Professional Documents
Culture Documents
Kenneth W. Bullock, II
This goal is, of course, no different for practitioners whose efforts are
The first
section of this paper sets out the basic structure of an indemnity provision and identification of
the roles and responsibilities of the parties involved. The second section of this paper provides a
brief overview of the law governing the enforceability of contractual indemnity provisions
frequently applied in domestic energy contracts: Texas, Louisiana, and the maritime law. The
third section addresses commonly encountered statutory limitations on indemnification. Finally,
-1-
the fourth section provides the practitioner with several points of consideration when confronted
with the task of negotiating and drafting of a contractual indemnification provision.
I.
by which one person engages to secure another against an anticipated loss or to prevent him from
being damnified by the legal consequences of an act or forbearance on the part of one of the
parties or of some third person.1 Thus, [a]n indemnity agreement is a promise to safeguard or
hold the indemnitee harmless against either existing and/or future loss liability, which creates a
potential cause of action in the indemnitee against the indemnitor.2
As noted above, such contractual indemnity provision may be employed by the prudent
practitioner as an effective method of proactively allocating and managing risk between the
parties. In the standard contractual indemnity provision, the indemnitor, or the party providing
indemnification, agrees to stand in the shoes of the indemnitee, or the party receiving
indemnification, and to undertake financial responsibility for certain losses defined in the
indemnity provision i.e., to hold harmless the indemnitee.
The contractual indemnity provision may take one of three standard forms:
In the energy industry, contractual indemnity provisions often take the form of a specific
type of broad form indemnity know as the knock-for-knock provision, where each party agrees
to indemnify the other for injuries or damage to its personnel and property (which will often
include each partys respective contractors) irrespective of the cause of such injury or damage.
Additionally, it is not uncommon to encounter contractual hybrid indemnity provisions,
including some negotiated middle-ground between the typical narrow form, broad form and
knock-for-knock provisions.
Of particular importance in many contractual indemnification provisions is the issue of
how to account for injury or damage on the basis of ownership rather than fault, whether
sounding in tort, strict liability or breach of warranty. Because a requirement purportedly calling
for indemnification for losses occasioned by the fault of another is often considered an
extraordinary shifting of risk between the contracting parties, such provisions are regularly
afforded heightened scrutiny and, more often than not, necessitate compliance with specific and
stringent prerequisites before enforcement will be allowed.
II.
-3-
A. TEXAS LAW.
Texas law generally recognizes the enforceability of contractual indemnity provisions.4
Under Texas law, indemnity agreements are construed pursuant to the same, well-settled
principles that control interpretation of contracts in order to give effect to the parties intent as
expressed in the agreement.5 Such agreements are construed as a matter of law.6 In construing a
written contract, the courts primary concern is to ascertain the true intent of the parties as
expressed in the agreement itself.7 Thus, the court must examine and consider the entire writing
in an effort to harmonize and give effect to all provisions so that none is rendered meaningless;
the court may not consider any single provision as controlling, but must consider all provisions
in the context of the entire agreement.8
Whether indemnity provisions are ambiguous or unambiguous is determined as a matter
of law, and unambiguous provisions are not enforceable.9 If considering all provisions enables
the court to construe the agreement as giving a definite or certain legal meaning, the agreement
is not ambiguous and may be construed as a matter of law. 10 Simply because two opposing
parties put forth differing interpretations of an agreement does not make it ambiguous; rather, an
agreement is ambiguous only if a provision is reasonable susceptible to more than one meaning
or if its meaning is uncertain.11
Fair Notice Requirements Under Texas Law.
Although such risk-shifting provisions are unquestionably enforceable as a general
proposition, special considerations apply to those indemnity provisions contemplating an
allocation of risk where the indemnitor agrees to indemnify the indemnitee regardless of fault. In
such cases, Texas law requires the indemnity provision meet what are commonly referred to as
the fair notice requirements of (i) the express negligence doctrine, and (ii) conspicuity.
-4-
In the seminal Texas case of Ethyl Corp. v. Daniel Construction Co., wherein the Texas
Supreme Court adopted the express negligence doctrine, the court noted that [t]he express
negligence doctrine provides that parties seeking to indemnify the indemnitee from the
consequences of its own negligence must express that intent in specific terms.12 Subsequently,
in Dresser Industries v. Page Petroleum, Inc., where the Texas Supreme Court again addressed
the fair notice requirements of the express negligence doctrine and conspicuousness, the court
carefully and succinctly set out the issue under consideration: It is important to note that our
decision today is limited solely to those types of releases which relieve a party in advance of
liability for its own negligence.13 The court further noted that, [b]ecause indemnification of a
party for its own negligence is an extraordinary shifting of the risk, this Court has developed fair
notice requirements which apply to these types of agreements.14
With respect to the express negligence doctrine, parties seeking to provide
indemnification resulting from the indemnitees own negligence must express such an intent in
specific terms within the four corners of the indemnity provision.15 If an indemnity provision
does not meet the requirements of the express negligence doctrine, the indemnitor will not be
required to indemnify the indemnitee with regard to liability arising from the indemnitees own
negligence, or for the costs of defense of any claim based upon the alleged negligence of the
indemnitee.16
comply with the express negligence doctrine before indemnification for negligence claims will
be enforced.17 Compliance with the express negligence doctrine is determined by the reviewing
court as a matter of law.18
With respect to the conspicuity prong of the fair notice requirements, a contractual
indemnity provision contemplating indemnification for the indemnitees own negligence will not
-5-
be enforced where the provision itself is not conspicuous within the overall agreement. 19 If the
indemnity provision does not meet the conspicuity requirement, the indemnitor will not be
required to indemnify the indemnitee for liability in connection with the indemnitees own
negligence or for the costs of defense in defending against claims alleging the indemnitees own
negligence. This is true even where the indemnitee is ultimately exonerated from negligence
claims.20
As with the express negligence doctrine, whether an indemnity provision meets the
conspicuity requirement is determined by the reviewing court as a matter of law, and is based
upon an objective standard.21 Such a provision will ordinarily be found to meet the conspicuity
requirement when a reasonable person should have noticed the provision. By way of example,
an indemnity provision on the back of a contract in the same font and color as the remainder of
the agreement and not otherwise set apart from the other provisions of the agreement does not
rise to the level of conspicuousness. On the other hand, an indemnity provision in bold face
and/or in a different color, with all capital letters and under a separate heading would satisfy the
conspicuity requirement.22
B. LOUISIANA LAW.
Like Texas law, the law of the State of Louisiana will generally enforce contractual
indemnity provisions where such provisions are set forth in specific and unambiguous terms.23
Additionally, Louisiana law, like Texas law, will also enforce contractual indemnification
provisions purportedly calling for indemnification for losses or damage arising from the
indemnitees own negligence; however, unlike Texas law, Louisiana law imposes a slightly
lesser burden for enforcement of such provisions.24
-6-
Louisiana Supreme Court held such a contract will not be construed to indemnify an indemnitee
against losses resulting to him through his own negligence act, unless such an intention was
expressed in unequivocal terms.26
C. MARITIME LAW.
Under the maritime law, contractual indemnity provisions are generally enforceable.27
An agreement containing an indemnification provision should be read as a whole and its words
given their plain meaning unless the provision is ambiguous.28 A court should construe an
indemnity clause to cover all losses which reasonably appear to have been within the parties
contemplation. Interpretation of the terms of a contract is a matter of law, reviewable de novo on
appeal.29
Additionally, and relying upon a rule similar to that found under Louisiana law addressed
immediately above,30 a contractual indemnity provision purportedly calling for indemnification
by the indemnitor of the indemnitee for the indemnitees own negligence will also be enforceable
under the maritime law, but only where the provision is expressed in clear and unequivocal
terms.31
Thus, while the maritime law requirements for enforceability of indemnity provisions
calling for indemnification for the indemnitees own negligence are somewhat more relaxed than
the requirements imposed by Texas law, a determination of language necessary to meet the clear
and unequivocal standard must be made. For example, the Fifth Circuit in Theriot v. Bay
Drilling Corp. held that language providing for indemnification without limit and without
-7-
regard to the cause or causes thereof or the negligence of any party met the requirements of the
clear and unequivocal standard necessary for enforcement of the indemnity provision.32
However, in Randall v. Chevron U.S.A., Inc., the Fifth Circuit held language calling for
indemnification for fault howsoever arising did not meet the clear and unequivocal standard
for enforcement under the General Maritime Law.33
D. THE OUTER CONTINENTAL SHELF LANDS ACT.
Originally enacted in 1953 to encourage exploration and development of the subsea and
seabed resources contained within the outer continental shelf,34 the Outer Continental Shelf
Lands Act (OCSLA)35 was intended to define a body of law applicable to the seabed, subsoil
and fixed structures (such as artificial island drilling rigs and platforms) engaged in the
exploration, development, production and transportation of resources, including oil and gas,
found in the OCS.
With respect to contractual disputes arising on the OCS, the OCSLA generally adopts the
law of the adjacent state as surrogate federal law where the controversy arises (i) on an OCSLA
situs, (ii) the federal maritime law does not apply of its own force, and (iii) the adjacent states
law is not inconsistent with federal law.36
With respect to the OCSLA situs inquiry, OCSLA applies to all artificial islands, and all
installations and other devices permanently or temporarily attached to the seabed, which may be
erected thereon for the purpose of exploring for, developing, or producing resources therefrom,
or any such installation or other device (other than a ship or vessel) for the purpose of
transporting such resources .37
With respect to the second prong of the analysis whether federal maritime law applies
of its own force such a determination depends not on a location inquiry but, rather, upon the
-8-
nature of the contract involved.38 Generally, maritime contracts are agreements relating to a
ship in its use as such, or to commerce or navigation upon navigable waters, or to transportation
by sea or to maritime employment.39 In making the determination of whether a contract is, in
fact, a maritime contract, the Fifth Circuit relies upon a two-part test set out in Davis & Sons,
Inc. v. Gulf Oil Corp.40 First, the court considers the historical treatment of contracts similar to
the contract at issue.41 If not dispositive, the court then applies a six-factor test to determine
whether the contract at issue is a maritime contract.42
If the loss at issue occurred on an OCSLA situs, and the federal maritime law does not
apply of its own force to the contract at issue, the court must finally determine whether the
applicable adjacent states law is inconsistent with federal law.43 Suffice it to say that, for the
limited purpose of this paper, numerous decisions of the Fifth Circuit have held that Texas and
Louisiana law, and in particularly, the Texas and Louisiana anti-indemnity acts, are not
inconsistent with federal law.44
Thus, in instances where the contractual indemnity provision at issue purportedly requires
indemnification for loss or injury occurring on the OCS is not governed by maritime law of its
own force, the adjacent states law is applied to determine the enforceability of such a provision.
However, as noted immediately below, several statutory restrictions and limitations on
indemnification agreements under both Texas and Louisiana law add yet another layer of
complexity to the indemnification analysis.
III.
- 10 -
for other minerals.46 A contract pertains to a well if it requires the contractor to provide well or
mine services or to perform a part of those services or an act collateral to those services .47
The TOIA defines well or mine service in broad terms as including drilling, deepening,
reworking, repairing, improving, testing, or otherwise rendering services in connection with a
well drilled to produce or dispose of oil, gas, other minerals or water; and designing, excavating,
constructing, improving, or otherwise rendering services in connection with a mine shaft .48
Despite its seemingly broad application, the Texas Supreme Court has held that the TOIA
is to be strictly construed to allow parties to contract freely in agreements not covered by the
plain language of the TOIA.49 For example, in Getty Oil Co. v. Insurance Company of North
America, the Texas Supreme Court determined that an additional insured provision in a purchase
order was not invalidated by the TOIA, holding that the TOIA applied exclusively to indemnity
agreements and did not prohibit insurance shifting agreements.50 Similarly, the Fifth Circuit in
In re: John E. Graham & Sons, after conducting a review of the Texas case law, held that the
TOIA applied only to those contracts bearing a close nexus to a well and that are directed toward
the goal of obtaining and/or maintaining production from a well.51
Despite the prohibitions on indemnity agreements contained within the TOIA, 127.005
expressly states the TOIA does not apply to an agreement that provides for indemnity if the
parties agree in writing that the indemnity obligation will be supported by liability insurance
coverage to be furnished by the indemnitor .52 However, if the indemnity provision calls for
mutual indemnification, the indemnity obligation is limited to the extent of the coverage and
dollar limits of insurance each party as indemnitor has agreed to obtain , 53 and where the
indemnity provision calls for unilateral indemnification, the amount of insurance required may
- 11 -
not exceed $500,000.54 Additionally, the TOIA does include several other important exceptions
and limitations of potential applicability to energy agreements:
Exclusion for sale, purchase or transportation of gas or natural gas liquids or for
construction, repair or maintenance of oil, natural gas liquids or gas pipelines;55
Exclusion for damage resulting from services to control a wild well;58 and
- 12 -
by the courts. In order for the LOAIA to apply, there must be an agreement pertaining to a
well, and the agreement must involve operations related to the exploration, development,
production or transportation of oil, gas or water.62 Also, the TOIA, like the LOAIA, invalidates
only those agreements relevant to the particular work giving rise to the claim at issue,63 and
courts have determined that, under both the TOIA and LOAIA, multiple directionally-drilled
wells situated on a single platform constitutes one well.64 Finally, both the LOAIA and TOIA
generally include exceptions for radioactivity, oil spill cleanup and pollution and for wild well
control.
Despite these similarities, the LOAIA and TOIA have important differences. First, the
LOAIA addresses only indemnification provisions for death or bodily injury to persons
indemnification for property damage is allowed under the LOAIA.65
Additionally, and is
important in the energy industry, the LOAIA contains no exception for provisions relating to
pipeline activities.66
C. OTHER STATUTORY CONSIDERATIONS.
In addition to the Texas Oilfield Indemnity Act relating to indemnity provisions
concerning well or mine services discussed above, the Texas legislature recently enacted a
somewhat similar statute relating to indemnity provisions in construction contracts. Like the
Texas Oilfield Indemnity Act, the Texas Construction Anti-Indemnity Act (TCAIA), which
went into effect on January 1, 2012 and is codified in Texas Insurance Code 151.001 et seq.,
provides for a significant limitation upon indemnity and insurance provisions in a construction
contract.67
The operative provision of the TCAIA, 151.102, declares void and unenforceable as
against public policy any indemnity provision to the extent it require an indemnitor to
- 13 -
indemnify, hold harmless, or defend a party, including a third party, against a claim caused by
the negligence or fault of the indemnitee, its agent or employee, or any third party under the
control or supervision of the indemnitee .68
contractual indemnity provisions requires careful thought and analysis of not only the basic
terms of the parties agreement, but also of the various contingencies which may arise in
connection with the execution and performance of the parties agreement.
The following
discussion references only but a few of the issues the prudent practitioner will consider when
negotiating and drafting the contractual indemnity provision.
A. CHOICE OF LAW.
As noted in Section II. above providing a general survey of Texas, Louisiana and
maritime law concerning contractual indemnity provisions, and also in Section III. above
- 14 -
regarding certain statutory limitations on contractual indemnity provisions, the varied nuances of
each jurisdictions analysis of enforceability of such provisions make choice of law
considerations of critical importance in negotiating and drafting the contractual indemnity
provision. The prudent practitioner will be well-served in carefully selecting and the jurisdiction
most beneficial to his or her clients interests, whether those interests lie on the side of the
potential indemnitor or the potential indemnitee.
A word of caution, however, is appropriate regarding the potential implications of state
public policy considerations when drafting a choice of law provision. In certain scenarios where
a loss or damage is sustained within a state or by a resident of that state, but the relevant contract
under which indemnity may be had calls for application of the law of another state, the parties
negotiated choice of law provision may be set aside by the reviewing court where the loss or
damage was sustained based upon public policy considerations.70
B. SPECIFICITY, CONSPICUITY AND SIMILAR CONSIDERATIONS.
While the above analysis also makes clear that the prudent practitioner should
specifically reference negligence, in any contractual indemnity provision seeking
indemnification for losses arising irrespective of fault, consideration should also be paid to issues
of sole and concurrent fault, as well as to various other non-negligence claims for which
indemnification is sought.71
With respect to negligence claims, the prudent practitioner should also specifically
include reference to sole or concurrent fault in the language of the indemnification agreement
to ensure enforceability. For example, the Fifth Circuit in Smith v. Shell Oil Co. held the
indemnitor owned indemnity for concurrent negligence of the indemnitee where the indemnity
provision at issue referred to the sole negligence of indemnitee.72 In contrast, the Fifth Circuit
- 15 -
in XL Specialty Ins. Co. v. Kiewitt Offshore Services, Ltd. held that, under Texas law, indemnity
language referencing any and all claims whether or not caused in part by active or passive
negligence or other fault, except for sole negligence, met the requirements of the Texas fair
notice standard.73
Further, the prudent practitioner should also consider expressly including in a contractual
indemnity provision specific language providing coverage for claims beyond negligence, such as
claims for strict liability and breach of warranty. Under Texas law, the Texas Supreme Court in
Houston Lighting & Power Co. v. Atchinson, Topeka & Santa Fe Railway Co. has noted that,
where the parties intend for a contractual indemnity provision to provide coverage for strict
liability claims, the fair notice requirements applicable for sole negligence claims apply, and
such claims for strict liability should be expressly included in the indemnity language.74
Similarly, and relying primarily on HL&P, the Dallas Court of Appeals recently held in Stanton
Holdings, Inc. v. Tatum, L.L.C., that the express negligence test should be extended to
indemnification for claims arising from breach of warranty.75 However, the Louisiana Supreme
Court held in Sovereign Insurance Co. v. Texas Pipe Line Co. that indemnification for strict
liability claims does not need to be stated in clear and unequivocal terms in the indemnity
provision, so long as an intent to provide indemnity for strict liability claims can be found from
the agreement as a whole.76
C. ACTUAL KNOWLEDGE AND THE PARTIES COURSE OF DEALINGS.
Although Texas requires compliance with the twin-prongs of the fair notice requirements
(the express negligence doctrine and conspicuity) and Louisiana and maritime law require the
use of clear and unequivocal language before a contractual indemnity provision calling for
indemnification of an indemnitee for the indemnitees own negligence will be found enforceable,
- 16 -
certain evidence regarding the contracting parties negotiation and drafting of the subject
agreement and/or prior course of dealings may obviate the need for compliance with the
otherwise heightened scrutiny usually afforded such agreements.
The Texas Supreme Court in Dresser Industries, Inc. v. Page Petroleum, Inc.77
reaffirmed its prior holding in Cate v. Dover Corp.78 that actual knowledge renders the fair
notice requirements of the express negligence doctrine and conspicuity irrelevant and
immaterial: The fair notice requirements are not applicable when the indemnitee establishes
that the indemnitor possessed actual knowledge of the indemnity agreement.79 The Texas
Supreme Court subsequently reiterated the actual knowledge exception in Storage & Processors,
Inc. v. Reyes, holding: [I]f both contracting parties have actual knowledge of the plans terms,
an agreement can be enforced even if the fair notice requirements were not satisfied.80
In applying the actual knowledge exception to the fair notice requirements of Texas law,
Texas courts look to a number of factors in finding actual knowledge or notice. These factors
include, but are not limited to, (i) evidence of negotiations regarding contract terms; (ii) evidence
that the provisions had been brought to the indemnitors attention; and (iii) evidence of prior
dealings between the parties.81
The Fifth Circuit, when interpreting Texas law, has also expressly acknowledged,
accepted and applied the actual knowledge exception to the fair notice requirements. In Cleere
Drilling Co. v. Dominion Exploration & Production, Inc., the Fifth Circuit held [e]ven if we
assume without conceding that the pertinent language of the Contract is not sufficiently
conspicuous , we are convinced that the requirement of fair notice both elements, i.e.,
express negligence and conspicuousness is irrelevant in the face of Dominions actual
knowledge of the subject provisions of the Contract.82
- 17 -
Similarly, in Campbell v. Sonat Offshore Drilling, Inc.,83 the Fifth Circuit held that an
indemnification provision on the back of a purchase order was effective and enforceable based
upon the history and course of dealings between the parties. In arriving at its conclusion, the
court stated: [W]here parties share a history of business dealings and standardized provisions
have become part of those dealings, those provisions, even though issued after performance, are
binding if they are accepted without objection.84
Thus, evidence of actual knowledge and a course of dealings between the parties to a
contractual indemnity provision may transform an otherwise unenforceable indemnity provision,
not in compliance with the fair notice requirements of express negligence and conspicuousness
or meeting the clear and unequivocal standard, into a fully valid and enforceable indemnity
agreement. As a result, the prudent practitioner would be well-served to preserve and maintain
inviolate all drafts and/or redline versions of the indemnity agreement and other evidence of
negotiations and course of dealings between the parties to combat a potential defense of failure
to comply with the fair notice requirements or clear and unequivocal standard.
D. CONTRACTUAL LIABILITIES TO THIRD PARTIES.
While indemnification for contractual liabilities to third parties may not be critical in
every indemnification scenario, failure to include coverage for contractual liabilities in the
energy-relate indemnification provision may prove disastrous.
Absent express language, a contractual indemnity provision will not be construed to
cover the indemnitees contractual liability to a third party: [E]xpress notice is required where a
party seeks to shift is contractual liability to indemnify a third party.85
Thus, where an
indemnification provision requires that indemnitor (A) will provide indemnification to the
indemnitee (B), and where indemnitee B has also agreed in a separate agreement to indemnify
- 18 -
yet another party (C) for certain losses, the original indemnitor A will not be required to
indemnify the original indemnitee B for its obligation to indemnify C unless the indemnification
provision between A and B contained express language providing coverage for, or passing
through, Bs contractual liabilities to third parties.
In Sumrall v. Ensco Offshore Co., the Fifth Circuit analyzed a contractual indemnity
provision that included language specifying the indemnitors intent to indemnify the indemnitee
for obligations whether arising in tort or contract and further included language that
broadened the scope of indemnity to include all claims of whatsoever nature or character
whether or not caused by the legal duty of the indemnitee.86 The Fifth Circuit held that,
based upon the specific inclusion of contract claims and the use of broad language covering
claims of whatsoever nature, the indemnity provision required indemnification for the
indemnitees contractual obligations.87
In Foreman v. Exxon Corp., however, the Fifth Circuit determined that the indemnity
provision at issue contemplated indemnification only for all claims, demands and causes of
action for injury to or death or illness of persons in any way resulting from the willful or
negligence acts or omissions of Contractor .88 Thus, because the indemnity language at issue
failed to make specific reference to Contractors contractual indemnity obligations, no such
indemnification was provided.89
E. GROSS NEGLIGENCE AND PUNITIVE DAMAGES.
When viewed as a particular subset of claims for which indemnification may or may not
be provided under the particular law governing the contractual indemnification provision, issues
concerning indemnification for gross negligence and punitive damages are often at the forefront.
- 19 -
Texas Law.
With respect to indemnification for gross negligence and punitive damages, Texas law is
generally unsettled. In Fairfield Insurance Co. v. Stephens Martin Paving, LP, the Fifth Circuit
certified the following question to the Texas Supreme Court: Does Texas public policy prohibit
a liability insurer from indemnifying a punitive damages award based upon a finding of gross
negligence?90 In a 2008 opinion, the Texas Supreme Court held that Texas public policy did not
prohibit coverage for punitive damage awards in the workers compensation context.91 The
Texas Supreme Court, however, declined to make a particular pronouncement with respect to
public policy for indemnification of gross negligence.92
The intermediate courts of appeal, however, have reached conflicting results. In Crown
Central Petroleum Corp. v. Jennings, the Texas First Court of Appeals held that indemnification
for gross negligence was not available where the language in the indemnification provision at
issue specifically excepted sole negligence but included otherwise broad language requiring
indemnification for any and all claims damages.93 The First Court went on to note:
Because we find the indemnity agreement at issue did not specifically express an obligation to
indemnify Crown for punitive damages resulting from its sole gross negligence, we do not reach
the question of whether indemnification of punitive damages (in a non-insurance context)
violates public policy. However, in Webb v. Lawson-Avila Construction, Inc.,94 the Texas
Fourth Court of Appeals held that, where the parties indemnity agreement specifically
contemplated for indemnification of general contractor for damages caused by its own gross
negligence, and the parties agreement included a provision that the agreement was not to be
construed in favor of one party over the other, such a provision was enforceable under Texas
law.95 In so holding, however, the Fourth Court of Appeals refused to address the public policy
- 20 -
considerations: We do not join the Crown court in condemning contractual agreements that
provide for indemnification of gross negligence for the additional reason that we believe this is a
matter better left to the legislature or the ruling of our Supreme Court.96
Maritime Law.
In the recent decision issued in connection with the Deepwater Horizon incident, District
Judge Carl Barbier of the Eastern District of Louisiana held that, under maritime law,
indemnification for gross negligence is enforceable and not void for public policy
considerations.97 At issue was whether BP was contractually obligated to indemnify Transocean
with respect to pollution claims in light of the parties contract that provided, in relevant part,
that BP:
SHALL PROTECT, RELEASE, DEFEND, INDEMNIFY, AND HOLD
[Transocean] HARMLESS FROM AND AGAINST ANY LOSS, FOR
POLLUTION SPECIFICALLY WITHOUT REGARD TO NEGLIGENCE
OF ANY PARTY OR PARTIES AND SPECIFICALLY WITHOUT REGARD
FOR WHETHER THE POLLUTION IS CAUSED IN WHOLE OR IN PART
BY THE NEGLIGENCE OR FAULT OF [Transocean].98
An adjacent provision broadly defined the scope of the parties indemnity, which applied to the
specific indemnity provision concerning pollution at issue:
THE PARTIES INTEND AND AGREE THAT THE PHRASE SHALL
PROTECT, RELEASE, DEFENDANT, INDEMNIFY AND HOLD
HARMLESS MEANS THAT THE INDEMNIFYING PARTY SHALL
INDEMNIFY THE INDEMNIFIED PARTY FROM AND AGAINST
ANY AND ALL CLAIMS WITHOUT LIMIT AND WITHOUT REGARD
TO THE CAUSE OR CAUSES THEREOF, INCLUDING THE
NEGLIGENCE OF ANY PERSON OR PERSONS, INCLUDING THAT OF
THE INDEMNIFIED PARTY, WHETHER SUCH NEGLIGENCE BE
GROSS .99
Based upon the language of the parties indemnity provision, Judge Barbier concluded
that BP was required to indemnify Transocean for its own gross negligence, and that the
conflicting public policy considerations of freedom of contract and a reluctance to encourage
- 21 -
grossly negligent behavior did not preclude such indemnity.100 Importantly, however, Judge
Barbier also held that the indemnification provision did not require BP to indemnify Transocean
for punitive damages. Thus, because the fines and penalties that may be levied under the Clean
Water Act are penal in nature, such penalties would not fall under the coverage of the indemnity
agreement.101
F. OTHER DRAFTING AND NEGOTIATING CONSIDERATIONS.
Although the several sections immediately above have hopefully provided the gentle
reader with several specific issues requiring attention in the negotiation and drafting of typical
energy-related indemnity provisions, the prudent draftsman should always consider the following
core concepts that can often go over-looked where a majority of the draftsmans time and
attention is focused on the various vicissitudes of indemnity law:
Who are the parties covered by the indemnification provision and whether each
individual partys officers, directors, shareholders, stakeholders, successors,
assigns, affiliated entities, contractors, subcontractors, and so on are also provided
coverage?
How are notice requirements defined regarding when a demand for defense and/or
indemnity must be made by the indemnitee so as to avoid the possibility of
prejudice on the part of the indemnitor in providing such defense and indemnity?
Should provisions regarding enforcement, such as setting out when a demand for
defense and/or indemnity must be accepted or denied and the procedure for
contesting such a demand or denial, be included?
- 22 -
V.
How long after the completion of the underlying work should the indemnification
provision survive?
CONCLUSION.
Although application of a contractual indemnification provision seems, on its face, a
relatively straightforward method to allocate and manage risk in an energy agreement, the many
factors and varying issues affecting the enforceability of such provisions have the potential to
leave both contracting parties out to sea. While by no means all-encompassing, this paper has
hopefully provided the gentle reader with enough background regarding these varying factors
and issues to recognize the many pitfalls potentially present in negotiating and drafting, and in
ultimately seeking enforcement of, contractual indemnification provisions in energy and related
industries.
Dresser Indus., Inc. v. Page Petroleum, Inc., 852 S.W.2d 505, 508 (Tex. 1993) (quoting BLACKS LAW
DICTIONARY 692 (5th ed. 1979)).
2
See Id.
3
43 U.S.C. 1331, et seq.
4
See, e.g., Dresser Indus., 852 S.W.2d at 508; see also Atl. Richfield Co. v. Petroleum Pers., Inc., 768 S.W.2d 724,
726 (Tex. 1989) (finding contractual indemnity provision valid and enforceable under Texas law).
5
See Gulf Ins. Co. v. Burns Motors, Inc., 22 S.W.3d 417, 423 (Tex. 2000); Ideal Lease Serv., Inc. v. Amoco Prod.
Co., 662 S.W.2d 951, 952 (Tex. 1984).
6
See J. M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 229 (Tex. 2003) (citing Coker v. Coker, 650 S.W.2d 391,
394 (Tex. 1983)).
7
J. M. Davidson, Inc., 128 S.W.3d at 229
8
See Id.
9
See Id.
10
See Id.; see also Stewart Title Guar. Co. v. Aiello, 941 S.W.2d 68, 73-74 (Tex. 1997).
11
See J. M. Davidson, Inc., 128 S.W.3d at 229; Aiello, 941 S.W.2d at 73-74.
12
Ethyl Corp. v. Daniel Constr. Co., 725 S.W.2d 705, 708 (Tex. 1987) (emphasis added); see also Enserch Corp. v.
Parker, 794 S.W.2d 2, 8 (Tex. 1990).
13
Dresser Indus., 852 S.W.2d at 507.
14
Id., at 508.
15
Ethyl Corp., 725 S.W.2d at 707-08.
16
See Fisk Elec. v. Constructors & Assocs, 888 S.W.2d 813, 814-16 (Tex. 1994).
17
Ethyl Corp., 725 S.W.2d at 707-08.
18
Id., at 814.
- 23 -
19
- 24 -
(a) Except as otherwise provided by this chapter, a covenant, promise, agreement, or understanding
contained in, collateral to, or affecting an agreement pertaining to a well for oil, gas, or water or to a
mine for a mineral is void if it purports to indemnify a person against loss or liability for damage that:
(1) is caused by or results from the sole or concurrent negligence of the indemnitee, his agent or
employee, or an individual contractor directly responsible to the indemnitee; and
(2) arises from:
(A) personal injury or death;
(B) property injury; or
(C) any other loss, damage, or expense that arises from personal injury, death, or property injury.
46
TEX. CIV. PRAC. & REM. CODE 127.001(1)
47
TEX. CIV. PRAC. & REM. CODE 127.001(1)(A)(i)-(ii).
48
TEX. CIV. PRAC. & REM. CODE 127.001(4)(A)(i)-(ii).
49
See Getty Oil Co. v. Ins. Co. of N. Am., 845 S.W.2d 795 (Tex. 1992), cert. denied sub nom., Youell & Companies
v. Getty Oil Co., 510 U.S. 820 (1993).
50
Id., at 804-805.
51
In re: John E. Graham & Sons, 210 F.3d 333, 339-40 (5th Cir. 2000).
52
TEX. CIV. PRAC. & REM. CODE 127.005(a); see also Nabors Corp. Servs., Inc. v. Northfield, 132 S.W.3d 90, 99
(Tex. App.Houston [14th Dist.] 2004, no pet.).
53
TEX. CIV. PRAC. & REM. CODE 127.005(b).
54
TEX. CIV. PRAC. & REM. CODE 127.005(c).
55
TEX. CIV. PRAC. & REM. CODE 127.001(4)(B)(i)-(ii).
56
TEX. CIV. PRAC. & REM. CODE 127.004(2).
57
TEX. CIV. PRAC. & REM. CODE 127.004(3).
58
TEX. CIV. PRAC. & REM. CODE 127.004(4).
59
TEX. CIV. PRAC. & REM. CODE 127.004(5).
60
La. R.S. 9:2780.
61
La. R.S. 9:2780B.
62
See generally, Transcontinental Gas v. Transp. Ins. Co., 953 F.2d 985, 991 (5th Cir. 1992)
63
See In re John E. Graham & Sons, 210 F.3d at 341.
64
Transcontinental Gas, 953 F.2d at 995 n. 40.
65
See La. R.S. 9:2780.
66
Compare La. R.S. 9:2780 with TEX. CIV. PRAC. & REM. CODE 127.001(4)(B)(i)-(ii); see also In re John E.
Graham & Sons, 210 F.3d at 342.
67
Under the Texas Construction Anti-Indemnity Act, a construction contract is defined as A contract or
agreement entered into by an owner, contractor, subcontractor, supplier or material or equipment lessor
for the design, construction, alteration, repair, or maintenance of, or furnishing of material or equipment for,
a building, structure, appurtenance, or other improvement to or on public or private real property. TEX. INS.
CODE 151.001(5).
68
TEX. INS. CODE 151.102.
69
TEX. INS. CODE 151.103.
70
See, e.g., Roberts v. Energy Dev. Corp., 235 F.3d 935 (5th Cir. 2000) (finding parties choice of law provision
calling for application of Texas law was unenforceable where incident at issue occurred in Louisiana and the work
being done under the contract was primarily performed in Louisiana, even though the contracting parties involved
had extensive connections with Texas).
71
See Quorum Health Res., L.L.C. v. Maverick Cnty. Hosp. Dist., 308 F.3d 451, 461-62 (5th Cir. 2002) (noting that,
under Texas Law, [A] contract subject to the express negligence rule cannot define what is included in an
indemnity provision by stating what obligations are outside that indemnity agreement.).
72
Smith v. Shell Oil Co., 746 F.2d 1087 (5th Cir. 1984).
73
XL Spec. Ins. Co. v. Kiewitt Offshore Servs., Ltd., 513 F.3d 146, 150 (5th Cir. 2008).
74
Houston Lighting & Power Co. v. Atchison, Topeka & Santa Fe Ry. Co., 890 S.W.2d 455 (Tex. 1994); cf English
v. BGP Intl, Inc., 174 S.W.3d 366, 375 (Tex.App.Houston [14th Dist.] 2005, no pet.) ([T]he expressnegligence doctrine does not apply to non-negligent actions) and DDD Energy, Inc. v. Veritas DGC Land, Inc.,
60 S.W.3d 880, 885 (Tex. App.Houston [14th Dist.] 2001, no pet.) ([T]he express negligence component of the
fair notice requirements does not apply where an indemnitee is seeking indemnification from claims not based on
the negligence of the indemnitee).
- 25 -
75
Stanton Holdings, Inc. v. Tatum, L.L.C., 345 S.W.3d 729, 734-35 (Tex. App.Dallas 2011, no pet. h.).
Sovereign Ins. Co. v. Texas Pipe Line Co., 488 So.2d 982, 984-85 (La. 1986).
77
Dresser Indus., 852 S.W.2d at 508.
78
Cate v. Dover Corp., 790 S.W.2d 559, 561 (Tex. 1990) (Because the object of the conspicuousness requirement
is to protect the buyer from surprise and an unknowing waiver of his or her rights, inconspicuous language is
immaterial when the buyer has actual knowledge of the disclaimer.)
79
Dresser Indus., 852 S.W.2d at 508 n. 2.
80
Storage & Processors, Inc. v. Reyes, 134 S.W.3d 190, 192 (Tex. 2004).
81
See, e.g., Cate, 190 S.W.2d at 561; see also Coastal Transp. Co. v. Crown Cent. Petroleum Corp., 20 S.W.3d 119,
126 (Tex. App.Houston [14th Dist.] 2000, pet. denied) (finding actual knowledge where indemnitors president,
who signed the agreement, had read the agreement when he signed it, the agreement was less than two and onehalf pages long and contained eight paragraphs with the indemnity provision constituting the last paragraph and
the indemnity provision was referenced in two other paragraphs); Cleere Drilling Co., 351 F.3d at 648 (finding
actual knowledge where the parties negotiations included consideration of and changes to several portions of
the agreement and where the parties agents had made and initialed numerous changes to several pages of the
printed form).
82
Cleere Drilling Co. v. Dominion Exp. & Prod., Inc., 351 F.3d 642, 647 (5th Cir. 2003).
83
Campbell v. Sonat Offshore Drilling, Inc., 979 F.2d 1115 (5th Cir. 1992).
84
Id., at 1120.
85
Corbitt v. Diamond M. Drilling Co., 654 F.2d 329, 333 (5th Cir. 1981); accord Foreman, 770 F.2d at 495-97.
86
Sumrall v. Ensco Offshore Co., 291 F.3d 316, 320 (5th Cir. 2002).
87
See Id.
88
Foreman, 770 F.2d at 497 (italics in original).
89
Id., at 498.
90
Fairfield Ins. Co. v. Stephens Martin Paving, LP, 381 F.3d 435 (5th Cir. 2004).
91
Fairfield Ins. Co. v. Stephens Martin Paving, LP, 246 S.W.3d 653, 654 (Tex. 2008).
92
See Id.
93
Crown Cent. Petroleum Corp. v. Jennings, 727 S.W.2d 739, 741-42 (Tex. App.Houston [1st Dist.] 1987, no
writ).
94
Webb v. Lawson-Avila Const., Inc., 911 S.W.2d 457 (Tex. App.San Antonio 1995, writ dissmd).
95
Id., at 461.
96
Id., at 462.
97
In re Oil Spill by the Oil Rig Deepwater Horizon in the Gulf of Mexico, on April 20, 2010, MDL 2179 (E.D. La.
January 26, 2012).
98
Id., at *4.
99
Id.
100
Id., at *8.
101
Id., at *13.
76
- 26 -
Senior Counsel
Houston
Law
Construction Law
Litigation
Education
kenneth.bullock@chamberlainlaw.com
www.chamberlainlaw.com
Bachelor of Science degree in Biology from Centre College in June, 1998. Ken then
in May, 2001, graduating second in his class. Ken was also selected for membership
Master of Agri-Business,
in the Phi Kappa Phi and Gamma Sigma Delta Honor Societies during his graduate
studies at Texas A&M. Ken then attended South Texas College of Law in Houston,
Texas, where he graduated cum laude and as a member of the Order of Lytae in May,
2006. During law school, Ken was a Director of the South Texas College of Law Board
of Advocates, President of the Federalist Society Law Student Chapter and member
Lytae
Bullocks practice focuses primarily on energy and maritime matters, where he has
Honors
Texas Rising Star by
Texas Monthly Magazine
publisher of Texas
Super Lawyers (2012)
litigation with an emphasis in construction, complex business litigation and first and
College of Law.
President, Federalist
Ken is a member of the State Bar of Texas and is admitted to practice before the
Southern and Eastern Districts of Texas and the United States Court of Appeals for
the Fifth Circuit. Ken is also an active member of the Garland Walker American Inn of
Law.
Court, the Houston Federalist Society and the Houston Young Lawyers Association.
Officer, Board of
Advocates, South Texas
College of Law.
Representative Matters
Represented numerous energy exploration and drilling clients throughout Texas,
Louisiana and Mississippi against claims under the Jones Act, Outer Continental
Shelf Lands Act ("OCSLA") and 905(b) of the Longshore and Harbor Workers'
Compensation Act ("LHWCA").
University.
Won dismissal of Jones Act claims for energy exploration and drilling clients based
A&M University.
upon lack of vessel status of deepwater floating gas production, drilling and
Bar Admissions
Texas
Court Admissions
Represented maritime client in action for damages sustained to wharfage and pier
structures.
Counseled maritime construction and fabrication client regarding construction lien
practices in connection with construction and modification of offshore structures.
Successfully prosecuted claim for hull and loss of use/profits damages on behalf of
Texas
Texas
Clerkships
Channel.
Represented numerous clients in premises liability and Jones Act toxic tort litigation
Represented energy exploration and drilling company in litigation arising from fatal
accident occurring in territorial waters of Angola.
Counseled numerous clients in vessel lease agreements and drafting of charter
party agreements.
Counseled international maritime client regarding manning requirements and
immigration issues under OCSLA.
Represented freight forwarder in contact, quantum meruit and promissory estoppel
litigation.