Indemnity Agreement Does Not Extend to Third Party Insurance Company

A drilling company contracted with an oilfield service contractor in an offshore construction project. During the course of the project, an employee of a third party was injured and filed suit against the oilfield service contractor. Pursuant to an indemnity provision contained in the contract, the drilling company agreed to defend the claim against the oilfield service contractor.

While the lawsuit was still pending, the oilfield service contractor filed for bankruptcy and the litigation was stayed. The bankruptcy court eventually allowed the plaintiff to pursue a direct action against the insurance company for the insolvent oilfield service contractor. The insurer thereafter filed a third-party complaint against the drilling company, seeking the same defense and indemnity that its insured had been previously afforded. The district court granted a motion for summary judgment in favor of the drilling company, dismissing the third-party complaint and the insurer appealed to the U.S. Fifth Circuit Court of Appeal.

The question before the court was whether the contract between the drilling company and the oilfield service contractor, which contained an indemnity agreement, could also be applied to the insurance company for the now-bankrupt oilfield service contractor. While the indemnity agreement extended to a number of parties associated with the oilfield service contractor, there was no specific mention of the insurance company. Therefore, the plaintiff’s direct action against the insurer was not covered by the indemnity agreement and the drilling company was not required to defend and indemnify the insurer of the insolvent contractor.

Duval v. Northern Assurance Company of North America, et al.

Wilton E. Bland, IV