Fifth Circuit Court of Appeals Addresses Insurers’ Claims to Enforce Indemnity Rights in an Insured’s MSA

07/31/2013

Third party insurers are not entitled to enforce an insured’s defense, indemnification or insurance rights in a master services agreement (“MSA”) according to a three-judge panel of the Fifth Circuit Court of Appeals in an opinion issued on July 5. See Duval v. Northern Assurance Company of America, __ F.3d __, 2013 WL 3367483 (5th Cir. July 5, 2013).

The insurers’ claims under the MSA originated with a bodily injury suit brought by a rig contractor (“Duval”), who was injured during a personnel transfer from a support vessel, operated by “Deep Marine,” to an offshore drilling platform, owned by “BHP.” In 2008, Duval sued Deep Marine, which in turn sought and obtained a defense from BHP under an indemnity provision in the MSA between Deep Marine and BHP. After Deep Marine filed for bankruptcy, Duval amended his complaint to seek damages from Deep Marine’s insurers (collectively “Underwriters”) under Louisiana’s direct action statute. Underwriters filed a third-party complaint against BHP for indemnity under the MSA, which the district court dismissed on cross-motions for summary judgment filed by Underwriters and BHP.

Writing for the panel, Judge Patrick Higginbotham rejected each of five arguments advanced by Underwriters and affirmed the judgment of the district court:

  • BHP did not waive defenses to Underwriters’ claims under the MSA by acceding to Deep Marine’s defense in the Duval suit.
  • Regardless of when BHP’s obligations to Deep Marine under the MSA accrue—whether before or after Deep Marine’s liability to Duval is established and payment is made—Underwriters cannot recover under an indemnity provision that only names Deep Marine (and affiliates other than Underwriters) as indemnitee. If the parties to the MSA intended to include their insurers as beneficiaries of the MSA’s contractual indemnities, they could have expressly done so as other parties have.
  • Even if Underwriters made a payment giving rise to a subrogation interest, Underwriters—who step into the shoes of the subrogor insured—cannot recover from BHP absent a loss by Deep Marine in the Duval suit.1
  • Notwithstanding BHP’s agreement in the MSA to support its indemnity obligation with insurance or self-insurance, naming Deep Marine as additional insured and serving as “primary insurance,” such requirements do not apply to BHP’s “self-insurance.”
  • Although Underwriters are correct that Deep Marine’s bankruptcy does not discharge the debt of any third party, including BHP, Duval has not asserted any liability against BHP.

The Court’s decision in Duval v. Northern Assurance Company of America is undoubtedly limited to some extent by its facts. At the same time, the court’s statements regarding (1) the application of contractual “additional insured” and “primary insurance” requirements in the MSA, when a contracting party is a self-insurer; and (2) the impact on an insurer’s subrogation rights, when the subrogor insured has experienced no loss, are both likely to prompt further discourse among contracting parties and their insurers. The issues raised by this opinion may also generate further litigation and attention from the courts. At a minimum, contracting parties should be familiar with the Court’s decision and its supporting rationale when drafting the insurance and indemnity provisions in MSAs and other contracts. 

If you have any questions about the Fifth Circuit’s recent opinion in Duval v. Northern Assurance Company of America or about insurance or indemnity agreements in general, please contact one of the Haynes and Boone Insurance Coverage Litigation Practice Group partners listed below.

Ernest Martin, Jr.
214.651.5641
ernest.martin@haynesboone.com

Werner A. Powers 
214.651.5581
werner.powers@haynesboone.com

 

Micah E. Skidmore
214.651.5654
micah.skidmore@haynesboone.com

 

 

David Taubenfeld
214.651.5531
david.taubenfeld@haynesboone.com

 

Leslie C. Thorne
512.867.8445
leslie.thorne@haynesboone.com

 

 

 

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1 “. . . Underwriters would have no claim against BHP because ‘a subrogee can obtain no greater rights than its subrogor had.’ Deep Marine would not, and could not, incur any loss in the Duval action, so Underwriters could not seek indemnification from BHP. And, because BHP has agreed to continue providing Deep Marine with a nominal defense, Underwriters would not have a breach of contract claim against BHP.” 2013 WL 3367483, at *3.

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