REVISED MAY 29, 1997
UNITED STATES COURT OF APPEALS
For the Fifth Circuit
No. 96-20856
GREENE’S PRESSURE TESTING & RENTALS, INC.,
Plaintiff - Appellant-Cross-Appellee,
VERSUS
FLOURNOY DRILLING COMPANY;
ST. PAUL SURPLUS LINES INSURANCE COMPANY
Defendants - Appellees-Cross-Appellants.
* * *
No. 96-20990
GREENE’S PRESSURE TESTING & RENTALS, INC.,
Plaintiff - Appellant-Cross-Appellee,
VERSUS
FLOURNOY DRILLING COMPANY;
ST. PAUL SURPLUS LINES INSURANCE COMPANY
Defendants - Appellees-Cross-Appellants.
Appeals from the United States District Court
For the Southern District of Texas
May 23, 1997
Before DAVIS, SMITH, and DUHÉ, Circuit Judges.
DUHÉ, Circuit Judge:
At issue is the enforceability of an indemnity provision in an
oil and gas service contract. The district court held that under
Texas law the indemnity provision is enforceable, but only up to
$500,000. Both parties appealed. We hold that the indemnity
provision is void because it does not conform to the requirements
of Texas law, and thus we reverse.
I
In 1991, Greene’s Pressure Testing (“Greene”) and Flournoy
Drilling Co. (“Flournoy”) executed a Master Service Contract
(“MSC”) in which Greene agreed to provide “pressure testing”
services on oil drilling rigs operated by Flournoy. Some years
later, a Flournoy employee died from a pressure-testing accident on
a Flournoy drilling rig. The decedent’s family sued Greene and
Flournoy in Texas state court. Pursuant to the MSC’s indemnity
provision, Greene demanded that Flournoy and Flournoy’s insurer,
St. Paul Surplus Lines Insurance Co. (“St. Paul”), defend and
indemnify Greene. Flournoy and St. Paul refused. Shortly
thereafter, Greene and Flournoy, through their insurers, each paid
the family $1.75 million to settle the family’s suit. Pursuant to
the settlement agreement, Greene, Flournoy, and St. Paul reserved
their rights to litigate among themselves the indemnity and
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coverage issues.
Greene then sued Flournoy and St. Paul for declaratory
judgment, see 28 U.S.C. § 2201, and moved for summary judgment.
The district court denied Greene’s motion, holding, inter alia,
that: (1) the indemnity provision was dependent upon other
contractual provisions in the MSC, and therefore that a breach of
contract by Greene could cut off its right to indemnity from
Flournoy; and (2) the indemnity provision is enforceable only up to
$500,000 under the Texas Oilfield Anti-Indemnity Act. The district
court’s summary judgment order was not a final judgment because
issues of fact remained as to whether Greene had actually breached
the MSC.
Pursuant to both 28 U.S.C. § 1292(b) and Fed. R. Civ. P.
54(b), the district court certified its summary judgment order for
interlocutory appeal. As required by § 1292(b), the parties
petitioned this Court for leave to appeal the interlocutory order
on the two issues of law described in the above paragraph. We
granted the petition. Noting that the district court had also
certified its summary judgment order pursuant to Fed. R. Civ. P.
54(b), Greene filed a Notice of Appeal in addition to its § 1292(b)
petition.
Greene now presents five issues for review, two of which
correspond to the issues raised in its § 1292(b) petition.
Flournoy and St. Paul not only oppose Greene on the merits of all
five issues, but they also contend that the district court abused
its discretion by certifying its summary judgment order pursuant to
3
Fed. R. Civ. P. 54(b) and thus maintain that this Court should
address only the two issues raised in the § 1292(b) petition.
Because we hold that the district court abused its discretion
in certifying its order pursuant to Fed. R. Civ. P. 54(b),1 we need
only address the two issues presented in the § 1292(b) petition.
In addition, we hold that the indemnity provision is void because
it does not comply with the dictates of the Texas Oilfield Anti-
Indemnity Act, and thus we need not determine whether that
provision is dependent on other clauses in the MSC.
II
The controlling issue in this case is whether the indemnity
agreement contained in the MSC satisfies the requirements of
Chapter 127 of the Texas Civil Practice and Remedies Code (the
“Texas Oilfield Anti-Indemnity Act” or the “Act”). Tex. Civ. Prac.
& Rem. Code Ann. §§ 127.001-.007 (West 1986 & Supp. 1997). The MSC
provides:
7.2 Subcontractor [Greene] agrees to protect, defend,
indemnify and hold harmless Contractor [Flournoy] . . . from
and against all claims, demands, and causes of action of every
kind and character without limit and without regard to the
cause or causes thereof or the negligence or fault (active or
passive) of any party or parties including the sole, joint or
concurrent negligence of Contractor . . . arising in
connection herewith in favor of Subcontractor’s employees . .
. on account of bodily injury, death or damage to property.
7.3 Contractor [Flournoy] agrees to protect, defend,
indemnify and hold harmless Subcontractor [Greene] . . . from
1
A district court may certify a claim under Rule 54(b) if that
claim is disposed of entirely. See Monument Management Ltd.
Partnership I v. City of Pearl, 952 F.2d 883, 885 (5th Cir. 1992).
In this case, certification was improper because Greene’s claim for
indemnity was undecided since the issue of Greene’s breach of the
MSC was unresolved.
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and against all claims, demands, and causes of action of every
kind and character without limit and without regard to the
cause or causes thereof or the negligence or fault (active or
passive) of any party or parties including the sole, joint or
concurrent negligence of Subcontractor . . . arising in
connection herewith in favor of Contractor’s employees . . .
on account of bodily injury, death or damage to property.
As a general rule, the Texas Oilfield Anti-Indemnity Act voids
indemnity provisions--such as those found in paragraphs 7.2 and
7.3--that purport to indemnify a party against liability caused by
the indemnitee’s sole or concurrent negligence and arising from
personal injury, death, or property damage. See Tex. Civ. Prac. &
Rem. Code Ann. § 127.003 (West 1986). There is, however, a
statutory exception that permits indemnity provisions that are
supported by liability insurance satisfying the dictates of section
127.005. Section 127.005 provides, in pertinent part:
(a) This chapter does not apply to an agreement that provides
for indemnity if the parties agree in writing that the
indemnity obligation will be supported by liability insurance
coverage to be furnished by the indemnitor subject to the
limitations specified in Subsection (b) or (c).
(b) With respect to a mutual indemnity obligation, the
indemnity obligation is limited to the extent of the coverage
and dollar limits of insurance or qualified self-insurance
each party as indemnitor has agreed to provide in equal
amounts to the other party as indemnitee.
Id. § 127.005 (West Supp. 1997).2
There are two provisions in the MSC dealing with insurance.
Paragraph 6.1 requires Greene, but not Flournoy, to obtain $500,000
of insurance, and paragraph 7.4 obligates each party “to support
2
Subsection 127.005(c) deals with unilateral indemnity
obligations, but in the instant case, the parties agree that the
MSC contains a mutual indemnity obligation, and thus section
127.005(a)-(b) governs.
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[the] indemnity agreement by available liability insurance
coverage.” Thus, we must determine whether either of these two
insurance provisions satisfies the dictates of section 127.005. We
conclude that neither provision does.
Paragraph 6.1 of the MSC obligates only Greene, and not
Flournoy, to purchase $500,000 of insurance, and thus it cannot be
said that each party as indemnitor agreed to provide an equal
amount of insurance to the other party as indemnitee, as required
by subsection 127.005(b). Furthermore, the insurance requirement
in paragraph 6.1 does not support the indemnity obligation, as
required by subsection 127.005(a), because that paragraph
explicitly states that the insurance obligation contained therein
must be maintained “[w]ithout affecting the indemnity obligations
or liabilities” of Greene and because that paragraph is found in an
entirely different section of the MSC (6.0 Insurance) than are the
indemnity provisions (7.0 Indemnity). We thus conclude that the
district court erred in holding that the indemnity obligation,
pursuant to paragraph 6.1, is enforceable up to $500,000.
Greene’s reliance on paragraph 7.4, which obligates each party
to support the indemnity agreement with “available liability
insurance,” is equally unavailing. Subsection 127.005(a) tolerates
mutual indemnity agreements so long as the parties agree in writing
to support the indemnity obligations with liability insurance
subject to the limitations contained in subsection 127.005(b).
Subsection 127.005(b) limits a mutual indemnity agreement to the
extent of coverage and dollar limits of insurance that each party
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has “agreed” to provide “in equal amounts” to the other party. In
the instant case, paragraph 7.4 does not require the parties to
support the indemnity obligation with “equal” amounts of liability
insurance; rather, it compels the parties to support the indemnity
agreement with “available” liability insurance.
The difference in meaning between the two terms (“equal” vs.
“available”) is significant. Before 1989, subsection 127.005(a)
required each party to agree in writing to support the indemnity
obligation with “available liability insurance”--exactly the
phrasing in paragraph 7.4.3 In 1989, however, the Texas
legislature specifically rejected this phrasing by amending section
127.005 to require the parties to provide “equal amounts” of
liability insurance. Indeed, Greene admits that it signed an
outdated “form” contract that was designed to satisfy the
requirements of the pre-1989 Act.4 Although we are sympathetic to
3
The pre-1989 statute read as follows:
(a) This chapter does not apply to an agreement that provides
for indemnity with respect to claims for personal injury or
death . . . if the parties agree in writing that the indemnity
obligation will be supported by available liability insurance
coverage to be furnished by the indemnitor.
(b) The indemnity obligation is limited to the extent of the
coverage and dollar limits of insurance the indemnitor has
agreed to furnish.
(c) The amount of insurance required may not exceed 12 times
the state’s basic limits for personal injury, as approved by the
State Board of Insurance in accordance with Article 5.15,
Insurance Code.
Tex. Civ. Prac. & Rem. Code Ann. § 127.005 (West 1986).
4
As Flournoy notes, the 1994 International Association of
Drilling Contractors (“IADC”) form contract now states that the
“Operator will, as well, . . . and shall maintain . . . insurance
coverage of the same kind and in the same amount as is required of
the Contractor. . . .” (emphasis added).
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Greene’s position,5 we cannot hold that paragraph 7.4 satisfies the
requirements of the current Anti-Indemnity Act. Paragraph 7.4
contains language that was expressly repudiated by the Texas
legislature in 1989, and does not satisfy the current requirement
that the parties agree to provide equal amounts of liability
insurance.6
Greene attempts to overcome the fact that the parties did not
agree to provide equal amounts of insurance by relying on two
cases: Campbell v. Sonat Offshore Drilling, Inc., 979 F.2d 1115,
1126-27 (5th Cir. 1992); Maxus Exploration v. Moran Bros., Inc.,
773 S.W.2d 358, 361 (Tex. App.--Dallas 1989), aff’d on other
grounds, 817 S.W.2d 50 (Tex. 1991). Greene cites these cases for
the proposition that when an indemnitor voluntarily procures more
insurance than is required to support an indemnity obligation, the
indemnitee is entitled to the full amount of coverage purchased.
In this case, Greene asserts that because Flournoy voluntarily
purchased $10 million worth of insurance, it is liable to Greene up
to the full $10 million.
5
The following excerpt from paragraph 7.4 demonstrates that
the parties attempted to comply with the Texas Oilfield Anti-
Indemnity Act, albeit the pre-1989 version:
7.4 . . . In the event that this Contract is subject to the
indemnity limitations in Chapter 127 of the Texas Civil Practice
and Remedies Code, and so long as such limitations are in force,
then it is agreed that the above obligations to indemnify are
limited to the extent allowed by law, and each party covenants
and agrees to support this indemnity agreement by available
liability insurance coverage.
6
Greene’s position is further weakened because the parties in
fact purchased unequal amounts of insurance: Greene purchased $6
million, and Flournoy purchased $10 million.
8
Although we agree with Greene that both Campbell and Maxus
hold that an indemnitor’s voluntary procurement of more insurance
than required entitles an indemnitee to the full amount of
coverage, Greene’s reliance upon Campbell and Maxus is misplaced
for two reasons. First, their holdings were based upon subsection
127.005(c) of the pre-1989 Act, which no longer exists in any form.
The former subsection 127.005(c) set a specific statutory cap on
the dollar amount of insurance that the parties could be required
to provide, but Campbell and Maxus held that--despite subsection
127.005(c)--an indemnitor could be liable to the indemnitee for
more than the statutory cap if the indemnitor voluntarily procured
insurance over the cap amount. See Campbell, 979 F.2d at 1127;
Maxus, 773 S.W.2d at 361. Thus, Campbell and Maxus were
specifically premised upon a repealed section of the Act, and their
holdings are simply not applicable to this case, which arises under
the post-1989 Anti-Indemnity Act.
Second, even if we were to agree that the reasoning of
Campbell and Maxus is still viable (i.e., that an indemnitor’s
voluntary procurement of insurance beyond that agreed upon
obligates the indemnitor up to the full amount purchased), such
reasoning presupposes that there is a valid agreement in the first
instance. In Campbell and Maxus, the indemnity agreements were
valid because they were supported by “available” liability
insurance, as required by the pre-1989 Act. See Campbell, 979 F.2d
at 1118 n.4 (agreeing to support the indemnity obligation with
$1,000,000 insurance); Maxus, 773 S.W.2d at 362 (agreeing to
9
support the indemnity obligation with “available liability
insurance”); cf. Tex. Civ. Prac. & Rem. Code Ann. § 127.005(a)
(West 1986). Only after finding the indemnity agreements valid did
these cases determine whether the indemnitor was liable for the
full amount of insurance procured. Here, by contrast, the
indemnity agreement is void because there was never any agreement
to purchase equal amounts of insurance, as is currently required.
Cf. Tex. Civ. Prac. & Rem. Code Ann. § 127.005(b) (West Supp.
1997). Simply put, even assuming, arguendo, that an indemnitor is
liable up to the full dollar amount of insurance purchased, this is
true only if there is a valid indemnity agreement. The voluntary
procurement of insurance does not transform an otherwise invalid
indemnity agreement into a valid one.
III
For the foregoing reasons, we reverse and remand for
proceedings consistent with this opinion.
REVERSED and REMANDED.
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