Gilbane Building Co. v. Keystone Structural Concrete, Ltd. (Tex.App.—Houston, July 2007)
Once again, Texas courts’ hostility to contractual indemnities and strict adherence to the “express negligence” rule defeat the probable intentions of parties to a construction contract to allocate risk. In this case, Gilbane, the general contractor, required Keystone, a subcontractor, to (1) indemnify Gilbane for injuries arising out of Keystone’s work, and (2) procure $6 million of liability insurance (a $1 million primary policy and a $5 million umbrella) covering Gilbane as an additional insured. During construction, Keystone’s employee was hurt and sued Gilbane for negligence. The employee was barred from suing Keystone by the worker’s compensation bar. The case settled for $2,000,000, of which Keystone’s primary carrier paid only the first million. Gilbane and its insurer paid the second million.
Gilbane and its insurer then filed suit against Keystone and Keystone’s umbrella carrier to recover the million dollars it paid arguing: (1) Keystone breached the indemnity agreement in the Gilbane-Keystone contract; and (2) Keystone’s $5 million umbrella policy should have paid first before Gilbane’s coverage kicked in. The trial court granted summary judgment to Keystone on all allegations asserted by Gilbane, and Gilbane appealed.
The Express-Negligence Rule
The Gilbane-Keystone contract contained a contractual indemnity provision requiring Keystone to indemnify and hold harmless Gilbane for all claims resulting from Keystone’s performance failures “regardless of whether caused in part by a party indemnified hereunder.” Gilbane argued that this language expressed the parties’ agreement that Gilbane should be indemnified by Keystone if a claim arose in whole or part during Keystone’s work under the contract. Keystone countered by arguing that the contractual indemnity was not enforceable because the employee sued Gilbane solely for its own negligence, not Keystone’s, and the indemnity did not expressly indemnify Gilbane for its own sole negligence. Therefore, it did not comply with the express negligence test mandated by Texas law.
The Court agreed with Keystone. Under the express negligence rule, an intent to indemnify one of the parties from the consequences of its own negligence, must be specifically stated in the four corners of the document. Here, the court pointed out, only Gilbane was sued for negligence; Keystone was not sued. Therefore, the court concluded that the contractual language did not meet the express negligence test because it did not expressly provide that Keystone will indemnify Gilbane for Gilbane’s own negligence in the absence of any allegation that Keystone was negligent.
The court would not listen to Gilbane’s entreaties that the employee would have sued Keystone if the workers’ compensation laws had not barred suit against the employer. Citing Fisk Electric Co. v. Constructors & Associates. 888 S.W.2d 813 (Tex. 1994), the court noted that the Texas Supreme Court instructed courts to look only at the allegations in the pleadings, not actual facts, to determine the indemnitor’s obligation to defend an indemnitee. End of story.
Gilbane also argued that the overall intent of the contract required Keystone to protect Gilbane with at least $6 million in coverage before Gilbane or its insurance carrier would be involved. Keystone responded that Gilbane failed to specify that Keystone’s umbrella insurance would be primary to Gilbane’s insurance. Again, the court agreed with Keystone. Although the insurance specifications required Keystone to maintain an umbrella policy in the amount of $5 million, the court noted that the contract did not specify the priorities between Keystone’s insurance and any other insurance. To interpret the contract under Gilbane’s analysis, the court would have to add a provision stating that the umbrella policy would be primary to Gilbane’s insurance. The court declined to do so pointing out that parties should be held to the contract that they drafted.
Parties drafting indemnification and insurance procurement provisions under Texas law should be aware of these restrictions.