Friday, October 14, 2011
Oil Contractors Likely To Strengthen Liability Protection After Spill Citations
"However, if the courts determine that the government has the right to issue a citation to oil-service contractors, there's no contract that will protect them from the fine, according to Larry Nettles, an environmental attorney with Vinson & Elkins, a Houston law firm. "In most jurisdictions the courts do not allow indemnification for fines and penalties, because it defeats the purpose," which is to punish bad behavior, Nettles said.
Still the industry is expected to bulk up its contracts even more in the wake of the regulators' action, legal experts say, to get as much liability protection as possible. "They will probably review their contracts," said Owen Anderson, a professor of law specializing in energy at the University of Oklahoma.
The contractors currently have considerable bargaining power to win such new concessions from rig operators on contract protection. Relatively high oil prices have led to a shortage of drilling crews and have put oilfield services at a premium, giving the contractors the upper hand in negotiations."
Indemnification for fines and penalties is an interesting insurance issue and is often addressed in contracts in the form of indemnities and hold harmless agreements. The Deepwater Horizon situation will be one of the subjects covered by the ABA's Tort, Trial & Insurance Practice Section's Disaster Initiative program on disasters caused by negligence at the ABA mid-year meeting in New Orleans on February 3, 2012. For more information about this program and the other TIPS Disaster Initiative programs, please visit the TIPS Disaster Initiative page by clicking here.