Indemnity Agreements & The Texas Anti-Indemnity Statute

Indemnity agreements are contractual provisions that commit one party to compensate the other for any losses or damages that may occur due to the actions or negligence of the first party. In essence, it's a form of financial protection against potential risks.

The Texas Anti-Indemnity Statute (Texas Insurance Code § 151.102), which took effect in January of 2012, had a significant impact on Texas contracts by limiting and prohibiting agreements from shifting certain liability risks for negligence and similar torts from one party to another.

Businesses or individuals in Texas that work with contractors should seek the counsel of experienced attorneys to help draft and review indemnity provisions in contracts – especially those related to commercial and residential construction. Our law firms also routinely steps in when indemnity and liability result in disputes and litigation.

At Hendershot Cowart P.C., we serve businesses and contractors throughout Texas in matters involving contract law, indemnity, and the Texas-Anti Indemnity Act. Call (713) 783-3110 or contact us online to speak personally with a member of our team.

On This Page:

• What Is An Indemnity Clause or Indemnity Agreement?
• What Is The Texas Anti-Indemnity Statute?
• The Anti-Indemnity Act and Insurance Policies
• Texas Anti-Indemnity Statute Exceptions
• Oil & Gas Indemnity Agreements in Texas
• Texas Indemnity Clause Requirements
• Indemnity & Insurance Disputes in Texas
• Frequently Asked Questions

An indemnity clause or indemnity agreement is a contractual provision that requires one party to assume responsibility for losses or damages suffered by the other party. These clauses are often seen in construction contracts, lease agreements, and service contracts, and can include damages such as the cost of litigation and attorney’s fees.

Types of indemnity clauses include:

• Broad form indemnity: Requires the indemnifying party to assume responsibility for all losses or damages, regardless of fault. The Texas Anti-Indemnity Statute delineates certain prohibitions and restrictions for this type of indemnity.
• Limited form indemnity: Limits the indemnifying party's liability to specific types of losses or damages.
• Joint and several liability: Requires multiple parties to share responsibility for losses or damages, and any one party can be held liable for the entire amount.

While they can be used by businesses in various industries – including real estate, oil and gas, healthcare, and transportation – indemnity clauses are central parts of many construction contracts because they allow parties such as a contractor to allocate liability between contractors, subcontractors, and owners.

For example, a contractor (the indemnitor) could agree to indemnify a property owner (the indemnitee) against any injuries or property damage caused by the contractor's work. If a worker on the contractor's team accidentally damages the property, the contractor would be responsible for the repairs.

The Texas Anti-Indemnity Statute was enacted in 2011 and went into effect on January 1, 2012. The statute applies to any construction contract executed in Texas where one party agrees to indemnify another party for losses or damages arising from their own negligence.

The legislation was enacted to protect insurance companies from liability for claims they did not explicitly agree to underwrite. The Act also limits the ability of property owners and general contractors (who have more bargaining power) to require contractors and subcontractors to indemnify them for their own negligence.

Prior to the Texas Anti-Indemnity Act, parties in a construction contract had the ability to agree to indemnify another party for all claims, losses, or damages arising from work the indemnitor performed, regardless of which party was at fault, and regardless of whether the indemnitee was at least partly at fault. However, the Act changed that through statutory restrictions and prohibition.

Key features of the Texas Anti-Indemnity Act:

• Prohibits contractual waivers of negligence: Parties cannot agree to waive their rights to sue for negligence.
• Limits indemnification for sole negligence: A contractor or subcontractor cannot be held liable for the sole negligence of the property owner or general contractor.
• Requires clear and unambiguous language: Indemnity clauses must be clearly and explicitly stated to be enforceable.

The Texas Anti-Indemnity Act prohibits certain types of indemnity clauses that require one party to indemnify another for their own negligence. This affects the allocation of risk between the parties and, consequently, the insurance coverage needed to protect them.

The Texas Anti-Indemnity Act affects insurance coverage and construction contracts in a number of ways, including:

• Prohibited indemnification obligations: The Act voids construction contracts that include indemnity clauses requiring one party to assume responsibility for all losses or damages, regardless of fault.
• Prohibited additional insured provisions: The Act invalidates construction contracts that require a party to add another party to their insurance policy if that coverage would extend to the other party's own negligence.
• Prohibited insurance coverage: The Act prevents insurance companies from providing coverage for prohibited indemnity obligations. This means that parties cannot be forced to buy extra insurance if it would violate the terms of their indemnity agreement.

The Texas Anti-Indemnity Act does include some exceptions, including:

• Indemnification of a party or third party for the death or bodily injury of an indemnitor’s employee, or that of its agent or subcontractor (“action over claims”);
• Public works projects;
• Residential construction contracts; and
• Agreements subject to the Texas Oilfield Anti-Indemnity Act.

Texas also has a specific law that regulates indemnity clauses in oil and gas contracts, specifically, agreements pertaining “to a well for oil, gas, or water or to a mine for a mineral.”

Signed into law in 1995, the Texas Oilfield Anti-Indemnity Act protects oilfield service companies from being required to indemnify oil and gas operators for their own negligence.

There are exceptions to the Texas Oilfield Anti-Indemnity Act: If the parties have negotiated a clear and unambiguous agreement that allocates the risk of loss between them, the Act may not apply.

To speak with an attorney experienced with oil and gas law for advice on structuring a compliant drilling contract, master service agreement, or farm-out agreement, contact Hendershot Cowart P.C. or call (713) 783-3110.

Indemnity clauses are common in various types of contracts, including construction contracts, lease agreements, oilfield master service agreements, and service contracts.

Key elements of an indemnity agreement include:

1. Scope of Indemnification: The clause should clearly define the types of losses or damages that are covered by the indemnity obligation. This can include things like property damage, personal injury, or financial losses.
2. Triggering Events: The clause should specify the events or circumstances that will trigger the indemnity obligation. For example, it might state that one party will indemnify the other for losses arising from their negligence or breach of contract.
3. Defenses: The clause may include provisions that limit or exclude the indemnity obligation in certain circumstances, such as when the loss or damage is caused by the sole negligence of the indemnified party.
4. Insurance Requirements: In some cases, the clause may require one or both parties to maintain insurance coverage to satisfy their indemnity obligations.
5. Choice of Law: The clause should specify the governing law that will apply to any disputes arising from the indemnity agreement. This is important because the laws of different jurisdictions can vary significantly.

Additional provisions to consider in an indemnity clause include:

• Indemnification of Third Parties: The clause may also require one party to indemnify the other for losses or damages caused by third parties.
• Indemnification of Attorneys' Fees: The clause may require the indemnifying party to pay the other party's attorneys' fees and costs if a dispute arises over the indemnity obligation.
• Indemnification of Taxes: The clause may address the issue of who is responsible for paying taxes on any indemnity payments.

Additionally, the clause and contract should be written in clear and unambiguous terms, explicitly stating the parties' obligations to indemnify each other. Avoid vague or ambiguous contract language that could lead to disputes.

Our insurance law and litigation team can assist clients with evaluating indemnity agreements for compliance with the Anti-Indemnity Act and the Oilfield Anti-Indemnity Act. This includes drafting, negotiating, and structuring contracts to address statutory restrictions and exceptions while maximizing the indemnity.

At Hendershot Cowart P.C., our services also include protecting the rights and interests of clients when disputes arise over insurance coverage or indemnity agreements – whether it is enforcing or defending against a claim. Our firm has particular experience in addressing such matters as they relate to construction, including construction contracts, construction arbitration, litigation, and more.

If you have questions about the Texas Anti-Indemnity Act or indemnity clauses in Texas contracts, please call (713) 783-3110 or contact us online to speak personally with an attorney.

Are Indemnity Clauses Enforceable?

Yes, indemnity provisions are typically enforceable. Generally speaking, these provisions should be inclusive enough that they address the concerns of each party, but reasonable enough that enforceability is not challenged.

What Is Broad Form Indemnity?

Broad form indemnity is a type of contractual provision that requires one party to assume responsibility for all losses or damages arising from a specific event or activity, regardless of fault. This means that even if the indemnified party is partially or wholly responsible for the loss, the indemnifying party is still obligated to cover the entire cost.

While broad form indemnity can provide significant protection for the indemnified party, it also places a substantial burden on the indemnifying party. For this reason, certain types of broad form indemnity are void under the Texas Anti-Indemnity Act and the Texas Oilfield Anti-Indemnity Act.