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The Basics on Requirements for Contractual Indemnity

By Kacy Dusek | Jun 30, 2016
The Basics on Requirements for Contractual Indemnity image

Indemnity provisions shift the burden of the risk of potential negligence to another party. Due to the potential harm associated with this shifting burden, the courts in Texas have imposed the Fair Notice Requirement in order to enforce such agreements Dresser Indus., Inc. v. Page Petroleum, Inc., 853 S.W.2d 505, 508-509 (Tex. 1993). The Fair Notice Requirement is a fairly cut and dry two (2) part test:

1) The Express Negligence rulerequires “that a party seeking indemnity from the consequences of its own negligence must express that intent and clearly state that it is seeking indemnity for its own negligence, with the four corner of the contract.” Ethyl v. Daniel Const. Co., 725 S.W.2d 705, 707-708 (Tex. 1987). Further cases have concluded that where indemnity provisions that do not clearly state the intent of the parties WITHIN the contract are unenforceable as a matter of law. In one such instance, an indemnity clause was held unenforceable where the word “negligence” was not used in the indemnity provision. The court further held that in this case, the shifting risk had to be implied rather than being clear within the four corners of the contract and thus failed the express negligence test. Glendale Const. Services, Inc. v. Accurate Air Systems, Inc., 902 S.W.2d 536 (Tex. App.–Houston [1st Dist.] 1995, writ denied).

2) The Conspicuousness requirement “demands that significant terms must appear on the face of the agreement in such a way as to attract the attention of a reasonable person.” Dresser, 853 S.W.2d at 508. Texas courts have held that indemnity provisions printed in typeface that is: larger than other type contained in the contract, printed in bold and capitalized, and/or in a contrasting color is conspicuous and is therefore enforceable. Littlefield v. Schaefer, 955 S.W.2d 272, 274-275 (Tex. 1997).

The existence of the Fair Notice Requirement is there to ensure that both parties to a contract are aware of the shifting burden of risk taken off of a potentially negligent party. Through the use of express negligence and conspicuousness, it is ensured that the indemnity provision is not hiding in plain sight within the contract.