951 F.3d 219
5th Cir.2020Background
- Wayne Bourgeois developed mesothelioma after working as a welder at Chevron’s Belle Chasse refinery; he sued Chevron and others and later died. Chevron settled the underlying suit for $550,000.
- Chevron sought contractual indemnity from Jacobs (successor to J.E. Merit) under several Chevron–J.E. Merit contracts that contained broad indemnity clauses. Jacobs denied the tender and declined to participate in settlement negotiations.
- Jacobs produced contracts after Bourgeois’s death showing covered welding work during Bourgeois’s employment; Chevron re-tendered and then settled within ranges it had communicated to Jacobs.
- The district court granted summary judgment in large part, holding (inter alia) that contractual indemnity required only potential, not actual, liability; that at least one contract covered the relevant time; and that Chevron was entitled to indemnity plus attorney’s fees and ordinary litigation costs.
- After a stipulated-facts bench trial the court awarded Chevron the full $550,000 settlement and about $256,000 in attorneys’ fees and costs; Jacobs appealed and the Fifth Circuit affirmed.
Issues
| Issue | Plaintiff's Argument (Chevron) | Defendant's Argument (Jacobs) | Held |
|---|---|---|---|
| 1) Standard for indemnity: potential liability vs. actual liability | Contractual indemnity triggers only potential liability; Chevron tendered the defense and gave Jacobs opportunity to participate | Indemnitor contends Parfait line requires actual liability when indemnitor lacked sufficient notice/ability to defend | The court adopted potential-liability rule for contractual indemnity where indemnitor was tendered and given the choice to defend or approve settlement; affirmed potential-liability standard |
| 2) Were Bourgeois’s depositions admissible / did Chevron show potential liability? | Deposition testimony (including perpetuated testimony) may be considered to show Chevron’s reasonable apprehension of liability (offered for effect on listener, not truth) | Jacobs argues it lacked notice and opportunity to cross-examine; thus depositions were inadmissible and Chevron failed to show potential liability | Court held depositions admissible for non‑hearsay purpose (effect on Chevron); Chevron established potential liability as a matter of law |
| 3) Contract interpretation: scope of indemnity and recovery of attorneys’ fees and costs | Indemnity clause covers “any and all loss” arising from Jacobs’ performance and includes “claims and reasonable attorneys’ fees” and litigation costs for both the underlying and indemnity suits | Jacobs contends ambiguities: (a) carve‑out for ‘‘sole negligence or willful misconduct’’ creates ambiguity; (b) attorneys’‑fee phrase modifies only the immediately preceding clause and costs are not recoverable for the indemnity suit | Court found the indemnity language unambiguous: Jacobs must indemnify Chevron for the settlement; “claims and reasonable attorneys’ fees relating to any of the foregoing” covers the underlying claims and fees; ordinary litigation costs are recoverable, including for the indemnity suit to make Chevron whole |
| 4) Allocation of burden to prove settlement reasonableness | Once indemnitee shows potential liability and tender, burden shifts to indemnitor to prove settlement unreasonable | Jacobs argues indemnitee should bear burden to prove reasonableness (Parfait line) | Court concluded Louisiana would follow Wisconsin Barge: after potential-liability showing and adequate notice/tender, burden shifts to indemnitor to prove settlement was unreasonable; Jacobs failed to meet that burden (settlement was reasonable) |
Key Cases Cited
- Fontenot v. Mesa Petroleum Co., 791 F.2d 1207 (5th Cir. 1986) (tendering defense permits indemnitee to rely on potential-liability standard)
- Parfait v. Jahncke Serv., Inc., 484 F.2d 296 (5th Cir. 1973) (indemnitee must offer indemnitor a choice to approve settlement or assume defense)
- Wis. Barge Line, Inc. v. Barge Chem 300, 546 F.2d 1125 (5th Cir. 1977) (burden shifts to indemnitor to show settlement unreasonable after indemnitee establishes potential liability)
- Molett v. Penrod Drilling Co. (Molett II), 919 F.2d 1000 (5th Cir. 1990) (factors for evaluating settlement reasonableness and exposure)
- Naquin v. Louisiana Power & Light Co., 951 So. 2d 228 (La. App. 1st Cir. 2006) (broad indemnity language can support recovery of costs and attorney’s fees for underlying and indemnity claims)
- Prejean v. Guillory, 38 So. 3d 274 (La. 2010) (Louisiana rules of contract interpretation; give words their common meaning)
- United States v. Reed, 908 F.3d 102 (5th Cir. 2018) (extrajudicial statements are not hearsay when offered to show their effect on the listener)