Tutle & Tutle Trucking, Inc. v. EOG Resources, Inc.

Citations: 391 S.W.3d 240; 2012 Tex. App. LEXIS 9543; 2012 WL 5695585Docket: 10-11-00062-CV

Court: Court of Appeals of Texas; November 14, 2012; Texas; State Appellate Court

Original Court Document: View Document

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The Tenth Court of Appeals affirmed a summary judgment in favor of EOG Resources, Inc. against Tutle Trucking, Inc. regarding a duty to defend and indemnify EOG in a personal injury lawsuit filed by Archie Henderson, a Tutle employee. Henderson claimed he sustained severe injuries due to an incident involving a Sand King, owned and operated by Frac Source Services, Inc., while he was assisting in unloading sand. Following the lawsuit, Frac Source sought defense and indemnity from EOG under a separate master service contract. EOG subsequently demanded similar protections from Tutle based on provisions in a Master Services Contract (MSC) between EOG and Tutle. The relevant MSC clause obligates Tutle to protect, defend, indemnify, and hold harmless EOG and its affiliates from all claims, including those arising from negligence, without limitation or regard to the cause. The court's ruling confirmed that Tutle was indeed responsible for these obligations.

Company is obligated to protect, defend, indemnify, and hold harmless the Contractor Group from all forms of damage, loss, liability, claims, and litigation costs, regardless of cause, including strict liability or negligence. This indemnity extends to claims arising from the actions of Company’s agents, contractors, and their subcontractors related to property damage or personal injury. 

Paragraphs 6A and 6B of the MSC were presented in capital letters and a larger font, whereas paragraph 6E, which clarifies the application of the indemnity provisions, was not. Paragraph 6E specifies that indemnity agreements not related to the work under the contract are excluded, while those that are applicable must be common in the industry.

EOG sought defense and indemnity from Tutle based on these provisions in relation to the Henderson suit, leading Tutle to file a declaratory judgment action claiming no obligation to defend or indemnify EOG. Tutle alternatively argued that its insurance with Carolina Casualty covered any indemnity owed to EOG. EOG counterclaimed for a declaration of entitlement to defense and indemnity, asserting that Henderson was Tutle’s employee at the time of the incident and sought indemnity from Tutle for obligations to Frac Source. 

EOG moved for partial summary judgment, alleging breaches of contract by Tutle and Carolina, asserting their obligations to provide defense and indemnification in the Henderson suit, and claiming reimbursement for legal costs incurred since April 2008.

Tutle filed a motion for summary judgment, claiming it had no contractual duty to defend or indemnify Frac Source under the Master Service Contract (MSC) due to non-compliance with Texas law's fair-notice requirements, specifically the express-negligence test and conspicuousness. Tutle further argued it had no duty to defend or indemnify EOG regarding obligations owed to Frac Source in the Henderson lawsuit. The trial court denied Tutle's motion and granted EOG's, ruling that Tutle breached the MSC, had a contractual duty to defend and indemnify EOG and Frac Source in the Henderson suit, and owed EOG reimbursement for defense costs and indemnity. EOG's motion to sever claims against it was also granted, leading to an appeal.

The appellate review of summary judgment is de novo, requiring the movant to show no genuine issues of material fact exist and that they are entitled to judgment as a matter of law. When both parties file for summary judgment, the court evaluates evidence from both sides and renders the appropriate judgment. Tutle argues the trial court erred in granting summary judgment to EOG, asserting that the MSC provisions did not meet fair-notice requirements for enforceable indemnity obligations. EOG contends that the provisions meet these requirements and argues that Tutle judicially admitted compliance in the trial court.

The fair-notice doctrine necessitates that indemnity provisions meet two criteria: the express-negligence doctrine, which demands clear expression of intent to release liability for future negligence within the contract, and conspicuousness, which requires that contract language be noticeable to prevent surprise waivers of rights. The determination of conspicuousness is a legal question, and indemnity agreements are interpreted according to standard contract construction rules, focusing on the parties' intent.

Tutle contends that paragraph 6 of the Master Service Contract (MSC) lacks conspicuousness as a legal matter. The MSC indicates that Tutle served as a contractor on EOG’s project and specifically outlines the parties' responsibilities to defend and indemnify against various liabilities in paragraphs 6A and 6B, which are presented in capital letters and a larger font. In contrast, paragraph 6E, crucial for clarifying indemnity responsibilities related to Frac Source’s alleged liabilities, is neither capitalized nor larger in font, although its placement suggests its importance. While Tutle acknowledges the conspicuousness of paragraphs 6A and 6B, it argues that paragraph 6E is not conspicuous. The Business and Commerce Code defines "conspicuous" as language that a reasonable person should notice, without necessitating both heading and text in larger or contrasting type. Court rulings support this interpretation, concluding that paragraph 6E is sufficiently conspicuous to provide fair notice.

The 'pass through' provision in the contract is clearly numbered and capitalized, making it distinct from other provisions, which should have made it noticeable to a reasonable person. Positioned alongside paragraphs 6A and 6B, which address defense and indemnification duties, paragraph 6E is prominently located on the same page and in a larger font, unlike the inconspicuous indemnity provisions in previous cases where they were hidden or poorly formatted. Consequently, the argument that paragraphs 6A-6E fail to meet the conspicuousness requirement is rejected.

Regarding the express-negligence doctrine, Tutle contests that paragraphs 6A and 6E do not fulfill this test, claiming paragraph 6E is vague and fails to specify indemnification for Frac Source's negligence. EOG counters that the doctrine does not apply as it does not seek indemnity for its own negligence, asserting that the provision is clear and unambiguous. The express-negligence rule demands that any intent to absolve a party from its own future negligence must be explicitly stated within the contract. Courts have affirmed that this doctrine is inapplicable when the indemnitee, like EOG, does not seek indemnity for its own negligence.

EOG is pursuing indemnification from Tutle due to alleged negligence by Frac Source, contending that the express-negligence doctrine is not applicable. Tutle argues that paragraph 6E of their contract constitutes an extraordinary risk transfer, thereby making the express-negligence doctrine relevant, as supported by Texas case law. Both parties recognize the lack of precedent regarding fair-notice requirements for 'pass through' provisions, but EOG asserts that the language of paragraph 6E does not violate the express-negligence doctrine's standards of clarity. EOG references a similar case, EOG Resources, Inc. v. Badlands Power Fuels, L.L.C., where a federal court upheld a 'pass through' provision in a master service contract, concluding that it required Badlands to defend and indemnify EOG. The current court also finds the language of paragraph 6E clear, rejecting Tutle's claim that it lacks specificity. Furthermore, Tutle argues that EOG failed to provide evidence linking the master service contract to the facts of the Henderson suit, particularly regarding the nature of Henderson's injury. The court disagrees, citing that the master service contract governs all contractor work and invalidates any non-conforming agreements.

Tutle admitted that Henderson was injured while working on an EOG project. In its argument against the applicability of the Master Service Contract (MSC) to Henderson's injuries, Tutle referenced a recital stating its business involves "transporting dry bulk commodity." Texas law dictates that recitals do not override operative clauses unless they are ambiguous, as established in relevant case law. The operative clause clearly delineates the agreement's extent, while the recital merely describes Tutle's business intent. Although titles of contract provisions can inform interpretation, the primary focus must remain on the operative clauses. The conclusion reached is that Henderson's injuries fall under the MSC's scope, and the trial court correctly determined that the MSC applies and meets the fair-notice doctrine. The trial court's decision to grant EOG’s summary judgment motion was affirmed, and Tutle's argument was overruled. The opinion was filed on November 15, 2012.