Opinion ID: 2394898
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Heading Rank: 3

Heading: construing the indemnity agreement

Text: HL & P relies on the rationale for the express negligence doctrine we adopted in Ethyl to support its argument that an indemnitee cannot recover for a loss or liability that the terms of the indemnity clause do not expressly encompass. In Ethyl, we noted a trend toward more strict construction of indemnity contracts. 725 S.W.2d at 707. We held that parties seeking to indemnify the indemnitee from the consequences of its own negligence must express that intent in specific terms. Id. at 708. In determining whether an agreement meets the express negligence test, we look to the four corners of the agreement. Id. We apply a similar test in the strict products liability context. See Dorchester Gas Corp. v. American Petrofina, Inc., 710 S.W.2d 541, 543 (Tex.1986). In Rourke v. Garza, 511 S.W.2d 331, 333 (Tex.Civ.App. Houston [1st Dist.] 1974), aff'd, 530 S.W.2d 794 (Tex.1975), an equipment owner claimed the right to indemnity from the lessee whose employee was injured by a defect in the leased equipment. We affirmed the court of appeals' judgment, which denied indemnity to the owner because the lease agreement's indemnity clause was completely silent as to defects in the leased equipment. Id. at 341. Thus, the court of appeals concluded that the indemnity clause of the lease did not clearly require the lessee to indemnify the owner against strict products liability. Id. The facts in Dorchester were similar to the facts in Rourke. The indemnity clause provided indemnity for all claims ... or liabilities arising from the use or operation of a steam pump. Dorchester, 710 S.W.2d at 541. This Court found the clause unenforceable because the agreement did not clearly and unequivocally reflect the parties' intent to provide indemnity for liability resulting from the sale of a defective or unreasonably dangerous product. Id. at 543-44; accord UMC, Inc. v. Coonrod Elec. Co., 667 S.W.2d 549, 555 (Tex.App.Corpus Christi 1983, writ ref'd n.r.e.). We also stated in Dorchester that contracts providing indemnity against the consequences of negligence should be treated in the same manner as those indemnifying one against strict products liability. 710 S.W.2d at 543. This statement has led one commentator to suggest that a corollary of the `express negligence' rule should apply, so that indemnification for product defects must also be expressly stated in the parties' agreement. Richard L. Scheer, Model Contractual Indemnity Provisions Effective to Protect an Indemnitee Against His Own Negligence or Other Fault, 50 Tex.B.J. 602, 606 (1987). There are compelling reasons to treat cases involving strict statutory liability in the same manner as cases involving negligence or strict products liability. First, the requirement that parties expressly state their intent to cover strict liability claims prevents the injustice that may occur when an innocent party incurs tremendous costs because of another's strict statutory liability. Such a result is possible when a party, itself not at fault, lacked fair notice of its potential liability under a less-than-specific indemnity clause. Indemnification against strict liability is an exception to usual business practices in the same manner as indemnifying against someone else's negligence. Rourke, 530 S.W.2d at 804. Contracts indemnifying an indemnitee against the consequences of strict liability involve an extraordinary shifting of the risk and may have great financial impact on the parties. Id. Thus, fairness dictates against imposing liability on an indemnitor unless the agreement clearly and specifically expresses the intent to encompass strict liability claims. Second, requiring parties to expressly state their intent to indemnify against strict liability claims prevents drafters from devis[ing] novel ways of writing provisions which fail to expressly state the true intent of those provisions and concealing that intent through the use of ambiguous language. Ethyl, 725 S.W.2d at 707. Such a requirement will in turn reduce the number of lawsuits to construe ambiguous indemnity agreements. See id. at 708. Finally, an express intent rule is consistent with the SAA's goal of worker safety. A railroad that can shift liability for violations of the SAA to an indemnitor through the use of general language in an indemnity clause will have less of an incentive to provide a safe work place. The indemnitor, because of the general language in the indemnity agreement, may be unaware of its prospective liability under the SAA. As a consequence, it may fail to fulfill its responsibility to promote worker safety. Instead, if parties must expressly state their intent to provide indemnity for strict liability claims, the party that assumes the duty of maintaining a safe work place will be aware of its responsibility and act accordingly. Thus, we hold that parties to an indemnity agreement must expressly state their intent to cover strict liability claims in specific terms. Because the indemnity agreement between HL & P and Santa Fe makes no mention of strict liability, it does not extend to claims for indemnity based on strict liability. Therefore, Santa Fe is not entitled to indemnity under the agreement.