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!