texas indemnity law update

Texas IndemnityLaw Update

Presented by James W. Bartlett, Jr.

kasowitz benson torres & friedman llpKASOWITZ BENSON TORRES & FRIEDMAN LLP

Purpose of anIndemnity Provision

Practical definition

“Extraordinary” shifting of risk

Generally enforced unless: Violates the constitution or a statute; or Violates public policy

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Common Forms ofIndemnity in Texas

Contractual indemnity (most common)

Statutes affecting indemnity (less common)

Common law indemnity (rare)

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Contractual Indemnity:Tenants of Construction

Interpreted under normal rules of contract construction (See Nabors Drilling USA, L.P. v. Encana Oil and Gas (USA), Inc., 2013 Tex. App.

LEXIS 8583 (Tex. App. – Fort Worth July 11, 2013, pet. filed))

Strictly construed against the indemnitee (See Irvin v. Guarantee Company of North America, U.S.A., 2008 Tex. App. LEXIS

August 5, 2008 (Tex. App. – Dallas August 5, 2008, no pet.))

Unless contract provides otherwise

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Three Common Types ofContractual Indemnity Provisions

Broad Form

Intermediate Form

Limited Form

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Contractual Indemnity:Fair Notice Requirements

“Fair Notice” required for a party to obtain indemnification for its own negligence in advance

Two components:“Express Negligence” doctrine

“Conspicuousness” test

Matter of law determination

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Contractual Indemnity:“Express Negligence” Doctrine

Ethyl Corporation v. Daniel Construction Company, 725 S.W.2d 705 (Tex. 1987) “[C]lear and specific terms” “Four corners” rule

The word “negligence” is not necessary (See Texas Engineering Extension Service v. Gifford, 2012 Tex. App. LEXIS 2030

(Tex. App. – Waco March 14, 2012, no pet.))

Has been applied to more than just negligence

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Contractual Indemnity:“Conspicuousness” Test

Dresser Industries v. Page Petroleum, Inc., 853 S.W.2d 505 (Tex. 1987)

Adopted UCC definition of conspicuousness:Reasonable person standardE.g., capital headings, larger font size, contrasting

font color, bold type, etc.

Sliding scale of acceptability

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Contractual Indemnity:Fair Notice Requirements

“Actual Notice” or “Actual Knowledge” exception

Definitely applies to “Conspicuousness” test

Application to “Express Negligence” doctrine unsettled (See Sydlik v. REEIII, Inc., 195 S.W.3d 329 (Tex. App. – Houston [14th Dist.] 2006, no

pet.))

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Statutes Affectingor Providing Indemnity

Texas Anti-Indemnity Act (TEX. INS. CODE § 151.001, et seq.)

Architect/Engineer Anti-Indemnity Statute (TEX. CIV. PRAC. & REMEDIES CODE § 130.001, et seq.)

Texas Oilfield Anti-Indemnity Act (TEX. CIV. PRAC. & REMEDIES CODE § 127.001, et seq.)

Products Liability Indemnity Statute (TEX. CIV. PRAC. & REMEDIES CODE § 82.001, et seq.)

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Texas Anti-Indemnity Act:Scope

Applies to: a “construction contract”; for a “construction project”; for which an indemnitor is provided or procures insurance

subject to Chapter 151 or Title 10 of the Texas Insurance Code

Chapter 151 relates to Consolidated Insurance Programs

Title 10 relates to regulations for property and casualty insurance in Texas Includes standard CGL and WC coverages

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Texas Anti-Indemnity Act:Important Definitions

Definition of “construction contract” is broad, and includes a range of private and public contracts, subcontracts, and agreements

Definition of “construction project” includes construction, maintenance, or repair of improvements to real property Excludes certain smaller-scale projects

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Texas Anti-Indemnity Act:Application

If applicable, voids a provision that indemnifies a party for its own negligence or fault

Also applies to agreements “collateral to or affecting” applicable contracts

Broad form and intermediate form indemnity not permitted if Act applies

“Additional insured” issues

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Texas Anti-Indemnity Act:Notable Exceptions

Does not apply to:Consolidated Insurance ProgramsIndemnification for claims for bodily injury to or

death of “the indemnitor, its agent, or its subcontractor of any tier”

Breach of contract or breach of warranty claimsPublic works projects of a municipality

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Texas CPRC 130.002:Architects and Engineers

Voids any provision in a construction contract requiring a contractor to indemnify a registered architect or licensed engineer for liability relating to: Certain defects in materials of architect or engineer; or Negligence of the architect or engineer in the rendition or

conduct of certain professional duties

Also voids certain provisions providing indemnification to owners

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Texas OilfieldAnti-Indemnity Act

(TEX. CIV. PRAC. & REM. CODE § 127.001, et seq.)

Generally renders void indemnification provisions for an indemnitee’s own negligence in contracts pertaining to oil, gas, or water wells or mines for other minerals

However, indemnity supported by liability insurance not prohibited If unilateral indemnity, $500,000 cap If mutual indemnity, indemnity obligation is limited to the extent

of the coverage and dollar limits of insurances each party as indemnitor has agreed to obtain

Statute contains a number of exclusions

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CPRC Chapter 82:Manufacturer/Seller Indemnity

Applies to products liability actions

Requires a “manufacturer” to indemnify a “seller” against loss except for the seller’s:Negligence;Intentional misconduct; orOther act or omission for which the seller is

independently liable

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Who is a manufacturer?

Who is a seller? A person who merely provides services is not a seller

Manufacturers are always sellers, but sellers are not always manufacturers (See General Motors Corporation v. Hudiburg Chevrolet, Inc., 199 S.W.3d 249 (Tex.

2006))

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What constitutes recoverable “loss”?

“Reasonable damages” includes amounts paid by the seller in settlement

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CPRC Chapter 82:Manufacturer/Seller Indemnity:

Trigger and Scope of Duty Duty to indemnity applies regardless of manner in which

the products liability action is concluded: Settlement; Judgment; or Dismissal

No showing of manufacturer liability is required to trigger statutory duty to indemnify Instead, triggered by pleadings However, duty to indemnify not implicated unless the pleadings can

be fairly read to allege a defect in the manufacturer’s product

Issues raised by multiple manufacturer defendants

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CPRC Chapter 82:Manufacturer/Seller Indemnity:

Manufacturer “Outs” Manufacturer may escape indemnity obligation by

proving seller’s independent culpable conduct

Innocent manufacturer of a component product that is not defective may be considered an innocent “seller” and owed reciprocal indemnification

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Common Law Indemnity:Rare But Still There

Some vestiges of common law indemnity survive today, e.g.: Purely vicarious employer liability Purely vicarious landlord-tenant liability Manufacturer’s duty to indemnify innocent seller

Must be a judicial determination or admission that a wrongdoer could be legally liable

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Protect Yourself!Drafting Tips

Indemnitee – insist on provision against strict construction Indemnitor – do the opposite

Indemnitee – go for gross and beyond Indemnitor – push for exclusion of gross negligence,

intentional torts, etc. Be conspicuous! Specify claims, levels of negligence, damages Consider using multiple indemnity provisions in construction

contracts Severability clause

Expressly include agreement to defend

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Texas IndemnityLaw Update

Thank you!

texas indemnity law update

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