More (Or Less?) on Indemnity: A Brief Primer on Texas Construction Anti-Indemnity Act

July 26th, 2020 By Eric S. Peabody

The Texas Construction Anti-Indemnity Act, codified in Subchapter C of Chapter 151 of the Texas Insurance Code, renders void certain construction indemnity agreements that purport to indemnify the indemnitee for its own fault, even if that fault is shared or contributory. While most states now have some type of anti-indemnity statute, Texas is one of only a handful of states whose statutes void related additional-insured procurement and policy provisions as well.

The Act applies to any “construction contract” for a “construction project,” terms that are broadly defined to include not just original construction, but also “remodeling, maintenance, or repair of improvements to real property” other than  “a single family house, townhouse, duplex, or land development directly related thereto.” Tex. Ins. Code § 151.001.  The Act applies to contracts related to a prime contract entered into after January 1, 2012.  Although the Act has not been widely construed by Texas courts, its plain language renders an indemnity agreement “void and unenforceable as against public policy to the extent that it requires an indemnitor to indemnify, hold harmless, or defend a party, including a third party, against a claim caused by the negligence or fault, the breach or violation of a statute, ordinance, governmental regulation, standard, or rule, or the breach of contract of the indemnitee” or any agents or parties under the indemnitee’s control except the indemnitor and its employees, agents, and subcontractors. Tex. Ins. Code § 151.102.  The accompanying insurance section renders void and unenforceable any “provision in a construction contract that requires the purchase of additional insured coverage, or any coverage endorsement, or provision within an insurance policy providing additional insured coverage . . . to the extent that it requires or provides coverage the scope of which is prohibited under this subchapter.” Tex. Ins. Code § 151.104. The insurance prohibition does not apply to certain consolidated insurance programs. Id.

There are several important exceptions to the Act. In addition to contracts related to residential projects excluded from the definition of “construction project,” the Act does not apply to a claim “for the bodily injury or death of an employee of the indemnitor, its agent, or its subcontractor of any tier.” Tex. Ins. Code § 151.103. Certain other contracts, e.g. public works for a municipality, are also excluded from its purview.  Tex. Ins. Code § 151.105. Although it should not arise often in the case of independent contractor relationships, the Act would not preclude a subcontractor’s indemnity obligation to the general contractor if the general contractor’s liability were wholly vicarious, i.e. not based on the general contractor’s own negligence.  Additionally, even if vicarious liability were not ultimately viable in this situation, an allegation of vicarious liability for the indemnitor could potentially trigger a duty to defend in certain cases because of the eight-corners rule.

Takeaways: Anti-indemnity statutes vary widely in their scope and application. Despite Texas’s Act being on the books for more than eight years and ample speculation on its scope and effect by commentators, court opinions interpreting the Act—particularly the additional insured provisions—remain scarce. Nevertheless, contracting parties and their insurance carriers need to understand and account for the significant risk-shifting provisions of the Act.