Pioneer Energy Services Corp. v. Burlington Insurance Company as Subrogree of Premier Coil Solutions, Inc. ( 2020 )

Affirmed in Part, Reversed in Part, and Remanded, and Memorandum
Majority Opinion and Memorandum Concurring Opinion filed October 29,
2020.
In the
Fourteenth Court of Appeals
NO. 14-18-00879-CV
PIONEER ENERGY SERVICES CORPORATION, Appellant
v.
BURLINGTON INSURANCE COMPANY AS SUBROGREE OF PREMIER
COIL SOLUTIONS, INC., Appellee
On Appeal from the 127th District Court
Harris County, Texas
Trial Court Cause No. 2016-12120
MEMORANDUM MAJORITY OPINION
This case involves the enforceability and scope of an indemnity agreement.
Ruling on competing motions for summary judgment, the trial court determined
that appellant Pioneer Energy Services Corporation was contractually obligated to
indemnify and defend appellee Burlington Insurance Company as subrogee of
Premier Coil Solutions, Inc. for claims of negligence, gross negligence, and strict
products liability brought by a Pioneer employee against Premier. In three issues,
Pioneer argues that the indemnity clause does not meet fair-notice requirements,
relieving Pioneer of its obligation to indemnify, and that the clause did not impose
an independent duty to defend on Pioneer.
We conclude the trial court erred in determining that the indemnity clause
obligated Pioneer to indemnify or defend as to the employee’s
strict-products-liability claim and reverse the trial court’s judgment as to that
claim. We otherwise affirm the trial court’s judgment as challenged on appeal and
remand the case for further proceedings with instructions for the trial court to
render partial summary judgment in Pioneer’s favor in accordance with our
judgment.
I. BACKGROUND
Pioneer’s predecessor in interest, Go Coil, LLC, agreed to buy a coiled-
tubing unit from Premier.1 The purchase agreement comprises three proposals
signed on the same day, each containing an identical page after the signature page
titled “WARRANTY TERMS & CONDITIONS.” Paragraph 13 of the warranty
page states:
13. INDEMNITY (INCLUDING FOR NEGLIGENCE):
BUYER HEREBY ASSUMES AND AGREES TO
INDEMNIFY, DEFEND, PROTECT, SAVE, KEEP, AND
HOLD HARMLESS SELLER, ITS AGENTS,
EMPLOYEES, SUBCONTRACTORS, AND INVITEES
FROM AND AGAINST ANY AND ALL LOSSES,
DAMAGES, INJURIES, CLAIMS, CAUSES OF ACTION,
LIABILITIES, DEMANDS AND EXPENSES
(INCLUDING ATTORNEY FEES AND OTHER LEGAL
1
Pioneer later acquired Go Coil and assumed its contractual rights and obligations. The
parties stipulated that Pioneer is bound by the purchase agreement as Go Coil’s successor in
interest.
2
EXPENSES) OF WHATSOEVER KIND AND NATURE,
FOR INJURY TO, OR ILLNESS OR DEATH OF ANY
PERSON AND FOR ALL DAMAGE TO, LOSS OR
DESTRUCTION OF PROPERTY (COLLECTIVELY
LOSSES), RELATING TO, CONNECTED WITH IN
ANYWAY, ARISING OUT OF, OR ON ACCOUNT OF
THE GOODS OR SERVICES PURCHASED
HEREUNDER, INCLUDING, WITHOUT LIMITATION,
ANY SUCH LOSSES CAUSED OR OCCASIONED BY
ANY NEGLIGENT ACT OR OMISSION OF SELLER,
ITS OFFICERS, AGENTS, EMPLOYEES,
SUBCONTRACTORS, INVITEES OR LICENSEES. The
foregoing Indemnity is a material part of this transaction,
supported by and in consideration of a reduction in the purchase
price and is intended to apply notwithstanding the joint or
concurrent negligence of Seller.
A Pioneer employee filed a lawsuit alleging he had been injured by the
coiled-tubing unit and asserting causes of action for negligence, gross negligence,
and strict products liability against the manufacturer, Premier. Premier requested
that Pioneer defend and indemnify it in the employee’s lawsuit, but Pioneer did not
do so. Premier settled the lawsuit for $800,000.
Burlington, Premier’s liability-insurance carrier, filed this lawsuit as
Premier’s subrogee, seeking costs of settlement and defense of the employee’s
lawsuit from Pioneer. Burlington and Pioneer filed cross-motions for summary
judgment on the issues of whether Pioneer owed indemnity for the costs of
settlement and defense under the purchase agreement and, if not, whether the
agreement imposed a separate duty to defend. The trial court granted Burlington’s
motion for summary judgment “in all respects,” stating that the agreement
“contain[s] valid and enforceable defense and indemnity provisions that comply
with the fair notice requirements” and determining that Pioneer “breached the
agreements by failing to defend and indemnify” Premier. In its final judgment, the
3
trial court ordered that Burlington, as Premier’s subrogee, recover $1 million from
Pioneer, the amount stipulated by the parties as covering the costs of settlement
and defense of the employee’s lawsuit.2
II. ANALYSIS
A. Express-negligence test
In its first issue, Pioneer argues that the indemnity clause in the purchase
agreement is unenforceable because it does not meet the requirements of the
express-negligence test with regard to the employee’s claims for strict liability and
gross negligence.3 Risk-shifting provisions such as indemnity clauses must satisfy
two fair-notice requirements: (1) the express-negligence test and
(2) conspicuousness. Storage & Processors, Inc. v. Reyes, 134 S.W.3d 190, 192
(Tex. 2004); Littlefield v. Schaefer, 955 S.W.2d 272, 274 (Tex. 1997). Under the
express-negligence test, a party contracting for indemnity from the consequences
of its own negligence must express that intent in specific terms within the four
corners of the contract. Fisk Elec. Co. v. Constructors & Assocs., Inc., 888 S.W.2d
813, 814 (Tex. 1994). The express-negligence test was established by the supreme
court “to cut through the ambiguity” of indemnity provisions, thereby reducing the
need for satellite litigation regarding interpretation of indemnity clauses. Id.
(quoting Ethyl Corp. v. Daniel Constr. Co., 725 S.W.2d 705, 708 (Tex. 1987)).
The express-negligence requirement is not an affirmative defense but a rule of
contract interpretation and, accordingly, is determinable as a matter of law. Id.
2
The trial court’s final judgment states, “This order disposes of all parties and claims and
is therefore a final judgment.” See Lehmann v. Har-Con Corp., 39 S.W.3d 191, 192–93 (Tex.
2001).
3
Pioneer did not argue in the trial court, and does not argue here, that the indemnity
clause does not meet the express-negligence requirement regarding the negligence claim asserted
by the employee.
4
1. Strict liability
Pioneer first argues that the indemnity clause does not pass the
express-negligence test as to the employee’s claim of strict products liability.
Although titled express negligence, the test applies equally to indemnity for
strict-liability claims. See Houston Lighting & Power Co. v. Atchison, Topeka, &
Santa Fe Ry. Co., 890 S.W.2d 455, 458–59 (Tex. 1994) (applying express-
negligence test to strict-liability claim).4
In Houston Lighting & Power, the supreme court held an indemnity
agreement unenforceable as to strict-liability claims, concluding that when an
agreement “makes no mention of strict liability, it does not extend to claims for
indemnity based on strict liability.” Id. at 459. In reaching its conclusion, the
supreme court cited with approval Rourke v. Garza, in which the First Court of
Appeals denied indemnity for strict-liability claims to an equipment owner because
the indemnity clause at issue was “completely silent as to defects in the leased
equipment.” 511 S.W.2d 331, 341 (Tex. Civ. App.—Houston [1st Dist.] 1974),
aff’d, 530 S.W.2d 794 (Tex. 1975); see Houston Lighting & Power, 890 S.W.2d at
458 (discussing Rourke). Accordingly, the clause “‘did not clearly require’ the
lessee to indemnify the owner against strict products liability.” Houston Lighting &
Power, 890 S.W.2d at 458 (quoting Rourke, 511 S.W.2d at 341).
4
Pioneer points out that a case from this court decided after Houston Lighting & Power
states that “the express negligence doctrine does not apply to non-negligent actions.” English v.
BGP Int’l, Inc., 174 S.W.3d 366, 375 (Tex. App.—Houston [14th Dist.] 2005, no pet.); see also
DDD Energy, Inc. v. Veritas DGC Land, Inc., 60 S.W.3d 880, 885 (Tex. App.—Houston [14th
Dist.] 2001, no pet.) (“[T]he express negligence component of the fair notice requirements does
not apply where an indemnitee is seeking indemnification from claims not based on the
negligence of the indemnitee.”). Our court has since recognized that “the express-negligence rule
applies to indemnification for strict liability claims.” AVCO Corp. v. Interstate Sw., Ltd., 251
S.W.3d 632, 666–67 (Tex. App.—Houston [14th Dist.] 2007, pet. denied) (citing Houston
Lighting & Power, 890 S.W.2d at 459).
5
Here, as in Houston Lighting & Power, the indemnity clause does not
mention strict liability or products liability. See id. at 459. Burlington, citing cases
for the proposition that an indemnity provision does not need to use the word
“negligence” to cover negligence claims,5 argues that language in the indemnity
clause that “Buyer . . . agrees to indemnify . . . seller . . . from and against any and
all . . . causes of action . . . for injury to . . . any person . . . arising out of, or on
account of the goods . . . purchased hereunder” is sufficiently specific to cover the
strict-products-liability claim asserted here. We disagree. Houston Lighting &
Power makes no allowance for indemnity for strict-liability claims stemming from
provisions that do not use the term “strict liability.” See id. (when agreement
“makes no mention of strict liability, it does not extend to claims for indemnity
based on strict liability”).6 Even assuming an indemnity provision may cover strict
products liability without stating “strict liability” or “products liability,” the clause
at issue here includes no language, such as “defect” or “defective,” that might alert
5
See, e.g., Lehmann v. Har-Con Corp., 76 S.W.3d 555, 562 n.3 (Tex. App.—Houston
[14th Dist.] 2002, no pet.) (“Indeed, courts have held that the express negligence doctrine does
not require that the indemnity provision use the specific word ‘negligence.’”). But see, e.g., Lee
Lewis Const., Inc. v. Harrison, 64 S.W.3d 1, 21 n.13 (Tex. App.—Amarillo 1999) (“Though no
case we have found clearly states it, we nevertheless interpret Ethyl and its progeny as requiring
the parties to actually include the word ‘negligence’ or some synonym thereof in the
indemnification agreement before the express negligence rule is satisfied.”), aff’d, 70 S.W.3d
778 (Tex. 2001).
6
A federal court applying Texas law reached the same conclusion based on similar
language. In Air Products & Chemicals, Inc. v. Hillman Shrimp & Oyster Co., Air Products
sought indemnity from Hillman for strict-liability claims based on indemnity provisions stating
that “[Hillman] will defend, indemnify and save harmless [Air Products] from any and all losses,
damages and claims whatsoever which may arise from [Hillman’s] possession or use of the
Equipment” and covering “any form of action, lawsuit or claim . . . related in any way to the
Product or Equipment supplied by [Air Products].” No. H-07-4297, 2009 WL 10692113, at *7
(S.D. Tex. Feb. 17, 2009). Applying Houston Lighting & Power, the United States District Court
for the Southern District of Texas reasoned that “[n]othing in the language of either provision
states that Hillman expressly agrees to defend and indemnify Air Products for claims based on
strict liability,” and concluded that the agreement did not meet the express-negligence
requirement for strict-liability claims. Id.
6
the would-be indemnitor that it was assuming risk for future claims of strict
products liability. See Rourke, 511 S.W.2d at 341 (indemnity provision
unenforceable regarding strict products liability because provision was
“completely silent as to defects in the leased equipment”). We conclude that the
indemnity clause does not pass the express-negligence test regarding the
strict-liability claim at issue here.
2. All-or-nothing indemnity
Having concluded the indemnity clause does not encompass strict-liability
claims, we next address Pioneer’s argument that, “[i]f an indemnity agreement
covers some claims but not others, it is unenforceable [as to any claim] because
enforceability is determined as a matter of law from the pleadings, not from the
outcome of the underlying suit or a subsequent trial.” The resolution of this matter
determines to what extent we must address additional arguments concerning fair
notice.7
We begin by noting that we have not applied such a rule in the past. Instead,
when faced with provisions in which the express-negligence test bars indemnity for
some claims but not others, we have enforced the indemnity provision for claims
within the provision’s coverage while barring indemnity for claims outside its
coverage. See DDD Energy, 60 S.W.3d at 885 (although express-negligence test
barred indemnity for negligence, trial court erred by determining that indemnity
provision was unenforceable for other claims within provision’s scope).8
7
As above, we note that Pioneer does not argue that the indemnity clause does not cover
the employee’s negligence claim.
8
While the “other claims” in DDD Energy were not subject to the express-negligence
requirement as in our case, DDD Energy nonetheless presents the same question we are faced
with here: is an indemnity clause enforceable at all when one, but not all, claims asserted fall
outside the scope of the clause after application of the express-negligence test? See 60 S.W.3d at
885.
7
Pioneer argues that the supreme court’s decisions in Fisk and Houston
Lighting & Power support its position. We disagree. Fisk addressed the issue of
whether a separate duty to defend a claim may arise if the claim does not meet the
express-negligence test for indemnity, not the interplay of claims when some fall
within the scope of the indemnity clause and others do not. See 888 S.W.2d at
814–16. In Houston Lighting & Power, after the supreme court determined that the
indemnity provision in question did not meet the requirements of the
express-negligence test for strict-liability claims, it considered separately the
question of whether the indemnity provision covered comparative indemnity for
negligence claims. See 890 S.W.2d at 459. Noting the parties could have
contracted for indemnity for comparative negligence, the court determined they
had not done so with the specificity required by the express-negligence test. See id.
While the court determined that no indemnity was owed for comparative
negligence, it did not do so because the strict-liability claim had failed the
express-negligence test, as Pioneer asserts. See id. Rather, the court decided the
issue based on a separate analysis of the comparative-negligence claim under the
express-negligence test, an analysis that would have been unnecessary under the
all-or-nothing approach advocated by Pioneer. See id. We reject Pioneer’s
argument that because the indemnity clause does not cover strict-liability claims it
is unenforceable as to any claim.
3. Gross negligence
We move next to Pioneer’s argument that the indemnity clause does not pass
the express-negligence test for gross-negligence claims. Pioneer, however, did not
present this theory to the trial court in its summary judgment motion, so we cannot
consider it on appeal as a ground for reversal. Tex. R. Civ. P. 166a(c); Tex. R.
App. P. 33.1(a); see Madeksho v. Abraham, Watkins, Nichols & Friend, 57 S.W.3d
8
448, 453 (Tex. App.—Houston [14th Dist.] 2001, pet. denied) (“We do not
consider on appeal grounds not raised in the trial court in opposition to a summary
judgment motion.”) (citing City of Houston v. Clear Creek Basin Auth., 589
S.W.2d 671, 676 (Tex. 1979)).
Concluding our analysis of Pioneer’s first issue, we hold the trial court erred
in determining the indemnity clause passes the express-negligence test as to the
strict-products-liability claim at issue. We sustain Pioneer’s first issue in that
regard and overrule the remainder of Pioneer’s first issue.
B. Duty to defend
In its second issue, Pioneer contests Burlington’s argument that Pioneer
owed a separate duty to defend claims not meeting the express-negligence
requirement.9 Burlington argues that, because the indemnity clause states that
Pioneer will both “indemnify” and “defend” Burlington, Pioneer must reimburse
Burlington for costs of defense even if Burlington is not entitled to indemnity. In
Fisk, however, the supreme court rejected this logic. See 888 S.W.2d at 814–16.
Fisk, like our case, involves an indemnity clause that promises both to indemnify
and defend. Id. at 814. As here, the indemnitees argued that, even if the clause did
not meet express-negligence requirements for indemnity, it nonetheless imposed a
separate duty to pay the costs of defense. See id. at 814–15. The supreme court
held that, when the claim at issue is subject to the express-negligence test,
“[a]bsent a duty to indemnify there is no obligation to pay attorney’s fees.” Id. at
815 (explaining that to hold otherwise “would leave indemnitors liable for a cost
resulting from a claim of negligence which they did not agree to bear”).
9
While it is not entirely clear whether the trial court ruled on this argument, when
reviewing a summary judgment, “the court of appeals should consider all grounds that the trial
court rules on and may consider grounds that the trial court does not rule on in the interest of
judicial economy.” Cincinnati Life Ins. Co. v. Cates, 927 S.W.2d 623, 625 (Tex. 1996).
9
Burlington argues that this court’s decision in English compels a different
result. In English, this court distinguished Fisk on the grounds that Fisk only
involved claims encompassed by the express-negligence test. See English, 174
S.W.3d at 375 (citing Fisk, 888 S.W.2d at 814). By contrast, in English, there were
additional claims (including trespass) that were not subject to the test and from
which a separate duty to defend could arise. See id. Here, however, the only claims
at issue are subject to the express-negligence test, and accordingly this case is
governed by the reasoning of Fisk, not English. We conclude that Pioneer did not
owe Burlington costs of defense separate and apart from the obligation to
indemnify.
We sustain Pioneer’s second issue.
C. Conspicuousness
In its third issue, Pioneer argues that the indemnity clause is not sufficiently
conspicuous to provide fair notice. See Reyes, 134 S.W.3d at 192 (listing express
negligence and conspicuousness as fair-notice requirements). Like express
negligence, conspicuousness is a question of law. See Dresser Indus., Inc. v. Page
Petroleum, Inc., 853 S.W.2d 505, 509 (Tex. 1993). For a provision to be
conspicuous, “something must appear on the face of the [contract] to attract the
attention of a reasonable person when he looks at it.” Reyes, 134 S.W.3d at 192
(quoting Dresser, 853 S.W.2d at 508). In evaluating conspicuousness in the
fair-notice context, the supreme court has adopted the definition from the Uniform
Commercial Code (UCC) defining “conspicuous” as written in such a way that a
“reasonable person” against whom the provision is to operate “ought to have
noticed it.” Dresser, 853 S.W.2d at 510–11 (quoting UCC, Tex. Bus. & Com.
10
Code Ann. § 1.201(10)).10 Language may satisfy the conspicuousness requirement
by “appearing in larger type, contrasting colors, or otherwise calling attention to
itself.” Reyes, 134 S.W.3d at 192.
The indemnity clause here is one of fourteen numbered paragraphs on the
warranty page that appears after the signature page. While all of the paragraphs
have bolded headings written in all-capital letters, the indemnity clause is one of
only three paragraphs in which portions of the body of the paragraph is bolded and
all-capitalized, and is the only paragraph in which the majority of the text is printed
in such a manner. The bolding and capitalization of the indemnity clause weigh in
favor of conspicuousness. See UCC, Tex. Bus. & Com. Code Ann. § 1.201(10)
(provision conspicuous when language of body is in contrasting type); Amtech
Elevator Services Co. v. CSFB 1998-P1 Buffalo Speedway Office Ltd. P’ship, 248
10
At the time of Dresser, UCC section 1.201(10) defined “conspicuous” as follows:
A term or clause is conspicuous when it is so written that a reasonable person
against whom it is to operate ought to have noticed it. A printed heading in
capitals (as: Non-Negotiable Bill of Lading) is conspicuous. Language in the body
of a form is “conspicuous” if it is in larger or other contrasting type or color. But
in a telegram any stated term is “conspicuous”. Whether a term or clause is
“conspicuous” or not is for decision by the court.
Act of May 25, 1967, 60th Leg., R.S., ch. 785, § 1, sec. 1.201(10), 1967 Tex. Gen Laws
2343, 2349 (UCC, Tex. Bus. & Com. Code § 1.201(10), since amended). The current
version of Section 1.201(10) reads:
“Conspicuous,” with reference to a term, means so written, displayed, or
presented that a reasonable person against which it is to operate ought to have
noticed it. Whether a term is “conspicuous” or not is a decision for the court.
Conspicuous terms include the following:
(A) a heading in capitals equal to or greater in size than the surrounding
text, or in contrasting type, font, or color to the surrounding text of the
same or lesser size; and
(B) language in the body of a record or display in larger type than the
surrounding text, or in contrasting type, font, or color to the surrounding
text of the same size, or set off from surrounding text of the same size by
symbols or other marks that call attention to the language.
UCC, Tex. Bus. & Com. Code Ann. § 1.201(10).
11
S.W.3d 373, 378 (Tex. App.—Houston [1st Dist.] 2007, no pet.) (“[T]he
capitalized heading, followed by the language in all capitals, attracts the attention
of a reasonable person, and thus, the indemnity provision is conspicuous.”).
Pioneer argues that the indemnity clause is inconspicuous because the
warranty page it is on follows the signature page and includes thirteen other
paragraphs. While these factors weigh against conspicuousness, they do not
necessarily render a clause inconspicuous. See Akin v. Bally Total Fitness Corp.,
No. 10-05-00280-CV, 2007 WL 475406, at *2 (Tex. App.—Waco Feb. 14, 2007,
pet. denied) (mem. op.) (clause conspicuous although it appeared “on the back of
the contract, on the same page with twenty other provisions, all beginning with a
heading in all capital letters and bold face, parts of the body of those other
provisions also being in all capital letters or in bold face” when clause was bolded,
in larger type, and surrounded by box). Pioneer further argues that the small size of
the type used on the warranty page renders the indemnity clause inconspicuous. A
provision that is written in type so small it is “practically illegible” is
inconspicuous. Littlefield, 955 S.W.2d at 274–75 (provision in four-point font was
too small to be read and therefore inconspicuous). Here, however, the text,11 while
small, is not so small as to be illegible, although the small size of the text weighs
against conspicuousness. See id.; see also Matador Prod. Co. v. Weatherford
Artificial Lift Sys., Inc., 450 S.W.3d 580, 593 (Tex. App.—Texarkana 2014, pet.
denied) (“tiny print” on price estimate directing customer to website for indemnity
clause did not meet conspicuousness requirement).
Our review reveals some factors in favor of conspicuousness and other
factors against it. The capitalization and bolding of the indemnity clause draw
11
As best as we can tell from the reproduction in the record, the text of the indemnity
clause appears to be printed in six- to seven-point font.
12
attention to it, while the placement of the clause on the warranty page and the
small size of the type obscure it. Ultimately, we conclude a reasonable person
ought to have looked at all pages of the agreement, and on looking at the warranty
page, which was included in all three proposals comprising the agreement, ought to
have noticed the bolded, all-capitalized indemnity clause despite the relatively
small size of the type on that page. See Tex. Bus. & Com. Code Ann.
§ 1.201(b)(10) (clause is conspicuous when “a reasonable person against which it
is to operate ought to have noticed it”).
We overrule Pioneer’s third issue challenging the conspicuousness of the
indemnity clause.
III. CONCLUSION
We sustain Pioneer’s first issue in part and its second issue. We reverse the
portion of the trial court’s judgment granting Burlington’s motion for summary
judgment on the grounds that Pioneer owed Burlington indemnity and defense for
the employee’s strict-products-liability claim and implicitly denying Pioneer’s
motion for summary judgment on that same issue.12 We affirm the remainder of the
trial court’s judgment as challenged on appeal.
This court is authorized to render the judgment that the trial court should
have rendered. Tex. R. App. P. 43.3. Here, however, the trial court’s award was
based on costs of settlement and defense for all claims at issue, necessitating
further proceedings given that we have reversed the trial court’s judgment as to one
of those claims. See id. R. 43.3(a). Accordingly, we remand the case to the trial
12
While the trial court did not explicitly deny Pioneer’s motion for summary judgment,
“[w]hen parties present cross-motions that are opposed and mutually exclusive, an order that
grants one motion may implicitly deny the other.” Gen. Agents Ins. Co. of Am., Inc. v. El
Naggar, 340 S.W.3d 552, 557 (Tex. App.—Houston [14th Dist.] 2011, pet. denied) (citing
Walker v. Gutierrez, 111 S.W.3d 56, 60 n.1 (Tex. 2003)).
13
court with instructions for the trial court to render partial summary judgment in
Pioneer’s favor in accordance with our judgment and conduct additional
proceedings limited to determining the costs of settlement and defense. See id.
/s/ Charles A. Spain
Justice
Panel consists of Justices Zimmerer, Spain, and Hassan (Hassan, J., concurring).
14