THE TEN COMMANDMENTS:DRAFTING AND ENFORCING INDEMNITY CLAUSES AND ADDITIONAL INSURED PROVISIONSJanuary 9, 2018

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“It is hard to imagine another set of legal terms withmore sophoric effect than indemnity, subrogation,contribution, co-obligation and joint tortfeasorship.Perhaps because the words describe legalrelationships between multiple parties, they arevaguely reminiscent of complex mathematicalequations which, after all, also describerelationships, except in numbers rather than words—and for most of us, they are about as easy tounderstand. Even lawyers find words like“indemnity” and “subrogation” ring of anobscure Martian dialect.”Herrick Corp. v. Canadian Ins. Co. of California, 34Cal. Rptr. 2d 844 (Cal. Ct. App. 1994).

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I.THOU SHALT HAVE NO OTHER CLAUSE BEFORE ME

The Express Negligence Rule• Ethyl Corp. v. Daniel Constr. Co., 725 S.W.2d 705 (Tex. 1987).

Conspicuousness• Enserch Corp. v. Parker, 794 S.W.2d 2 (Tex. 1990).

“Fair Notice” Requirement• Dresser Indus., Inc. v. Page Petroleum, Inc., 853 S.W.2d 505 (Tex. 1993).

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I.THOU SHALT HAVE NO OTHER CLAUSE BEFORE ME

• “…excepting only claims arising out of accidents resulting from the sole negligence of owner”

Describing what WILL NOT be indemnified, WILL NOT work:

• “…regardless of cause or of the sole, joint, comparative, or concurrent negligence or gross negligence of the indemnitee, its officers, agents or employees”

Describing what WILL be indemnified, WILL work:

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II.THOU SHALT NOT MAKE UNTO THEE ANY AMBIGUOUS LANGUAGE

Remove doubt regarding who will be liable for what

Include all possible sources of liability

Include a “savings clause”

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II.THOU SHALT NOT MAKE UNTO THEE ANY AMBIGUOUS LANGUAGE

“…save and except for concurrent negligence”

Do not let the exception swallow the rule:

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III.THOU SHALT NOT MAKE YOUR CLAUSE IN VAIN, BY FORGETTING THE ANTI-INDEMNITY ACTS (ESPECIALLY IN LOUISIANA)

Wyoming, New Mexico, Texas and Louisiana

History behind the creation of Oilfield

Anti-Indemnity Acts

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III.THOU SHALT NOT MAKE YOUR CLAUSE IN VAIN, BY FORGETTING THE ANTI-INDEMNITY ACTS (ESPECIALLY IN LOUISIANA)

• Choice of Law

• Is Your Contract Subject to the Act

• Effect on Indemnification for Damages

• Effect on Indemnification for Defense Fees

• Effect on Insurance Arrangements

Key Issues in Analysis of Anti-Indemnity Acts:

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• Key to determining whether an Anti-Indemnity Act might apply to your agreement

III.THOU SHALT NOT MAKE YOUR CLAUSE IN VAIN, BY FORGETTING THE ANTI-INDEMNITY ACTS (ESPECIALLY IN LOUISIANA)

More on Choice of

Law

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• Maritime Law

o Apples to vessels and maritime commerceo Will generally uphold the parties’ choice of lawo Will generally uphold indemnity agreements (See Diamond Offshore

Co. v. A&B Builders, Inc., 302 F.3d 531 (5th Cir. 2002)) (overruled in part on other grounds by Grand Isle Shipyard, Inc. v. Seacor Marine, LLC, 589 F.3d 778 (5th Cir. 2009)).

o Indemnity for gross negligence is allowed

• Outer Continental Shelf Lands Act (OCSLA) 43 U.S.C. § 1333

o Applies to the seabed, the subsoil, and fixed structures on the OCSo OCSLA will apply the law of the adjacent stateo “Focus of the Contract” Test – Grand Isle Shipyard, Inc. v. Seacor

Marine, LLC, 589 F.3d 778 (5th Cir. 2009).

III.THOU SHALT NOT MAKE YOUR CLAUSE IN VAIN, BY FORGETTING THE ANTI-INDEMNITY ACTS (ESPECIALLY IN LOUISIANA)

Offshore Choice of

Law Issues

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III.THOU SHALT NOT MAKE YOUR CLAUSE IN VAIN, BY FORGETTING THE ANTI-INDEMNITY ACTS (ESPECIALLY IN LOUISIANA)

Wyoming Oilfield Anti-Indemnity Act

Choice of Law • “Most Significant Relationship” Test

Is Your Contract Subject to the Act?

• Must “pertain to a well”• Narrowly construed

Effect on Indemnification for

Damages

• Prohibits indemnification for indemnitee’s sole or concurrent negligence

Effect on Indemnification for

Defense Fees

• May owe defense even where indemnity is not valid

Effect on Insurance Arrangements

• Direct insurance arrangements are prohibited• Additional insured provisions are probably okay

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III.THOU SHALT NOT MAKE YOUR CLAUSE IN VAIN, BY FORGETTING THE ANTI-INDEMNITY ACTS (ESPECIALLY IN LOUISIANA)

New Mexico Oilfield Anti-Indemnity Act

Choice of Law• Court will likely ignore choice of law provisions,

and apply the Act for injuries in New Mexico

Is Your Contract Subject to the Act?

• Wording of the statute itself is broader than the Wyoming Act

Effect on Indemnification for

Damages

• Prohibits indemnification for indemnitee’s sole or concurrent negligence

Effect on Indemnification for

Defense Fees

• May owe defense even where indemnity is not valid

Effect on Insurance Arrangements

• Both direct and indirect (additional insured provisions) are prohibited

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III.THOU SHALT NOT MAKE YOUR CLAUSE IN VAIN, BY FORGETTING THE ANTI-INDEMNITY ACTS (ESPECIALLY IN LOUISIANA)

Texas Oilfield Anti-Indemnity Act

Choice of Law • “Most Significant Relationship” Test

Is Your Contract Subject to the Act?

• Must “pertain to a well”• Narrowly construed

Effect on Indemnification for

Damages

• Prohibits indemnification for indemnitee’s sole or concurrent negligence unless the parties agree in writing that it will be backed by insurance

Effect on Indemnification for

Defense Fees • Likely no duty to defend if indemnity is invalid

Effect on Insurance Arrangements

• Contractual liability insurance required• Additional insured provisions and waivers of

subrogation are okay

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III.THOU SHALT NOT MAKE YOUR CLAUSE IN VAIN, BY FORGETTING THE ANTI-INDEMNITY ACTS (ESPECIALLY IN LOUISIANA)

Louisiana Oilfield Anti-Indemnity Act

Choice of Law • Governed by Louisiana Statute

Is Your Contract Subject to the Act?

• Very broad• Applies to any provision contained in, collateral to,

or affecting an agreement pertaining to a well

Effect on Indemnification for Damages

• Prohibits indemnification for indemnitee’s sole or concurrent negligence

Effect on Indemnification for Defense Fees

• The “Meloy Exception”:o Does not prevent the payment of defense

costs when the indemnitee is not in fact negligent or otherwise at fault

Effect on Insurance Arrangements

• Contractual liability insurance is prohibited• The “Marcel Exception”:

o Additional insured provisions are only okay if the indemnitee pays the cost directly

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IV.REMEMBER THY CHOICE OF LAW, AND CHOOSE WISELY

Choice of Law Provisions provide a greater degree of

certainty

Choose one jurisdiction, or a cascade of jurisdictions

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V.HONOUR THY COUNTERPARTY’S OBLIGATION, BY REQUIRING INSURANCE

Require counterparty to purchase liability insurance to cover their indemnity liability to you

Get an exception for obligations assumed under contract

Get a copy of the policy

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VI.THOU SHALT NOT FORGET ADDITIONAL INSURED STATUS

Require counterparty to list you as an

additional insured on its policy

Get a copy of the policy

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Have your counterparty’s insurer waive all rights to subrogation – not just those tied to the indemnity obligations under the

contract

VII.THOU SHALT NOT IGNORE BROAD WAIVERS OF SUBROGATION

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VIII.THOU SHALT NOT CONFUSE THE DUTY TO DEFEND WITH THE DUTY TO INDEMNIFY

• Determined by the “8 Corners” RuleDuty to Defend

• Based on a finding of liabilityDuty to Indemnify

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IX.THOU SHALT NOT FORGET DISPUTE RESOLUTION

Dispute Resolution

Clause

Attorneys’ Fees to the Prevailing

Party

Demand/ Notice to

Indemnitor

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X.THOU SHALT NOT COVET INDEMNITY OVER COMMERCIAL RELATIONSHIPS

Commercial relationships must inform the

negotiations

Equip the Business to make informed decisions

Coordinate with risk management team and

insurance broker

Beware of form contracts and old Master Services

Agreements

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Marsha L. Montgomery, Managing Counsel-LitigationMarsha leads a team of attorneys who handle a wide variety of litigation for BP America and its affiliated companies including commercial, toxic tort, and personal injury cases. Marsha also directly manages complex, high dollar/high risk commercial and personal injury litigation for the company. Over more than 25 years of practice her cases have included royalty litigation, government investigations and litigation, major commercial arbitrations, personal injury litigation arising out of a terrorist attack, nationwide class actions and multi-district litigation. In other words, if a case is big, risky, complex – or all three – it’s Marsha’s kind of case. A proud native Texan, Marsha spent the first few years of her professional life working as a producer and on-air talent for Houston Public Television before she headed north to Case Western Reserve Law School where she was the Executive Articles Editor of the Law Review. She began her litigation practice with Squire, Sanders & Dempsey (now Squire Patton Boggs) and then joined BP Legal in 2000. Outside of work, Marsha loves travel, her Miniature Australian Shepherd named Ryder, and riding her Harley-Davidson Softail Deluxe with her family while singing “Born to be Wild.”

PRESENTER

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Thomas W. Taylor, Partner+1.713.220.3991ttaylor@andrewskurth.comTom's civil litigation practice emphasizes defense of mass multi-party litigation. He has extensive civil jury trial experience in state and federal court, with in excess of thirty jury verdicts, and a much greater number of cases that settled during trial. His specific experience includes defending mass tort cases, personal injury cases, product liability claims and commercial litigation. He received his J.D. in 1982 from The University of Texas School of Law, where he was a member of the Order of Barristers and the Board of Advocates. He earned his B.A. in 1979, magna cum laude, in Political Science from Texas Christian University where he was Dean's List and Pi Sigma Alpha.

PRESENTER

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Georgia L. Lucier, Partner+1.713.220.4177georgialucier@andrewskurth.comGeorgia's practice includes general civil litigation matters and related issues, and probate and fiduciary litigation. Her trial practice includes management of complex litigation in both state and federal court, and international litigation, as well as arbitration and mediation. In her probate and fiduciary litigation practice, Georgia has represented fiduciaries and beneficiaries in multimillion-dollar lawsuits involving breaches of fiduciary duties, modification of trusts, resignation of trustees, will and trust interpretation issues, will contests and claims against estates. In her civil litigation practice, Georgia has represented clients involving public law, oil and gas proceedings, contract disputes, personal injury, governmental matters and corporate defense. Georgia received her J.D. in 2003 from South Texas College of Law where she was valedictorian and her B.A. in 1995 from the University of Houston.

PRESENTER

Copyright © 2017 Andrews Kurth Kenyon LLP. Andrews Kurth, the Andrews Kurth logo, Straight Talk Is Good Business and Intelligent Energy are registered service marks of Andrews Kurth Kenyon LLP. Andrews Kurth Kenyon and the Andrews Kurth Kenyon logo are service marks of Andrews Kurth Kenyon LLP. All Rights Reserved. This presentation has been prepared for informational purposes only and does not constitute legal counsel. This information is not intended to create (and receipt of it does not constitute) an attorney-client relationship. Readers should not act on this information without seeking professional counsel. A past performance or prior result is no guarantee of a similar future result in another case or matter. Andrews Kurth Kenyon LLP is a Texas limited liability partnership. Andrews Kurth Kenyon (UK) LLP is authorized and regulated by the Solicitors Regulation Authority of England and Wales (SRA Registration No.598542). Andrews Kurth Kenyon DMCC is registered and licensed as a Free Zone company under the rules and regulations of DMCCA. Attorney Advertising.

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