Will a Texas court enforce this clause against the drafter's own negligence, and does it need to be conspicuous?
A party seeking indemnity or release from the consequences of its own negligence must satisfy two fair-notice requirements, and compliance with each is a question of law for the court (Dresser). First, the express negligence doctrine: the intent must be expressed in specific terms within the four corners of the contract: Ethyl adopted it in place of the 'clear and unequivocal' test and held that a clause covering 'any loss ... caused by the negligence or carelessness of Contractor' fails it. Second, conspicuousness, on the Code standard: 'When a reasonable person against whom a clause is to operate ought to have noticed it, the clause is conspicuous': language in capital headings, in contrasting type or colour, or in an extremely short document qualifies; numbered paragraphs on the back of a work order without headings or contrasting type do not, and a clause that fails is 'without effect'. Both requirements apply to indemnity agreements and to releases that relieve a party in advance of responsibility for its own negligence, but neither applies 'when the indemnitee establishes that the indemnitor possessed actual notice or knowledge of the indemnity agreement' (Dresser n.2). Green Int'l held the Dresser requirements do NOT apply to a no-damages-for-delay clause, because such a clause shifts economic damages from a breach of contract rather than tort and negligence damages and is neither an indemnity (it shifts no third-party liability) nor a release (it neither extinguishes a cause of action nor bars a right of action). An ordinary damages cap that does not exculpate a party from its own future negligence falls on the same side of that line by the Court's reasoning, but no authority in this rule concerned a damages cap, and that extension is an inference from Green, not its holding.
The trap
A limitation-of-liability clause that reads fine in most states can be void in Texas if it is really an indemnity/release in disguise and fails express-negligence or conspicuousness. Conversely, over-applying this doctrine to every damages cap is its own error: Green Int'l draws the line, at clauses that 'operate to shift risk in an extraordinary way, such as exculpating a party from the consequences of its own future negligence', and it drew it for a no-damages-for-delay clause, not a cap. Two further things the headline hides: fair notice is a question of LAW, so it is decided by the court, not a jury; and it is excused altogether where the indemnitee proves the indemnitor had ACTUAL notice or knowledge of the provision, so a clause buried in small print can still bind a counterparty who is shown to have known it was there.
11 authorities
The words that state the rule
The express negligence doctrine provides that parties seeking to indemnify the in-demnitee from the consequences of its own negligence must express that intent in specific terms. Under the doctrine of express negligence, the intent of the parties must be specifically stated within the four corners of the contract. We now reject the clear and unequivocal test in favor of the express negligence doctrine. In so doing, we overrule those portions of Joe Adams & Son v. McCann Construction Co., Ohio Oil Co. v. Smith, and Mitchell’s, Inc. v. Friedman stating it is unnecessary for the parties to say, “in so many words,” they intend to indemnify the indemnitee from liability for its own negligence. Joe Adams & Son v. McCann Construction Co., 475 S.W.2d 721, 723 (Tex.1971); Ohio Oil Co. v. Smith, 365 S.W.2d 621, 624 (Tex.1963); Mitchell’s, Inc. v. Friedman, 157 Tex. 424 , 303 S.W.2d 775, 779 (1957). In adopting express negligence, we also overrule the three so-called exceptions to the clear and unequivocal test. See Fireman’s Fund, 490 S.W.2d at 922 . These exceptions were: (1) agreements in which the indemnitor undertakes to indemnify the indemnitee against liability for damages caused by defects in certain premises or from maintenance or operation of a specified instrumentality, Mitchell’s, Inc., 303 S.W.2d 775 ; Houston & T.C.R. Co. v. Diamond Press Brick Co., 111 Tex. 18 , 222 S.W. 204 (1920); (2) agreements made pursuant to situations where the indemnitor has complete supervision over the property and employees of the indemnitee in connection with performance of the contract, Spence & Howe Construction Co. v. Gulf Oil Corp., 365 S.W.2d 631, 637-38 (Tex.1963); and (3) agreements in which the indemnitor agrees to indemnify the indemnitee for all injuries sustained by the in-demnitor’s employees, Ohio Oil Co., 365 S.W.2d 621 ; James Stewart & Co. v. Mobley, 282 S.W.2d 290 (Tex.Civ.App.—Dallas 1955, writ ref’d). Previously, the exceptions were invoked by parties whose indemnity agreements failed to clearly and unequivocally express their intent. See, e.g., Dorchester Gas Corp. v. American Petrofina, Inc., 710 S.W.2d 541, 543 (Tex.1986). All three exceptions are dispensed with by our adoption of the express negligence doctrine. The contract between Daniel and Ethyl speaks to “any loss ... as a result of operations growing out of the performance of this contract and caused by the negligence or carelessness of Contractor....” Ethyl emphasizes the “any loss” and “as a result of operations” language to argue an intent to cover its own negligence. We do not find such meaning in those words. The indemnity provision in question fails to meet the express negligence test.
- case853 S.W.2d 505Dresser Indus., Inc. v. Page Petroleum, Inc.Tex.decided 1993read it at the source ↗
The words that state the rule
Therefore, we hold that the fair notice requirements of conspicuousness and the express negligence doctrine apply to both indemnity agreements and to releases in the circumstances before us
- case853 S.W.2d 505Dresser Indus., Inc. v. Page Petroleum, Inc.Tex.decided 1993read it at the source ↗
The words that state the rule
The fair notice requirements are not applicable when the indemnitee establishes that the indemnitor possessed actual notice or knowledge of the indemnity agreement.
- case853 S.W.2d 505Dresser Indus., Inc. v. Page Petroleum, Inc.Tex.decided 1993read it at the source ↗
The words that state the rule
today we overrule that portion of Jefferson and hold that compliance with both of the fair notice requirements is a question of law for the court
- case853 S.W.2d 505Dresser Indus., Inc. v. Page Petroleum, Inc.Tex.decided 1993read it at the source ↗
The words that state the rule
In both contracts, the provisions are located on the back of a work order in a series of numbered paragraphs without headings or contrasting type. 6 Furthermore, the contracts are not so short that every term in the contracts must be considered conspicuous. Therefore, we hold that these contractual exculpatory provisions are without effect since they do not comply with the fair notice requirement of conspicuousness.
- case853 S.W.2d 505Dresser Indus., Inc. v. Page Petroleum, Inc.Tex.decided 1993read it at the source ↗
The words that state the rule
We thus adopt the standard for conspicuousness contained in the Code for indemnity agreements and releases like those in this case that relieve a party in advance of responsibility for its own negligence. When a reasonable person against whom a clause is to operate ought to have noticed it, the clause is conspicuous. For example, language in capital headings, language in contrasting type or color, and language in an extremely short document, such as a telegram, is conspicuous.
The words that state the rule
First, a party's intent to be released or indemnified from its own negligence must be clear and unambiguous. Id.; Enserch Corp. v. Parker, 794 S.W.2d 2, 8 (Tex.1990); Ethyl Corp. v. Daniel Constr. Co., 725 S.W.2d 705, 708 (Tex.1987). Second, the clause must be "conspicuous" as defined under the Uniform Commercial Code. Dresser, 853 S.W.2d at 508-11 ; TEX. BUS. & COM.CODE § 1.201(10). *387 However, our holding in Dresser is explicitly limited to releases and indemnity clauses in which one party exculpates itself from its own future negligence.
The words that state the rule
In sum, we hold that the requirement of conspicuousness set forth in Dresser does not apply to no-damages-for-delay clauses. The court of appeals erred in concluding otherwise. Consequently, we must disregard the jury's finding of delay damages against Green because Solis waived delay damages when he signed the subcontracts containing the no-damages-for-delay provision.
The words that state the rule
Unlike the provision in Dresser, the subcontract agreement in this case provides in pertinent part: Contractor [Green] ... shall not be liable to the Subcontractor [Solis] for delay to Subcontractor's work by the act, neglect or default of the Owner, Contractor, action of workmen or others, or any cause beyond Contractor's control. This clause does not constitute the type of extraordinary risk-shifting found in Dresser. It is not an indemnity agreement because it does not shift Green's liability for third party claims to Solis. Dresser, 853 S.W.2d at 508 . Also, this clause is not a release as defined in Dresser because it neither "extinguish[es] the claim or cause of action" nor establishes "an absolute bar to any right of action on the released matter."
The words that state the rule
The distinction between Dresser and this case lies in the fact that Dresser concerned the shifting of tort and negligence damages, whereas the no-damages-for-delay clause shifts economic damages resulting from a breach of contract.
The words that state the rule
We noted in Dresser that most contract clauses operate to transfer risk in some way. Dresser, 853 S.W.2d at 508 . However, we were concerned with clauses that operate to shift risk in an extraordinary way, such as exculpating a party from the consequences of its own future negligence.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.