• Texas Has a New Construction Anti-Indemnity Act, But How Will it Work?
  • March 1, 2012 | Authors: John Almy; Joanna Nelson; William W. Pugh
  • Law Firm: Liskow & Lewis A Professional Law Corporation - Houston Office
  • As of January 1, 2012, Texas has a new anti-indemnity act that applies to prohibit certain indemnity agreements in construction projects within the state. A “construction contract” is broadly defined to include:

    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.

    The statute, codified as new Chapter 151 of the Texas Insurance Code, regulates both indemnity provisions and additional insured provisions typically found in construction contracts. The way in which the act treats “regardless-of-fault” indemnity provisions represents a sea change in Texas law. Even so, some questions exist as to what the practical effect of the new law will be.

    Section 151.102 states that a provision in a construction contract, or an agreement collateral to or affecting a construction contract, is void to the extent that it requires one party to indemnify another for claims arising out of the negligence or other fault of the indemnitee or any third party under the control or supervision of the indemnitee. This is a major change in Texas law, which generally permits “regardless-of-fault” indemnities subject to certain notice requirements.i The statute, however, includes certain key exceptions.

    As respects personal injury claims, section 151.103 expressly allows indemnity from an employer for bodily injury or death to its employees or any employees of its subcontractors. Thus, it appears that the statute’s impact on indemnity for bodily injury and death claims will be modest. The statute (section 151.104) also prohibits a party from naming someone as an additional insured for claims for which indemnity is prohibited under section 151.102. But given that section 151.103 allows certain personal injury indemnities, additional insured protection should still be available for circumstances in which indemnity for personal injuries or death is not prohibited, such as claims by the indemnitor’s employees or its subcontractors’ employees.

    Turning to property damage claims, the act prohibits indemnity for situations in which the indemnitee is at fault. However, the statute does not address waivers of subrogation for property damage. So, there is fortunately nothing in the statute that expressly prohibits a party from requiring a waiver of subrogation for property damage from the other party (and requiring that any subcontractors also provide such a waiver). Such waivers, if enforceable, protect the beneficiary from a claim by the injured party’s property insurer, but may not necessarily protect the beneficiary from such a claim by the injured party. As such, it may be advisable for the beneficiary to also obtain an express release of any such claim from the insured. Releases of claims are not addressed in the statute, so by obtaining both a release and a waiver of subrogation (and requiring equivalent protection from subcontractors), it may be possible for each party to obtain protection from most, if not all, property damage claims other than claims by true third parties.

    There are eleven express statutory exceptions to the new act, most notably construction contracts using OCIP or CCIP insurance programs (presumably because there is no risk shifting among the parties; all of the risk is intended to be covered by the insurance policy), construction contracts for single family homes, and, perhaps most importantly, construction contracts covered by the Texas Oilfield Anti-Indemnity Act (CPRC 127.001 et seq.).

    In sum, the statute prohibits indemnity for property damage claims and indemnity for personal injury/death claims by true third parties. However, the statute should not apply if the TOAIA is applicable, which would include contracts relating to a well, and the statute will also be inapplicable if maritime law applies. In addition, there is nothing in the statute that prevents a waiver of subrogation or a release of property damage claims. Thus, it is possible that parties can still achieve much of the protection traditionally obtained through “regardless-of-fault” indemnities.

     


    i     The Texas Oilfield Anti-Indemnity Act (CPRC 127.001 et seq.) (“TOAIA”) is an exception in which certain indemnity provisions relating to the oilfield are invalid unless they meet one of the TOAIA’s two insurance exceptions. See CPRC 127.005.