Louisiana Codifies the Marcel Exception: What HB 941 Means for Oilfield MSAs

The LOAIA and Marcel

LA.REV. STAT. ANN. § 9:2780, commonly known as the Louisiana Oilfield Anti-Indemnity Act (LOAIA), prohibits an indemnitee from being indemnified for its own negligence or fault that causes death or bodily injury to another in agreements pertaining to a well. However, the Fifth Circuit in Marcel v. Placid Oil Co., 11 F.3d 563 (5th Cir. 1994) provided an exception to the LOAIA when the indemnitee pays the additional costs for liability coverage as an additional insured on the indemnitor’s insurance policy.

The so-called “Marcel exception” does not apply if any material part of the cost of insuring the indemnitee is borne by the indemnitor. The basic rationale for the exception is that, where the indemnitee has paid the full cost to be made an additional insured, it should get the benefit of the bargain with the insurer. Unfortunately, both Louisiana state courts and federal courts applying Louisiana law have created uncertainty and ambiguity in interpreting and applying the Marcel exception, frustrating the parties’ need for predictability in risk allocation. The good news is that recently-enacted legislation in Louisiana in the form of HB 941 provides a clearer framework for interpreting and applying the Marcel exception. HB 941 also clarified the LOAIA to add the phrase “wells” to the existing statutory language (LA R.S. 9:2780), confirming that the number of wells covered by an agreement is immaterial to application of the LOAIA, and clarified existing statutory language that the list of activities falling within the reach of the LOAIA was “illustrative” only and not an exhaustive list.

Rules for Invoking the Marcel Exception

HB 941 establishes clear rules governing when additional insured provisions in oilfield contracts are enforceable. Under HB 941, a party seeking additional insured coverage (whether for itself or its group) under the Marcel exception must satisfy the following requirements: (1) submit a written request for an additional insured premium quote to the named insured or the named insured’s agent/broker, or both; (2) receive a premium quote from the named insured’s insurer or its authorized representative; and (3) make direct payment to the named insured’s insurer or its authorized representative for either additional insured coverage for itself only or for itself and members of its group as defined by its agreement with the named insured.

HB 941 also clarifies that additional insured coverage for the indemnitee’s group is enforceable only when the premium is expressly quoted for the (entire) group coverage and the additional insured’s premium payment is for the (entire) group. Once additional insured coverage is actually purchased, the named insured, its insurer, or authorized representative must notify the additional insured in writing at least 30 days before the next annual premium is due or within 7 days of binding the renewal coverage for the named insured—whichever time period is less. These renewal notification requirements do not apply where the additional insured did not make the initial request for coverage or did not pay for such coverage the prior policy year.

Payment of Deductibles and Self-Insured Retentions

Under HB 941, once additional insured coverage is obtained, the additional insured(s), and not the named insured, are liable for and responsible for any applicable deductibles or retentions as set forth in the named insured's policy up to a maximum of $100,000, with the named insured responsible to fund the amount of the applicable deductibles or retentions, if any, in excess of $100,000. Any contractual arrangement to the contrary is unenforceable under HB 941.

HB 941 should be welcome news for the oil and gas industry, as it provides much needed clarification for parties seeking to invoke the Marcel exception to the LOAIA.

Dore Rothberg Law has many attorneys experienced in oilfield MSA drafting, negotiation, and administration for both operators and contractors. If your company needs assistance developing or strengthening its Master Service Agreement program, call 281-829-1555 or contact us through our website to discuss your needs.