Contract That Required $3 Million in Coverage Was All The Indemnity it Must Pay in the Event of Loss

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The Texas Oilfield Anti-Indemnity Act (“TOAIA”) voids indemnity agreements that pertain to wells for oil, gas, or water or to mineral mines, unless the indemnity agreement is supported by, inter alia, liability insurance. Here, pursuant to TOAIA, CP Well Testing, LLC and Cimarex Energy Co. agreed in a Master Service Agreement (the “MSA”) to obtain a minimum amount of insurance coverage to indemnify one another. In Cimarex Energy Company; St. Paul Fire & Marine Insurance Company, as Subrogees of Cimarex Energy Company; American Guarantee & Liability Insurance Company, as Subrogees of Cimarex Energy Company v. CP Well Testing, L.L.C., No. 20-50892, United States Court of Appeals, Fifth Circuit (February 14, 2022) when a party bought more insurance protection than required by the contract it, and its insurer, refused to pay more than the amount required by the contract.

The district court’s approach was not just logical; it was consistent with precedent that, applying Texas law, courts in this circuit routinely consider the terms of insurance policies to determine whether a party is entitled to coverage.

CP Well did not breach its contractual duties to Cimarex in doing so. And the district court did not err in construing either the parties’ agreement, or TOAIA, or the insurance policy to delimit CP Well’s indemnity obligation to Cimarex. It follows that the district court’s summary judgment in favor of CP Well was proper.

ZALMA OPINION

The parties entered into the MSA to avoid the consequences of the anti-indemnity statute. They drafted the contract with both parties promising to buy insurance that would be available to indemnify the other. Just because one party was prudent enough to protect itself and buy more than required did not change the terms of the contract and the minimum requirement was also the maximum. 

© 2022 – Barry Zalma

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