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Macondo is a "game changer" that will substantially impact the oil and gas industry from an operational, contractual and risk management perspective. Decisions in the Macondo litigation that is pending in a U.S. District Court in New Orleans will impact operators, drillers, service and supply companies in respect of pollution liability in general and contractual indemnity/release provisions in particular. This paper primarily reviews and analyzes landmark Court decisions on summary judgment motions regarding interpretation, applicability and enforceability of the indemnification provisions and releases in the drilling and cementing contracts that were applicable to the Macondo well. In January 2012 rulings on summary judgment motions involving the drilling and cementing contracts, the Court determined that contractual indemnification may apply even in the event of gross negligence or strict liability but will not be applicable to protect a party against intentional wrongdoing as a matter of public policy. The Court also ruled that the scope of indemnification excludes punitive damages as a matter of public policy. The Court held that contractual indemnification may apply to protect an indemnified party from penalties assessed under the Oil Pollution Act of 1990 ("OPA'90") but not under the Clean Water Act ("CWA"). The Court deferred ruling on whether a material breach of contract would invalidate indemnity protection. In the decision relating to the cementing contract, the Court also ruled that indemnities will be invalidated by fraudulent acts that constitute intentional wrongdoing and deferred ruling on whether penalties or fines under the Outer Continental Shelf Act ("OCSLA") are subject to contractual indemnity. This paper reviews these rulings in detail and includes the author's commentary on the decisions and the interpretation (or, perhaps more accurately, misinterpretation) of certain of the drilling contract provisions based upon over 35 years of drilling industry experience primarily as an executive overseeing legal, contracts and risk management activities. The Court rulings in the Macondo litigation will have a profound impact upon the offshore industry, especially with respect to contract terms, risk management and insurance. While U.S.-centric and primarily applicable to U.S. maritime law, the litigation and other ramifications of Macondo are expected to ultimately have considerable global impact both offshore and onshore. |
