Fifth Circuit Holds That Repair Service Order Validly Incorporated Online Terms And Conditions By Reference

As the Internet continues to play an increasingly important role in commerce, courts have begun to deal with relatively new considerations arising out of contracts formed in whole or in part online. The United States Fifth Circuit Court of Appeals recently dealt with some of these new considerations in One Beacon Insurance Co. v. Crowley Marine Serv., Inc., 2011 WL 3195292 (5th Cir. 2011). This case arose out of a dispute over the terms of a ship repair contract and maritime insurance policy. Crowley Marine Services, Inc. ("Crowley") hired Tubal-Cain Marine Services, Inc. ("Tubal-Cain") to perform ship repair work on one of its barges. Tubal-Cain hired a subcontractor to perform lighting and electrical work. During repairs to the barge, an employee of the subcontractor was severely injured by an electrical shock and resulting fall. The injured employee initiated an action in Texas state court alleging that Crowley and Tubal-Cain were negligent. This prompted Crowley to formally demand defense and indemnity from Tubal-Cain purportedly arising out the ship repair contract between them. Crowley also sought defense and coverage from One Beacon Insurance Company ("One Beacon") as an additional insured under Tubal-Cain's Maritime Comprehensive Liability Policy. In response to Crowley's actions, One Beacon denied coverage and filed a declaratory judgment action seeking a ruling that Crowley was not entitled to coverage as an additional insured. One Beacon alleged that Tubal-Cain never requested that Crowley be added to the policy and did not otherwise qualify for coverage. Crowley filed a third-party complaint against Tubal-Cain in the declaratory judgment action, alleging that terms and conditions incorporated into a repair service order issued in connection with the repair work required Tubal-Cain to procure certain insurance policies that named Crowley as an additional insured. The district court, trying the case on written submission, ruled for Crowley on its contractual defense and indemnity claim against Tubal-Cain and on its claim that Tubal-Cain failed to perform is obligation under their agreement to procure the required insurance coverage. The court also held that Crowley did not qualify as an additional insured under the policy and granted One Beacon's declaratory judgment claim. Tubal-Cain and Crowley cross-appealed the district court's judgment. While it was undisputed that a ship repair agreement existed between the parties, there was a dispute as to whether a written agreement existed requiring Tubal-Cain to defend, indemnify and procure insurance for Crowley. Executives and management for the two companies met in March 2007 to discuss the necessary barge repairs. The companies had previously entered into similar agreements for minor repairs on eight prior occasions and contracted an additional fifteen times following the disputed agreement. Each time, Crowley issued a repair service order ("RSO") to Tubal-Cain outlining the scope of repairs. The RSOs did not include pricing terms and were not signed by the parties. The RSOs all contained a prominently displayed notice that they were issued in accordance with the purchase order terms and conditions on Crowley's website unless the parties agreed otherwise in writing. The terms and conditions, which were displayed in four-point font on a subpage of the website, required contractors to defend and indemnify Crowley for injury or damage even if alleged to be caused by the sole active negligence of Crowley. The terms and conditions also included the provision requiring contractors to purchase certain policies of insurance and name Crowley as an additional insured. The terms and conditions were never discussed and no hard copy was ever provided to Tubal-Cain. On appeal, Tubal-Cain argued that an oral agreement was reached between the parties and the RSO merely confirmed that agreement. Since defense, indemnity, and insurance were never made a part of the oral agreement, the RSO could not confirm more than what was already agreed to orally. Further, the RSO was sent after Tubal-Cain had already commenced work and they did not have an opportunity to review and assent to it before beginning performance on the contract. The Fifth Circuit noted that in construing maritime contracts, it has held that where parties share a history of business dealings and standardized provisions have become a part of those dealings, such familiar provisions within purchase order issued after performance are binding where they are accepted without objection. Responding to Tubal-Cain's argument that the relatively brief business dealings between the parties could not have established a course of dealing, the Fifth Circuit noted that courts have found a course of dealing between parties based on receipt of as few as three or four bills of lading. Accordingly, the court concluded that the district court did not err in holding that the parties had established a course of dealing from which the court could infer that Crowley's terms and conditions were implied in every contract. Tubal-Cain also disputed the lower court's finding that the RSO was sufficient to put Tubal-Cain on notice of the insurance and indemnity terms. Specifically with respect to the indemnity, Tubal-Cain argued that indemnity provisions which purport to indemnify a party for its own negligence must be conspicuous to be enforceable. The court explained that under general contract principles, where a contract expressly refers to and incorporates another instrument in specific terms clearly showing an intent to incorporate the instrument, both instruments are to be construed together. The court held that maritime contracts may validly incorporate by reference terms from a website in the same manner that they may incorporate terms from a paper document. Although Crowley could have been clearer in providing directions to the location of the terms and conditions, notice of the terms was reasonable under the facts of the case. The Fifth Circuit also went on to affirm the district court's additional holdings that the indemnity provision was sufficiently clear and conspicuous as to be enforceable and that the RSO terms and conditions supplemented the oral agreement. One Beacon Ins. Co. v. Crowley Marine Services, Inc., – F.3d –, 2011 WL 3195292 (5th Cir. July 28, 2011).

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