HBA-ATS H.B. 2853 76(R)BILL ANALYSIS


Office of House Bill AnalysisH.B. 2853
By: Bosse
Civil Practices
6/16/1999
Enrolled



BACKGROUND AND PURPOSE 

Oil companies use the services of contractors to help fulfill their
day-to-day activities, from exploration and development to production and
marketing.  Commonly, the services rendered by these contractors are set
forth in contracts that contain indemnity clauses.  Originally, unilateral
agreements were used, but, as the industry evolved, the companies and the
contractors began to use mutual indemnity agreements.  These mutual
indemnity clauses allocate risks between the parties by requiring each
party to agree to indemnify the other at the time a liability arises.
Thus, a contractor is under a contractual obligation to indemnify an oil
company if the contractor's employee sues the company.  Similarly, an oil
company has a duty to indemnify a contractor if an employee of the company
sues the contractor. 

Texas law regulates mutual indemnity provisions in mineral agreements.  The
Texas Oilfield Anti-Indemnity Act (Chapter 127, Civil Practice and Remedies
Code) (Act) limits the mutual indemnity agreement in a mineral contract to
the extent of coverage and dollar limits of insurance that each party as
indemnitor has agreed to provide in equal amounts to the other party as
indemnitee.  A federal court has interpreted this statutory language to
mean that a contract must provide for equal amounts of insurance.  If it
provides for "available" amounts of insurance, the indemnity agreement is
void because it does not conform to the requirements of the Act.  H.B. 2853
amends the Act to limit the mutual indemnity agreement in a mineral
contract to the extent of coverage and dollar limits of insurance that each
party as indemnitor has agreed to obtain for the benefit of the other party
as indemnitee. 

RULEMAKING AUTHORITY

It is the opinion of the Office of House Bill Analysis that this bill does
not expressly delegate any additional rulemaking authority to a state
officer, department, agency, or institution. 

SECTION BY SECTION ANALYSIS

SECTION 1.  Amends Section 127.005(b), Civil Practice and Remedies Code, to
limit a mutual indemnity obligation in a joint operating contract for
mineral development to the extent of the coverage and dollar limits of
insurance or qualified self-insurance each party as indemnitor has agreed
to obtain for the benefit of, rather than agreed to provide in equal
amounts to, the other party as indemnitee. 

SECTION 2.Emergency clause.
  Effective date: 90 days after adjournment.