Case Law Update: Cimarex Energy Co. v. CP Well Testing, L.L.C.

In a Master Service Agreement (MSA) between Cimarex and CP Well, the parties agreed to obtain, “for the benefit of the other Party,” minimum insurance amounts to support their respective indemnity obligations. CP Well acquired $11 million in coverage, well in excess of the $3 million minimum set by the MSA. Following a $4.5 million personal injury settlement, Cimarex sought indemnity from CP Well for the full amount; CP Well refused to indemnify over the $3 million minimum required by the MSA, leading to Cimarex’s suit.

Cimarex asserted that the MSA’s indemnity provisions made CP Well liable for the full amount of the settlement; it argued that CP Well’s liability should max out at the $11 million acquired, and not be limited by the minimum $3 million required. CP Well countered that the MSA required $3 million in coverage for the benefit of Cimarex, which it obtained, and any excess insurance was for its own benefit. The District Court found that the MSA established a “floor” of minimum insurance requirements, but no ceiling; the MSA was silent as to the parties’ obligations where the insurance obtained exceeded the minimum required.

Pursuant to the Texas Oilfield Anti-Indemnity Act (TOAIA), “the indemnity obligation is limited to the extent of the coverage and dollar limits of insurance … each party as indemnitor has agreed to obtain for the benefit of the other party” [emphasis added]. Because the MSA did not determine what coverage was for the benefit of the other party, the District Court consulted the language of CP Well’s insurance policy to find that the excess $8 million in coverage was for CP Well’s own benefit, and not for the benefit of Cimarex. The United States Court of Appeals for the Fifth Circuit agreed with the District Court’s findings. The parties were bound by the plain interpretation of the MSA’s language, which was clear in establishing a minimum insurance amount but did not bind CP Well to amounts in excess of the minimum.