Opinion ID: 2776071
Heading Depth: 3
Heading Rank: 3

Heading: Absence of a Reference to Kellogg’s Fault

Text: Though the indemnity clause applies, it does so implicitly rather than explicitly because there is no mention of coverage for claims involving the 8 indemnitee’s fault. Thus, we must ask: Does the fair notice rule apply when the indemnity clause covers the indemnitee’s fault implicitly, but not explicitly? We conclude the fair notice rule applies in these circumstances. The indemnity clause covers all claims arising directly or indirectly from Eby’s acts. This language is broad enough to cover claims involving Kellogg’s failure to take action once Eby damaged the pipeline. Because the indemnity clause covers claims against Kellogg for its own fault, the fair notice rule applies under Texas law. The rule applies even though the indemnity clause doesn’t explicitly mention claims involving Kellogg’s fault. In applying the fair notice rule in these circumstances, we are guided by two of the Texas Supreme Court’s decisions applying a related rule (the “express negligence rule”): Ethyl Corp. v. Daniel Construction Co., 725 S.W.2d 705 (Tex. 1987), and Fisk Electric Co. v. Constructors & Associates, Inc., 888 S.W.2d 813 (Tex. 1994). In Ethyl, the court held that the express negligence rule applied when the claims involved the indemnitee’s fault. Ethyl Corp., 725 S.W.2d at 708. The promise in Ethyl broadly covered damages incurred because of 9 the indemnitor’s conduct. Id. at 707. 1 But the claims involved the indemnitee’s fault. Id. Under the express negligence rule, a party seeking indemnity from the consequences of its own negligence must specifically express that intent in the four corners of the contract. Id. This restriction applied even though the contractual indemnification clause had not referred to coverage for the indemnitee’s fault. Id. Thus, the Texas Supreme Court concluded that the express negligence rule applies when an indemnity clause implicitly covers claims involving the indemnitee’s fault. Id. The indemnity language in Fisk was similar. There the clause stated that Fisk “‘shall indemnify . . . [Constructors] . . . from and against all claims, damages, losses, and expenses, including but not limited to attorney’s fees . . .’ arising out of or resulting from the performance of Fisk’s work.” Fisk Elec. Co. v. Constructors & Assocs., Inc., 888 S.W.2d 813, 814 (Tex. 1994). Though the indemnity clause did not mention the 1 The Ethyl agreement stated: 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. Ethyl Corp., 725 S.W.2d at 707. 10 indemnitee’s (Constructors’) fault, the Texas Supreme Court applied the express negligence rule because the claims involved the indemnitee’s fault. Id. at 815. Our case resembles Ethyl and Fisk. 2 Eby’s promise of indemnity does not mention Kellogg’s fault. Instead, the clause promises to indemnify Kellogg for money spent defending claims caused by Eby’s conduct. This language is broad enough to reach the pipeline owner’s claims that ● resulted indirectly from Eby’s conduct ● even though the coverage is for claims involving Kellogg’s own actions. Under Ethyl and Fisk, the fair notice rule can cover promises of indemnity bearing no mention of claims involving the indemnitee’s fault. 2 Kellogg relies on English v. BGP International, Inc., 174 S.W.3d 366 (Tex. App. 2005). Kellogg’s Opening Br. at 22. There the court held that the fair notice rule did not apply, distinguishing Fisk. English, 174 S.W.3d at 375. The court explained that in Fisk, the express negligence rule applied because the only claim against the indemnitee was based on its negligence. Id. In English, however, the only claims against the indemnitee were based on the indemnitor’s negligence, not the indemnitee’s. Id. As discussed in the text, the distinction in Fisk applies equally here. Like the indemnity clause in Fisk, our clause serves to indemnify the indemnitee (Kellogg) for any claims resulting from the indemnitor’s (Eby’s) acts. But, like the claimant in Fisk, our indemnitee (Kellogg) is being sued only for its own misconduct, not the indemnitor’s (Eby’s). Thus, Kellogg’s reliance on English is misplaced. 11 Thus, we must apply the fair notice rule even though the indemnity clause does not refer to claims involving the indemnitee’s (Kellogg’s) fault. B. The Requirements of the Fair Notice Rule We apply the fair notice rule to decide if the indemnity clause can be enforced. Under this rule, promises to indemnify a party for its own fault must be expressly stated and conspicuous. See Dresser Indus., Inc. v. Page Petroleum, Inc., 853 S.W.2d 505, 508 (Tex. 1993). C. Applicability of the Fair Notice Rule to the Pipeline Owner’s Claims Kellogg has sought indemnity for its fees and expenses to defend five claims: ● fraud, ● nuisance, ● restitution, ● violation of a federal environmental statute, and ● violation of a state environmental statute. The fair notice rule covers application of the indemnity clause for each claim. 12 1. Fraud The parties debate the application of the fair notice rule to intentional torts, like fraud. We conclude that the fair notice rule applies to contractual indemnification for fraud. The Texas Court of Appeals has held that the fair notice rule restricts clauses indemnifying a party for its intentional torts. Hamblin v. Lamont, 433 S.W.3d 51, 57 (Tex. App. 2013). Though this holding does not bind us, it does provide guidance. RSR Corp. v. Int’l Ins. Co., 612 F.3d 851, 857-58 (5th Cir. 2010). The Texas court’s reasoning makes sense: If Texas public policy restricts indemnity clauses covering a party’s negligence, there would be even greater reason to restrict indemnity for a party’s intentional wrongdoing. Kellogg denies the applicability of the fair notice rule to claims involving intentional torts, relying on DDD Energy, Inc. v. Veritas DGC Land, Inc., 60 S.W.3d 880 (Tex. App. 2001), and English v. BGP International, Inc., 174 S.W.3d 366 (Tex. App. 2005). Kellogg’s Opening Br. at 33 n.9; Kellogg’s Reply Br. at 9. In these cases, however, the fair notice rule didn’t apply because the contracts indemnified the indemnitees for the indemnitors’ intentional torts, not the indemnitees’. DDD Energy, Inc., 60 S.W.3d at 882; English, 174 S.W.3d at 369. As discussed above, 13 our indemnity clause covered claims involving the indemnitee’s (Kellogg’s) torts. Thus, DDD Energy and Veritas do not affect our issue. In these circumstances, we take our guidance from the Texas Court of Appeals and conclude that the fair notice rule applies to the claim against Kellogg for fraud. 2. Nuisance Kellogg was sued not only for fraud, but also for nuisance. That claim required proof of ● negligent or intentional invasion of interests or ● abnormal conduct out of place in the surroundings. City of Tyler v. Likes, 962 S.W.2d 489, 503 (Tex. 1997). Regardless of the claimant’s method of proof, the fair notice rule would apply. Under Texas law, the fair notice rule applies equally to claims involving negligence, 3 intentional conduct, 4 and abnormal activity (strict liability). 5 Therefore, the rule would apply to all variants of a nuisance 3 See Leonard v. Aluminum Co. of Am., 767 F.2d 134, 137 (5th Cir. 1985) (applying Texas law). 4 See part II(C)(1), above. 5 See Hanson Aggregates W., Inc. v. Ford, 338 S.W.3d 39, 46 (Tex. App. 2011) (describing nuisance, based on activity out of place in the surroundings, as “essentially a form of strict-liability nuisance”); see also Hous. Lighting & Power Co. v. Atchison, Topeka, & Santa Fe Ry. Co., 890 14 claim. In these circumstances, we conclude that the fair notice rule applies to the pipeline owner’s claim against Kellogg for nuisance. 3. Federal and State Environmental Statutes The owner of the methanol pipeline also sued Kellogg for violation of ● the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 94 Stat. 2767, as amended, 42 U.S.C. §§ 9601 et seq. (“C.E.R.C.L.A.”) and ● the Texas Solid Waste Disposal Act, Tex. Health & Safety Code Ann. §§ 361.001-.992 (“S.W.D.A.”). These claims also fall under Texas’s fair notice rule. C.E.R.C.L.A. and the S.W.D.A. apply to owners, operators, and arrangers. 42 U.S.C. § 9607(a)(1), (a)(3); Tex. Health & Safety Code § 361.271(a)(1), (a)(3). For owners and operators, the statutes create strict liability. See Celanese Corp. v. Martin K. Eby Const. Co., 620 F.3d 529, 532 (5th Cir. 2010). But the pipeline owner didn’t suggest that Kellogg was an owner or operator of the pipeline; the pipeline owner characterized Kellogg as an “arranger.” Kellogg could qualify as an “arranger” only if it had taken “intentional steps to dispose of a hazardous substance.” S.W.2d 455, 459 (Tex. 1994) (“[W]e hold that parties to an indemnity agreement must expressly state their intent to cover strict liability claims in specific terms.”). 15 Burlington N. & Santa Fe Ry. Co. v. United States, 556 U.S. 599, 611 (2009). Based on this definition of “arranger,” the parties disagree over the characterization of these claims: Kellogg says they involve intentional torts; Eby says they involve strict liability. But we have already concluded that Texas’s fair notice rule applies to both types of claims. Thus, we need not decide whether the pipeline owner’s claim involves strict liability or an intentional tort. Either way, the fair notice rule would apply.