Although generally known as the “Texas Construction Anti-Indemnity Act,” the sweep of Subchapter C of Chapter 151 of the Texas Insurance Code (the “TCAIA”) is much broader than its name would seem to suggest.[1] Notwithstanding that the TCAIA only applies where there is a “construction contract,” parties may be (unpleasantly) surprised to find that requirement is satisfied by contracts they reasonably believed had little to do with “construction.” It is thus vitally important to be cognizant of the reach of the TCAIA when contracting for services, equipment, and material even remotely involving buildings, structures, and real estate. Many parties use MSAs for this purpose but do not consider the TCAIA.
With certain exceptions, the TCAIA voids as against public policy any provision to the extent it requires that an indemnitor indemnify, hold harmless, or defend an indemnitee from claims for which the indemnitee is at fault.[2] The prohibition does not apply to a provision in a construction contract that requires a person to indemnify, hold harmless, or defend against a claim for the bodily injury or death of an employee of the indemnitor, its agent, or its subcontractor of any tier.[3]
Whether the TCAIA applies often turns on whether a given agreement is contained in a “construction contract” for a “construction project.”[4] The TCAIA’s definition of “construction contract” sweeps broadly, encompassing not just original construction, but also “remodeling, maintenance, or repair of improvements to real property” other than “a single family house, townhouse, duplex, or land development directly related thereto”:
“Construction contract” means a contract, subcontract, or agreement, or a performance bond assuring the performance of any of the foregoing, entered into or made by an owner, architect, engineer, contractor, construction manager, subcontractor, supplier, or material or equipment lessor for the design, construction, alteration, renovation, remodeling, repair, or maintenance of, or for the furnishing of material or equipment for, a building, structure, appurtenance, or other improvement to or on public or private real property, including moving, demolition, and excavation connected with the real property. The term includes an agreement to which an architect, engineer, or contractor and an owner’s lender are parties regarding an assignment of the construction contract or other modifications thereto.[5]
The term “construction project” similarly extends past simply the original construction project to include subsequent work:
“Construction project” means construction, remodeling, maintenance, or repair of improvements to real property. The term includes the immediate construction location and areas incidental and necessary to the work as defined in the construction contract documents.[6]
While the terms “construction contract” and “construction project” have not been the subject of much court detailed interpretation,[7] the definitions appear broad in scope. For example, in perhaps the most fulsome analysis of the definition of “construction contract,” a federal district court held that the definition was satisfied by an agreement for property management services ranging from lighting and electrical maintenance to building and yard upkeep.[8] The court explained that “Texas law broadly defines ‘construction contract’” to include maintenance contracts and concluded that the agreement before it was “indisputably a maintenance contact” and thus also a “‘construction contract’ under the plain language of the statute.”[9] Similarly, in perhaps an even greater demonstration of the TCAIA’s expansive nature, another federal district court—and, by implication, the Texas Supreme Court—found that the TCAIA applied to an additional-insured provision in an agreement for the lease [of] a crane to be used for the construction of an office campus.[10] The common thread between these opinions is the courts’ willingness to apply these broad definitions as written rather than what is perhaps the more common understanding of “construction contract” or “construction project.”
Contracting parties may naturally conclude the TCAIA is irrelevant because their agreements do not sound like “construction contracts” and unwittingly bargain for invalid provisions. That does not mean dictionaries are unhelpful. Dictionary definitions and common meanings have a place when interpreting the items comprising the definitions of “construction project” and “construction contract,” not the terms themselves.[11] Therefore, it behooves parties to pause and thoughtfully consider whether their agreements are subject to the TCAIA because although a given agreement may not look like a “construction contract” at first blush, that does not necessarily mean it is beyond the TCAIA’s reach.
Porter Hedges associate Jordan Stevens contributed to this post.
[1] Importantly, unlike the common law fair notice doctrine, this prohibition on indemnification for an indemnitee’s own fault is absolute and cannot be circumvented with express references to negligence and conspicuous language (as with the fair notice doctrine). Compare Tex. Ins. Code § 151.102; with Ethyl Corp. v. Daniel Constr. Co., 725 S.W.2d 705, 707–08 (Tex. 1987). This means that even if parties dutifully satisfy the fair notice doctrine, their efforts will all be for not if their agreement falls within the TCAIA’s coverage. Further unlike the fair notice doctrine, the TCAIA also voids additional-insured provisions “to the extent that [such a provision] requires or provides coverage the scope of which is prohibited under this subchapter for an agreement to indemnify.” Tex. Ins. Code § 151.101(a).
[2] Tex. Ins. Code § 151.102; see also Maxim Crane Works, L.P. v. Zurich Am. Ins. Co., 392 F. Supp. 3d 731, 739 (S.D. Tex. 2019) (““This section allows a party to indemnify another in limited circumstances, but it disallows indemnification for claims caused by the party seeking indemnification.”).
[3] Tex. Ins. Code § 151.103.
[4] Tex. Ins. Code § 151.101(a).
[5] Tex. Ins. Code § 151.001(5).
[6] Tex. Ins. Code § 151.001(2).
[7] This appears to be, at least in part, because parties have assumed their agreements are “construction contracts” rather than placing that at issue before the court. See, e.g., Sw. Elec. Contracting Servs., Ltd. v. Indus. Accessories Co., No. MO:18-CV-00123-DC, 2022 WL 1468384, at *40 n.26 (W.D. Tex. May 10, 2022) (assuming, in the absence of a dispute between the parties, that the TCAIA applied to contracts for electrical subcontract work in connection with the construction of frac sand facilities); Signature Indus. Servs., LLC v. Int’l Paper Co., 638 S.W.3d 179, 195 n.12 (Tex. 2022) (assuming, in the absence of arguments from the parties, that the TCAIA applied to a contract involving the upgrade of a large vessel that recycles chemicals used to make paper at a mill); see also Knife River Corp. - S. v. Zurich Am. Ins. Co., 3:21-CV-1344-B, 2022 WL 686625 (N.D. Tex. Mar. 8, 2022) (denying a motion to dismiss based on the TCAIA in a case involving a contract to provide and place required signage in a TxDOT road resurfacing project but without discussing the meaning of “construction contract” or “construction project”); Union Pac. R.R. Co. v. Brown, No. 04-17-00788-CV, 2018 WL 6624507 (Tex. App.—San Antonio Dec. 19, 2018, no pet.) (applying the TCAIA to an agreement for the provision and maintenance of equipment to Union Pacific Railroad, some of which was used for the repair of a bridge).
[8] BNSF Ry. Co. v. Jones Lang Lasalle Americas, Inc., No. 4:20-CV-01372-O, 2022 WL 562898 , at *4–5 (N.D. Tex. Feb. 24, 2022); accord Maintenance, Merriam-Webster Dictionary (2021) (defining “maintenance” as “the act of maintaining,” which in turn means “to keep in an existing state”); Maintenance, Black’s Law Dictionary (11th ed. 2019) (defining “maintenance” as “the care and work put into property to keep it operating and productive; general repair and upkeep.”).
[9] Id. at *5.
[10] See Maxim Crane Works, L.P. v. Zurich Am. Ins. Co., 392 F.Supp.3d 731 (S.D. Tex.2019) (observing that the project subcontractor entered into the crane lease agreement “to construct ‘a building, structure, appurtenance, or other improvement to or on public or private real property’ that was not for ‘a single family house townhouse, [or] duplex.”” (citing Tex. Ins. Code §§ 151.001(2), 151.001(5), 151.101)); see also Maxim, 642 S.W.3d at 557 (stating, in dicta, that the relevant additional-insured provision was void under the TAIA unless the employee exception applied). As noted previously, the Texas Supreme Court in Maxim was addressing a certified question from the Fifth Circuit regarding the employee exception, and thus did not necessarily have occasion to address whether the TCAIA should apply in the first place, regardless of any exception.
[11] Indeed, the Texas Supreme Court recently looked to Black’s Law Dictionary in interpreting the word “employee” in the TCIAA only because there was no specific statutory definition. See Maxim, 642 S.W.3d 551, 557–58 & n.6.
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