Construction Client Alert: "Texas Legislature Passes Bill that Could Void Certain Contractual Indemnity Agreements in Pipeline Construction Contracts"

On June 17, 2011 the Texas Legislature signed in to law HB 2093 which in effect will void certain contractual indemnity agreements and obligations for construction projects in Texas. This bill goes into effect on January 1, 2012 and could have a significant impact on pipeline construction contracts.

The bill could be interpreted to include pipeline projects as it defines construction contracts as including design, construction, alteration, renovation, repair or maintenance of a building, structure, appurtenance of "other improvement to or on public or private property" including excavation. Since 1995, well and mine services have been subject to the Texas Oilfield Anti-Indemnity Act (Chapter 127, Civil Practice and Remedies Code - "TOAA"). However "pipeline construction, maintenance or repair of oil, natural gas liquids or gas pipelines or fixed associated facilities" are specifically excluded by the anti indemnity act in CPRC 127. As a result, pipeline owners have been free to enter contracts requiring the contractor to indemnify the owner for the owner's negligence or even sole negligence.

While the exclusion in the bill states that it is not applicable to agreements subject to the TOAA, it does not discuss the pipeline exceptions to the TOAA. This may mean that owners and general contractors of pipeline projects can no longer enforce indemnity agreements in master service agreements and other contracts signed after the act's January 1, 2012 effective date for certain acts.

It is unclear if HB 2093 is intended to include pipeline construction. If HB 2093 is interpreted by courts to apply to pipeline projects, the exclusions to HB 2093 may be the only enforceable indemnity avenue remaining for pipeline construction projects. For example, the act does provide that it does not apply to indemnification claims for “the bodily injury or death of an employee of the indemnitor, its agent, or its subcontractor of any tier” as well as certain contracts for residential and public works projects.

As a precautionary measure, contracts should be reviewed and modified if necessary to avoid having the court void the indemnity clause. For a complete copy of the HB 2093, please see here.

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