In order to evaluate such provisions, it is necessary to determine if they are enforceable under Texas law. Texas requires that the indemnity language provides fair notice to the person/entity that is assuming the transfer of risk (the indemnitor). Through a litany of cases, this has become known as the express negligence test. Under the express negligence doctrine, a party seeking indemnity from the consequences of that party’s own negligence must express that intent in clear and specific terms within the four corners of the contract. Ethyl Corp. v. Daniel Construction Company, 725 S.W.2d 705, 709 (Tex. 1987). A contractual indemnity provision contemplating indemnification for the indemnitee’s own negligence will not be enforced where the provision itself is not conspicuous within the overall agreement. Dresser Indus., Inc. v. Page Petroleum, Inc., 852 S.W.2d 505, 511 (Tex. 1993). Examples of such conspicuousness have included placing the text of the provision in all caps, in bold or in a larger font. These are questions of law, and it is up to the court to determine their enforceability.

On January 1, 2012, Chapter 151 of the Insurance Code became effective, and applies to construction contracts that were executed on or after January 1, 2012. This section has become known as an “anti-indemnity” statute. It makes indemnity provisions that shift the risk for the negligence of one party to another void as a matter of law, and further prevents parties from contracting around such rules. However, Chapter 151 does not apply to the “bodily injury or death of an employee of the indemnitor, its agent, or its subcontractor of any tier.” Texas Insurance Code §151.103. Therefore, the parties are free to continue to provide indemnification in these situations.

The Texas Oilfield Anti-Indemnity Act provides further limitations to agreement pertaining to oil and gas wells. Indemnity provisions between oil-well drilling companies are void unless specific requirements are met to make the obligations mutual through the purchase of insurance. Expro Americas, LLC v. Sanguine Gas exploration, LLC, 351 S.W.3d 915 (Tex. App. – Houston [14th Dist.] 2011, no pet).

Over the years, drafters of such contract provisions have attempted to push the limits of these requirements and, as always, there are exceptions to these rules. As noted by the new “anti-indemnity” statute and the Texas Oilfield Anti-Indemnity Act, it appears that the law is shifting away from allowing parties to contract for indemnification involving another’s negligence. Thus, careful analysis will always be necessary to determine any indemnification provision’s enforceability.

            In Gonzales v. Southwest Olshan Foundation Repair Co., LLC d/b/a Olshan Foundation Repair Co., Gonzales hired a plumber to repair water leaks under her foundation and hired Olshan to repair the foundation problems the leaks had caused.  The foundation repair contract included a lifetime transferrable warranty on the work requiring Olshan to adjust the foundation due to settling.  After the repair, in April 2002, Gonzales noticed doors not locking, windows not opening, and new cracks appearing in previously repaired walls. There were apparently additional leaks, and Olshan repaired those and leveled the foundation in August 2003 and again in October 2003.

            An Olshan employee reportedly told Gonzales in 2003 that the repair job was not being performed properly.  There were other subsequent visits by Olshan.  In May 2006, Gonzales noticed more cracking, and an engineer determined Olshan had improperly repaired the foundation.  Gonzales then sued Olshan, and the jury found that Olshan breached the implied warranty of good and workmanlike repairs and violated the DTPA.  The jury failed to find Olshan breached its express warranty.  The court of appeals reversed, concluding the implied warranty of good and workmanlike repairs is actionable only under the DTPA, and thereby subject to the two-year statute of limitations, holding that Gonzales should have discovered Olshan’s acts at the latest in October 2003.

            In the Supreme Court, Olshan argued that its express warranty superseded the implied warranty of good and workmanlike repair, and the jury’s finding that Olshan did not breach the express warranty precludes liability on warranty claims.  The Supreme Court agreed.  The court found that there is in existence an implied warranty to repair or modify existing tangible goods or property in a good and workmanlike manner, and this warranty may not be waived or disclaimed.  The implied warranty attaches to a contract if the parties’ agreement does not provide for the quality of the services to be rendered.

            In this case, the parties’ agreement included 2 warranty provisions: (1) Olshan would adjust the foundation for the life of the home due to settling and (2) will perform all necessary work in good and workmanlike manner.  This language superseded the implied warranty, as it “sufficiently describes the manner, performance or quality” of how Olshan and the foundation are to perform.  The jury found that Olshan did not breach the express warranty. 

            The Supreme Court also dismissed the DTPA claim due to the two-year statute of limitations.  Olshan repaired the foundation in July 2001, and in April 2002, Gonzales noticed cracks in walls and sticking windows and doors.  Olshan re-leveled the foundation in October 2003 and an Olshan employee told her they were doing a poor repair job and she should hire an attorney.  This conclusively established she knew of the injury on October 2003, but did not file suit until July 2006.  Thus, the claims are time barred. 

             In sum, the Supreme Court found that the implied warranty of good and workmanlike repair is a “gap filler” warranty that implies terms into a contract that fails to properly enumerate them.  The warranty cannot be disclaimed outright, but it can be superseded if the express warranty specifically describes the manner, performance, or quality of the services.  Further, because Gonzales learned of her injury directly from Olshan more than two and a half years before she filed suit, her DTPA claim was barred by limitations.  The court of appeals’ judgment was affirmed.

       However, under certain circumstances, an insurer may not insist upon its contractual right to control the defense.   In a typical coverage dispute, an insurer may issue a reservation of rights letter, which creates a potential conflict of interest.  While not automatically creating a conflict, a reservation rights letter recognizes the possibility that a conflict between insured and insurer may arise in the future.  Unauthorized Practice of Law Comm. v. Am. Home Assur. Co., 261 S.W.3d 24, 40 (Tex. 2008).  And when the facts to be adjudicated in the liability lawsuit are the same facts upon which coverage depends, the conflict of interest will prevent the insurer from conducting the defense.  Davalos, 140 S.W.3d at 688. 

       The existence of a conflict depends on the nature of the coverage issue as it relates to the underlying case.  Rx.com, Inc. v. Hartford Fire Ins. Co., 426 F.Supp.2d 546 (S.D.Tex. 2006).  Thus, an insurer is allowed to select a defense counsel for the insured in all instances except when the counsel would develop facts in the underlying lawsuit that could be used to exclude coverage.  Downhole Navigator, LLC v. Nautilus Ins. Co.¸686 F.3d 325 (5^th Cir. 2012).  Such situations, for example, would include where the insurer reserves the right to deny coverage based upon a breach of contract exclusion and the underlying litigation raises a claim for breach of contract, or where the insurer reserves the right to deny coverage for damages taking place outside the contract period and the underlying action involves the issue of when damages took place.  Id. at 330. 

       Although we now have further guidance on this issue from the Fifth Circuit, we continue to await specific examples of when a conflict arises from the Texas Supreme Court. 

The Academy of Achievement was created to honor annually USPC alumni who have attained outstanding achievements in their chosen fields after their graduation from Pony Club.  These alumni join the delegates of the National Youth Congress as mentors and guest speakers during the 3-day annual session. The alumni honorees play a vital role in the National Youth Congress by bringing the voice of experience into the discussions. They listen, encourage, laugh, and commiserate with the young people, and share personal stories of success and failure, helping the youth delegates to recognize that life is filled with the unexpected and that flexibility and a sense of humor can be as important as excellent planning.  During the Congress, Meg had the opportunity to share her personal story of tragedy to triumph after a serious riding accident, and to speak to the delegates about the importance of setting goals, overcoming obstacles, and always moving forward. 

BACKGROUND

Recognized as one of the leading trial firms in Texas for more than 60 years, Touchstone Bernays has a civil trial practice handling cases throughout Texas. Cases handled include defense of professional negligence, products liability, premises liability, construction defect, toxic tort and intellectual property. The firm also is well-known for its insurance coverage and appellate practices.