Case: 23-50530 Document: 61-1 Page: 1 Date Filed: 09/10/2024
United States Court of Appeals
for the Fifth Circuit United States Court of Appeals
Fifth Circuit
____________ FILED
September 10, 2024
No. 23-50530 Lyle W. Cayce
____________ Clerk
Century Surety Company, as Subrogee of Triangle Engineering, L.P.,
Plaintiff—Appellant,
versus
Colgate Operating, L.L.C.,
Defendant—Appellee.
______________________________
Appeal from the United States District Court
for the Western District of Texas
USDC No. 7:22-CV-115
______________________________
Before Jones and Douglas, Circuit Judges, and Doughty *, District
Judge.
Edith H. Jones, Circuit Judge:
This case involves a dispute between an insurer, acting as a subrogee
of an oilfield consultancy, and an oil well operator about the interpretation of
a Master Services/Sales Agreement (“MSA”) and the operator’s insurance
policies. Although we agree with the result the district court reached, we
disagree with some of its reasoning. Thus, we AFFIRM the district court’s
_____________________
*
Chief United States District Judge for the Western District of Louisiana, sitting
by designation.
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judgment granting summary judgment to the Defendants-Appellees on other
grounds.
BACKGROUND
The underlying facts are straightforward and not in dispute. Colgate,
an oil well operator, and Triangle Engineering, L.P., an oilfield consultancy,
entered into Colgate’s form Master Services/Sales Agreement (“MSA”) in
April 2017. Century and Colgate agree that the MSA is governed by Texas
law and that the Texas Oilfield Anti-Indemnity Act (“TOAIA”) apply to the
MSA and the underlying dispute.
The MSA contains a mutual indemnity provision that requires
Colgate and Triangle to indemnify each other for any claims “arising out of,
resulting from, or in any way incidental to, directly or indirectly, transactions
subject to this agreement.” The MSA also contains an agreement in writing
that Colgate and Triangle would support their mutual indemnity obligations
with liability insurance. Specifically, the MSA required Colgate and Triangle
to purchase indemnity insurance with limits the lesser of (1) “not less than
$5 million”, or (2) “the maximum amount which may be required by law, if
any, without rendering this mutual indemnification obligation void,
unenforceable or otherwise inoperative.”
These two provisions of the MSA are consistent with the TOAIA. As
the district court explained, the Texas Legislature originally passed TOAIA
in 1973 because of concerns about oil well operators shifting liability onto
their contractors through one-sided indemnification agreements. See Ken
Petroleum Corp. v. Questor Drilling Corp., 24 S.W.3d 344, 348 (Tex. 2000)
(Owen, J.). These pre-1973 agreements shifted the operator’s personal
liability exposure onto the backs of their contractors who often lacked the
funds or access to insurance policies to cover such claims. See
id. TOAIA
outlawed such one-sided indemnity agreements, which the Legislature
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viewed as unfair to contractors, but it expressly authorized operators and
contractors to enter into mutual indemnification agreements that were
supported by liability insurance. Id. See TEX. CIV. PRAC. & REM. CODE. § §
127.002(a), .005(b).
Colgate and Triangle both purchased insurance to support their
mutual indemnity obligations; however, Colgate, the operator, purchased
substantially more insurance than Triangle. Colgate purchased a $1 million
general liability insurance policy and a $75 million excess liability policy from
Markel International Insurance, while Triangle purchased a $1 million
general liability insurance policy from Hallmark and a $5 million excess
liability from Century. At the time of the worker’s accident relevant to this
case, Colgate’s Markel policies were effective September 1, 2019 to
September 1, 2020, and thus had been negotiated and agreed to by Colgate
several years after the signing of the MSA.
Colgate hired Triangle to provide a “workover consultant to
coordinate the installation of an electronic submersible pump” into a well
operated by Colgate in Pecos County, Texas. Triangle provided Brian Bell,
who coordinated with Colgate’s other contractors to install the pump. In
February 2020, Jeremy Miller, an employee of one of those contractors, was
crushed and injured by a pipe rack that he and Bell were unloading from a
tractor-trailer. In April 2020, Miller and his wife sued several Colgate
entities, Triangle, Bell, and two other contractors in Texas state court.
Markel then retained counsel to defend Colgate in connection with the Miller
lawsuit and underlying accident.
Triangle, and its insurers Hallmark National Insurance Company and
Century Surety, settled with the Millers for an undisclosed total. Hallmark
paid $1 million, and Century paid $5 million pursuant to Triangle’s policies,
while Markel paid $6 million into the settlement for the benefit of Triangle
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and Triangle’s consultant, Brian Bell. Century, as Triangle’s subrogee, then
sued Colgate for breach of contract for failure to indemnify Triangle, seeking
reimbursement for the $5 million it paid towards the Miller settlement.
The parties filed cross-motions for summary judgment based on a
joint stipulation of facts. The district court granted summary judgment for
Colgate as the Defendant. First, the district court rejected Colgate’s attempt
to have affidavits from Colgate’s vice president and general counsel, John
Bell, and Triangle’s sole member and operator, Brian Davis, considered as
summary judgment evidence for determining Colgate and Triangle’s
intentions at the time they signed the MSA. The district court then
concluded that while the MSA provided a “floor” for the insurance coverage
the parties could seek for mutual indemnity purposes, it did not provide a
ceiling. Nor did the district court identify a “ceiling” in Colgate’s insurance
policies. Due to this, the district court concluded that the “lowest common
denominator rule” from the Texas Supreme Court’s Ken Petroleum decision
applied.
Under Ken Petroleum, “[w]hen the parties agree to provide differing
amounts of coverage, the mutual indemnity obligations are limited to the
lower amount of insurance.” 24 S.W.3d at 351. The district court concluded
that Ken Petroleum’s lowest common denominator rule continued to apply
despite the fact that it relied on a prior version of the statute. The relevant
provision interpreted by Ken Petroleum stated “a mutual indemnity obligation
. . . [was] limited to the extent of the coverage and dollar limits of insurance .
. . each party as indemnitor . . . agreed to provide in equal amounts to the other
party as indemnitee.” See
id. at 349; Act of May 27, 1989, 71st Leg., R.S., ch.
1102, § 3,
1989 Tex. Gen. Laws 4557-8, amended by Act of April 9, 1991, 72nd
Leg., R.S., ch. 36, § 3,
1991 Tex. Gen. Laws 430, 431. In contrast, the current
version of the statute (which is applicable to the MSA), limits mutual
indemnity obligations to the amount of coverage that “each party as
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indemnitor has agreed to obtain for the benefit of the other party as indemnitee.”
See TEX. CIV. PRAC. & REM. CODE. § 127.005(b) (emphasis added). As the
district court also noted, the Fifth Circuit has previously declined to opine on
how this change in statutory language would impact Ken Petroleum’s analysis,
leaving that “question for Texas courts to answer in the first instance.”
Cimarex Energy Co. v. CP Well Testing, 26 F.4th 683, 689 n.4 (5th Cir. 2022).
Having concluded that the lowest common denominator rule
applies—consistent with other district courts in the Fifth Circuit—the
district court ruled that TOAIA limited Colgate’s indemnity obligation to $6
million: the amount of coverage Triangle purchased to satisfy its indemnity
obligations under the MSA. Century timely appealed.
STANDARD OF REVIEW
The court reviews district court judgment rendered on cross-motions
for summary judgment de novo. See First Colony Life Ins. Co. v. Sanford,
55 F.3d 177, 180 (5th Cir. 2009). “On cross-motions for summary judgment,
we review each party’s motion independently, viewing the evidence and
inferences in the light most favorable to the nonmoving party.” Discover
Prop. & Cas. Ins. Co. v. Blue Bell Creameries USA, Inc.,
73 F.4th 322, 327 (5th
Cir. 2023) (citation omitted). Because the district court granted Colgate’s
motion, on review, this Court takes Century’s evidence as true and construes
all facts and justifiable inferences in the light most favorable to Century.
Id.
Any reasonable doubts must be resolved in Century’s favor. Matsushita Elec.
Indus. Co. v. Zenith Radio Corp.,
475 U.S. 574, 587 (1986). We can affirm a
summary judgment for any reason supported by the record and presented to
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the district court, even if the district court did not rely on that reason. AIG
Specialty Ins. Co. v. Tesoro Corp., 840 F.3d 205, 209 (5th Cir. 2016).
DISCUSSION
Based on careful review of the parties’ pleadings and oral argument
presentations, we conclude that the district court did not err in refusing to
admit the extrinsic evidence proffered by Colgate. But we also hold that the
district court erred in concluding that Colgate’s insurance policies did not
provide a ceiling. Instead, we agree with Colgate that its policies provided
both a floor and a ceiling of $5 million. As such, we do not need to decide the
applicability of Ken Petroleum to this case, and we conclude that Colgate is
not liable to Century.
A. Bell and Davis Affidavits
As a threshold matter, the parties spar over whether the district court
erred in declining to admit affidavits from Bell and Davis, both of which state
that at the time Triangle and Colgate entered into the MSA, there was no
intention for either to purchase more than $5 million to fulfil their mutual
indemnity obligations. The district court did not analyze this question indepth. Instead, it cursorily concluded that it was “unconvinced that the
parties have met their independent burdens such that summary judgment is
unwarranted. Moreover, the Texas courts provide a ready mechanism for
determining Colgate and Triangle’s obligations in disputes like this one.”
Colgate argues (without citation) that the district court opened the
door to the consideration of extrinsic evidence when it found the amount of
insurance required by the MSA between Colgate and Triangle was
nonspecific. But that argument is not consistent with binding Supreme Court
of Texas precedent. As the Supreme Court of Texas has held:
[T]he parol evidence rule prohibits extrinsic evidence of
subjective intent that alters a contract’s terms but “does not
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prohibit consideration of surrounding circumstances that
inform, rather than vary from or contradict, the contract text.”
Thus, extrinsic evidence may be consulted to give meaning to
the phrase “the green house on Pecan Street,” but “cannot be
used to show the parties’ motives or intentions apart from” the
language employed in the contract.
URI, Inc. v. Kleberg Cnty., 543 S.W.3d 755, 767 (Tex. 2018). Applied here,
the Texas parol evidence rule would only allow for the admission of extrinsic
evidence to determine the meaning of the following phrase from the MSA:
“the maximum amount which may be required by law, if any, without
rendering this mutual indemnification obligation void, unenforceable or
otherwise inoperative.” But any latent ambiguity in the text of the MSA
would not be determinative in this case. The inclusion of this phrase appears
to ensure that the agreement between the parties would not be rendered
“void, unenforceable, or otherwise inoperative” if the Legislature made any
major changes to TOAIA (or other potentially relevant statutes), as it has in
the past. As such, the district court correctly refused to consider these
affidavits.
B. Interpretation of the MSA and Colgate’s Insurance Policies
As noted above, the MSA required Colgate and Triangle to purchase
indemnity insurance with limits the lesser of (1) “not less than $5 million,”
or (2) “the maximum amount which may be required by law, if any, without
rendering this mutual indemnification obligation void, unenforceable or
otherwise inoperative.” As the district court correctly determined, and as
the parties do not dispute, the “not less than” language establishes a “floor”
of $5 million of mutual indemnity coverage. The parties do dispute,
however, whether the MSA, on its face, provides a “ceiling” to mutual
indemnity coverage. The district court concluded that there was “no
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language in the MSA to support a ‘ceiling’,” and thus turned to the terms of
the insurance policies in search of a cognizable limit.
After careful consideration of the parties’ arguments, we agree with
Colgate and respectfully disagree with the district court: the only amount of
insurance required by the MSA was $5 million, which served as both a floor
and a ceiling. The only amount of insurance expressly required by the MSA
was $5 million, as the words “not less than” stated a required minimum, and
the MSA did not provide a clear maximum.
At oral argument, Century suggested that this argument transforms
the MSA’s language regarding “the maximum amount which may be
required by law, if any, without rendering this mutual indemnification
obligation void, unenforceable or otherwise inoperative” into mere
surplusage. We disagree. Once the parties agreed, under the terms of the
MSA, to mutually indemnify each other for the same amount, there was no
risk of their MSA being invalidated under the terms of TOAIA. “Once an
agreement falls within the statute’s exception, there is no language in the
TOAIA which would retroactively void the agreement.” Nabors Corp.
Services, Inc. v. Northfield Ins. Co., 132 S.W.3d 90, 97 (Tex. App.—Houston
[14th Dist.] 2004, no pet.) Because of this clear language in the MSA, this
court does not need to look to the terms of the insurance policies or inquire
into the possible application of Ken Petroleum.
Nor would it be appropriate for this court to look to Colgate’s
insurance policies in this case. Colgate’s policy governs the relationship
between it and Markel, its insurer; that policy does not provide any rights to
Triangle, much less Century, as Triangle’s insurer/subrogee. As in Cimarex,
the MSA allowed Colgate “to obtain additional coverage for its own
purposes; nothing required it to obtain its agreed indemnification coverage
via a separate policy from coverage it sought for its own interests.” 26 F.4th
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at 690. “In TOAIA’s terminology, the remaining $[71] million of [Colgate]’s
excess liability coverage was not obtained for the benefit of [Triangle.]” Id.
“[I]rrespective of the additional coverage, [Colgate’s] excess liability policy
fulfilled both the terms of the MSA and the requirements of TOAIA, to the
extent that [Colgate] and [Triangle] were mutually indemnified up to $[5]
million, coincident with [Colgate’s] minimum requirements under the
MSA.”
Id.
Triangle’s only rights exist within the MSA, and indemnification
under the MSA is not the same as insurance coverage that Colgate purchased
for Triangle’s benefit under the Markel policy. Indeed, any benefits for
Triangle would flow through Colgate as the beneficiary of the Markel policy.
Hence, Triangle has no rights for indemnity under the terms of the policy itself, and
Colgate is under no obligation to pay any more than the $5 million it agreed
to pay under the MSA.
At heart, Century’s position assumes that Colgate set out a $76
million dollar indemnity obligation without clearly saying so in the contract
by virtue of policies that Colgate acquired years after it had entered into the
MSA. That distinguishes this case from Cimarex, where the MSA spelled
out discrete and distinct dollar amounts of insurance that the two parties
were required to obtain: One party had to obtain $1 million in general liability
insurance and $2 million in umbrella or excess coverage, while the other had
to obtain $1 million in general liability insurance and $25 million in excess
coverage. Id. at 686. Hence, the Cimarex MSA, on its face, only set a floor
for the amount of coverage the parties were required to obtain, without
clearly setting a ceiling. Id. at 688. That is not the case here, where the only
amount mentioned at all, which applies equally to both parties, is $5 million.
The parties in this could have written a more precise MSA, given that Ken
Petroleum and TOAIA amendments were almost two decades old at the time
they entered into the MSA. But they chose not to do that, instead only
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referencing $5 million in the MSA and inserting a second clause that would
ensure the validity of their agreement if the Legislature amended the law
again.
AFFIRMED.
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