## Facts

- TEG Oil & Gas U.S.A., Inc. operated an oil field lease and hired CAZA Drilling (California), Inc. under a standardized “Daywork Drilling Contract – U.S.” to drill the “Yule 6” well.
- The contract broadly allocated operational consequences to TEG except for defined liabilities CAZA specifically assumed (including damage to CAZA’s own equipment and certain other defined risks).
- The contract required CAZA to use “all reasonable means” to prevent blowouts and to comply with applicable federal, state, and local laws and regulations.
- After only a few days of drilling in 2002, a blowout occurred, killing a CAZA employee, injuring others, and destroying the well.
- TEG and its parent/co-lessee Sefton Resources, Inc. attributed the blowout to CAZA’s negligence in drilling operations and failure to use safety equipment, and alleged regulatory noncompliance.
- CAZA sued for unpaid contract amounts; TEG and Sefton cross-complained for economic losses (e.g., lost production) and physical damage to equipment and facilities.
- CAZA sought summary judgment on the cross-complaint based on the contract’s exculpatory and limitation/risk-allocation provisions; the trial court granted summary judgment.

## Issues

1. Whether the contract’s risk-allocation and limitation-of-liability provisions were void under California Civil Code § 1668 as an impermissible exemption for CAZA’s negligence or “violation of law.”
2. Whether TEG and Sefton, to invoke § 1668’s “violation of law” language, were required to identify a specific statute or regulation CAZA allegedly violated.

## Decision

- The Court of Appeal affirmed summary judgment for CAZA on the cross-complaint.
- The court held the challenged clauses functioned as enforceable limitations and allocation of liability between commercial parties, not a complete exemption from responsibility barred by Civil Code § 1668.
- The court further held TEG and Sefton failed to identify any specific law or regulation CAZA allegedly violated; generalized assertions of regulatory violations were insufficient to trigger § 1668.
- Because the damages sought (economic loss and damage to equipment/facilities) fell within categories the contract assigned to TEG, no triable issue of material fact defeated summary judgment.

## Legal Principles

- Civil Code § 1668 bars contracts whose object is to exempt a party from responsibility for fraud, willful injury, or violation of law; it does not categorically bar commercial limitations of liability or contractual risk allocation for economic and property losses.
- In a commercial, arm’s-length contract for hazardous work, courts may enforce provisions allocating defined categories of loss, particularly where the arrangement reflects negotiated risk placement and insurability.
- A party invoking § 1668 on a “violation of law” theory must identify a concrete statute or regulation allegedly violated; conclusory references to “regulations” are inadequate.
- Contract terms requiring compliance with applicable laws weigh against construing the agreement as authorizing unlawful conduct.

## Conclusion

The court enforced the drilling contract’s allocation of economic and property risks to the operator and affirmed summary judgment, concluding the provisions were not void under Civil Code § 1668 and that the operator and co-lessee failed to support any “violation of law” theory with a specific legal breach.


CAZA Drilling (Cal.), Inc. v. TEG Oil & Gas U.S.A., Inc., 142 Cal. App. 4th 453 (Cal. Ct. App. 2006)