Choice-of-Law Analysis Voids Oilfield Indemnity Clause: Texas Federal Court Applies New Mexico's Absolute Anti-Indemnity Rule Despite Texas Choice-of-Law Provision
ConocoPhillips sought to enforce a Master Service Agreement indemnity clause requiring Totem Well Service to defend and indemnify against claims arising from a Totem employee's personal injury in Carlsbad, New Mexico, but the Southern District of Texas granted summary judgment for Totem after finding a conflict between Texas and New Mexico oilfield anti-indemnity laws. The court's decision turned on three key questions: whether the MSA's § 21.3 validly disclaimed the Texas Oilfield Anti-Indemnity Statute, which state's law governed the indemnity obligation's scope, and whether the parties' choice-of-law provision was enforceable.
Background and Contractual Framework
ConocoPhillips Company, a Texas entity, and Totem Well Service, LLC, a New Mexico company, entered into a Master Service Agreement on October 26, 2021, under which Totem would perform well-related services for ConocoPhillips's oil and gas operations. The MSA contained a broad indemnification clause requiring Totem to "indemnify each of the members of Company Group from and against any and all claims arising out of or related in any way to personal injury." Specifically, the agreement provided:
CONTRACTOR SHALL INDEMNIFY EACH OF THE MEMBERS OF COMPANY GROUP FROM AND AGAINST ANY AND ALL CLAIMS ARISING OUT OF OR RELATED IN ANY WAY TO PERSONAL INJURY OF OFFICERS, DIRECTORS, PERSONNEL, OR INVITEES OF ANY OF THE MEMBERS OF CONTRACTOR GROUP OCCURRING IN CONNECTION WITH THIS AGREEMENT, ANY CALLOFF ORDER, OR PERFORMANCE OF THE WORK UNDER ANY CALL-OFF ORDER, REGARDLESS OF THE TIMING OR NATURE OR STYLE OF SUCH CLAIMS AND REGARDLESS OF THE IDENTITY OF THE CLAIMANT, INCLUDING SUCH OFFICERS, DIRECTORS, PERSONNEL, OR INVITEES THEMSELVES AND THEIR RESPECTIVE REPRESENTATIVES, AGENTS, HEIRS, BENEFICIARIES, ASSIGNS, AND FAMILY MEMBERS.
The Underlying Dispute
Two years after executing the MSA, a Totem employee sued ConocoPhillips in Texas state court based on personal injuries allegedly suffered while performing work in Carlsbad, New Mexico. The plaintiff later nonsuited the Texas action and refiled in New Mexico state court. ConocoPhillips then sent Totem a demand letter for defense and indemnification for the underlying litigation, citing the indemnification provision in the MSA. After Totem refused to comply with its demand, ConocoPhillips filed this declaratory judgment action in Texas state court, which was properly removed to federal court, seeking a declaration that Totem must provide defense and indemnity under the MSA.
The Court's Framework for Resolution
After a round of summary judgment briefing, the court issued an Order identifying three questions that must be answered to resolve this contract interpretation dispute: (1) "whether § 21.3 is a valid disclaimer of the Texas Oilfield Anti-Indemnity Statute, and, if so, what is the result of its application to this dispute;" (2) "which state's law did the parties agree would govern the scope of the indemnity obligation;" and (3) "whether the parties' choice of law is" enforceable. Following full briefing on these issues, the court denied ConocoPhillips's Motion for Summary Judgment and granted Totem's Cross Motion for Summary Judgment, effectively ruling that Totem was not required to provide defense and indemnity under the MSA for the underlying New Mexico litigation.