Alas, we might never know. Opiela v. Railroad Commission of Texas and Magnolia Oil & Gas Operating, was a challenge to the Commission’s authority to issue permits for allocation wells and wells drilled under Production Sharing Agreements. The parties have submitted a Joint Unopposed Motion For Reversal and Remand Pursuant to the Parties’ Settlement, which the Court granted.

The lawsuit, with potentially game-changing ramifications for PSA’s and allocation wells, attracted attention from the horizontal well drilling community (which includes just about everybody in the business in Texas) and we have reported it regularly: First on the trial court result, second on the Austin Court of Appeals result, and finally on the Supreme Court briefing. Those posts will tell you a lot about the dispute.

Because outsiders like you and me (or at least me) are not privy to the black box that is the parties’ settlement agreement, we don’t know what the parties truly believed about the strength of their respective cases.

What does it mean? It’s been business as usual at the Commission since the suit was filed. Time will tell if that changes. Parties in the future can be guided by the opinion of the Austin court: What they said and declined to say about, among others, the “65 percent rule”, the Commission’s authority to evaluate a permit applicant’s good faith claim to the right to drill a well, the Commission’s authority to resolve title issues, and the relationship between pooling and PSA’s.

Your musical interlude

The message in RSM Production Corporation v. Gaz du Cameroun SA: According to the federal Fifth Circuit, an arbitration tribunal’s construction of a contract and the arbitration rules governing the dispute “hold, however good, bad, or ugly.” Translation: Good for one party, bad or ugly for the other, just like the courthouse.

RSM was granted an oil concession with the Republic of Cameroon giving RSM the right to explore and develop hydrocarbons in the Logbaba Block. RSM and Guz du Cameroun (GdC) entered into farmin and joint operating agreements. GdC was the operator. The farmin granted RSM 100% participating interest in the concession in exchange for GdC’s agreement to operate. After GdC recovered 100% of drilling costs out of 100% of production revenues (“Payout”), the would share 60% to GdC, 40% to RSM.

A dispute arose over the payout calculation. The parties arbitrated, applying Texas Law and International Chamber of Commerce Rules. RSM had three claims. The tribunal ruled in favor of RSM on “Claim 1” and awarded $10 million+ in damages. The tribunal deemed RSM’s Claims 2 and 3 as moot, having ruled for RSM on Claim 1.

GdC contested the Partial Final Award.  An Addendum to Partial Final Award corrected Claim 1 and considered Claims 2 and 3. GdC prevailed on the merits of the contested claims, reducing RSM’s award by $4 million+.

Under ICC Rule 36, an arbitrator may correct a clerical, computational, or typographical error “or errors of similar nature”. Was GdC’s request a correction of law, which would exceed the tribunal’s authority, or a correction of a fact, which was within the bounds of Rule 36?

RSM sued in district court to vacate to the Addendum. That court vacated the part of the Addendum that reduced RSM’s recovery, concluding that the tribunal exceeded its powers by conducting a “merits re-do”.

GdC appealed, maintaining that the district court failed to apply the courts’ well-established, highly deferential approach to judicial review of arbitral awards. The court of appeal reversed, upholding the tribunal’s Addendum.

The court’s saw its task as determining the limits of an arbitrator’s power to reconsider a previously issued decision. (FYI, ICC Rule 36 is similar to the American Arbitration Association Rule 40.) So long as an arbitral award draws its essence from the contract, a court must uphold the award even if it was based on error. Convincing a court of even a grave error is not enough to justify vacatur.

Rule 36 prohibits redetermination of the merits of a dispute. The court concluded that the tribunal not only had the contractual authority to correct computational errors but also had the authority to determine what constituted a computational error in the first place.

The tribunal classified its error in the Partial Final Award as computational. The agreement established the tribunal’s authority to construe the meaning of the ICC rules themselves and whether an error truly is computational or not.

The tribunal had both the authority to correct computational errors and the more foundational authority to determine what counted as one in the first place. Rule 36 was broad enough to authorize the tribunal to analyze its ruling regarding RSM’s Claim 1 to determine whether a computational error occurred. The tribunal concluded that the authority to correct computational errors is within Rule 36’s purview and the tribunal had the authority to determine whether the error was computational or something else.

Musical interludes: artists you could have seen had you attended the 2025 30A Songwriters Festival:

Chuck Cannon (Chuck wrote it. It’s a “songwiters” festival)

Maddie Font

Lera Lynn

Austin Jenckes

Tia Sillers

Gina Venier

In In the Matter of Offshore Oil Services, Inc., Offshore owned and operated the M/V Anna. Offshore sued Island Operating Company for exoneration and/or limitation of liability for a personal injury claim by an employee of Island. The question (after a series of earlier rulings): After reaching a settlement with the employee of Island, did Offshore retain the right under the Louisiana Oilfield Anti-Indemnity Act to require Island to defend and indemnify Offshore for its losses?

Says the United States District Court for the Eastern District of Louisiana, No.

On its journey to reach that result, the Court reviewed a short history of recent LOAIA cases involving efforts by settling parties to obtain indemnity. The Court held that Tanksley v. Gulf Oil Corporation is still good law in Louisiana. What does that mean?

The LOAIA nullifies oilfield indemnity provisions that purport to provide for defense or indemnity against loss or liability for damages or bodily injury caused by the sole or concurrent negligence or fault of the indemnitee.

In Tanksley, Chevron (f/k/a Gulf, in case you forgot) sought indemnity from its contractor related to injuries suffered by the contractor’s employee. Chevron and the employee Tanksley agreed to settle without involving the contractor. Chevron sought a trial to determine it was not at fault. The Fifth Circuit determined that Chevron was not entitled to an adjudication of its fault because it voluntarily foreclosed such a determination by settling with the employee. Without a finding that Chevron was free from fault, the LOAIA nullified Chevron’s indemnification rights. In arriving at its result, the Fifth Circuit relied on the Louisiana Supreme Court’s answer to a certified question.

In Tanksley, Chevron was the indemnitee. A subsequent Fifth Circuit case, American Home Insurance Company v. Chevron USA and several Louisiana state appellate court decisions did not overrule Tanksley. For example, in American Home the indemnitor, not the indemnitee, settled with the underlying plaintiff. Those are distinguishing facts.

The court granted Island’s motion to dismiss all of Offshore’s claims.

Garth Hudson RIP

Here’s a more low key Garth

MDC Enegy LLC v. Crosby Energy Services Inc. et al. was an indemnity dispute in which the players were many and the facts complicated.

But first

Gray Reed’s own Mitch Ackal and Jeremy Walter will present an entertaining and informative webinar on Texas Business Courts on January 29 at noon. Use this link to learn about the presentation and RSVP.

Here is the report on the case, with lots of details omitted:

There were two Master Services and Supply Contracts:

  • Between MOF as “Contractor” and MDC as “Company”; 
  • Between Crosby as “Contractor” and MDC as “Company”. That agreement included MDC affiliate Reeves in the “Company Group”.

In a suit by an employee of MOF against Crosby and its employee Marrufo, Crosby/Marrufo demanded contractual defense and indemnity from MDC and its related entities. Crosby/Marrufo were performing under both agreements and claimed to be additional insureds as subcontractors under the Crosby-MDC agreement.  

Crosby/Marrufo’s contention: MOF was a Contractor of MDC but also a subcontractor of the MDC entities under the Crosby-MDC agreement and therefore included in the definition of “Company Group”. Because MOF was part of the Company Group, Crosby/Marrufo as “Contractor” were entitled to be indemnified by the MDC entities.

MDC’s contention: It owed no indemnity because MOF was MDC’s Contractor, and “Company Group” included only subcontractors. (The parties agreed that if MOF was not a subcontractor of any entity included in the definition of “Company Group” then the MDC entities were not required to defend Crosby/Marrufo.)  

The Question:

Did MOF fall within the definition of ”Company Group” in the Crosby-MDC agreement? That depended on the interpretation of “subcontractor” as used in the Crosby-MDC agreement.

What is a “subcontractor” anyway?

The Court interpreted the plain and ordinary meaning of the unambiguous contract term “subcontractor”, which Merriam-Webster defines as “an individual or business firm contracted to perform part or all of another’s contract”. Black’s Law Dictionary and the Fifth Circuit pretty much agree.

The Crosby-MDC agreement used “Contractor” to refer to Crosby and “contractor” when the word did not mean Crosby.  “Subcontractor” appeared in both agreements as a defined term in the definition of Contractor Group. “Subcontractor” was defined to mean contractors retained by Crosby.

The record was devoid of evidence that MOF’s work comported with the definition of “subcontractor” under the Crosby-MDC agreement. The evidence demonstrated that MOF was not a subcontractor of any entity listed in the agreement’s definition of “Company Group”. The court referred to “creative but ultimately unpersuasive arguments” to overcome the absence of a contract from which Crosby took a portion.

The Texas mineral lien statute.

MOF did not meet the statute’s definition of “mineral subcontractor’. There was no contractual relationship between MOF or MDC on the one hand and any MDC entity on the other. The statute requires a contractual link between the principal party (Party A), mineral contractor (Party B), and mineral subcontractor (Party C) in order to meet the definition.

The evidence demonstrated that MOF was a Contractor, not a subcontractor. MOF was not included in the definition of Company Group in the Crosby-MDC agreement for whose conduct MDC owed Crosby/Marrufo indemnity.  

The result

MDC had no duty to defend, indemnify and provide insurance coverage to Crosby/Marrufo.

Peter Yarrow RIP

Sam Moore RIP

For the Osage Indian Tribe, it’s more like “IMBY if you pay me”.  In the latest interation of United States and Osage Minerals Council v. Osage Wind LLC et al the US District Court for the Eastern District of Oklahoma awarded a judgment for damages against the defendants. Much more important was the order for injunctive relief in the form of a mandate that defendants remove 84 wind towers from Indian lands in Osage County as the remedy for defendants’ continuing trespass over the land. Removal is estimated by defendants to cost a whopping $259 million.   

The takeaway: Asking for forgiveness later rather than asking for permission first is not always the most clever path to action.

The District Court, affirmed on appeal, had already found the defendants liable on the plaintiff United States and intervenor Osage Mineral Council’s claims of conversion, trespass and continuing trespass. We described the underlying facts and the ruling in our report on the first District Court order.

The Court also awarded damages of $242,000+ for conversion of extracted minerals and $66,000+ for trespass for the value of a mineral lease defendants should have obtained before constructing the 84-tower wind farm.

The Court heard from three experts who testified about the value of extracted mineral material, in particular limestone, and the value of the lease that defendants failed to obtain before extracting material from the mineral estate. The defendants found themselves buried in a literal and figurative hole dug by their very own selves when the Court found in the earlier proceeding that the defendants were liable for continuing trespass by failing to obtain a lease despite repeated requests from the Osage Tribe.

The court denied defendants’ request that it order the removal only of backfill and replace it with substitute materials as a more narrowly tailored remedy for trespass. The court noted that the harm resulting from defendants’ continuing trespass is not only the continued use of backfill but also the interference with the Osage Nation’s sovereignty by the presence of the towers. The court referred to this effort as “a backdoor attempt to seek reconsideration of the prior grant of injunctive relief”.

In response to the defendants’ claim that removal would take 18 months the court allowed 12 months, citing provisions in the surface leases that required defendants to remove all wind power facilities within 12 months of the expiration or termination of the surface lease.

The Court agreed with the defendants that it would not be appropriate to award both injunctive and monetary damages for the continuing trespass.

Considering the upcoming “regime change”, your musical interlude.

It looks like they do. In Held et al v. State of Montana the Montana Supreme Court declared the “MEPA Limitation” unconstitutional. The plaintiffs were 16 youths, ages 2 to 18 at the time of filing.

The MEPA Limitation

The Montana Environmental Policy Act (MEPA) is a regulatory structure first enacted in 1971 for the purpose of protecting the environmental resources of the State. Prior to granting permits for oil, gas and coal activities the State conducts environmental reviews under MEPA.

The MEPA Limitation, enacted in 2023, provides that except for narrowly defined exceptions, those environmental reviews “may not include a review of actual or potential impacts beyond Montana’s borders. It may not include actual or potential impact on the regional, national or global in nature.” After the MEPA Limitation was enacted, state agencies stopped analyzing environmental impacts resulting from permitted activities.

The Constitution

Montana’s Constitution guarantees to each citizen “a fundamental right to a clean and healthful environment”. Plaintiffs’ suit alleged that such right includes “a stable climate system that sustains human lives and liberties” and the right was being violated.

The Constitution further requires the Legislature to “provide adequate remedies for the protection of the environmental life support system from degradation and provide adequate remedies to prevent unreasonable depletion and degradation of natural resources.”

The opinion

Telegraphing where it was headed, the Court opened by citing a federal Ninth Circuit opinion lamenting the perils of climate change, unprecedented global warming, and “overwhelming scientific evidence and consensus” that warming is “a direct result of greenhouse gas emissions, primarily from CO2 released from human extraction and burning of fossil fuels.”

The Court then affirmed this 100+-page Findings of Fact, Conclusions of Law and Order from the district court. The Order included over 60 pages of factual findings, some that appear to be rather far-fetched, including testimony from experts and the plaintiffs themselves and conclusions drawn from a number of sources, including the UN’s Intergovernmental Panel on Climate Change reports. The Supreme Court referred to those findings as ‘undisputed”. It appears that the State made virtually no effort to controvert the plaintiffs’ evidence at the trial court.

The State’s unsuccessful arguments (among others):

  • The framers could not have intended to include an environment degraded from the effects of climate change because they did not specifically discuss climate change or other global issues when adopting the provision.

Rejected. A Constitution “is not a straitjacket but a living thing designed to meet the needs of a progressive society and capable of being expanded to embrace more extensive relations” and cited examples of situations not existing at the adoption of earlier constitutions that were nevertheless covered.  

  • Plaintiffs did not have standing to sue.

Rejected. They had a sufficient personal stake in their inalienable right to a clean and healthful environment to justify the right to sue.

  • Plaintiffs must prove that the MEPA Limitation has in fact caused climate change.

Rejected. The argument was misplaced; that was not the focus of the suit.

  • Even if Montana addressed its contribution to climate change it would still be a problem if the rest of the world will not reduce emissions.

Rejected. Again that was not the focus of the suit.

  • It is only a procedural statute that cannot cause harm to constitutional rights.

Rejected.

Commentary

There will be more of these kinds of suits.

The ruling drew praise from environmentalists and scorn by industry commentators such as Doug Sheridan.

Your musical interlude

In Mistretta v. Hilcorp Energy Company, unleased mineral owner Mistretta sued Hilcorp alleging failure to provide requested production and well cost information pertaining to an oil well operated by Hilcorp. The well was in a unit established in accordance with the Louisiana Conservation Act.  The issue: Do La. R.S 30:103.1 and 103.2 require one notice or two before the operator loses its right to recover costs from the owner?

Under the Act, each mineral owner in a drilling unit is responsible for its share of development and operation costs. To prevent free riding, the Act provides a mechanism for sharing the risk that the well, once drilled, will not produce enough to cover drilling costs. If the operator gives the opportunity to participate in drilling the well and the unleased mineral owner declines, the operator can recover out of production the nonparticipating owner’s share of drilling costs.  

The statute (paraphrased)

103.1: The operator must report to owners of unleased mineral interests by a sworn, detailed itemized statement of costs of drilling, completing and equipping within 90 days from completion of the well. and then send quarterly reports thereafter on costs and revenues, or within 90 calendar days after receiving a request from an unleased mineral owner in writing, whichever is later. Communications must be by certified mail.

103.2:   Whenever the operator permits 90 days to elapse from completion of the well and 30 additional days to elapse from date of receipt of written notice from the owner calling attention to the operator’s failure to comply with 103.1, the operator will forfeit his right to demand contribution from the owner for the costs of the drilling operations of the well.

Operative dates would be helpful:

  • September 3, 2022:  Completion of the well.
  • December 7, 2022: Mistretta’s written notice received.
  • February 16, 2023: Hillcorp’s email response.
  • February 20, 2023: Hillcorp’s certified mail response.
  • There was no second written request from Mistretta

Mistretta contended that express unambiguous language of 103.1 and 103.2 requires that after 90 days had passed following the completion of the well and after 30 days have passed after the operator received notice from the unleased owner requesting reports, 103.2 takes effect resulting in forfeiture of the operator’s right to recover drilling costs. Hillcorp’s response was not timely under 103.2 (coming more than 30 days after receipt of Mistretta’s notice).

The ruling – two requests required

The court did not buy Mistretta’s interpretation of the statute. 103.1 must be read in conjunction with 103.2 and when read together the statute requires two separate notices, an initial request seeking information and another notice advising the operator that it had failed to provide the required information. The operator’s obligation under 103.1 does not arise until the request is made for such a report.103.2 provides for the passage of an additional 30 days after the owner has sent the operator a notice calling attention to its failure to comply with 103.1 before it takes effect and results in forfeiture.

Reading 103.1 in conjunction 103.2, the 103.2 penalty provision was not triggered due to Mistretta’s failure to comply with a second notice requirement mandated by 103.2.

The court added that 103.2 is a penalty statute. Penalty statutes are penal in nature and should be strictly construed.

Your musical interlude

The question in Rock River Minerals, LP and Carr v. v. Pioneer Natural Resources, et al.: Did an assignment of overriding royalty interests in Texas oil and gas leases include a depth limitation? No.

To understand why, we need to study the instrument (Spoiler, see Exhibit A). Cass executed an Assignment of a 2.125% override in favor of Parker & Parsley (which became Pioneer, who assigned to CrownRock). The Assignment conveyed:

  • “all of the rights, interests and properties described… ” in 10 paragraphs listing categories of interests being conveyed.
  • The 10 paragraphs either directly or indirectly referenced Exhibit A to more particularly describe the lands and leases.
  • Exhibit A described “all land from the surface of the earth to all depths located within the geographic boundaries of the North Pembroke Sprayberry Unit as identified in the Unit Agreement … .” (my emphasis)
  • The leases were described in Exhibit A as “all oil and gas leases, royalty interests … included within the [Unit] as to the lands included within such Unit, from the surface of the earth to all depths.” (emphasis mine again.)

Rock River acquired some of Cass’s interests below the Sprayberry. CrownQuest drilled 12 wells within the geographic boundaries of the assigned interests. The wells produce from the Wolfcamp, which is deeper than the Sprayberry.

Cass sought a declaration that he continues to own his interests in depths below the Sprayberry.  Cass/Rock River’s point:  Because the Assignment incorporated the Unit Agreement by reference, it conveyed only the interests that were subject to the Unit Agreement (only the Sprayberry). The geographic boundaries meant not just the horizontal surface boundaries but also the vertical subsurface boundaries of the unitized formation.

Pioneer et al.’s point: There was no depth limitation because Exhibit A stated that the Assignment was to all depths.

The result

Pioneer et al wins. The Assignment conveyed Cass’s override to all geological depths, including depths below the base of Sprayberry, within the geographic boundaries of the Unit.

The parties agreed that an exhibit that describes property can limit the property conveyed. Exhibit A here limited the conveyance to those interests within the geographic boundaries of the Unit.

The Unit Agreement had a map showing the parcels of land which comprise the Unit Area. The Unit Agreement defined the “Unitized Formation” as the “subsurface portion of the Unit Area commonly known as the Sprayberry formation”.

The court concluded that the Unit Agreement determined the boundaries of the surface of the land but not the depth. Incorporation of the Unit Agreement did not necessarily mean that every provision of the Unit Agreement was relevant to the dispute.   

What is “geography”?

Relying on their handy disctionary, the court looked up the plain meaning of “geography” and said it is “a science that deals with the description, distribution and interaction of the diverse physical, biological, and cultural features of the earth’s surface.” Even if geographic boundaries encompass subsurface depth boundaries, the grant was of the interests in all lands from the surface to all depths located within the geographic boundaries of the unit.

Words matter

The parties chose the word “Unit”, not “Unitized Formation” to define the boundaries of the conveyance. The Assignment defined the “Unit Area” as the lands described in certain parcels of land. On the other hand, the Unitized Formation was a subsurface portion of the Unit Area. Had Cass intended to convey only interests in the Unitized Formation he could have said so.

Your musical interlude

Co-author Sean Burns*

In re: EP Energy E&P Company, LP considered three lease maintenance provisions in several oil and gas leases. The federal district court ruled that the leases were maintained in force after cessation of production despite creative (some would say “strained”) lease interpretations by a group of lessors. In sum, the court deemed the lessors’ positions to be contrary to general principles of Texas oil and gas law and concluded that such provisions are complementary, and are not to be interpreted so as to invalidate each other.

Bankruptcy issues

Facing the pandemic-related collapse of oil prices, lessee EP Energy shut in producing wells on the leases. EP drilled new wells throughout the period and resumed production from each shut-in well within 40 days.

EP filed for Chapter 11 bankruptcy. Seeking a stay from the bankruptcy court in order to pursue a state court lawsuit, the lessors claimed that EP’s cessation of production after the primary term resulted in expiration of the leases and reversion of the mineral rights to the lessors. They further argued that EP’s operations after termination constituted trespass.

The bankruptcy court addressed administrative claims, bankruptcy jurisdiction, and the abstention doctrine. Those issues can be significant to parties fighting in bankruptcy court but are beyond our modest purposes here.

The district court affirmed Bankruptcy Judge Marvin Isgur’s holding that, rather than abstain and allow the lessors to pursue their claims in state court, the court would treat them as administrative expense claims that were ripe for adjudication.

Lease interpretation

A continuous development clause (text at p. 14 of the opinion) allowed EP, after expiration of the primary term, to maintain each lease by commencing drilling of an additional well within 120 days after abandonment of a well or completion of a new well.

A retained acreage clause (Paragraph XI(a), opinion p.15) divided each lease by providing that production from or operations on a production unit would maintain the lease in force after the primary term only as to that portion of the premises within that production unit.

As always, harmonize

The court considered the entire lease so as to give effect to all the provisions so that no one provision would be rendered meaningless.

The court rejected the lessors’ asserted that the retained-acreage clause divided the lease at the end of the primary term. That interpretation would read the clause’s “whichever occurs later” language out of the lease and render it meaningless.  This would result in also reading the continuous development clause itself out of the lease. To the contrary, lease termination will occur only upon the latter of cessation of continuous drilling operations or expiration of the primary term.  

The effect of the continuous development clause was that if EP drilled a well within 120 days after expiration of the primary term or 120 days after completion or abandonment of a prior well, EP would continue to maintain the entire lease.

The temporary cessation clause (opinion, p. 17) allowed EP to maintain the lease after cessation of production if operations were conducted or production restored within 120 days. Lessors argued that EP had to drill new wells in order to trigger the clause.

The court rejected that position. Construing that clause as lessors urged would lead to the “odd and perhaps unreasonable result” that EP would be forced to expend additional resources drilling or reworking wells while other wells capable of production were sitting idle. Such a reading would defeat the purpose of the clause and benefit neither party.

EP did not trespass on the leases because it had fulfilled its obligation to either continuously develop the leaseholds by drilling new wells or otherwise maintained the leases by resuming production within 120 days.

Other lease clauses

Leaving no jurisprudential stone unturned, the lessors also urged the court to invoke the shut-in royalty and force majeure clauses (pp.19, 20). Those arguments were also rejected.

Your Christmas interlude

*Sean is a new addition to Gray Reed’s benkrupty/restructuring practice.

Mr./Ms. Negotiator/scrivener/reviewer of Master Service Agreements: When did you last review your go-to indemnity provision? In light of Century Surety Company v. Colgate Operating LLC., perhaps you should do it now. The court deemed an innocuous-seeming indemnity provision to impose a ceiling on indemnity obligations under an MSA. Is your MSA consistent with your intentions?

The MSA

Operator Colgate and consultant Triangle entered into an MSA after Colgate hired Triangle to work on a well in Pecos County, Texas.

The mutual indemnity provision required each party to indemnify the other for claims “… arising out of, resulting from, or in any way incident, to, directly or indirectly, any transaction subject to this Agreement.”

In order to support the indemnity obligations, the MSA required the parties to purchase indemnity insurance with limits of 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.” The MSA complied with the Texas Oilfield Anti-Indemnity Act.  

Colgate purchased a $1 million-dollar general liability insurance policy and a $75 million excess liability policy from Markel. Triangle purchased a $1 million general liability policy from Hallmark and a $5 million excess liability policy from Century.

To settle a suit by an injured employee of a Colgate contractor, Hallmark paid $1 million, Century paid $5 million, and Markel paid $6 million for the benefit of Triangle and Triangle’s consultant. Century, as Triangle’s subrogee, sued Colgate for failure to indemnify Triangle, seeking reimbursement for the $5 million paid towards the settlement.

The district court

The district court concluded that the MSA provided a floor for coverage for mutual indemnity purposes but did not provide a ceiling, invoking the Texas Supreme Court’s “lowest common denominator” rule under a prior version of the statute: When parties agree to provide differing amounts of coverage, the mutual indemnity obligations are limited to the lower amount of insurance. The result was that Century was not entitled to recover the $5 million from Colgate.

Fifth Circuit affirms for a different reason

The current version of the statute limits mutual indemnity obligations to the amount of coverage that each party as indemnitor has agreed to obtain for the benefit of the other party as indemnitee.

The only amount of insurance expressly required by the MSA was $5 million, which served as both a floor and a ceiling.  The words “not less than” stipulated a required minimum and the MSA did not provide a clear maximum.

The district court had turned to the insurance policies to answer the question. The Fifth Circuit said that was not necessary. Triangle’s only rights existed within the MSA and indemnification under the MSA was not the same as insurance coverage. According to TOAIA’s terminology, the remaining $71 million of Colgate’s excess liability coverage was not obtained for the benefit of Triangle. Triangle had no right of indemnity under the Markel policy itself and Colgate was under no obligation to pay any more than the $5 million it agreed to pay under the MSA.

The parties could have spelled out discrete and distinct dollar amounts of insurance that each was required to obtain in general liability and excess coverage but they declined to do so.

Your musical interlude.