Application of Knock for Knock provisions and maritime law

On the whole, explicit reciprocal indemnification agreements, if properly drafted and in the absence of legal or judicial precedent to the contrary, are enforceable under general maritime law, even if they serve to protect part of his own negligence. Under general maritime law, an indemnity contract must demonstrate clearly and unequivocally that the parties intended to protect an indemnified against the consequences of its own negligence.1

Towing court decisions are very different. US courts have ruled that a clause in a tug contract purporting to exempt the tug from liability for its negligence is invalid and unenforceable.2 However, parties now invariably achieve a similar result by arranging cross-insurance endorsements in which the tug is named as an additional insured and the subrogation is lifted. The rule of “express negligence” also applies in the event of concurrent negligence of the indemnifier and the indemnified.

In Young v Kilroy Oil Co of Texas, Inc, the Texas Court of Appeals for the First Circuit said that federal indemnification law provides that:

[a] A contractual provision shall not be construed as permitting an indemnity to be indemnified for its own negligence unless the court is firmly satisfied that such construction reflects the intentions of the parties. This principle. . . is accepted almost unanimously among US jurisdictions. 3

Strike-for-strike provisions are therefore generally intended to apply regardless of fault. However, federal courts applying general maritime law consider it contrary to public order to be compensated for gross negligence or willful misconduct. Several judgments have recognized such an approach, but there is also case law to the contrary. In the latter context, a decision by the United States District Court for the Southern District of Texas in Energy XXI, GOM, LLC v. New Tech Engineering addressed the issue of whether an indemnity under a master contract services governed by US maritime law would be enforceable in the event of gross negligence.4

In considering the matter, the Court found more support for the position that under general maritime law an indemnity clause purporting to exonerate a party from liability for its own gross negligence is invalid, rather than considering these clauses as an appropriate means of risk transfer.5 In a seemingly fatal blow to companies in the offshore industry, the Court ruled “that the indemnification provision in this case, insofar as it encompasses claims of gross negligence, is unenforceable”.6

However, the Energy XXI decision has dubious precedent value since it was issued by a lower court and dealt with the wording of a specific indemnification provision. In contrast, a judgment on the motion for interim relief in the “Deepwater Horizon” litigation ruled that the drilling contract’s pollution indemnity, which was governed by general US maritime law, would be applicable even in cases of gross negligence.seven However, according to the Court’s subsequent order, issued in relation to partial cross-motions for summary judgment in the BP/Halliburton Macondo litigation, public policy would not permit compensation for fraud, since fraud involves intentional fault exceeding gross negligence.8


FOOTNOTES

1 G Hughes, Fundamentals of American law, New York 1996, p 13, 50 836 F Supp 411, 412 (SD Tex 1993).

2 See Bisso v Inland Waterways Corp, 349 US 85 (1955).

3 Young v Kilroy Oil Texas, 673 SW2d 236 (Tex App 1984).

4 Energy XXI, Gom, LLC v New Tech Engineering, LP, 787 F Supp 2d 590, 597 (SD Tex 2011).

5 See, for example, id.

6 Identifier at 608.

seven In re Oil Spill by the Oil Rig “Deepwater Horizon” in the Gulf of Mexico, 2012 WL 246455 (ED La 2012).

8 Identifier.