Texas Indemnity Law Update - Texas Lawyer | LawCatalog
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Transcript Texas Indemnity Law Update - Texas Lawyer | LawCatalog
Texas Indemnity
Law Update
Presented by James W. Bartlett, Jr.
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Purpose of an
Indemnity 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 of
Indemnity 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 of
Contractual 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 standard
E.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 Affecting
or 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 Programs
Indemnification 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 claims
Public 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 Oilfield
Anti-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; or
Other act or omission for which the seller is
independently liable
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CPRC Chapter 82:
Manufacturer/Seller Indemnity
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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CPRC Chapter 82:
Manufacturer/Seller Indemnity
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 Indemnity
Law Update
Thank you!