludes that each agreement must be interpreted according to its intended meaning, and that the absence of a specific reference to the indemnitee's negligence is not decisive either way. 19 376 So.2d at 1014-15 (emphasis added and citations omitted). See Daigle v. Lang, 377 So.2d 1384, 1391 (La.App. 4th Cir.1979) cert. denied, 377 So.2d 1384 (La.1980). 20 Our conclusion is further supported by this Court's decision in Hyde v. Chevron U.S.A., Inc., 697 F.2d 614 (5th Cir.1983), wherein this Court decided that a specific reference to strict liability in an indemnity agreement was not needed in order for an indemnitee to be indemnified in a case where the indemnitee was held strictly liable. In that case, this Court stated: 21 Louisiana does not require a specific reference to negligent acts in order for an indemnity agreement or a release to cover claims based on negligent acts. However, the intention of the parties, as inferred from the language of their agreement, must clearly indicate an intention to include negligent acts without the indemnity agreement or the release. 22 697 F.2d at 633 (quoting from Battig v. Hartford Accident and Indemnity Co., 482 F.Supp. 338, 343-44 (W.D.La.1977). Accord Strickland v. Tesoro Drilling Co., 434 So.2d 424 (La.App. 1st Cir.), cert. denied, 441 So.2d 211, 214, 215 (La.1983). Cf. Wiley v. Offshore Painting Contractors, Inc., 711 F.2d 602, modified on other grounds on rehearing, 716 F.2d 257 (5th Cir.1983). 7 23 This Court recognizes that some conflict still exists among the Louisiana courts regarding the specificity that must be attained in an indemnity provision in order that it cover the negligence of the indemnitee. The Court is convinced, however, that Louisiana law does not require the magic words in order for an indemnity provision to cover the indemnitee's own negligence. Likewise, we conclude that a specific reference to negligence is not required in the context of the instant allocation of risk provision. See also Freeman v. Department of Highways, 253 La. 105, 217 So.2d 166, 177 (La.1968); Robillard v. P & R Racetracks, Inc., 405 So.2d 1203 (La.App. 1st Cir.1981); Peninsular Fire Insurance Co. v. Louisiana Debating & Literary Association, 385 So.2d 510 (La.App. 4th Cir.), cert. denied, 393 So.2d 742 (La.1980); Elephant, Inc. v. Hartford Accident and Indemnity Co., 239 So.2d 692 (La.App. 1st Cir.1970). 24 Cities also argues that Article 12 of the drilling contract is ambiguous on its face and that summary judgment was therefore inappropriate. Cities requests a remand of this case so that the district court might accept parol evidence to determine the intent of the parties. Cities asserts that Article 12 merely provides that Cities was to be initially liable for extinguishing the blaze and controlling the blow out, and that Article 12 was not intended to provide that Cities would be unable to recover the portion of those costs attributable to ODECO's negligence. Because two conflicting interpretations of Article 12 are urged, Cities asserts that Article 12 is ambiguous. 25 This Court agrees with the district court that no ambiguity is present. Article 12 states that Cities shall bear the entire cost and full liability of killing the well and bringing it under control in the event of a blow out from any cause. In the instant case, gas intruded into the well bore and the gas pressure eventually overcame the blow out preventer. Such a contingency was certainly foreseeable as a cause of a blow out. Likewise, negligence on the part of both Cities and ODECO in handling the crisis situation was equally forseeable by both parties. The phrase from any cause unambiguously includes ODECO's own negligence. 26 Second, the phrase the entire cost and full liability contemplates all the costs incurred and the complete liability. The quoted language is altogether inconsistent with Cities' assertion that Article 12 only covered the initial costs of killing and controlling the well. Cities' interpretation contravenes what this Court perceives to be the clear, unambiguous intent of the parties. See Polozola I, 343 So.2d at 1004-05. This Court notes that the instant contract was the result of extensive negotiations between the parties and this Court declines to adopt an interpretation of this contract that contravenes what is perceived to be the parties' intent.
27 Cities also challenges the district court's interpretation of Article 17 of the drilling contract. Article 17 provides: 28 Operator [Cities] agrees that contractor [ODECO] shall be released and relieved from all liability and responsibility for damage to or loss of the hole in the event such damage or loss should result from the failure in performance or design of the rig. Contractor being in no way released or relieved from such damage resulting from the sole negligence of the contractor, its agent or employees; provided that in any event the extent of contractor's liability shall be limited to the repair or replacement at its sole cost and expense of the hole so damaged or lost (emphasis added). 29 The district court found that Article 17 barred Cities' claim against ODECO for lost profits attributable to deferred or delayed production because those damages necessarily emanated from loss of the hole for which Article 17 releases ODECO from liability. Cities contends that this construction of Article 17 is erroneous. Cities argues that Continental Oil Co. v. SS ELECTRA, 431 F.2d 391 (5th Cir.1970), cert. denied, 401 U.S. 937, 91 S.Ct. 925, 27 L.Ed.2d 216 (1971), recognizes a distinction between damages to the well itself and loss of profits due to deferred production. Relying on ELECTRA, Cities asserts that loss of the hole does not encompass damages from delayed production. 30 ELECTRA does not command a different result from that which the district court reached. First, Article 17 releases ODECO from all liability for loss of the hole, and a common sense interpretation of that provision would indicate that Article 17 includes those damages necessarily flowing from loss of the hole such as cessation of production. Second, ODECO points out that the industry definition of the term loss of the hole includes loss of production. Finally, the provision must be read as a whole. As the district court properly noted: 31 I am reinforced in this conclusion by the final, limiting clause of Article 17, which confines Odeco's responsibility for damages due to loss of hole resulting from its sole negligence to cost of repair or replacement, a limitation which necessarily implies a release from a broader range of damages in circumstances where Odeco is not solely at fault. 32 Record Vol. 7 at 1811. This Court agrees. Article 17 contemplates that ODECO is released from all liability for loss of the hole unless ODECO is solely at fault, a finding precluded by the court's adoption of the jury's verdict. In the event ODECO was solely responsible, it would not be liable for any more than repair or replacement of the existing well bore. 33 Cities urges that the final clause of Article 17 means only that ODECO would not have to bear the cost of drilling a replacement well at another location, and that the provision recognizes that the cost of replacing the lost well would be more than the cost of redrilling the lost well. While the parties could have so provided, this Court agrees with the district court that the only meaningful interpretation that can be given to the latter provision in Article 17 is that construction adopted by the district court. While ELECTRA recognizes that damages flow from a delay in production, nothing in that case prevents a party from releasing another from liability for such damages. This is what Cities did in Article 17. 34 For the reasons stated above, this Court affirms the district court's grant of summary judgment for ODECO on Cities' claim for the costs of killing and controlling the well, as well as the grant of summary judgment for Cities' claim against ODECO for damages attributable to delayed production.