May 2014 Dicta
by Angela Buchanan, Sedgwick LLP

When businesses enter into relationships with individuals or other businesses, there are generally risks associated with the relationship. For instance, when a business enters into a relationship with a vendor to provide goods, there is a risk that those goods could be defective and could injure someone. In Texas, contracts are an effective vehicle that businesses can use to transfer risk to other parties. In order to effectively transfer risk, a business first needs to identify the types of risks involved, afterwards, a business can craft a contract to address those risks.

Indemnity agreements are one of the ways that businesses can transfer risk. An indemnity agreement is a promise to safeguard or hold the indemnitee harmless against either existing and/or future loss, damage or injury liability. Dresser Industries, Inc. v. Page Petroleum, Inc., 853 S.W.2d 505, 508 (Tex. 1993). In general, in Texas, a well-written indemnification agreement needs to be conspicuous and needs to specifically state the parties’ intent. Enserch Corp. v. Parker, 794 S.W.2d 2, 8 (Tex. 1990). For instance, bolding or underling the indemnification language might make it conspicuous. And, according to the Uniform Commercial Code for indemnities, a printed heading in capitals is conspicuous. Tex. Bus. & Com. Code Ann. § 1.201(10). According to statute, a term or clause is held to be conspicuous when it is written so that a reasonable person against whom it is to operate should notice it. Tex. Bus. & Com. Code Ann. §1.201(10) (Vernon 1994). Unless an indemnitor possesses actual notice of the clause, an indemnification clause that is not conspicuous, such that a reasonable person against whom it is to operate would not notice it, it is void. In addition, if the same clause does not specifically state the parties’ intent to indemnify certain liabilities, the Court will not imply such an intent. In drafting your own indemnification clauses, it is wise to review Texas cases that provide enforceable indemnification language. In Texas, there are several cases that have analyzed and specifically approved certain language. See e.g. Atl. Richfield Co. v. Petrol. Personnel, Inc., 768 S.W.2d 724, 726 (1989); Permian Corp. v. Union Texas Petroleum Corp., 770 S.W.2d 928, 929-30 (Tex. Civ. App. – El Paso 1989, no writ); see also B.F.W. Construction Co., Inc. v. Garza, 748 S.W.2d 611, 612-13 (Tex. App. – Fort Worth 1988, no writ); Adams Resources Exploration Corp. v. Resource Drilling, Inc., 761 S.W.2d 63, 65 (Tex. App. – Houston [14th Dist.] 1988, no writ).

As a note, in Texas, there are several statutes that limit the enforceability of indemnity contracts, including the Anti-indemnification Bill (HB 2093) and the Texas Oilfield Indemnity Act. Codified in Tex. Civ. Prac. & Rem. Code §127.001, et seq. These statutes affect most Texas contracts that relate to either construction, oil, gas, water wells or mines for other minerals. Accordingly, if you are drafting an indemnification clause for a client, you must consider whether a statute limits indemnification rights.

Mrs. Buchanan primarily practices in insurance and complex commercial litigation with an emphasis on product liability cases. She also has experience representing private businesses in general litigation matters.