texas indemnity law update presented by james w. bartlett, jr
TRANSCRIPT
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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kasowitz benson torres & friedman llpKASOWITZ BENSON TORRES & FRIEDMAN LLP
Common Forms ofIndemnity in Texas
Contractual indemnity (most common)
Statutes affecting indemnity (less common)
Common law indemnity (rare)
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kasowitz benson torres & friedman llpKASOWITZ BENSON TORRES & FRIEDMAN LLP
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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kasowitz benson torres & friedman llpKASOWITZ BENSON TORRES & FRIEDMAN LLP
Three Common Types ofContractual Indemnity Provisions
Broad Form
Intermediate Form
Limited Form
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kasowitz benson torres & friedman llpKASOWITZ BENSON TORRES & FRIEDMAN LLP
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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kasowitz benson torres & friedman llpKASOWITZ BENSON TORRES & FRIEDMAN LLP
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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kasowitz benson torres & friedman llpKASOWITZ BENSON TORRES & FRIEDMAN LLP
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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kasowitz benson torres & friedman llpKASOWITZ BENSON TORRES & FRIEDMAN LLP
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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kasowitz benson torres & friedman llpKASOWITZ BENSON TORRES & FRIEDMAN LLP
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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kasowitz benson torres & friedman llpKASOWITZ BENSON TORRES & FRIEDMAN LLP
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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kasowitz benson torres & friedman llpKASOWITZ BENSON TORRES & FRIEDMAN LLP
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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kasowitz benson torres & friedman llpKASOWITZ BENSON TORRES & FRIEDMAN LLP
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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kasowitz benson torres & friedman llpKASOWITZ BENSON TORRES & FRIEDMAN LLP
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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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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kasowitz benson torres & friedman llpKASOWITZ BENSON TORRES & FRIEDMAN LLP
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!