## Facts

- Maxus Exploration Company (formerly Diamond Shamrock Exploration Company) contracted with Moran Bros., Inc. under an IADC daywork drilling contract to drill a well in Kansas.
- The contract was negotiated and executed in Texas; both companies had principal places of business in Texas.
- The contract used a mutual “knock-for-knock” risk allocation: each party agreed to indemnify the other for bodily injury claims by its own employees and by employees of its contractors/subcontractors, including claims caused by the indemnitee’s negligence, and to support the obligation with liability insurance or self-insurance.
- Keith Boydstun, an employee of Wiggins Oil Tool Co. (a contractor of Diamond Shamrock/Maxus), was injured while using Moran’s equipment at the Kansas drilling site.
- Boydstun sued Moran in federal court in Kansas; Moran asserted a contractual indemnity cross-claim against Diamond Shamrock/Maxus.
- Diamond Shamrock/Maxus and its insurer undertook Moran’s defense under an agreement reserving rights to litigate indemnity later.
- A Kansas jury found Moran 90% negligent and awarded damages of about $3 million; the parties settled with each paying about half, while reserving indemnity claims.
- After the settlement, Diamond Shamrock/Maxus filed a Texas declaratory judgment action contending the indemnity provisions were invalid and seeking reimbursement; Moran obtained summary judgment enforcing the indemnity, which the court of appeals affirmed.

## Issues

1. Whether Texas or Kansas law governed interpretation and enforceability of the contract’s indemnity provisions.
2. Whether, under the governing law, the mutual indemnity clause requiring indemnity for the indemnitee’s negligence was valid and enforceable.
3. Whether Boydstun, as an employee of the operator’s contractor, fell within the class of persons whose claims triggered the operator’s indemnity obligation.
4. If Texas law applied, whether the Texas oil-and-gas anti-indemnity statute invalidated the obligation or allowed enforcement to the extent supported by required insurance/self-insurance.

## Decision

- The Supreme Court of Texas affirmed summary judgment for Moran.
- Texas law governed because Texas had the most significant relationship to the indemnity dispute given the parties’ Texas ties and Texas-centered contracting.
- The indemnity provisions were enforceable under Texas law because the contract required insurance/self-insurance backing consistent with the Texas statute’s insurance-based limitation.
- Boydstun’s claim was covered because he was an employee of the operator’s contractor and thus within the contract language extending indemnity to “employees of its contractors or subcontractors.”
- Maxus/Diamond Shamrock owed Moran contractual indemnity for the Boydstun settlement, limited to the extent of the insurance/self-insurance required and provided under the contract and statute.

## Legal Principles

- Choice of law for contract indemnity in Texas follows the “most significant relationship” approach; the place of injury does not control when the contract and parties’ relationships are centered elsewhere.
- Texas’s oil-and-gas anti-indemnity statute generally restricts indemnity for an indemnitee’s negligence, but permits enforcement when the obligation is supported by insurance or qualified self-insurance, typically up to the agreed coverage limits.
- In oilfield “knock-for-knock” arrangements, mutual indemnity obligations tied to specified insurance/self-insurance are enforceable within the statute’s insurance-based cap.
- Contract language extending indemnity to “employees of [a party’s] contractors or subcontractors” covers injuries to workers employed by the party’s contractors, even if not direct employees of the party.

## Conclusion

The Supreme Court of Texas held that Texas law governed the indemnity dispute and enforced the insurance-supported mutual indemnity provisions in the daywork drilling contract, requiring Maxus/Diamond Shamrock to indemnify Moran for a contractor-employee injury claim within the contract’s coverage, subject to the statute’s insurance-based limitation.


Maxus Expl. Co. v. Moran Bros., Inc., 817 S.W.2d 50 (Tex. 1991)