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Texas is at the forefront of enacting laws which limit or bar indemnification clauses of contracts in industries in which the Texas legislature perceive one contracting party has an unfair advantage over the other. Texas currently has anti-indemnity statutes for commercial construction, oil and gas, and common carrier transportation. While the mere fact that your insured may owe contractual indemnity to an at-fault defendant may not legally bar subrogation, indemnity clauses can have a dampening effect on subrogation. Often, anti-indemnity statutes can be applied to invalidate a waiver of subrogation contractual requirement. For these reasons, an understanding of Texas anti-indemnity statutes is recommended when pursuing subrogation in the Lone Star State.
Texas Insurance Code § 151.102 provides that in a construction contract, or in an agreement collateral to or affecting a construction contract, a provision requiring an indemnitor to indemnify, hold harmless or defend a party against a claim caused by negligence or fault, breach of statute, or breach of contract is void and unenforceable. The statute became effective January 1, 2012 and has not been examined extensively by the Texas appellate courts. Most of the cases which have reviewed the statute have done so in the context of deciding whether it applied to contracts which were originally executed prior to the effective date of the statute, but arguably governed work being performed years after the statute was enacted.
The issue of whether a waiver of subrogation can be invalidated by the Construction Anti-Indemnity statute has also not been extensively reviewed. However, some courts in other jurisdictions have invalidated waivers of subrogation even though the anti-indemnity statute does not specifically bar waivers of subrogation, under the theory that a waiver of subrogation is effectively an indemnity provision because it shifts financial responsibility for a loss from a negligent party to an innocent one. The Texas Construction Anti-Indemnity statute also prohibits additional insured requirements which would provide coverage for the indemnitee’s own negligence. The definition of a “construction contract” is broad. The main requirements are whether there is some connection to real property and whether the parties to the contract are an owner, architect, engineer, contractor, construction manager, sub-contractor, supplier or material or equipment lessor. The Act does not apply to residential or public work construction projects, only commercial projects.
The Texas Oilfield Anti-Indemnity statute can be found at Texas Civil Practice and Remedies Code §127.001, et. seq. The Texas Oilfield Anti-Indemnity Act (“TOAIA”) expressly prohibits any covenant, promise or agreement contained in, collateral to or affecting an agreement pertaining to a well for oil, gas, or water or to a mine for mineral; if it purports to indemnify a person for damage resulting from the sole or concurrent negligence of the indemnitee, arising from personal injury, death or property injury. The parties can circumvent this general prohibition by agreeing to mutual indemnity provisions which are covered by insurance. The indemnity obligations are limited to the lower amount of the insurance obtained by either party. Additionally, the parties can enter into a unilateral indemnity obligation if one party agrees to indemnify the other but does not promise reciprocal indemnity, as long as the insurance agreement is in writing and does not exceed $500,000. The indemnity provisions must be clear and conspicuous in expressing the intent to indemnify for the indemnitee’s own negligence. While the TOAIA does not specifically address waivers of subrogation, if the waiver of subrogation provisions are not mutual then one can argue that a waiver of subrogation violates the intent and spirit of the TOAIA, especially if the waiver of subrogation is limited to claims assumed under the contract.
Common Carrier Anti-Indemnity
Texas Transportation Code Article 623.0155 states that a contract cannot require a motor carrier to indemnify claims caused by another person’s acts or negligence as a condition to transport property for compensation or hire; for the purpose of loading, unloading, or transporting property; or for services incidental to any of those activities (such as storage). The Act applies to persons or businesses whose primarily purpose or function is the transportation of property for compensation. Companies which incidentally transport property as part of their main business activities, such as a furniture store, are not motor carriers and are not governed by this statute. If the common carrier is engaged in the transportation of oil, petroleum products, or other liquid quantities and water used in oil and gas operations, then the TOAIA will apply to the exclusion of this Act. Waivers of subrogation, again, are not addressed in this statute.
While the above-referenced statutes will negate indemnity provisions in certain contracts and may provide an avenue to argue that waivers of subrogation are also ineffective, the proof is in the details of the contract. If you have a Texas contractual provision with anti-indemnity language or a waiver of subrogation which you would like us to review, please contact Jim Busenlener at [email protected].