Mid-Continent Casualty Co. v. Swift Energy and Flournoy Drilling Co.

This case was brought before the U.S. District Court for the Southern District of Texas, Houston Division.  Our Client was Swift Energy Co. The Plaintiff Mid-Continent Casualty Company (“Mid-Continent”), filed a declaratory action in this matter seeking a ruling that it owed no indemnity to Swift as an additional insured under its policy because Master Service Agreement between the parties did not qualify as an “insured contract” because the indemnity provisions were unenforceable under the Texas Oilfield Anti-Indemnity Act (TOAIA) Tex.Civ.Prac. & Rem. Code Chapter 127. We analyzed the facts and indemnity provision between and among the operators, drillers and well servicing companies. Our conclusion was that there was an enforceable indemnity agreement between the parties under the Texas Oilfield Anti-Indemnity Act (TOAIA) Tex.Civ.Prac. & Rem. Code Chapter 127.

At the time of the summary judgment hearing, the trial court Judge commented that he thought the arguments were sound but there had never been a court in Texas that had found an oilfield indemnity argument to be enforceable. He further stated that he would not be the first one.

Mr. Byrne appealed the trial court’s decision and argued the appeal before the United States Court of Appeals, 5th circuit in New Orleans, Louisiana. In March of 2000, the court issued its opinion finding Swift to be an additional insured under the policy and reversing the ruling of the trial court. The opinion by cites a substantial portion of Swift’s arguments directly from the brief and perhaps most importantly, found that oil and gas operators, drillers and well servicing companies were free to agree to mutual indemnity agreements that were supported by insurance coverage.   

Mr. Byrne recovered the full amount under Mid-Continent’s policy, as well as pre-judgment interest, all legal fees and costs of court for his client.

Shortly after the Fifth Circuit’s Mid-Continent opinion, the Texas Supreme Court in Ken Petroleum v. Questor Drilling Corporation, held that while section 127.005 required that there be a written agreement to procure insurance or self-insurance to support mutual indemnity obligations, such an agreement is not void if the parties agree to provide insurance in differing amounts. Section 127.005(b) only restricted the enforceability of an indemnity obligation to the coverage and dollar limits that applied equally to both parties. We further hold that section 127.005 did not require a written agreement to specify the dollar amounts of insurance to be provided.