Consider the following scenario that frequently plays out in contract negotiations: You have spent days (if not weeks) going back and forth with the opposing party ironing out the terms of a lucrative deal. The bulk of the negotiating has revolved around important issues such as payment terms, default, and cancellation protocols. You even have the lawyers duke it out over attorney’s fees and choice of law provisions for good measure. But just when you thought that the final draft was ready to be circulated, you realize that the topic of indemnity was not addressed. Since you do not want the deal to be derailed by discussion of such a touchy topic, you decide to just include standard boilerplate language where both parties agree to indemnify each other for any negligence committed by the indemnifying party. After all, the intent is for the other party to indemnify you if they breach any applicable duty stemming from this agreement.

Although the inclusion of such mutual indemnity provisions is the norm rather than the exception, the protection you think you bargained for will likely be unavailable to you if you find yourself sued as a result of the actions of the other party. For example, if you are a contractor who is sued due to the negligence of a subcontractor, your first inclination will be to demand that the subcontractor indemnify and defend you in the lawsuit based on the indemnity provision in your contract. However, if your indemnity provision consists only of rinse and repeat “standard” language, you may be out of luck in seeking recourse from the subcontractor. This is because Texas law is quirky when it comes to contractual indemnification, and the courts in this state have largely found reasons to invalidate all but the most carefully drafted indemnity provisions. In the above example, even though you were named as a defendant through no fault of your own, Texas law still considers you as a party that is accused of being negligent. It does not matter if you will ultimately prevail at trial. The focus is on what you are being accused of at the moment you are sued. Therefore, to request indemnity from the subcontractor, you would have to point to a provision in the contract that entitles you to indemnity for your own negligence. Of course, this may sound counterintuitive because from your vantage point, you are not asking to be indemnified for your own negligence because you did not do anything wrong! Nevertheless, Texas law disfavors contractual indemnity agreements and puts the onus on the parties to clearly spell out what their intent is when drafting these provisions. Therefore, an enforceable indemnity provision would require the subcontractor to indemnify you for any reason, including your own negligent acts. Obviously, asking the other party to agree to indemnify you for your own negligence can be a deal breaker when you are about to finalize an agreement. Oftentimes it comes down to a risk/reward analysis weighing the benefits of finalizing a deal versus the likelihood that indemnification issues will arise in the future. Even if you conclude that the standard boilerplate language will have to suffice, not all hope is lost. If you have a good business relationship with the other party, they will sometimes agree to indemnification even if the agreement is not technically enforceable. But make sure you always have a clear understanding of who is on the hook before finalizing that contract.

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