Texas Indemnity and Limitation-of-Liability Clauses: Drafting That Holds Up

By Trenton Roberts and Rachel Jones

An indemnity clause is a risk transfer, and in Texas a risk transfer only works if it follows rules the Texas Supreme Court has spelled out over several decades. We regularly see a Texas indemnity clause copied from a form written for another state, signed by both sides, and then read by a Texas court as covering far less than either party expected. This article explains the two fair notice requirements, the construction anti-indemnity statute, how caps and consequential damages waivers actually work, and why the insurance section has to be drafted alongside the indemnity rather than after it.

Texas indemnity starts with the express negligence doctrine

The central problem in Texas indemnity is the indemnitee's own negligence. Suppose a customer wants a vendor to cover claims arising from the vendor's work, including claims where the customer was also negligent. Under Ethyl Corp. v. Daniel Construction Co., 725 S.W.2d 705 (Tex. 1987), a party seeking indemnity for the consequences of its own negligence must express that intent in specific terms within the four corners of the contract. Broad language such as "any and all claims arising out of or related to the work" is not enough. The rule applies even when the indemnitee was only partly at fault, which is the usual case.

In practice, the clause has to name the indemnitee's negligence. Here is a broad-form version:

"INDEMNITY. CONTRACTOR SHALL DEFEND, INDEMNIFY, AND HOLD HARMLESS OWNER AND ITS OFFICERS, EMPLOYEES, AND AGENTS (THE "OWNER INDEMNITEES") FROM AND AGAINST ALL CLAIMS, LOSSES, DAMAGES, AND EXPENSES, INCLUDING REASONABLE ATTORNEYS' FEES, ARISING OUT OF OR RELATING TO THE WORK, INCLUDING CLAIMS CAUSED OR ALLEGED TO BE CAUSED IN WHOLE OR IN PART BY THE SOLE, JOINT, OR CONCURRENT NEGLIGENCE, STRICT LIABILITY, OR OTHER FAULT OF ANY OWNER INDEMNITEE."

What each piece does:

1. Bold capitals and a capitalized heading address the conspicuousness requirement discussed below.

2. "Defend" is a separate obligation from "indemnify." It requires the indemnitor to fund the defense from the start, based on the allegations, rather than reimbursing after liability is fixed.

3. "Caused or alleged to be caused" ties the defense duty to the pleadings, which matters because the indemnitee's negligence is often alleged but never proved.

4. "Sole, joint, or concurrent negligence" is the express negligence language. Naming all three avoids an argument that the clause covers concurrent fault but not sole fault.

5. "Strict liability" has to be named separately. In Houston Lighting & Power Co. v. Atchison, Topeka & Santa Fe Railway Co., 890 S.W.2d 455 (Tex. 1994), the court held that an indemnity for strict liability must be stated expressly, just as for negligence.

Drafters who want a narrower risk transfer should say so just as plainly. The comparative version reads: the indemnitor will indemnify the indemnitee against claims "to the extent caused by the negligent acts or omissions or willful misconduct of the indemnitor or its subcontractors." That formulation is common in negotiated commercial contracts and is often the fair middle ground.

The numbers show the difference. Suppose an injured third party recovers a $1,000,000 judgment, and the jury assigns 60% responsibility to the contractor and 40% to the owner under Texas proportionate responsibility rules in Chapter 33 of the Civil Practice and Remedies Code. Assume the owner spent $150,000 defending the case.

• Broad form, properly drafted: the contractor owes the owner's $400,000 share and its $150,000 of defense costs, for $550,000.

• Comparative "to the extent caused by": the contractor's own $600,000 share is already its liability to the plaintiff, so the indemnity adds little for the owner's share. Whether the owner recovers any defense cost depends on whether the clause allocates defense costs by fault; a common formulation does, which here would be 60% of $150,000, or $90,000.

• Broad language that fails the express negligence test: the owner recovers nothing for its $400,000 share, and under Fisk, discussed next, likely nothing for defense.

Defense costs follow the same rule. In Fisk Electric Co. v. Constructors & Associates, Inc., 888 S.W.2d 813 (Tex. 1994), the court held that an indemnitee could not recover its defense costs under a clause that did not meet the express negligence test, even though the indemnitee was ultimately found not negligent. If you want the other side to pay for your defense of a claim that alleges your negligence, the clause has to say so expressly.

Conspicuousness: the second fair notice requirement

In Dresser Industries, Inc. v. Page Petroleum, Inc., 853 S.W.2d 505 (Tex. 1993), the court added a second requirement. An indemnity or release that shifts the risk of a party's own negligence must also be conspicuous. The court drew on the definition used in the Uniform Commercial Code, now Section 1.201(b)(10) of the Texas Business and Commerce Code: language a reasonable person ought to have noticed, such as a heading in capitals in larger or contrasting type, or text in larger or contrasting type set off from the surrounding text. Whether a provision is conspicuous is a question of law for the court, as the court confirmed in Storage & Processors, Inc. v. Reyes, 134 S.W.3d 190 (Tex. 2004).

There is a narrow exception. Fair notice requirements are not enforced against a party with actual notice or knowledge of the provision. Do not rely on it. Proving actual knowledge years later, after the people who negotiated the deal have left, is expensive and uncertain.

Delaware uses a different formulation that leads to similar drafting. Under State v. Interstate Amiesite Corp., 297 A.2d 41 (Del. 1972), an indemnity for the indemnitee's own negligence is enforced only if the contract makes that intent "crystal clear and unequivocal." A clause drafted to satisfy Ethyl and Dresser will generally satisfy that standard too, which is useful when a contract chooses Delaware law but the work is performed in Texas.

A practical drafting habit: put the indemnity and release paragraphs in bold capitals, with a capitalized heading, in a position where the signer will see them. It costs nothing, and it removes an entire category of argument.

Do the fair notice rules apply to caps and waivers?

The Texas Supreme Court has applied the fair notice requirements to releases and indemnities. Several Texas courts of appeals have also applied them to limitation-of-liability clauses that limit a party's exposure for its own negligence, while others have distinguished caps from releases. Because the law is not uniform, we draft caps and consequential damages waivers to meet both requirements anyway: express reference to negligence where the cap is meant to cover it, and conspicuous formatting. If the clause is going to be tested, it is better tested against the stricter standard.

Construction contracts and Chapter 151

Texas limits indemnity in many construction contracts by statute. Chapter 151 of the Texas Insurance Code, added in 2011 and effective January 1, 2012, applies to construction contracts for construction projects where the indemnitor is provided or procures insurance subject to the Insurance Code. Section 151.102 makes void and unenforceable a provision that requires the indemnitor to indemnify, hold harmless, or defend a party against a claim caused by the negligence or fault, statutory violation, or breach of contract of the indemnitee, its agent or employee, or a third party under its control or supervision. Section 151.104 extends the same limit to additional insured coverage required by the contract.

The key exception is in Section 151.103: the statute does not apply to a provision requiring indemnity or defense against claims for bodily injury or death of an employee of the indemnitor, its agent, or its subcontractor of any tier. So a broad-form indemnity for injuries to the subcontractor's own workers can still be enforceable, if it also satisfies the fair notice rules.

Section 151.105 lists exclusions, including indemnity provisions for a single family house, townhouse, duplex, or related land development, public works projects of a municipality, loan and financing documents other than certain lender agreements, surety indemnity agreements, and claims based on copyright infringement. Under Section 151.151, the chapter cannot be waived by contract. A construction subcontract written for another state's law often needs its indemnity section rebuilt for a Texas project. The governing law clause may not survive either. Under Tex. Bus. & Com. Code § 272.001, as amended by H.B. 2960 effective September 1, 2025, a provision in a construction contract for Texas real property that makes the contract subject to another state's law, courts, or arbitration is void as against public policy, rather than voidable as before. Venue then lies in the county where the property is located unless the parties agree otherwise after the dispute arises. The change applies to contracts entered into or renewed on or after September 1, 2025.

Caps, carve-outs, and what "consequential" means in Texas

A limitation of liability usually has three parts: a cap on total liability, a waiver of certain categories of damages, and carve-outs from both.

The category waiver is where Texas law can surprise people. In Arthur Andersen & Co. v. Perry Equipment Corp., 945 S.W.2d 812 (Tex. 1997), the court explained that direct damages flow naturally and necessarily from the wrong, while consequential damages result naturally but not necessarily from it. Lost profits can be either, depending on the facts. A waiver of "consequential damages, including lost profits" may not reach lost profits that a court treats as direct. If the parties intend to waive lost profits entirely, the clause should say "lost profits, whether direct or consequential."

Here is a worked structure for a services agreement with $240,000 of annual fees:

• General cap: fees paid or payable in the 12 months before the claim, so $240,000.

• Super-cap for data security and confidentiality breaches: a multiple of the general cap, for example three times, or $720,000. Many vendors accept a super-cap tied to their cyber insurance limits.

• Uncapped or separately capped items: fraud, willful misconduct, third-party IP infringement indemnity, and the customer's payment obligations. Many vendors also push for gross negligence to be carved out only if it is defined.

• Waiver carve-outs: the consequential damages waiver should not apply to indemnified third-party claims. Otherwise the indemnitor can argue that a third party's lost profits claim against the indemnitee is a waived category of damages, which defeats the point of the indemnity.

Also check whether the indemnity covers direct claims between the parties or only third-party claims. Texas courts have generally read indemnity language as covering third-party claims unless the contract clearly reaches claims between the parties. If you want a first-party indemnity, say so expressly, and decide how it interacts with the cap.

Claims procedure: tender, control, and settlement

Most indemnity fights are not about whether the clause applies. They are about who controls the defense and whether the indemnitee prejudiced the indemnitor. A short procedure clause prevents most of them:

"The Indemnified Party will give the Indemnifying Party prompt written notice of any third-party claim, but failure to give notice relieves the Indemnifying Party of its obligations only to the extent it is materially prejudiced. The Indemnifying Party may assume the defense with counsel reasonably acceptable to the Indemnified Party within fifteen days after notice. The Indemnifying Party will not settle any claim without the Indemnified Party's consent unless the settlement involves only the payment of money by the Indemnifying Party, includes a full release of the Indemnified Party, and contains no admission of fault by it."

What each piece does:

1. The prejudice standard keeps a late notice from forfeiting the indemnity unless the delay actually hurt the indemnitor.

2. The assumption right gives the paying party control, which insurers usually require as well.

3. The settlement limits stop the indemnitor from settling in a way that leaves the indemnitee with an injunction, an admission, or an unreleased claim.

Line the insurance up with the indemnity

An indemnity is only as good as the indemnitor's balance sheet or its insurance. Three points come up in almost every negotiation.

First, commercial general liability policies typically cover liability assumed under an "insured contract," but the definition and its exclusions vary. Confirm that the contractual indemnity is the kind of liability the indemnitor's policy covers.

Second, additional insured status is not unlimited. In In re Deepwater Horizon, 470 S.W.3d 452 (Tex. 2015), the court held that the additional insured's coverage under the drilling contractor's policies was limited by the scope of the insurance obligation in the underlying drilling contract, because the policies incorporated that contract. What you write in the contract's insurance section can cap the coverage you receive as an additional insured.

Third, match the numbers. An uncapped indemnity backed by a $1 million policy and a thinly capitalized indemnitor is, in practical terms, a $1 million indemnity. Ask for certificates and endorsements, primary and noncontributory language where appropriate, and a waiver of subrogation that matches the indemnity.

A drafting checklist

1. Decide the risk allocation first: broad form, intermediate, or comparative "to the extent caused by."

2. If the indemnitee's own negligence is covered, say so expressly, including strict liability if intended.

3. Make the indemnity, release, and limitation paragraphs conspicuous, with capitalized headings and bold capitals.

4. For construction work in Texas, check Chapter 151, use the employee-injury exception where it fits, and confirm the governing law and venue clause complies with § 272.001.

5. Define the cap, the super-cap, and the carve-outs, and say expressly whether lost profits are waived as direct or consequential damages.

6. Exclude indemnified third-party claims from the consequential damages waiver.

7. Add a tender, defense control, and settlement procedure.

8. Align the insurance section, additional insured requirements, and limits with the indemnity.

For a broader review of commercial terms, see our services overview.

If you have an indemnity or limitation clause on your desk, email info@robertsandwillie.com or call (469) 910-4017. Sending a message does not create an attorney-client relationship.

This article is for general information and is not legal advice. Cases and statutes are summarized for general discussion, and their application depends on the facts, contract language, and governing law of each matter. Attorney Advertising. Roberts & Willie, PLLC, Dallas, Texas; Trenton Roberts, responsible attorney.