Thornton Drilling Company v. National Union Fire Insurance ( 2008 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 07-2950
No. 07-3079
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Thornton Drilling Company, *
*
Plaintiff - Appellant, *
*
v. *
* Appeals from the United States
National Union Fire Insurance * District Court for the
Company of Pittsburgh, PA, * Western District of Arkansas.
*
Defendant - Appellant, *
*
Stephens Production Company, *
*
Defendant - Appellee. *
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Submitted: April 18, 2008
Filed: August 12, 2008
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Before LOKEN, Chief Judge, JOHN R. GIBSON and MELLOY, Circuit Judges.
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LOKEN, Chief Judge.
Eric Stricklin, an employee of Thornton Drilling Company (“Thornton”), was
killed by an explosion or blowout while working in Franklin County, Arkansas, on an
oil drilling rig leased to Thornton by the producer, Stephens Production Company
(“Stephens”). Stricklin’s wife and representative of his estate filed a wrongful death
action against Thornton and Stephens. The exclusive workers’ compensation remedy
barred Stricklin’s claim against Thornton, but Stephens asserted that Thornton is
contractually obligated to indemnify Stephens for its liability to Stricklin. Stephens
settled Stricklin’s wrongful death claim for $1,705,000. Thornton’s commercial
liability insurer paid $1,000,000, its policy limit. Stephens’ insurer paid $205,000.
Stephens paid its deductible, the remaining $500,000, and demanded indemnity from
Thornton, which tendered the demand to its umbrella liability insurer, National Union
Fire Insurance Company of Pittsburgh, PA (“National Union”).
When National Union denied coverage, Thornton commenced this diversity
action, seeking a declaratory judgment it has no duty to indemnify Stephens or,
alternatively, that its indemnity obligation is covered by National Union’s policy.
Ruling on cross motions for summary judgment, the district court1 held that Thornton
must indemnify Stephens and that this obligation is covered by National Union’s
policy. Thornton and National Union separately appeal.2 As National Union now
concedes coverage, the only issue we must decide is whether Thornton must
indemnify Stephens. The parties agree that Arkansas law governs the construction of
the relevant contracts. Reviewing the district court’s grant of summary judgment and
its interpretation of state contract law de novo, we affirm. See Fairbrook Leasing, Inc.
v. Mesaba Aviation, Inc., 519 F.3d 421, 425 (8th Cir. 2008) (standard of review).
Under Arkansas law, an agreement to indemnify is enforceable in accordance
with normal contract law principles, except that a promise to indemnify another party
1
The HONORABLE JIMM LARRY HENDREN, Chief Judge of the United
States District Court for the Western District of Arkansas.
2
At oral argument, we questioned our jurisdiction under 28 U.S.C. § 1291
because the order being appealed did not resolve a counterclaim Stephens asserted
against Thornton. Thereafter, the district court entered an amended and substituted
judgment, nunc pro tunc, dismissing Stephens’ counterclaim with prejudice. As there
is now a final judgment, we have jurisdiction to decide the appeal on the merits.
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for its own negligence must be clear and unequivocal. See Chevron U.S.A., Inc. v.
Murphy Exploration & Prod. Co., 151 S.W.3d 306, 310 (Ark. 2004); Nabholz Constr.
Corp. v. Graham, 892 S.W.2d 456, 459 (Ark. 1995). The clarity of the promise is not
an issue in this case. Rather, the issue is how to interpret inconsistent indemnity
provisions in three separate and distinct agreements between Thornton and Stephens.
First, in June 2000 -- well before Stricklin’s death in January 2005 -- Thornton
and Stephens entered into a Contractor’s Master Agreement (“CMA”). The preamble
recited that Thornton as contractor “may perform work . . . for [Stephens] from time
to time.” Specific jobs “will be requested and confirmed by written contract . . . . Any
and all work agreed on shall be performed in accordance with and subject to the terms
and provisions of this Master Agreement.” Paragraph 4(d) included the indemnity
provision on which Thornton and National Union rely:
[Stephens] shall . . . indemnify and hold harmless [Thornton] . . . from
and against any claims . . . for . . . personal injury, death or property
damage . . . from . . . explosion . . . and/or a well blowout . . . even if
contributed to or caused by the . . . negligence . . . of [Thornton].
The parties agree that, if this provision applies, Thornton has no duty to indemnify
Stephens, and the district court’s decision to the contrary must be reversed. In arguing
that this provision applies, Thornton and Stephens emphasize paragraph 15 of the
CMA, which provided:
In the event there should be any conflict between the provisions
of this Agreement and any Company work order . . . or Contractor’s
work ticket . . . or any other type of written memoranda, pertaining to the
subject matter hereof, the provisions of this Agreement shall control
unless expressly agreed otherwise in writing by the parties hereto.
Second, in May 2004, Thornton leased from Stephens the drilling rig on which
Stricklin was working when the accident occurred. The lease was reflected in a Lease
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Agreement with Option To Sell (the “Lease Agreement”), which contained the
following indemnity provision:
[THORNTON] ASSUMES ANY AND ALL LIABILITY AND
AGREES TO . . . INDEMNIFY, AND HOLD HARMLESS . . .
[STEPHENS] . . . FROM AND AGAINST ANY . . . LIABILITY . . .
THAT IS ASSERTED BY OR ARISES ON ACCOUNT OF BODILY
INJURY [OR] DEATH . . . ALLEGED TO HAVE BEEN SUSTAINED
IN CONNECTION WITH . . . THE PERFORMANCE . . . OF THIS
LEASE AGREEMENT, REGARDLESS OF WHETHER OR NOT
SUCH CLAIMS OR ACTIONS ARE FOUNDED . . . UPON THE
ALLEGED NEGLIGENCE . . . OF [STEPHENS] . . . .
Third, the drilling work that led to Stricklin’s death was governed by a separate
Drilling Bid Proposal and Daywork Drilling Contract between Thornton and Stephens
(the “Drilling Contract”). A warning at the top of the first page of this International
Association of Drilling Contractors form contract stated, “THIS AGREEMENT
CONTAINS PROVISIONS RELATING TO INDEMNITY . . . AND
ALLOCATION OF RISK.” A subsection entitled “Contractor’s Indemnification of
Operator” then provided:
[Thornton] shall . . . indemnify [Stephens] . . . from and against all
claims . . . of every kind and character, without limit and without regard
to the cause or causes thereof or the negligence of any party or parties,
arising in connection herewith in favor of [Thornton’s] employees . . . on
account of bodily injury, death or damage to property.
The parties agree that, if the indemnity provision in either the Drilling Contract or the
Lease Agreement applies, Thornton must indemnify Stephens, and the district court’s
decision should be affirmed. Neither the Drilling Contract nor the Lease Agreement
specifically referred to the CMA.
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The dispute turns on a question of contract law: when a “master agreement”
states that it prevails over conflicting terms in future contracts “unless expressly
agreed otherwise in writing,” does the master agreement override conflicting terms in
subsequent written contracts that do not refer specifically to the master agreement, as
Thornton and National Union contend?3 The district court rejected this interpretation
of the CMA because it would render the conflicting indemnity provisions in the
Drilling Contract and the Lease Agreement “a nullity.” Though Thornton and
National Union urge a contrary interpretation of the CMA on appeal, they do not
challenge the district court’s conclusion that the relevant contract provisions are
unambiguous and are therefore appropriate for disposition on cross motions for
summary judgment. See generally Cranfill v. Union Planters Bank, N.A., 158 S.W.3d
703, 711-16 (Ark. App. 2004).
On appeal, Thornton and National Union argue that the plain meaning of the
term “expressly agreed otherwise” in paragraph 15 of the CMA is that subsequent
written contracts such as the Drilling Contract and the Lease Agreement cannot be
construed as modifying the indemnity provisions in the CMA unless they explicitly
refer to the CMA and identify the term being modified. As no prior Arkansas case
supports this proposition, National Union relies on cases from other jurisdictions that
enforced explicit subsequent contract modifications, such as Goshey v. ITT Life
Insurance Corp., 590 F.2d 737, 740 (8th Cir. 1979). Thornton relies on Sempra
Energy Trading Corp. v. Algoma Steel, Inc., No. 00-9227, 2001 WL 282684, at *5-6
(S.D.N.Y) (unpublished), aff’d, 300 F.3d 242 (2d Cir. 2002), a case that supports the
3
As an alternative position, Stephens argued in the district court that par. 15 of
the CMA contains an ambiguity -- whether the reference to “any other type of written
memoranda” includes the “written contracts” referred to in the CMA preamble, such
as the Drilling Contract and the Lease Agreement. Like the district court, we need not
consider this question, but the omission of “written contract” from par. 15 tends to cut
against Thornton’s contention that the CMA overrides these later contracts.
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district court’s decision because it recognized a distinction between modifying a prior
contract and entering into subsequent agreements that are separate and distinct.
In our view, Thornton and National Union wrongly frame the issue as being
whether the Drilling Contract and the Lease Agreement effectively modified the
CMA. Those later agreements were separate, complete written contracts governing
discrete aspects of the parties’ overall relationship. They included unambiguous
indemnity provisions conflicting with paragraph 4(d) of the CMA. Like the district
court, we conclude that those conflicting provisions fully satisfied the “expressly
agreed otherwise” provision in paragraph 15 of the CMA.4 This interpretation does
not render the indemnity provisions in the CMA a nullity, as they would still govern
less formal drilling work done by Thornton for Stephens that is not covered by a
separate and complete written agreement. Therefore, as is usually the case when
courts construe a sequence of written agreements, a subsequent contract that applies
more specifically to the drilling work in question is controlling. See Coop. Refinery
Ass’n v. Consumers Public Power Dist., 190 F.2d 852, 856 (8th Cir. 1951) (“A
subsequent contract completely covering the same subject-matter . . . but containing
terms inconsistent with the former contract, so that the two cannot stand together . . .
becomes the only agreement of the parties on the subject.”) (quotation omitted).
The judgment of the district court is affirmed.
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4
Thornton emphasizes that the dictionary defines “express” as meaning
“explicit,” “plain,” and “precise.” But the question of course is whether the CMA
required that anything other than the conflicting term be explicit. We think not. The
Drilling Contract and the Lease Agreement left no doubt that Thornton was explicitly
agreeing to indemnify Stephens for an accident like the one that killed Stricklin.
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