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Texas Indemnity Law Update

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  1. Texas IndemnityLaw Update Presented by James W. Bartlett, Jr.

  2. Purpose of anIndemnity Provision • Practical definition • “Extraordinary” shifting of risk • Generally enforced unless: • Violates the constitution or a statute; or • Violates public policy WWW.KASOWITZ.COM

  3. Common Forms ofIndemnity in Texas • Contractual indemnity (most common) • Statutes affecting indemnity (less common) • Common law indemnity (rare) WWW.KASOWITZ.COM

  4. Contractual Indemnity:Tenants of Construction • Interpreted under normal rules of contract construction • (SeeNabors 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 • (SeeIrvin 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 WWW.KASOWITZ.COM

  5. Three Common Types ofContractual Indemnity Provisions • Broad Form • Intermediate Form • Limited Form WWW.KASOWITZ.COM

  6. 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 WWW.KASOWITZ.COM

  7. 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 WWW.KASOWITZ.COM

  8. 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 WWW.KASOWITZ.COM

  9. 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.)) WWW.KASOWITZ.COM

  10. 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.) WWW.KASOWITZ.COM

  11. 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 WWW.KASOWITZ.COM

  12. 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 WWW.KASOWITZ.COM

  13. 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 WWW.KASOWITZ.COM

  14. 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 WWW.KASOWITZ.COM

  15. 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 WWW.KASOWITZ.COM

  16. 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 WWW.KASOWITZ.COM

  17. 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 WWW.KASOWITZ.COM

  18. 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)) WWW.KASOWITZ.COM

  19. CPRC Chapter 82:Manufacturer/Seller Indemnity • What constitutes recoverable “loss”? • “Reasonable damages” includes amounts paid by the seller in settlement WWW.KASOWITZ.COM

  20. 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 WWW.KASOWITZ.COM

  21. 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 WWW.KASOWITZ.COM

  22. 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 WWW.KASOWITZ.COM

  23. 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 WWW.KASOWITZ.COM

  24. Texas IndemnityLaw Update Thank you!