Imran Naeemullah | Comment
Indemnity clauses are a routine feature of modern contracts. Yet, they represent one of the foremost challenges facing maritime practitioners. In particular, practitioners drafting and litigating contracts for clients in the offshore oil and gas industry must navigate unique statutory, financial responsibility, and public policy hurdles to enforce indemnity provisions. Despite considerable literature discussing the subject, the validity of indemnity clauses remains unclear. Recent case law is a double-edged sword: it sheds some light but introduces new barriers. Thus, the enforceability of a given indemnity clause requires a multifaceted analysis.
The costs associated with the recent DEEPWATER HORIZON disaster highlight the potential economic consequences of entering into an indemnity agreement and serve as a reminder that even the largest-stakes indemnity agreements may not be enforced. For instance, British Petroleum (BP) has paid costs exceeding $42 billion to date; moreover, it still faces potential liability for as much as an additional $18 billion in civil penalties when the partial trial that commenced on February 25, 2013 concludes. In addition, other parties to the DEEPWATER HORIZON litigation have also faced substantial liability exposure; unsurprisingly, numerous claims for indemnity against BP have arisen.
This Comment seeks to clarify indemnity issues in the maritime context, especially for practitioners serving clients in the offshore oil and gas industry in the Gulf South. It provides a three-step approach to analyzing the enforceability of a maritime indemnity clause. First, it briefly surveys the network of federal and state laws that govern indemnity; this highlights the possible statutory barriers to enforcement. Second, it examines what triggers an indemnity clause, demonstrating how an otherwise valid indemnity clause might take secondary status to insurance coverage. Third, it evaluates the extent to which courts will enforce indemnity clauses in light of public policy considerations. This Comment concludes by noting that the current law provides a workable framework; however, it creates a considerable amount of uncertainty for practitioners and courts alike.