Court Opinion

ID: 3101329
Source: CourtListenerOpinion
Date Created: 2015-10-16 05:11:33.765857+00
Date Added: 2024-06-11T11:51:39.742361
License: Public Domain

COURT OF APPEALS
                        SECOND DISTRICT OF TEXAS
                             FORT WORTH

                             NO. 02-12-00166-CV

NABORS DRILLING USA, L.P.                                         APPELLANT

                                      V.

ENCANA OIL & GAS (USA) INC.                                         APPELLEE

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          FROM THE 271ST DISTRICT COURT OF WISE COUNTY

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                       MEMORANDUM OPINION 1

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      Nabors Drilling USA, L.P. appeals the trial court’s summary judgment in

favor of appellee, Encana Oil & Gas (USA) Inc. We reverse and render.

                             Background Facts

      In 2005 and 2008, Encana contracted with Nabors to have Nabors provide

drilling activities on two of Encana’s oil and gas properties.   The contracts,

      1
      See Tex. R. App. P. 47.4.
entitled “Daywork Drilling Contract,” have a disclaimer at the top on the first page

that states, “This Daywork Drilling Contract is similar in style to the IADC Drilling

Bid Proposal and Daywork Drilling Contract-U.S.          However, this contract is

significantly different from the IADC version with respect to many important

provisions related to indemnity, insurance coverage, liability[,] and risk.” The two

contracts have identical language regarding indemnity. The sections relevant to

the issues here state,

             14.8. [Nabors]’s Indemnification of [Encana]: [Nabors] shall
      release [Encana] of any liability for, and shall protect, defend[,] and
      indemnify [Encana], its officers, directors, employees[,] and joint
      owners from and against all claims, demands, liabilities, and causes
      of action of every kind and character, without limit and without regard
      to the cause or causes thereof or the negligence of any party or
      parties, arising in connection herewith in favor of [Nabors]’s
      employees or [Nabors]’s subcontractors or their employees, or
      [Nabors]’s invitees, on account of bodily injury, death[,] or damage to
      property[.]

             ....

             14.9. [Encana]’s Indemnification of [Nabors]: [Encana] shall
      release [Nabors] of any liability for, and shall protect, defend[,] and
      indemnify [Nabors], its officers, directors, employees[,] and joint
      owners from and against all claims, demands, liabilities, and causes
      of action of every kind and character, without limit and without regard
      to the cause or causes therefor or the negligence of any party or
      parties, arising in connection herewith in favor of [Encana]’s
      employees or [Encana]’s contractors or their employees, or
      [Encana]’s invitees, other than those parties identified in
      Subparagraph 14.8 on account of bodily injury, death[,] or damage
      to property.

             ....

             14.13. Indemnity Obligation: Except as otherwise expressly
      limited herein, it is the intent of the parties hereto that all releases,

                                         2
      indemnity obligations[,] and/or liabilities assumed by such parties
      under the terms of this Contract, including, without limitation,
      Subparagraphs 14.1 through 14.12 hereof, be without limit and
      without regard to the cause or causes thereof, including preexisting
      conditions, strict liability, regulatory or statutory liability, breach of
      warranty (express or implied), any theory of tort, breach of contract[,]
      or the negligence of any party or parties, whether such negligence
      be gross, sole, joint or concurrent, active or passive.

      The daywork contracts also require that Nabors purchase insurance

“insuring the liabilities specifically assumed by [Nabors] in Paragraph 14 of this

Contract” and that Encana purchase “insurance coverage of similar kind and in a

similar amount as is required of [Nabors], insuring the liabilities specifically

assumed by [Encana] in Paragraph 14 of this Contract.”

      In 2007, a Nabors employee named Tyler Newsome was injured on an

Encana worksite. Newsome sued Encana and its subcontractor, Weatherford

International, Inc. In 2008, another Nabors employee, Larry Mullins, was injured

on another Encana worksite. Mullins sued Encana and its subcontractor, Fowler

Transportation, Ltd. Encana had contracts with the two subcontractors entitled

“Master Service Contract” and “Master Service Agreement.”             Both contracts

contained indemnity provisions that required Encana to indemnify the

subcontractors for claims “arising out of bodily injury . . . or loss or destruction of

property . . . caused by, directly or indirectly resulting from, incident to, connected

with[,] or arising out of the performance of the Work.”

      Encana requested that Nabors defend and indemnify it in the two lawsuits,

pursuant to the daywork contracts. Nabors complied and obtained a dismissal of

                                          3
all the claims against Encana in both cases. The two subcontractors settled with

the injured workers and sought indemnity from Encana.              Encana paid the

subcontractors and demanded indemnity from Nabors for those payments.

Nabors refused, claiming that the daywork contracts do not require Nabors to

indemnify Encana against contractual indemnity claims from its subcontractors.

      Encana sued Nabors for breach of contract and declaratory judgment.

Both Encana and Nabors moved for partial summary judgment on Nabors’s

liability under the daywork contracts for the subcontractor’s claims against

Encana. 2 The trial court granted Encana’s motion and denied Nabors’s. The

parties stipulated to the amount of damages if Encana’s claim was affirmed on

appeal, Encana nonsuited the claims it had not sought summary judgment on,

and the trial court entered a final judgment reiterating its ruling on the motions for

summary judgment and the amount of damages. Nabors then filed this appeal.

                               Standard of Review

      We review a summary judgment de novo. Travelers Ins. Co. v. Joachim,

315 S.W.3d 860, 862 (Tex. 2010). A plaintiff is entitled to summary judgment on

a cause of action if it conclusively proves all essential elements of the claim. See

Tex. R. Civ. P. 166a(a), (c); MMP, Ltd. v. Jones, 710 S.W.2d 59, 60 (Tex. 1986).

A defendant who conclusively negates at least one essential element of a cause

      2
       Encana also moved for summary judgment on Nabors’s responsibility to
Encana under the contracts for reimbursement of Encana’s pre-tender attorneys’
fees and expenses.

                                          4
of action is entitled to summary judgment on that claim. Frost Nat’l Bank v.

Fernandez, 315 S.W.3d 494, 508 (Tex. 2010); see Tex. R. Civ. P. 166a(b), (c).

      When both parties move for summary judgment and the trial court grants

one motion and denies the other, the reviewing court should review both parties’

summary judgment evidence and determine all questions presented.              Mann

Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848 (Tex.

2009); see Myrad Props., Inc. v. Lasalle Bank Nat’l Ass’n, 300 S.W.3d 746, 753

(Tex. 2009). The reviewing court should render the judgment that the trial court

should have rendered. Mann Frankfort, 289 S.W.3d at 848.

                                   Discussion

      Both of Nabors’s issues on appeal concern whether the trial court properly

construed the indemnity provisions in the daywork contracts to include liability for

“pass-through” indemnity claims. That is, whether under the language of the

contract, Nabors was required to indemnify Encana for Encana’s separate

contractual responsibility to indemnify its subcontractors. In its second issue,

Nabors argues that the rules of construction preclude Encana’s interpretation of

the contract.

      Indemnity agreements are construed under the normal rules of contract

construction. See Associated Indem. Corp. v. Cat Contracting, Inc., 964 S.W.2d
276, 284 (Tex. 1998). In construing a written contract, the primary concern of the

court is to ascertain the true intentions of the parties as expressed in the

instrument. Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 662 (Tex. 2005).

                                         5
Courts should examine the entire writing “to harmonize and give effect to all the

provisions of the contract so that none will be rendered meaningless.”          Id.

Contract terms are given their plain, ordinary, and generally accepted meanings

unless the contract itself shows them to be used in a technical or different sense.

Id.   “We construe contracts ‘from a utilitarian standpoint bearing in mind the

particular business activity sought to be served’ and ‘will avoid when possible

and proper a construction [that] is unreasonable, inequitable, and oppressive.’”

Frost Nat’l Bank v. L & F Distribs., Ltd., 165 S.W.3d 310, 312 (Tex. 2005)

(quoting Reilly v. Rangers Mgmt., Inc., 727 S.W.2d 527, 530 (Tex. 1987)). We

must look at all of the contract’s parts together and be “particularly wary of

isolating from its surroundings or considering apart from other provisions a single

phrase, sentence, or section of a contract.” State Farm Life Ins. Co. v. Beaston,

907 S.W.2d 430, 433 (Tex. 1995). We presume that the parties to a contract

intend every clause to have some effect. Heritage Res., Inc. v. NationsBank, 939
S.W.2d 118, 121 (Tex. 1996).

       Nabors’s duty under paragraph 14.8 of the daywork contracts is to “release

[Encana] of any liability for, and [to] protect, defend[,] and indemnify [Encana].”

The Nabors employees’ claims against Encana were covered by paragraph 14.8

because they were asserted against Encana. The Nabors employees’ claims

against Encana’s subcontractors, however, were not asserted against Encana. It

was the subcontractors themselves who asserted claims against Encana. For

those claims (that is, the claims of the subcontractors against Encana) to be

                                        6
covered under paragraph 14.8, they must have arisen “in connection” with the

daywork contract and have been “in favor of” a Nabors’s employee “on account

of bodily injury, death[,] or damage to property.”      The subcontractors’ claims

against Encana did not arise in connection with the daywork contracts but with

the master service agreements. Neither is a contractual indemnity claim a claim

“on account of bodily injury, death[,] or damage to property.” See Foreman v.

Exxon Corp., 770 F.2d 490, 497 (5th Cir. 1985) (“Exxon’s argument that the

language of the indemnity provision unambiguously provides that Offshore must

reimburse Exxon for Exxon’s contractual liability to Diamond M ignores the

limiting language ‘for injury to or death or illness of persons.’”); Corbitt v.

Diamond M. Drilling Co., 654 F.2d 329, 333 (5th Cir. 1981); 3 see also Scherff v.

Missouri-Kansas-Texas R. Co., 449 F.2d 23, 30 (5th Cir. 1971) (noting that

indemnity agreement did not intend “that Shamrock would indemnify Northern for

any liability that might arise out of a contract entered into between Northern and

other parties”). 4

       3
        In Corbitt, the Fifth Circuit, applying maritime law, held that claims based
on a separate indemnity contract between the owner and a subcontractor were
not claims “on account of personal injury,” but were “on account of” the indemnity
agreement between the owner and subcontractor. 654 F.2d at 333. Thus, the
indemnity agreement between the owner and contractor, which provided
indemnity for claims “on account of personal injury . . . arising out of or in
connection with performance of” the contract, did not require the contractor to
indemnify the owner for the owner’s contractual liability to the subcontractor. Id.
       4
        The indemnity provision at issue in Sherff stated, in part,

                                          7
        Encana argues that these claims were “in favor of” Nabors’s employees

because Encana paid its subcontractors’ claims directly to the Nabors

employees. However, if the details of the payment process were sufficient to

determine whether a claim fell under an indemnity provision, then Encana could

unilaterally decide which claims would be indemnified post hoc and without

notice to Nabors. See Win-Tex Drilling Co. v. Star Prod. Inc., No. 11-99-00067-

CV, 2000 WL 34234887, at *2 (Tex. App.—Eastland Aug. 3, 2000, no pet.) (not

designated for publication) (holding that indemnity provision requiring operator to

indemnify contractor for claims “in favor of [operator]’s employees or [operator]’s

contractors or their employees or [operator]’s invitees” did not include claims by

an employee of the operator’s contractor’s subcontractor). Encana also argues

that paragraph 14.13 clarifies the duties imposed upon Nabors in paragraph

14.8.    Paragraph 14.13 states that the parties’ intent is that the liabilities

               Contractor shall . . . indemnify, protect[,] and save Northern,
        its directors, officers[,] and employees harmless from and against
        any and all actions or causes of action, claims, demands, liabilities,
        loss, damage, injury, cost[,] or expense of whatever kind or nature,
        including costs of litigation, attorney fees[,] and reasonable
        expenses in connection therewith, brought or presented by any
        person, firm, or corporation whatsoever, (including but not limited to,
        third parties, employees of Northern, employees of Contractor or of
        any subcontractor,          and their     dependents and person
        representatives) for injuries to or the death of any person, or damage
        to or loss of property alleged or claimed to have been caused by, or
        to have arisen out of or in connection with, or to be incidental to any
        of the work.
449 F.2d at 25–26.

                                          8
assumed under the daywork contract “be without limit and without regard to the

cause or causes thereof, including . . . breach of contract.” Encana claims that

the inclusion of “breach of contract” indicates the parties’ intent that “contractual

liability” is included in the duties of 14.8.   But neither the subcontractor nor

Encana were sued for breach of contract, and Encana did not seek indemnity

from Nabors for a breach of contract claim. Encana sought indemnity for a claim

based on another indemnity contract.

      Encana points to paragraph 13 of the daywork contracts, which requires

the parties to purchase and maintain insurance “insuring the liabilities specifically

assumed” in paragraph 14. Paragraph 13 does nothing to add clarification or

bolster Encana’s argument. The only liability specifically assumed in paragraph

14 relevant to this case is Nabors’s duty to indemnify Encana, its officers,

directors, employees, and joint owners from claims by Nabors’s employees for

bodily injury, death, or damage to property. There is no specific reference to

claims against Encana’s subcontractors. See Tutle & Tutle Trucking, Inc. v. EOG

Res., Inc., 391 S.W.3d 240, 244 (Tex. App.—Waco 2012, no pet.) (upholding a

pass-through liability claim when the contract stated that the indemnity provisions

“expressly appl[ied] to claims or causes of action asserted against Company or

Contractor by reason of any agreement of indemnity with a person or entity not a

party to [the] Contract”).

      Further, the exhibit attached to the daywork contracts that further details

the insurance requirement states that the parties were required to get

                                         9
comprehensive commercial general liability insurance “including contractual

obligations as respects this Contract and proper coverage for all other obligations

assumed in this Contract.” The exhibit sets the insurance limit at $1,000,000

“combined single limit per occurrence for Bodily Injury and Property Damage.” In

the Mullins litigation, the subcontractor’s settlement with the employee was over

$2,000,000.   Encana’s liability was capped at $2,000,000 under the master

service agreement it had with the subcontractor. See Tex. Civ. Prac. & Rem.

Code Ann. § 127.005(b) (West 2011) (limiting a party’s indemnity obligation to

the coverage and dollar limit of the insurance agreed to). A negotiated insurance

limit of $1,000,000 does not indicate an intent that Nabors cover both Encana’s

claims and the claims of its subcontractors.

      While we are mindful of the policy that, at drilling sites, employers are

generally responsible for their own employees, see Chesapeake Operating, Inc.

v. Nabors Drilling USA, Inc., 94 S.W.3d 163, 168 (Tex. App.—Houston [14th

Dist.] 2002, no pet.) (“In the standard drilling contract, [indemnity provisions]

allocate costs and liability according to who hired the injured party, not who

caused the accident.”), we cannot expand the contractual language beyond the

contract’s express language, see Ideal Lease Serv. v. Amoco Prod. Co., 662
S.W.2d 951, 953 (Tex. 1983) (“We are precluded from expanding the scope of

this coverage beyond that stated in the contract based solely upon what this

Court may perceive to be the improperly expressed intentions of the parties.”);

Chesapeake Operating, 94 S.W.3d at 168 (noting that indemnity provisions

                                        10
“often fall short” of their intended purpose). A plain reading of the contracts does

not conclusively reveal an intention by the parties that extra-contractual liabilities

obligations may be passed through under the liability agreement of the daywork

contracts. See William W. Pugh, A Strategic Look at the Bigger Picture—Risk

Allocation in Oil and Gas Operational Agreements, 45 Rocky Mtn. Min. L. Found.

J. 349, 353 (2008) (hereinafter Strategic Look) (noting that pass-through

indemnity is not available “[a]bsent express language” and warning that “every

drilling contract with a broad reciprocal indemnity puts the operator at risk for all

claims by its other contractors or their employees and the operator is stuck with

that liability unless the contract has a pass-through provision”). 5

      Because Encana did not conclusively prove an essential element of its

claim—namely, that its subcontractors claims for which it was contractually liable

fell under the indemnity provision of its contract with Nabors—it was not entitled

      5
       Both Nabors and Encana agree that there are different ways in which to
obtain pass-through protection. As Pugh explains,

             One method is to require indemnity protection for any
      contractual liability to third parties. . . . Another method that is
      similar is to specify that the indemnity obligation is owed to the
      indemnitee and anyone to whom the indemnitee owes contractual
      indemnity. . . . A third method of obtaining pass-through protection is
      to expand the categories of persons or companies entitled to
      indemnity protection such that the indemnitor agrees to indemnify
      the indemnitee “and its contractors and subcontractors (excluding
      Contractor and its subcontractors).”

Strategic Look, supra, at 354. All three options make clear that the operator is
seeking pass-through protection. In the daywork contracts at issue, no such
explicit language is used.

                                          11
to summary judgment. See Tex. R. Civ. P. 166a(a), (c); MMP, Ltd., 710 S.W.2d

at 60. The trial court erred by granting Encana’s motion for summary judgment,

and we sustain Nabors’s second issue. Because we sustain its second issue, we

do not need to address Nabors’s first issue. 6 See Tex. R. App. P. 47.1.

      Having held that Encana was not entitled to summary judgment, we look to

Nabors’s evidence and determine whether it was entitled to summary judgment.

See Mann Frankfort, 289 S.W.3d at 848. When, as here, the provisions at issue

are not ambiguous and can be given a definite legal interpretation, we construe

the contract as a matter of law. See Coker v. Coker, 650 S.W.2d 391, 393 (Tex.

1983). Because the plain language of the contract does not require Nabors to

indemnify Encana for claims against Encana’s subcontractors, Nabors has

conclusively negated Encana’s claims against it. Nabors is therefore entitled to

summary judgment. See Frost Nat’l Bank, 315 S.W.3d at 508.

                                   Conclusion

      Having sustained Nabors’s dispositive issue, we reverse the trial court’s

judgment as to Nabors’s liability to Encana for claims against Encana’s

subcontractors and render judgment dismissing those claims against Nabors with

      6
       Encana requests in its brief that we reverse the trial court’s order denying
its objections to parol evidence submitted by Nabors “regarding extraneous
agreements, prior negotiations, and Nabors’[s] alleged ‘understanding’ regarding
the scope of the indemnity provisions.” Because we base our holding on a plain
reading of the unambiguous contract language, we do not need to address
Encana’s objections. See Sun Oil Co. v. Madeley, 626 S.W.2d 726, 731 (Tex.
1981) (noting that the court considers parol evidence only after determining that
the contract is ambiguous).

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prejudice. Mann Frankfort, 289 S.W.3d at 848 (stating that the reviewing court

should render the judgment the trial court should have rendered).      Because

Nabors did not appeal that part of the trial court’s judgment regarding Encana’s

pre-tender attorneys’ fees and expenses, we remand the remainder of the case

to the trial court to determine damages and attorneys’ fees arising from those

claims.

                                           LEE GABRIEL
                                           JUSTICE

PANEL: LIVINGSTON, C.J.; MCCOY and GABRIEL, JJ.

DELIVERED: July 11, 2013

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