Tesoro Petroleum Corporation, et al v. Nabors Drilling USA, Inc. (ZURICH American Ins. Co., Subrogee)--Appeal from 234th District Court of Harris County

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Laws-info.com » Cases » Texas » 1st District Court of Appeals » 2002 » Tesoro Petroleum Corporation, et al v. Nabors Drilling USA, Inc. (ZURICH American Ins. Co., Subrogee)--Appeal from 234th District Court of Harris County

State: Texas

Court: Texas Northern District Court

Docket No: 01-00-00050-CV

Case Date: 12/12/2002

Plaintiff: Martinez, Jamari Kirk

Defendant: The State of Texas--Appeal from 183rd District Court of Harris County

Preview:Tesoro Petroleum Corporation, et al v. Nabors Drilling
USA, Inc. (ZURICH American Ins. Co., Subrogee)--
Appeal from 234th District Court of Harris County
In The
Court of Appeals
For The
First District of Texas
NO. 01-00-00050-CV
TESORO PETROLEUM CORPORATION AND TESORO
E&P COMPANY, L.P., Appellants
V.
NABORS DRILLING USA, INC., Appellee
*
NABORS DRILLING USA, INC. ( ZURICH AMERICAN
INSURANCE COMPANY, SUBROGEE), Appellant
V.
TESORO PETROLEUM CORPORATION AND TESORO
E&P COMPANY, L.P., Appellees
On Appeal from the 234th District Court
Harris County, Texas
Trial Court Cause No. 98-12198
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O P I N I O N
Tesoro Petroleum Corporation and Tesoro E&P Company, L.P. (collectively Tesoro ) appeal a summary judgment
requiring it to indemnify Nabors Drilling USA, Inc. (Nabors) for settlement monies Nabors paid a third party as a
result of an oil well blowout. In five points of error, Tesoro contends the trial court erred in granting summary
judgment on Nabors s indemnity claim because (1) Nabors s damages arose from a claim by LMP Petroleum
Corporation (LMP) for gross negligence and willful misconduct, which were specifically excluded from the indemnity
agreement; (2) the summary judgment evidence raised a disputed fact issue as to whether Nabors had been grossly
negligent in causing the blowout; (3) negligence and gross negligence are separate causes of action, either of which
can lead to a judgment for compensatory damages; (4) a disputed issue of fact exists as to whether Nabors breached
the contract, excusing Tesoro of its duty to indemnify Nabors; and (5) Tesoro Petroleum Corporation was not a party
to the contract.
In a separate appeal, Nabors s insurance carrier, Zurich American Insurance Company (Zurich), appeals a summary
judgment holding that it breached the drilling contract by filing suit in subrogation to Nabors s rights against Tesoro to
recover insurance proceeds Zurich paid Nabors for the loss of its rig.
We affirm the summary judgment granted on behalf of Nabors and reverse and remand the summary judgment granted
on behalf of Tesoro.
I. Factual and Procedural Background
Tesoro entered into a Joint Operating Agreement with LMP to explore and develop oil and gas property located in
Webb County, Texas. As the operator, Tesoro agreed to manage and control all operations related to the oil and gas
development of the property. Pursuant to the Agreement, Tesoro was authorized to enter into an independent contract
with a drilling contractor to drill the oil and gas wells.
A. The Drilling Contract
Tesoro entered into a Daywork Drilling Contract with Nabors. // As the drilling contractor, Nabors agreed to drill
Longoria No. 2, an oil well located in Webb County, to maintain the drilling equipment and the well-control
equipment, to prevent and control fires and blowouts, and to protect the well hole. Nabors also agreed to assume
liability for losses to or destruction of its surface equipment and to release Tesoro from liability for that damage.
Tesoro assumed sole responsibility for damage to or loss of the hole, released Nabors from liability for such damage or
loss, and indemnified Nabors against any and all claims, liability and expense relating to such damage or loss. Each
party also assumed liability and agreed to indemnify the other from and against all claims, demands, and causes of
action arising from the contract in favor of the party s own employees, subcontractors, or invitees on account of bodily
injury, death or damage to property. Tesoro and Nabors assumed the foregoing indemnities and liabilities without
regard to the cause, except and excluding gross negligence or willful misconduct by either party. // Each party agreed
to maintain insurance for the liabilities it assumed under the drilling contract, in the same kind and amount as the other
party, and to cause its insurer to waive subrogation to its rights against the other party for the liabilities contractually
assumed.
Before drilling, Nabors obtained a certificate of insurance listing Zurich as its insurer for damage to Nabors s drilling
rig. Zurich s certificate waived subrogation to Nabors s rights against Tesoro only as required by signed written
contract and only insofar as liability is assumed by [Nabors] under signed written contract subject always to the policy
s terms, conditions and exclusions.
One month after Nabors began drilling the Longoria No. 2 Well, the well began flowing, but several of its blowout
preventers (BOPs) began to leak. Longoria No. 2 eventually blew out and caught fire, destroying the drilling rig and
rendering Longoria No. 2 unworkable. Tesoro spent $425,400 to get the well under control and an additional $404,900
to reimburse suppliers whose equipment was lost. //
B. Webb County Lawsuit
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After the blowout, LMP, as a working interest owner in Longoria No. 2, brought an action in Webb County against
Nabors, alleging, among other things, gross negligence and willful misconduct. Nabors sought indemnity from Tesoro.
Tesoro intervened and sought a declaratory judgment as to whether it owed a duty to indemnify Nabors. LMP then
sued Tesoro.
In early 1999, the Webb County suit settled, with Nabors paying LMP $113,333 and Tesoro paying LMP $95,000.
There was no admission of liability by any party. Nabors s demand for indemnity from Tesoro, Tesoro s request for a
declaratory judgment regarding its duty to indemnify Nabors, and Tesoro s claims against Nabors were not resolved
and remained pending in Webb County.
C. Harris County Lawsuit
In March 1998, while the Webb County suit was pending, Zurich, as Nabors s carrier, sued Tesoro in the 234th
District Court of Harris County in Nabors s name and in subrogation to Nabors s rights against Tesoro. Zurich sought
recovery of the insurance proceeds it paid to Nabors for the damage to Nabors s equipment from the blowout. The
same day Zurich filed its suit, Tesoro s carrier sued various parties, but not Nabors, in the 190th District Court of
Harris County, in connection with the blowout. The two Harris County suits were consolidated in the 234th District
Court and form the basis of this appeal.
After consolidation, Tesoro filed a counterclaim against Zurich, asserting, among other things, that Zurich breached the
drilling contract by filing suit in subrogation against Tesoro. Tesoro also filed a claim against Nabors, asserting that
Nabors breached the drilling contract by providing faulty BOPs. Nabors then asserted its indemnity claim against
Tesoro for recovery of the costs of its defense and settlement in the Webb County lawsuit, claiming that Tesoro had
assumed liability for the damage to the well and that Tesoro s negligence or gross negligence had caused the blowout.
Tesoro moved for summary judgment against Zurich and Nabors. The trial court granted the motion in its entirety.
However, in response to Nabors s motion for partial reconsideration, the court changed its order, granting Tesoro s
motion in part and denying it in part. In its final summary judgment, the court denied Tesoro s motion for summary
judgment against Nabors for breach of contract relating to the BOPs. However, it granted Tesoro s motion against
Zurich, holding that Zurich breached the waiver of subrogation clause in the indemnity provision of the drilling
contract by filing suit against Tesoro, and it awarded Tesoro damages against Zurich for the breach. Tesoro and Zurich
stipulated that Tesoro s damages were $120,000 in addition to appellate attorneys fees.
Nabors likewise filed a motion for summary judgment on its indemnity claim against Tesoro. The trial court granted
Nabors s motion and denied all of Tesoro s claims against Nabors. After a bench trial on damages, the trial court
awarded Nabors $513,333, comprising $113,333 for the settlement payment to LMP in the Webb County suit and
$400,000 in legal fees and other defense costs incurred by Nabors in that Webb County suit. The trial court also
awarded Nabors $200,000 in legal fees in the Harris County suit for prosecuting its breach of contract and indemnity
claim. The trial court additionally awarded Nabors $75,000 for appellate fees at the various stages of appeals. Tesoro
and Zurich/Nabors non-suited their claims against the other defendants.
Tesoro and Zurich have both appealed the summary judgments entered against them.
II. Standard of Review
A party moving for a traditional summary judgment has the burden of proving that there is no genuine issue of material
fact and that the movant is entitled to judgment as a matter of law. Tex. R. Civ. P. 166a(c); Nixon v. Mr. Property
Mgmt. Co., Inc., 690 S.W.2d 546, 548 (Tex. 1985); Hernandez v. Koch Mach. Co., 16 S.W.3d 48, 51-52 (Tex. App.
Houston [1st Dist.] 2000, pet. denied). When deciding whether there is a disputed material fact issue precluding
summary judgment, evidence favorable to the nonmovant will be taken as true. Nixon, 690 S.W.2d at 548-49. Every
reasonable inference must be indulged in favor of the nonmovant and any doubts resolved in its favor. Id.
A no-evidence summary judgment is improper if the nonmovant presents more than a scintilla of probative evidence to
raise a material fact question in response to the motion. A. H. Belo Corp. v. Corcoran, 52 S.W.3d 375, 378 (Tex. App.
Houston [1st Dist.] 2001, pet. denied). More than a scintilla of evidence exists when the evidence presented arises to a
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level where reasonable and fair-minded people could differ in their conclusions. Burroughs Wellcome Co. v. Crye, 907
S.W.2d 497, 499 (Tex. 1995).
A plaintiff, when moving for summary judgment, is not under any obligation to negate affirmative defenses. An
affirmative defense will prevent the granting of summary judgment only if each element of the affirmative defense is
supported by summary judgment evidence. Kirby Explor. Co. v. Mitchell Energy Corp., 701 S.W.2d 922, 926 (Tex.
App. Houston [1st Dist.] 1985, writ ref d n.r.e.). A party raising an affirmative defense in opposition to a motion for
summary judgment must either (1) present a disputed fact issue on the opposing party s failure to satisfy his own
burden of proof or (2) establish at least the existence of a fact issue on each element of his affirmative defense by
summary judgment proof. Moore Burger, Inc. v. Phillips Petrol. Co., 492 S.W.2d 934, 936-37 (Tex. 1972).
III. Tesoro s Appeal
Tesoro appeals the summary judgment entered against it and in favor of Nabors. That judgment held that Nabors was
entitled to indemnity under the drilling contract as a matter of law, awarded Nabors damages for Tesoro s breach of
the indemnification agreement, and denied Tesoro s claims for damages against Nabors for providing faulty blowout
preventers. A. Indemnity Claim and Gross Negligence
Tesoro contends that the trial court erred in requiring it to indemnify Nabors for the payment Nabors made to LMP to
settle the Webb County suit because LMP s claims against Nabors were for Nabors s gross negligence and willful
misconduct, claims for which Tesoro did not agree to indemnify Nabors.
Under the drilling contract, Nabors agreed to furnish equipment [and] labor and perform services . . . under the
direction, supervision and control of Tesoro. Tesoro assumed liability for any damage to or loss of the hole, released
Nabors from any liability for damage to or loss of the hole, and agreed to defend and indemnify Nabors from all
claims relating to such damage to or loss of the hole. The contract further stated:
[I]t is the intent of parties hereto that all indemnity obligations . . . assumed by such parties . . . be without limit and
without regard to the cause or causes thereof including . . . the negligence of any party or parties, whether such
negligence be sole, joint, or concurrent, active or passive.
Tesoro added the next line which read, but excluding the gross negligence or willful misconduct of a party hereto.
Nabors did not object and began operating under the contract.
Tesoro contends that it is not required to indemnify Nabors for Nabors s defense against the claims made by LMP in
the Webb County suit and Nabors s settlement of those claims. To support its position, Tesoro refers us to Fisk
Electric Co. v. Constructors & Assocs., Inc., 888 S.W.2d 813, 815-16 (Tex. 1994). In Fisk, the supreme court held:
Without an express reference in the indemnification provision to claims based upon negligence, there is no indemnity
for defense costs incurred in connection with a negligence claim irrespective of whether the claim is ultimately proved.
Id. In the context of this case, Fisk does not apply. The question in the Fisk case was whether an indemnitor had a
duty to provide a defense against negligence to the indemnitee when it was unclear whether the indemnity agreement
covered negligence. The question posed in Tesoro s appeal is not whether the indemnity provisions of the drilling
contract expressly cover negligence and exclude gross negligence. Both parties agree that they do. The question is
whether Nabors committed gross negligence.
A contractual right to indemnity should be determined in the same fashion as other contractual rights as a matter of
law. Fisk, 888 S.W.2d at 815. Construing the indemnity agreement under the normal rules of contract construction, it is
clear the intent of the parties was for Tesoro to indemnify Nabors for any acts except those stemming from gross
negligence and willful misconduct. See Balandran v. Safeco Ins. Co., 972 S.W.2d 738, 741 (Tex. 1998); Associated
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Indem. Corp. v. CAT Contracting, Inc., 964 S.W.2d 276, 284 (Tex. 1998).
Tesoro contends, however, that it need show only that LMP s pleadings in the Webb County suit asserted that Nabors s
gross negligence and willful misconduct caused LMP s losses to take away Tesoro s obligation to indemnify Nabors
against those claims. Facts, however, not allegations, determine an indemnitor s duty to indemnify. The duty to defend
may be triggered by the pleadings, but the duty to indemnify is based on the jury s findings. See Farmers Tex. County
Mut. Ins. Co. v. Griffin, 955 S.W.2d 81, 82 (Tex. 1997). Here, Nabors settled the Webb County lawsuit with LMP, and
there was no admission of liability. //
We must now determine if Nabors s claim is precluded by the gross negligence and willful misconduct exclusion. A
claim that a contractual exclusion precludes indemnity is an affirmative defense. Delta Eng g Corp. v. Warren
Petroleum, Inc., 668 S.W.2d 770, 773 (Tex. App. Houston [1st Dist.] 1984, writ ref d n.r.e.). In Delta, the court stated,
If the indemnitor should later deny coverage under the contract, whether due to a contractual exclusion, or for some
other reason, it is such party s burden to affirmatively state the justification for his refusal to indemnify. Id. Tesoro
plead, by way of affirmative defense, that indemnification was improper based on Nabors s gross negligence or willful
misconduct, i.e., a contract exclusion.
In support of its affirmative defense, Tesoro bore the burden to raise a fact issue on each and every element of Nabors
s alleged gross negligence or willful misconduct so as to bring Nabors s indemnity claim within the exclusions in the
indemnity agreement. See Kirby Explor. Co., 701 S.W.2d at 926.
The extent to which Tesoro directly addressed the gross negligence evidence in its response to Nabors s motion for
partial summary judgment can be quoted in two lines: Likewise, there is summary judgment evidence which
specifically shows that Nabors was grossly negligent, which would preclude it from any indemnity. See Affidavit of
Mike Smith, attached to Tesoro s Motion for Summary Judgment.
A review of the six-page affidavit of Mike Smith, Tesoro s retained expert, reveals that, despite assertions regarding
improper conduct by Nabors on the job, Smith did not give an expert opinion that improperly maintained BOPs caused
the Longoria No. 2 blowout and the resulting damages. Therefore, Tesoro failed to demonstrate a genuine issue of
material fact relating to the specific element of causation necessary to maintain its affirmative defense of gross
negligence.
We overrule Tesoro s issues one and two and affirm the award of damages on these issues.
B. Compensatory Damages
In issue three, Tesoro asserts that Texas law allows a jury to award compensatory damages for gross negligence and
willful misconduct; thus, the fact that the LMP settlement did not include punitive damages is of no consequence.
Tesoro asks this Court to hold that gross negligence is a separable cause of action from ordinary negligence that
independently supports the recovery of compensatory damages.
Negligence and gross negligence are not separable causes of action, but are inextricably intertwined. Negligence is a
liability finding, involving duty, breach, and causation. Gross negligence presumes a negligent act or omission and
includes two further elements:
(1) viewed objectively from the standpoint of the actor, the act or omission [i.e., harm-causing negligence] must
involve an extreme degree of risk, considering the probability and magnitude of the potential harm to others, and (2)
the actor must have actual, subjective awareness of the risk involved, but nevertheless proceed in conscious
indifference to the rights, safety, or welfare of others.
Transp. Ins. Co. v. Moriel, 879 S.W.2d 10, 23 (Tex. 1994). We agree with the San Antonio Court of Appeals, which
has held the absence of a viable negligence claim removes any justification for imposing actual damages. Newman v.
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Tropical Visions, Inc., 891 S.W.2d 713, 722 (Tex. App. San Antonio 1994, writ denied). That court further held that, in
the context of a release for acts of negligence, negligence and gross negligence are not separable. Id. We agree.
We overrule Tesoro s issue three.
C. Breach of Contract Fact Issue
In issue four, Tesoro argues that the trial court erred in granting summary judgment to Nabors because a disputed issue
of fact exists as to whether Nabors breached the contract, excusing Tesoro of its duty to indemnify Nabors.
Tesoro contends Nabors breached the paragraph in the drilling contract that provided: [Nabors] shall maintain well
control equipment in good condition at all times and shall use all reasonable means to prevent and control fires and
blowouts and to protect the hole. It alleges this breach occurred when the BOPs failed because
Nabors chose to buy and install inferior and improper products into BOPs that did not have proven capacities or
technical support that would maintain the well control equipment in good condition at all times.
Tesoro claims these actions breached the contract, and they also claim Nabors was grossly negligent for buying and
installing the inferior and improper products.
As Nabors stated, Nabors s conduct in supplying well control equipment was either: (1) prudent; (2) negligent; (3)
grossly negligent; or (4) intentional misconduct. Tesoro failed to raise a fact issue that Nabors s conduct was grossly
negligent, and no party has alleged intentional misconduct. Thus, Nabors s conduct was either prudent or it was
negligent. If the conduct was prudent, the conduct was not actionable. If the conduct was negligent, Tesoro is required
to indemnify Nabors under its contract with Nabors. Either way, Tesoro s argument fails.
Tesoro further contends that indemnity is a dependant covenant; therefore, a breach of a part of the indemnity
agreement excuses Tesoro from indemnifying Nabors at all. We disagree.
An indemnity agreement is an original obligation between the contracting parties and independent of other agreements.
Joseph Thomas, Inc. v. Graham, 842 S.W.2d 343, 346 (Tex. App. Tyler 1992, no writ). A prerequisite to the remedy of
excuse of performance is that covenants in a contract must be mutually dependent promises. Hanks v. GAB Bus. Serv.,
644 S.W.2d 707, 708 (Tex. 1982). Because an indemnity agreement is an independent covenant, Tesoro is not excused
from performing under the contract based on unsupported allegations that Nabors breached the contract.
We overrule Tesoro s issue four.
D. Party to Contract
In issue five, Tesoro argues the trial court erred in granting summary judgment against Tesoro Petroleum Corporation
because it is not a party to the contract.
The final judgment signed by the trial court includes Tesoro Petroleum Corporation. Tesoro argues this was improper
because Tesoro E&P, the limited partnership, is the only Tesoro entity that signed the drilling contract. Tesoro
Petroleum concedes it did not raise this point in the trial court. As such, the issue is not properly before our Court. To
preserve an issue for appellate review, an issue must be raised with the trial court. Tex. R. App. P. 33.1.
We overrule Tesoro s issue five.
E. Tesoro s Conditional Points
Tesoro raises two conditional issues dependent on our decision on Zurich s appeal, but provides inadequate briefing on
the two conditional points. The brief must contain a succinct, clear, and accurate statement of the argument made in
the body of the brief. Tex. R. App. P. 38.1(g). Rule 38 requires Tesoro to provide us with such discussion of the facts
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and the authorities relied upon as may be requisite to maintain the point at issue. See Franklin v. Enserch, Inc., 961
S.W.2d 704, 711 (Tex. App. Amarillo 1998, no pet.). This is not done by merely uttering brief conclusory statements,
unsupported by legal citations. Id. By presenting such attenuated, unsupported argument, Tesoro waives its complaints.
See id.
We overrule Tesoro s conditional issues.
IV. Zurich s Appeal //
Zurich appeals the trial court s summary judgment against it, and in favor of Tesoro, holding that Zurich breached the
drilling contract by filing suit in subrogation to its insured s, Nabors s, claims against Tesoro and awarding Tesoro
damages and attorneys fees against Zurich. Zurich raises six issues for our review.
In issue one, Zurich argues that the trial court improperly granted summary judgment on claims that had been
dismissed. In issue two, Zurich contends that the indemnity agreement in the drilling contract is void and that the
waiver of subrogation provision, which is limited to liabilities assumed under the indemnity agreement, is
unenforceable. In issue three, Zurich argues that the waiver of subrogation provision does not apply to claims for gross
negligence or willful misconduct. In issue four, Zurich argues that the waiver of subrogation provision does not apply
to waive subrogation under the Zurich policy because Zurich s policy is not a liability policy and does not provide any
liability coverage. // In issue five, Zurich contends the indemnity agreement, which provides for the parties waiver of
their insurers subrogation rights, is void under the Texas Oilfield Anti-Indemnity Act (TOAIA). It bases its contention
on the premise that the insurance procurement provision (including the waiver of subrogation provision therein), which
directly supports the indemnity and release agreements of the contract, is void under the TOAIA. In issue six, Zurich
argues that Tesoro s no-evidence motion for summary judgment was not granted or was improperly granted.
A. Enforceability of the Waiver of Subrogation
We first address issues two and five.
1. Applicability of the TOAIA
In issues two and five, Zurich contends that the indemnity agreement in the drilling contract between Tesoro and
Nabors is void and, therefore, the waiver of subrogation rights, which is specifically limited to those liabilities
assumed by the contracting parties, is unenforceable.
In issue five, Zurich contends that the assumption of liability provision to which Nabors agreed is void under the Texas
Oilfield Anti-Indemnity Act (TOAIA). See Tex. Civ. Prac. & Rem. Code Ann. 127.001-127.007 (Vernon 1997). The
TOAIA provides that an indemnification provision in a contract pertaining to an oil or gas well that purports to
indemnify a person against loss or liability for damages that result from the negligence of the indemnitee and arise
from personal injury, death, or property injury is against public policy and void unless the conditions of section
127.005 of the Act are met. See Tex. Civ. Prac. & Rem. Code 127.003.
Section 127.005 of the TOAIA, the safe harbor provision, states the Act does not apply to agreements that state in
writing that the indemnity obligation will be supported by liability insurance coverage to be furnished by the
indemnitors, provided that, in the case of a mutual indemnity obligation, the indemnity obligation is limited to the
extent of the coverage and dollar limits of insurance . . . each party as indemnitor has agreed to obtain for the benefit
of the other party as indemnitee or, in the case of a unilateral indemnity obligation, the amount of insurance coverage
is limited to $500,000. See Tex. Civ. Prac. & Rem. Code 127.005. // The TOAIA defines a mutual indemnity
obligation as
an indemnity obligation in an agreement pertaining to a well for oil . . . in which the parties agree to indemnify each
other . . . against loss, liability, or damages arising in connection with bodily injury, death, and damage to property of
the respective employees, contractors or their employees, and invitees of each party arising out of or resulting from the
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performance of the agreement.
Tex. Civ. Prac. & Rem. Code 127.001(3). Zurich argues that the indemnity agreement between Nabors and Tesoro
does not qualify as a mutual indemnity obligation and that the amount of insurance is not limited to $500,000, so the
agreement satisfies neither condition of an enforceable indemnity agreement pertaining to an oil or gas well.
As noted above, the indemnity agreement signed by Nabors and Tesoro is part of a standard form drilling contract
drafted by the IADC that is frequently used in the well-drilling business. Paragraph 13 of the drilling contract, the
insurance and waiver of subrogation provision, states that both Nabors and Tesoro will maintain, at their own expense,
insurance coverage of the same kind and in the same amount as is required of the other, insuring the liabilities that are
assumed in paragraph 14 of the drilling contract. Both parties also agree to cause their insurers to waive subrogation
against the other for the liabilities that are assumed by the insured. Paragraph 13, therefore, tracks the insurance
requirements of section 127.005 of the TOAIA.
Paragraph 14 of the drilling contract provides for indemnities and releases between the parties. In section 14.1, Nabors
agrees to assume liability for damage to its rig and to release Tesoro from such liability. In section 14.5, Tesoro
releases Nabors from liability for damage to or loss of the hole and agrees to protect, defend, and indemnify [Nabors]
from and against any and all claims, liability, and expense relating to such damage to or loss of the hole. Finally, in
sections 14.8 and 14.9 of the contract, Nabors and Tesoro agrees to release each other from liability and to indemnify
each other from and against all claims arising in connection with the subject matter of the drilling contract in favor of
the indemnitor s own employees, contractors or invitees on account of bodily injury, death, or damage to property.
Zurich, focusing solely on Nabors s release of Tesoro from liability for damages to Nabors s rig as found in section
14.1, contends that this provision is a release, not an indemnity, destroying the mutuality of the indemnification
agreement. // The indemnity agreement, it argues, therefore fails to satisfy the requirements of the TOAIA safe harbor
provisions and is void, and the waiver of subrogation, which is limited to the liabilities assumed in the indemnification
provisions, is unenforceable. In support of its argument, Zurich points out that the supreme court has held that the type
of assumption of liability in paragraph 14.1 is a type of release. Dresser Indus. Inc. v. Page Petroleum, Inc., 853
S.W.2d 505, 508 (Tex. 1993).
Zurich, however, overlooks the provisions of the agreement in which Tesoro and Nabors both agree to indemnify each
other against claims by their own employees, contractors and invitees for personal injury, death, and property injury
resulting from their own negligence; both agree to exclude claims for gross negligence and willful misconduct from the
indemnification and release provisions; and both agree to maintain insurance in the same amount insuring against the
liabilities assumed under the contract and to provide for waiver of their insurers right of subrogation for the those
liabilities. Mutuality thus extends to every provision of the indemnity agreement except paragraph 14.1.
Zurich also overlooks the simple reason for the disparity between the release from liability agreed to by Nabors in
section 14.1 and the indemnification and release agreed to by Tesoro in the parallel section, section 14.5. This reason is
that, once liability to employees, contractors, and invitees for loss of life, injury, or property loss is covered by other
indemnity provisions in the contract, no one but Nabors, the drilling contractor, could suffer from loss of the rig (the
subject matter of paragraph 14.1), whereas others besides Tesoro or Nabors could easily suffer from the loss of the
well, to wit, a working interest owner such as LMP (the subject matter of paragraph 14.5), and could seek to recover
its losses from the drilling contractor. Any indemnity Nabors could give to Tesoro for claims against it for loss of the
rig would be superfluous; whereas Tesoro s indemnification against claims made against Nabors is not superfluous.
We decline to hold that mutuality is destroyed by the failure to include meaningless indemnification provisions in a
mutual indemnification obligation. The mutuality of the indemnity agreement is not destroyed by Nabors s giving
Tesoro a release in paragraph 14.1 without also agreeing to a meaningless indemnity for Tesoro against claims no one
but Nabors could have.
Moreover, it seems clear that the supreme court would hold that the inclusion of a release where only a release makes
sense is not enough to destroy the mutuality required for an enforceable indemnification agreement relating to an oil
and gas well. The supreme court has only once addressed the issue of whether release language is subject to the
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TOAIA, and that was in a footnote in Dresser. The footnote stated, Although we do note that today s holding would
suggest that chapter 127 would apply to releases as well as to indemnity agreements, we do not need to reach the
merits of such an argument. Dresser, 853 S.W.2d at 510 n.5. We believe this footnote was judicial dictum meant to
guide us. See Palestine Contractors, Inc. v. Perkins, 386 S.W.2d 764, 773 (Tex. 1964) (holding that judicial dictum
should be followed unless found to be erroneous); see also, R.R. Comm n v. Aluminum Co. of Am., 380 S.W.2d 599,
601 (Tex. 1964) (declaring that dictum in earlier case was deliberately made to put others on notice of the court s
intent). As such, we hold the TOAIA applies to releases such as those found in the contract at issue. Our decision does
not conflict with the supreme court s decision in Getty Oil Co. v. Ins. Co. of N. Am., 845 S.W.2d 794 (Tex. 1992),
which held that the language of [section 127] applies exclusively to indemnity agreements. Getty, 845 S.W.2d at 804.
The Getty court was determining the applicability of insurance shifting schemes that are not present in our case. See id.
And, in any event, the agreement, taken as a whole, is an indemnification agreement.
Applying the usual standards of contract interpretation, therefore, we hold that the indemnification and release
provisions of the drilling contract, taken together, constitute a mutual indemnity obligation as defined in the TOAIA
and that the agreement complies with the safe harbor requirements of the TOAIA for enforceable indemnity
agreements pertaining to an oil or gas well. See Tex. Civ. Prac. & Rem. Code 127.001(3); 127.005. We further hold
that Nabors s waiver of its insurers subrogation rights as to claims for which liability is assumed by Nabors under the
contract is enforceable.
2. The TOAIA s fair notice requirements
As part of issue two, Zurich further contends that, to be enforceable, paragraph 14.1 must both be conspicuous and
meet the express negligence test. Zurich makes this statement to reinforce its argument that Nabors s release of
subrogation rights in the drilling contract was void and unenforceable.
The fair notice requirements of express negligence and conspicuousness apply to indemnity agreements because these
particular agreements are used to exculpate a party from the consequences of its own negligence. Dresser, 853 S.W.2d
at 508. The express negligence doctrine mandates that a party seeking indemnity from the consequences of its own
negligence must express that intent in specific terms in the indemnity agreement. Id. Conspicuousness, as part of the
fair notice test of an indemnity agreement, mandates that there must be something on the face of an indemnity
agreement to attract the attention of a reasonable person. Dresser, 853 S.W.2d at 508. The supreme court has held that
the fair notice requirements of express negligence and conspicuousness apply to both releases and indemnities. Id. at
509.
a. The express negligence doctrine
The indemnity agreement in the drilling contract satisfies the express negligence test. Under the contract, Nabors
assumes liability for damage to or loss of its drilling rig and Tesoro assumes liability for damage to or loss of the hole.
Each releases the other from liability for damages or loss with respect to the contractually assumed liabilities and
agrees to defend and indemnify the other from all such losses. Tesoro also agrees to release Nabors from liability for
claims relating to such damage to or loss of the hole and to indemnify it against such claims. Paragraph 14.3 states the
intention of the parties that
all indemnity obligations and/or liabilities assumed by such parties under terms of this contract, including without
limitation, paragraphs 14.1 through 14.12 hereof, be without limit and without regard to the cause or causes thereof,
including . . . the negligence of any party or parties, whether such negligence be sole, joint or concurrent, active or
passive, but excluding the gross negligence or willful misconduct of a party hereto.
(Emphasis added.)
The Texas Supreme Court has explicitly held that the precise language in an oil and gas drilling contract that appears
in the standard form contract used by Nabors and Tesoro and that indemnifies parties against bodily injury, death, and
property claims of its employees or contractors without limit and without regard to the cause or causes thereof or the
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negligence of any party or parties, indemnifies a party clearly and unequivocally against its own negligence, satisfying
the express negligence doctrine. Maxus Exploration v. Moran Bros., 817 S.W.2d 50, 56 (Tex. 1991). Construing the
indemnity agreement under the normal rules of contract construction and in light of authority, therefore, we find that
the express intent of the parties was for Tesoro to indemnify Nabors for any acts, including acts of negligence, except
those stemming from gross negligence and willful misconduct. The indemnity agreement meets the express negligence
requirement.
b. Conspicuousness
Paragraph 14 of the drilling contract, providing for indemnification and release, is labeled RESPONSIBILITY FOR
LOSS OR DAMAGE, INDEMNITY, RELEASE OF LIABILITY AND ALLOCATION OF RISK. (Capitals in
original.) Similarly, paragraph 13 is labeled in capital letters, INSURANCE. We find that both provisions would attract
the attention of a reasonable person. Moreover, Zurich cannot claim to have been unaware of the provisions of the
drilling contract regarding indemnification, release, and insurance, because it relied upon the language of these
provisions in delineating its reservation of rights in its certificate of insurance. We hold that paragraphs 14 and 13 are
both conspicuous and meet the fair notice test.
Having determined that the indemnification and release provisions in the drilling contract meet the fair notice test and
that the agreement satisfies the safe harbor provisions of section 127.005 of the TOAIA, we hold that the
indemnification agreement between Tesoro and Nabors is valid and that the parties agreement to provide for the waiver
of subrogation by their insurers for liabilities assumed under the contract is enforceable.
We overrule Zurich s issues two and five.
Zurich s Right to Subrogation to Nabors s Gross Negligence Claims
In issue three, Zurich argues that the waiver of subrogation provision in the indemnity agreement does not apply to
Nabors s claims for gross negligence or willful misconduct against Tesoro. Zurich contends such claims are
specifically excluded from the assumption of liability provision of the contract and the indemnification provision, with
its waiver of subrogation, even if valid, does not extend to liabilities Tesoro chose to exclude from that provision.
Therefore, Zurich was entitled to bring claims for gross negligence or willful misconduct against Tesoro in subrogation
to Nabors s rights.
Subrogation is the right of one who has paid an obligation that another should have paid to be indemnified by the
other. Texas Ass n of Sch. Bds., Inc. v. Word, 18 S.W.3d 256, 258 (Tex. App. Waco 2001, pet. denied). The object of
such subrogation is to prevent the insured from receiving a double recovery. Argonaut Ins. Co. v. Allstate Ins. Co., 869
S.W.2d 537, 541 (Tex. App. Corpus Christi 1993, writ denied). An insurer s right to subrogation derives from the
rights of the insured and is limited to those rights. Interstate Fire Ins. Co. v. First Tape, Inc., 817 S.W.2d 142, 145
(Tex. App. Houston [1st Dist.] 1991, writ denied). A release between the insured and an offending party prior to a loss
destroys the insurance company s rights by way of subrogation. Id.
Here, Zurich seeks to recover from Tesoro reimbursement for the insurance proceeds Zurich paid Nabors for the
damage to Nabors s equipment after the blowout. As part of its indemnification agreement with Tesoro, Nabors
contractually waived Zurich s right of subrogation to the rights of Nabors against Tesoro for losses caused by Tesoro s
negligence. Zurich, however, in its point of error three, contends that Tesoro was primarily liable for Nabors s losses
because they resulted from Tesoro s gross negligence in maintaining the Longoria No. 2 well.
A contractual right to indemnity should be determined in the same fashion as other contractual rights as a matter of
law. Fisk, 888 S.W.2d at 815. A liability insurer for an oil well driller or operator does not waive its right to
subrogation to its insured s claims against the other party for matters beyond the scope of the indemnity agreement
between those parties. See Ken Petroleum Corp. v. Questor Drilling Corp., 24 S.W.3d 344, 355 (Tex. 2000) (a waiver
of subrogation by an oil well operator or drilling contractor for liabilities assumed under the contract does not waive
the insurer s right to subrogation to enforce the indemnity agreement). The parties to the indemnity agreement must
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look to their own contract to determine what subrogation rights they may insist that the other party require its insurers
to waive. Id. at 356-57. Where a party to an indemnity contract relating to an oil and gas well is not contractually
obligated to enforce a waiver of subrogation, the other party cannot insist that it assert a waiver of subrogation. See id.
at 356.
In this case, the indemnity agreement between Nabors and Tesoro plainly limits the parties waiver of subrogation to
the liabilities each assumed under the drilling contract. Nabors did not assume liability for losses to its rig caused by
Tesoro s gross negligence. Tesoro remained liable for such losses. Nabors, however, recovered its losses from its
insurance carrier, Zurich. Therefore, if Nabors were to bring suit against Tesoro to recover for the loss of its rig, it
would be seeking a double recovery for the same loss from both Zurich and Tesoro. We hold, therefore, that Zurich, in
subrogation to Nabors s rights against Tesoro for gross negligence, is not barred from seeking recovery from Tesoro of
the insurance proceeds Zurich paid Nabors.
We overrule Zurich s issue three to the extent it contends that Zurich has a right of subrogation to those claims against
Tesoro as to which Nabors assumed liability under the indemnity agreement in the drilling contract and waived its
insurers subrogation rights. We sustain issue three to the extent it contends that Zurich is not barred from bringing suit
against Tesoro in subrogation to Nabors s claims for losses to Nabors s due to Tesoro s gross negligence or willful
misconduct, which are beyond the scope of the indemnity agreement.
C. The No-Evidence Summary Judgment
In issue six, Zurich argues that the no-evidence summary judgment was improperly granted.
On August 9, 1999, the trial court signed an amended order on Tesoro s motion for partial summary judgment. On
appeal, Zurich argues that this order is ambiguous because it does not specifically state that the court is granting a no-
evidence summary judgment. Tesoro filed its motion for partial summary judgment pursuant to Rules 166a(c) and
166a(i), thus encompassing both traditional and no-evidence summary judgments. We, therefore, consider the trial
court s summary judgment with respect to both subsections of rule 166a.
To establish its right to summary judgment, Tesoro had to establish as a matter of law (1) that the indemnity agreement
between itself and Nabors, including each party s waiver of its insurer s subrogation rights for liabilities assumed by
that party, was valid and enforceable, (2) that the subrogation rights Zurich was attempting to enforce against Tesoro
had been waived, and (3) that Zurich s filing suit in subrogation to Nabors s rights against Tesoro constituted a breach
of the drilling contract. We have held that the indemnity agreement is enforceable and Nabors waived Zurich s right to
subrogation as to losses for which Nabors assumed liability. However, Nabors did not assume liability for losses to
itself caused by Tesoro s gross negligence or willful misconduct, and it did not waive Zurich s right to subrogation to
recover insurance proceeds it had paid Nabors for such losses. Therefore, to defeat Tesoro s right to summary
judgment, Zurich had to raise a fact issue as to whether its damage claims lay outside the scope of the indemnity
agreement. See Tex. R. Civ. P. 166a(c), (i). Specifically, Zurich had to produce more than a scintilla of probative
evidence that the blowout was caused by Tesoro s gross negligence, evidence on the basis of which reasonable and
fair-minded people could differ. See Burroughs Wellcome Co., 907 S.W.2d at 499.
To raise a fact issue with respect to Tesoro s gross negligence, Zurich presented the affidavit of Warren Guidry, its
expert. Having established his credentials as a petroleum engineer with knowledge of the relevant facts, Guidry
testified by affidavit that Tesoro, as the operator of the Longoria No. 2 well, should have stopped the drilling of the
Longoria No. 2 well at the depth of 8973 feet and inserted a liner in the hole prior to resuming drilling. Guidry
testified that this act would have prevented the blowout. He further testified that Tesoro provided inadequate well-site
supervision by drilling further without setting a liner, by allowing the well to flow repeatedly without shutting it in, and
by allowing an uncontrollable amount of influx and unloading the well. Guidry testified that these acts were done with
Tesoro s full knowledge of the dangers associated with them and with conscious indifference to the rights, safety, or
welfare of others. He concluded that Tesoro was grossly negligent and that its negligence and gross negligence
proximately caused the loss of Nabors s rig.
We find a trier of fact must be guided solely by expert opinion testimony with respect to the matters to which Guidry s
affidavit testifies and the affidavit is clear, positive, and direct, otherwise credible and free from contradictions and
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inconsistencies and could have been readily controverted. See Tex. R. Civ. P. 166a(c). We further find that reasonable
and fair-minded people could differ in their conclusions as to whether the acts and omissions testified to by Guidry
were the result of Tesoro s conscious indifference to the right or welfare of affected persons, as required to establish
gross negligence. See Luna v. North Star Dodge Sales, Inc., 667 S.W.2d at 118. We therefore hold that Zurich raised a
material fact issue as to whether the blowout of the Longoria No. 2 well was caused by Tesoro s gross negligence.
We sustain Zurich s issue six and reverse the summary judgment entered against Zurich in favor of Tesoro. Because
the foregoing issues are dispositive of Zurich s appeal, we need not address its remaining issues.
V. Conclusion
We affirm the trial court s summary judgment requiring Tesoro to indemnify Nabors. We reverse the summary
judgment decreeing that Zurich breached the waiver-of-subrogation agreement by filing suit in subrogation to Nabors s
rights against Tesoro. We remand Zurich s cause of action to the trial court.
Davie L. Wilson
Justice
Panel consists of Justices Jennings and Wilson. //
Former Chief Justice Michael H. Schneider, who sat on the original panel for this appeal, was appointed Justice of the
Texas Supreme Court on September 6, 2002 and did not participate in this Opinion.
Publish. Tex. R. App. P. 47
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