Opinion ID: 2429828
Heading Depth: 2
Heading Rank: 4

Heading: Anti-Indemnity Statute

Text: The Texas Oilfield Anti-Indemnity Statute, Tex.Rev.Civ.Stat.Ann. art. 2212b (now codified and amended at Tex.Civ.Prac. & Rem.Code §§ 127.001-007), provides that an agreement pertaining to an oil or gas well is void if it purports to indemnify a party from loss or liability for damage arising out of its own negligence. [11] Prior to the enactment of Article 2212b in 1973, many oil companies and oil well operators had hold harmless agreements with oil well drilling and service contractors. These agreements generally required the contractors to indemnify the operators for losses caused by the negligence of the contractor, and often for the negligence of the operator and third parties as well. Many believed that such agreements placed an undue financial burden on what were perceived to be small contractors with less bargaining power than the operators with whom they were negotiating contracts. See House Interim Study Committee on Hold Harmless Agreements, Report, 63rd Leg., at 3-8 (1973) [hereinafter House Study Committee]. In 1973, the legislature attempted to cure this perceived inequity by enacting Article 2212b, which prohibits agreements that indemnify a party for its own negligence. The court of appeals held that under the statute, the additional insured provision of HB-5357 is facially invalid because it makes NL indemnify Getty for Getty's own negligence. [12] It reasoned: [T]he effect of upholding [the provision] would be to allow Getty to avoid liability for its sole negligence. This result ... contravene[s] the statutory goal of prohibiting agreements allowing a party to avoid responsibility for the results of its own negligence. 819 S.W.2d at 914. Getty argues that the court of appeals erred because the provision at issue is an additional insured provision, and the Anti-Indemnity Statute only applies to indemnity provisions, which are different. Prohibited indemnity provisions make the indemnitor (NL) liable for the indemnitee's (Getty's) negligence. Additional insured provisions, on the other hand, make the insurance-purchaser's insurers (INA and Youell) liable for the loss caused by the insured's (Getty's) negligence. The insurance-purchaser is responsible only for paying the insurance premiums, presumably far less than the actual loss. Moreover, the cost of premiums is certain and exact. Thus, contractors are still protected by the Anti-Indemnity Statute from large and uncertain liabilities caused by an indemnitee's negligence. Respondents argue that recognizing a distinction between the indemnity and insurance provisions would allow Getty to accomplish indirectly what it otherwise could not achieve directly: avoiding liability for its own negligence. Section 5 of the Anti-Indemnity Statute specifically provides: Each party to an agreement defined in Section 3 of this Act shall be responsible for the results of his own actions and for the actions of those persons over whom he exercises control. They contend that if the additional insured provision of this contract is not rendered unenforceable, Getty will be able to evade responsibility for its actions, in contravention of this statutory command. [13] NL, in particular, argues that under § 4(c) of article 2212b, the burden of procuring insurance may be shifted only when the insurance supports an obligation to provide indemnity against claims for injury to the contractor's own employees. Because Duncan was an independent contractor working for Getty, and not an NL employee or contractor, this limited exception does not authorize the insurance shifting scheme of the contract. We conclude that section 5 of article 2212b simply states the policy behind the prohibition of indemnity agreements, and does not have substantive effect. Section 5, if interpreted as broadly as respondents urge, would prohibit a party from obtaining its own liability insurance, clearly not the intent of the statute. We further conclude that the language of article 2212b applies exclusively to indemnity agreements. Section 4(c) does not prohibit insurance shifting schemes that do not fall within its parameters; rather it permits certain indemnity agreements if they are supported by liability insurance and meet the section's other requirements. Art. 2212b, § 4(c) (now codified and amended at Tex.Civ.Prac. 127.005). The Anti-Indemnity statute does not purport to regulate any agreements for the purchase of insurance unless they are in support of indemnity agreements. Respondents argue that the additional insured provision of HB-5357 does support the indemnity agreement which follows it. They cite Fireman's Fund Ins. Co. v. Commercial Standard Ins. Co., 490 S.W.2d 818, 823 (Tex. 1972), in which we reasoned that the liability insurance provision of a contract should be construed as assuring performance of an indemnity agreement also contained in the contract. While we express no opinion as to whether Getty is an additional insured under NL's insurance policies, we agree with the court of appeals that the contract in the instant case is significantly different from that in Fireman's Fund. See 819 S.W.2d at 912. The indemnity provision in paragraphs 3-4 of HB-5357 is supported by an insurance provision separate from and additional to the additional insured provision in paragraphs 1-2. The last sentence of paragraph 3 provides that [fjnsurance covering this indemnity agreement shall be provided by Seller. [14] This provision, not the first sentence of paragraph 2, which begins All insurance coverage carried by Seller ... shall extend to and protect Purchaser, supports the indemnity agreement. Moreover, the additional insured provision requires that NL extend insurance coverage to Getty whether or not required [by the other provisions of the contract]. Thus, the additional insured provision of the contract does not support the indemnity agreement, but rather is a separate obligation. We disagree with the concurring and dissenting opinion that the contract is susceptible to any other reasonable interpretation. The additional insured provision, which does not support an indemnity agreement, is not prohibited by the language of the Anti-Indemnity Statute. Respondents also argue that the three other states having oilfield anti-indemnity statutes have not permitted insurance-purchasing agreements like the one in this case. [15] See Babineaux v. McBroom Rig Bldg. Svc, Inc., 806 F.2d 1282, 1284 (5th Cir.1987) (applying Louisiana law); Nesom v. Chevron U.S.A., Inc., 633 F.Supp. 55, 59 (E.D.La.1984); Amoco Prod. Co. v. Action Well Serv., Inc., 107 N.M. 208, 755 P.2d 52, 55 (1988); Murray v. Trunkline Gas Co., 544 So.2d 28, 32 (La.Ct.App.1989). Cf. Mountain Fuel Supply Co. v. Emerson, 578 P.2d 1351, 1354 (Wyo.1978) (validity of insurance provision not reached, but court expressed doubt that such a provision would be valid). [16] Respondents urge that we follow these jurisdictions, particularly New Mexico, whose oilfield anti-indemnity statute influenced the passage of the Texas statute. See House Study Committee, supra, at i, 7. These cases, however, are not dispositive of the case before us. In Amoco, the insurance provision in dispute was directly in support of a prohibited indemnity agreement. 755 P.2d at 53. As discussed, the additional insured provision of HB-5357 is a separate covenant and does not support an indemnity agreement. [17] The Louisiana cases are distinguishable because that state's Anti-Indemnity statute expressly prohibits additional insured clauses that shift the burden of insurance. La.Rev.Stat.Ann. § 9:2780(G) (West 1986). See also Babineaux, 806 F.2d at 1284 n. 2; Owen L. Anderson, The Anatomy of an Oil and Gas Drilling Contract, 25 Tulsa L.J. 359, 424 (1990). Thus, the Louisiana statute is broader than the Texas statute, which only prohibits certain indemnity agreements. Tex.Rev.Civ.Stat. art. 2212b § 2 (now codified and amended at Tex. Civ. Prac. 127.003); see also John M. Battiato & Joel W. Gilbertson, The Changing Insurance MarketWho Will Bear the Risks?, 32 Rocky Mtn.Min.L.Inst. § 17.04 at 17-18 (1986). If our legislature desired to expand the Texas Anti-Indemnity Act to the breadth of the Louisiana statute, it could have done so. Because it did not, this Court should not interpret the statutory language to include such a restriction. Respondents argue that the practical effect of the additional insured provision in HB-5357 is to indemnify Getty by relieving it of responsibility for its sole negligence, and that it thus violates the intention of the Anti-Indemnity statute. While we do not deny the effect of insurance coverage, we decline to expand the language of our Anti-Indemnity statute to encompass insurance procurement provisions that are not actually indemnity agreements and that do not directly support indemnity agreements. Rather, we construe the language of the statute strictly to permit parties to contract freely with regard to agreements not covered by the statutory language. Thus, the additional insured provision of HB-5357 is not covered by the Anti-Indemnity statute.