Getting someone else to pay for your mistakes is a sweet deal for you but not so much for the other person. In Texas, it has long been recognized that the “indemnification of a party for its own negligence is an extraordinary shifting of risk.”[1] For this reason, courts require indemnification clauses in contracts to satisfy the fair notice requirements.
In this context, fair notice requires that (1) the agreement must be conspicuous and (2) the agreement must meet the express negligence doctrine. In other words, for fair notice to be satisfied, the clause must (1) “appear on the face of the [contract] to attract the attention of a reasonable person”[2] and (2) be clear and unambiguous regarding the shifting of liability.
WHAT IS CONSPICUOUS?
Texas has adopted the Uniform Commercial Code’s definition of conspicuous, which provides that language may be deemed “conspicuous” if the text is in a larger or contrasting color.[3] The key is that the text for the indemnification clause stands out because it’s all caps, bold, underlined, and/or a different color from the rest of the terms.
However, text formatting alone may be insufficient if the clause is buried in the contract, hidden under some unrelated heading, or sandwiched between unrelated terms.[4]
While we should all read contracts before signing or agreeing to the terms, everyone has, at one point or another, neglected to read the contract in its entirety and instead skimmed the document and signed or clicked “agree.” The conspicuous requirement serves to save anyone guilty of just skimming the document by ensuring material and liability shifting clauses stand out and beg for even the skimmer’s attention.
Absent the other party’s “actual knowledge” of the indemnification, an indemnification clause that does not meet the conspicuous requirement will be unenforceable.[5]
WHAT SATISFIES THE EXPRESS NEGLIGENCE DOCTRINE?
The express negligence doctrine is deceptively simple – “a party seeking indemnity from the consequences of that party’s own negligence must express that intent in specific terms within the four corners of the contract.”[6] Accordingly, to satisfy the express negligence doctrine, the party seeking indemnification must demonstrate that the contract specifically and unambiguously states the intent that the party be indemnified for its own negligence.
There are numerous cases discussing what language is or is not sufficient to satisfy the express negligence doctrine, and here are a few examples:
The Texas Supreme Court found the following language to be insufficient:
Contractor shall indemnify and hold Owner harmless against any loss or damage to persons or property as a result of operations growing out of the performance of this contract and caused by the negligence or carelessness of Contractor, Contractor’s employees, Subcontractors, and agents or licensees.[7]
Likewise, language that implicitly references liability for negligence but does not explicitly reference such liability is insufficient to meet the express negligence doctrine. For example, an agreement to indemnify from “any and all liability and/or damages arising in any manner whatsoever…” does not meet the express negligence doctrine.[8]
On the other hand, the following types of phrases have been found to be sufficient to meet the express negligence doctrine:
- The contractor shall be indemnified “regardless of cause or of any fault or negligence” of the contractor.[9]
- Party A agrees to indemnify Party B from and against all claims “whether the same is caused or contributed to by the negligence of [Party B], its agent or employees.”[10]
- Party A agrees to indemnify Party B “regardless of cause or of the sole, joint, comparative or concurrent negligence or gross negligence of [Party B], its officers, agents or employees.”[11]
TAKEAWAYS
- Make sure the indemnification agreement draws the eye by using a different font, different color, or similar and is set apart by paragraph, title, or similar.
- Confirm that the indemnification agreement clearly and unambiguously expresses the intent that a party shall be indemnified for its own negligent acts or omissions.
[1] Dresser Ind., Inc. v. Page Petroleum, Inc., 853 S.W. 2d 505, 508 (Tex. 1993)
[2] Dresser Ind., Inc. v. Page Petroleum, Inc., 853 S.W.2d 505, 508 (Tex. 1993)(quoting Ling & Co. v.
Trinity Sav. & Loan Ass’n, 482 S.W.2d 841, 843 (Tex.1972)).
[3] Id. at 511.
[4] See Enserch Corp. v. Parker, 794 S.W.2d 2, 9 (Tex.1990).
[5] Thom v. Rebel’s Honky Tonk, 2013 WL 1748798 (Tex. App. Austin 2013).
[6] Dresser Ind., Inc. v. Page Petroleum, Inc., 853 S.W. 2d 505, 508 (Tex. 1993).
[7] Ethyl Corp. v. Daniel Constr. Co., 725 S.W.2d 705 at 707 (Tex. 1987)
[8] See e.g., Blankenship v. Spectra Energy Corp., No. 13-12-00546-CV, 2013 Tex. App. Lexis 10169, at *11 (Tex. App.—Corpus Christi-Edinburg Aug. 15, 2013, no pet.).
[9] B-F-W Constr. Co. v. Garza, 748 S.W.2d 611, 613 (Tex. App.—Fort Worth 1988, no writ)
[10] Permian Corp v. Union Tex. Petroleum Corp., 770 S.W. 2d 928, 929-30 (Tex. App.—El Paso 1989, no writ).
[11] Banner Sign & Barricade, Inc. v. Price Constr., Inc., 94 S.W. 3d 692, 697 (Tex. App.—San Antonio 2002, pet. denied).
