(CN) – In an indemnity dispute over a fatal explosion at a Louisiana oil well in 1998, the Texas Supreme Court ruled that the contracts between the well’s operators should be governed by the state law they had in mind when they first struck an agreement.
Sonat Exploration Company paid $28 million to settle claims by four of the survivors of an explosion that killed seven people. Sonat then sued Cudd Pressure Control for indemnity in Texas. The trial court found the oil companies’ contract enforceable under Texas law and a jury awarded more than $20 million to Sonat.
The appeals court agreed with Cudd’s insurer, Lumbermens Mutual Casualty Company, that the contracts should be governed by Louisiana law.
Louisiana law invalidates indemnity clauses when the party seeking indemnity was negligent or strictly liable, while Texas law governs that indemnity clauses are valid if they are mutual and supported by insurance.
Sonat argued that Texas law should apply in accordance with Restatement of Conflict Laws, because Louisiana law would void its indemnity claim.
The high court ruled that because Sonat never admitted negligence, Louisiana law would not void the indemnity claim. But Louisiana law had the most significant relationship to the parties and the contract, the court ruled.