Indemnity Agreement's Scope Included Contractual Liabilities To Third Parties

by Winstead PC

A court of appeals recently held that an indemnity agreement between an operator and a contractor placed the burden on the contractor to indemnify the operator for the operator's third-party indemnity obligations that arose from an injury to the contractor's employee. In Tutle & Tutle Trucking, Inc. v. EOG Resources, Inc., No. 10-11-00062-CV, 2012 Tex. App. LEXIS 9543 (Tex. App.—Waco November 15, 2012, no pet. hist.), EOG, an operator, had an agreement with Tutle, a trucking company, that contained an indemnity provision that stated in part:

Contractor agrees to protect, defend, indemnify and hold company … harmless from and against all damage, loss, liability, claims, de-mands and causes of action of every kind and character … without limit and without regard to the cause or causes thereof … in favor of contractor's agents, invitees and employees, and contractor's subcontractors and their agents, invitees and employees on account of damage to their property or on account of bodily injury or death.

Id. at *3. In a separate paragraph later in the agreement provided in part:

The terms and provisions of this Paragraph 6 shall expressly apply to claims or causes of action asserted against Company or Contractor by reason of any agreement of indemnity with a person or entity not a party to this Contract where such contractual indemnities are related to or ancillary to the performance of the work contemplated under the Agreement and or Company's project and are indemnities not uncommon in the industry.

Id. at *4. Tutle’s employee was later injured and sued Tutle and Frac Source, a different contractor, for his bodily injuries. See id. at *3-8. Frac Source demanded defense and indemnity from EOG, who in turn, demanded indemnity from Tutle under the parties’ agreement. See id. After Tutle refused to indemnify EOG, EOG filed suit. The trial court ruled for EOG, and Tutle appealed. See id. The court of appeals affirmed for EOG. See id. at *22.

The contractor argued that the indemnity provision was not enforceable because it did not pass the express negligence test: “Tutle asserts that paragraph 6E ‘is vague, ambiguous, and if enforced, violates the express[-]negligence test where there is nothing within [p]aragraph 6E that indicates that Frac Source is seeking to be indemnified by Tutle from the consequences of its own negligence.’” Id. at *14-15. The contractor also argued that pass-through indemnity obligations were extraordinary transfers of risk to which the express-negligence doctrine applied. See id. at *17. That is the same argument that both IADC and Nabors have raised in this case.

The operator argued: “the express-negligence doctrine does not apply when an indemnitee does not seek indemnity for its own negligence and that the ‘pass through’ indemnity provision in paragraph 6E is neither vague nor ambiguous.” Id. Citing the same authority that Encana has cited, the court noted that: “several courts … have stated that the express-negligence doctrine does not apply when an indemnitee, such as EOG here, does not seek indemnity for its own negligence.” Id. at *15-16, n.3. Assuming without deciding that a fair notice requirement existed for such a claim, the court held that: “we do not believe that the language of the provision is vague and ambiguous as to violate the express-negligence doctrine.” Id. at *17-18. This was so even though: 1) the provision did not expressly state that Tutle would have to indemnify EOG for the negligence of EOG’s other contractors; and 2) the operator group did not include contractors such as Frac Source. The court concluded that any alleged fair notice requirement did not have to meet the specificity that the contractor suggested. See id. at *20.

It should be noted that the one dissenting justice, who did not think that the case had been sufficiently developed factually for summary judgment, doubted whether any fair notice requirement would apply to this indemnity issue: “But I am not at all sure that the doctrine applies, because it is an indemnity of contractual indemnity, which may include a negligence claim but at the pass through level is only a contract claim.” Id. at *24.

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