Caza Drilling (California), Inc. v. Teg Oil & Gas U.S.A., Inc.,

142 Cal.App.4th 453 (2006)

Facts

P was hired by D to drill a well named Yule 6. The work was performed under a standardized contract entitled “Daywork Drilling Contract-U.S.” A few days after drilling began, there was a blowout, resulting in the death of a CAZA employee, injury to others, and complete destruction of Yule 6. D claimed the blowout was the result of the negligence of P's crew in pulling the drillstring out of the wellhole too quickly (referred to as “swabbing in”), which caused a fire to ignite. D claims the crew committed further negligence by failing to close the blowout preventer after the fire began. D engaged P to do additional work to help repair the damage. In 2003, the parties signed a second Daywork Drilling Contract and a “Payment Schedule” to deal with outstanding invoices due under the first agreement. In November 2003, P sued TEG for breach of contract, open book account, account stated, quantum meruit, and foreclosure of oil and gas liens. P claimed to be owed $33,219.94, plus interest. D amended the complaint to include claims for breach of the two Daywork Drilling Contracts. The claim for unpaid work was increased to $117,824.73, based on work performed under the 2003 agreement. D cross-claimed for breach of contract, negligence, and negligence per se based on violations of various safety provisions contained in state and federal regulations. The cross-complaint does not seek indemnification for damages paid to the plaintiffs in a wrongful death lawsuit. The 2002 Daywork Drilling Contract consisted of a standardized form agreement with a number of blanks for the name of the operator, the contractor, the location of the well, the commencement date of drilling operations, the rates to be charged for various tasks, and other items. D was designated the “Operator” and P was described as the “Contractor.” P was an Independent Contractor who had to furnish equipment, labor, and perform services as herein provided, for a specified sum per day under the direction, supervision, and control of Operator.” P was to perform services under the direction, supervision, and control of Operator (inclusive of any employee, agent, consultant, or subcontractor engaged by Operator to direct drilling operations).” The contract also provides that: “When operating on a daywork basis, Contractor shall be fully paid at the applicable rates of payment and assumes only the obligations and liabilities stated herein. Except for such obligations and liabilities specifically assumed by Contractor, Operator shall be solely responsible and assumes liability for all consequences of operations by both parties while on a daywork basis, including results and all other risks or liabilities incurred in or incident to such operations.” P was to maintain well control equipment in good condition at all times and shall use all reasonable means to prevent and control fires and blowouts and to protect the hole. P assumed liability “for damage to or destruction of D's equipment … regardless of when or how such damage or destruction occurs,” and to “release Contractor of any liability for any such loss or damage.” D was to “be solely responsible for … damage to or loss of the hole, including the casing therein” and D is to “release P of any liability for damage to or loss of the hole” and in addition “protect, defend and indemnify P from and against any and all claims, liability, and expense relating to such damage to or loss of the hole.” D also released P from liability for, and agrees to indemnify P from and against claims “on account of injury to, destruction of, or loss or impairment of any property right in or to oil, gas, or other mineral substance or water” unless “reduced to physical possession above the surface of the earth,” and for “any loss or damage to any formation, strata, or reservoir beneath the surface of the earth.” P and D were to indemnify each other for claims based on injuries to their own employees “without regard to the cause or causes thereof or the negligence of any party or parties.” D was liable “for the cost of regaining control of any wild well, as well as for cost of removal of any debris.” P was to assume all responsibility for, including control and removal of, and shall protect, defend, and indemnity D from and against all claims, demands, and causes of action of every kind and character arising from pollution or contamination, which originates above the surface of the land or water from spills of fuels, lubricants, motor oils, pipe dope, paints, solvents, ballast, bilge, and garbage, except unavoidable pollution from reserve pits, wholly in P's possession and control and directly associated with P's equipment and facilities. Neither party is liable to the other for “special, indirect or consequential damages resulting from or arising out of this Contract, including, without limitation, loss of profit or business interruptions including loss or delay of production, however same may be caused.” A handwritten term provides for a $10 million umbrella policy, in addition to the statutory workers' compensation insurance and the comprehensive general and automobile liability insurance policies. The trial court granted P judgment on the cross-complaint and D appealed. D also argues that the exculpatory provisions of the contract are void as against public policy under Civil Code Section 1668.