U.S. District Court In Kansas (Applying Texas Law) Holds That Indemnity Clause Which Failed to Call Out Indemnitee’s Negligence Did Not Afford Indemnity for Attorneys’ Fees Even Where Indemnitee Sued for Negligence Was Found Not Negligent

Martin K. Eby Constr. Co., Inc. v. OneBeacon Ins. Co.,  
2012 U.S. Dist. LEXIS 131875 (D. Kan. Sept. 17, 2012)

Eby was the contractor for a project to build a water pipeline in Texas. KBR was the construction manager on the project. In the Indemnity Provision of the water pipeline project contract:

Eby agree[d] to indemnify and hold harmless KBR from and against any damages, claims, demands, suits, and judgment costs including attorney’s fees and expenses for or on account of damage to property directly or indirectly arising from or caused in connection with the work by Eby.”

Celanese, the owner of a methanol pipeline in the area near the project, sued Eby and KBR for negligence after the methanol pipeline leaked during the construction of the water pipeline. A jury determined that KBR was not liable to Celanese and that Eby’s actions caused the damage. But, KBR incurred attorney’s fees defending against the suit and sought to recover those fees from Eby under the Indemnity Provision.

The Texas Supreme Court has applied the express negligence test to determine whether an indemnity provision serves to indemnify an indemnitee from its own negligence. The Texas Supreme court has defined the requirements of the express negligence test in Ethyl Corp. v. Daniel Constr. Co., 725 S.W.2d 705 (Tex. 1987) and Fisk Elec. Co. v. Constructors & Assocs., Inc., 888 S.W.2d 813 (Tex. 1994). In Ethyl, the court held that a contract only indemnifies an indemnitee from the consequences of its own negligence if it is explicitly stated in the contract. In Fisk, the court reaffirmed the Ethyl holding and found that the express negligence test is a rule of contract interpretation rather than an affirmative defense. Thus, the Fisk court held that an indemnity provision will not be read to require indemnity for defense costs incurred in connection with a negligence claim unless the indemnity provision explicitly references indemnification for claims based upon negligence.

KBR argued that, unlike in Ethyl and Fisk, it sought to be indemnified for Eby’s negligence rather than KBR’s own negligence and that the lower court found that the damage to the methanol line was caused by Eby’s actions and not KBR’s actions. KBR also argued that the Indemnity Provision met the express negligence test. Eby countered that KBR sought indemnification for KBR’s negligence and that the Indemnity Provision did not protect KBR under that scenario. But, Eby did not address whether it believed the Indemnity Provision met the express negligence test.

The court affirmed the holding in Fisk and applied the express negligence test. Contrary to KBR’s contentions, the court interprets that KBR was seeking indemnification for KBR’s own acts. The court held that Eby was not obligated to indemnify KBR because the Indemnification Provision did not contain the word “negligence” or mention work done by KBR. Thus, ignoring the earlier determination that Eby’s actions caused the damage to the methanol line, the court held that the Indemnity Provision did not meet the express negligence test because it failed to clearly state that the intent was to indemnify KBR from KBR’s own negligence.

Lindsay J. Levine

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