Don’t get stuck with defense and indemnity for damages that aren’t your fault! Indemnity clauses can shift legal and financial exposure onto your business, even when you’re not at fault. If you do business in the energy, transportation, and construction sectors of Louisiana, chances are good that you have signed, or been asked to sign, a contract that requires your company to “defend and indemnify” a client or customer for damages that are not your fault.
Contractual indemnity and defense obligations may seem standard, but in application, they carry significant consequences in high-risk industries. Under Louisiana law, these kind of “broad indemnity” contract clauses violate public policy and are not legal or enforceable. Failing to catch these overly broad clauses could expose your company to liability you didn’t cause or can’t control.
Contractors, subcontractors, architects, engineers, and business executives can understand where Louisiana draws the line and how it can impact business operations and profitability.
Indemnity in Oil and Gas, Transportation, and Construction Contracts
Energy, transportation, and construction companies are routinely asked to sign contracts, and without careful examination, broad indemnity clauses may be included. Within each industry, there are Louisiana laws to consider when drafting and approving contracts.
Regarding contracts related to oil and gas and mineral exploration/production, Louisiana Revised Statute 9:2780(B) states that any
provision contained in, collateral to, or affecting an agreement pertaining to a well for oil, gas, or water, or drilling for minerals which occur in a solid, liquid, gaseous, or other state, is void and unenforceable to the extent that it purports to or does provide for defense or indemnity, or either, to the indemnitee against loss or liability for damages arising out of or resulting from death or bodily injury to persons, which is caused by or results from the sole or concurrent negligence or fault (strict liability) of the indemnitee, or an agent, employee, or an independent contractor who is directly responsible to the indemnitee.
In practical terms, this means a contractor or service provider cannot be compelled to defend (i.e. pay or reimburse legal defense costs, including attorney’s fees) or indemnify (i.e. pay or reimburse the amount of any judgment or settlement) the other party in the contract if that party or anyone for whom that party is responsible is in any way liable (even 1%) for the damages that have been claimed by a third party.
Even broader protection exists for trucking, transportation, construction, and design companies under Louisiana law. Louisiana Revised Statute 9:2780.1(B) states that
any provision, clause, covenant, or agreement contained in, collateral to, or affecting a motor carrier transportation contract or construction contract which purports to indemnify, defend, or hold harmless, or has the effect of indemnifying, defending, or holding harmless, the indemnitee from or against any liability for loss or damage resulting from the negligence or intentional acts or omissions of the indemnitee, an agent or employee of the indemnitee, or a third party over which the indemnitor has no control is contrary to the public policy of this state and is null, void, and unenforceable.
This applies to commercial trucking companies, contractors, subcontractors, design professionals such as architects and engineers, or suppliers/consultants providing any services that are accessory to those industries. Under Louisiana law these individuals cannot be compelled to defend or indemnify the other party to the contract for losses or damages that are caused by either the other party to the contract or anyone else besides the primary party.
In short, Louisiana law prohibits holding one party responsible for someone else’s mistakes—especially when that “someone else” is the client.
What About Additional Insured Coverage?
Both of the statutes quoted above do, however, allow contractual provisions that require one party to name the other party as an “additional insured” or “AI” under certain kinds of liability policies such as Commercial General Liability and Auto Liability. This coverage may extend to losses or damages resulting from the AI’s own fault, but only under certain conditions. For instance, if the contract requires that the AI is to be covered for losses or damages resulting from the AI’s own fault, then the AI must pay any additional insurance premiums that may be required to secure that coverage.
It’s critical to understand how insurance obligations interact with anti-indemnity statutes, and whether your policy covers the expectations of the contract.
Out of State Contracts
Many states, but not all, have similar bans and/or limitations on “broad form” defense and indemnity obligations, particularly in high-risk industries like energy exploration/production, transportation and construction. When executing contracts that are governed by the laws of other states, it is important to understand what those rules are and to carefully evaluate how they compare to your home state.
How Galloway Helps Contractors and Designers Stay Protected
Assuming responsibility for losses or damages that result from your own fault, and are therefore to some extent within your control, is a reasonable risk. On the other hand, assuming responsibility for losses or damages that you have no power to prevent or anticipate can be potentially disastrous for your business. In contracting, a similar approach to preparing for hurricane season is a good rule of thumb – hope for the best, but plan for the worst.
Defense and indemnity provisions can be lengthy and convoluted, although they don’t need to be. They are also sometimes drafted with the intention of circumventing or negating the explicit limitations of anti-indemnity laws like those quoted above. An experienced contract attorney can efficiently and effectively identify high-risk obligations in your contracts and provide a firm but balanced approach to propose reasonable alternatives to your clients or customers.
Galloway and our team of experienced attorneys partner with clients across Louisiana and the Gulf South to identify high-risk contract language, enforce your rights under Louisiana statutes, and negotiate protective revisions that still maintain strong business relationships. We regularly advise businesses on crafting a proactive and business-first approach to handling risky contract provisions.
Whether you’re negotiating a new agreement or reviewing an existing contract, we can provide legal clarity and strategies to reduce exposure before problems occur.
Contact our team to review your contracts and ensure your liability stops when the law says it should.
Disclaimer: This material is provided for informational purposes only. It is not intended to constitute legal advice, nor does it create a client-lawyer relationship between Galloway and any recipient. Recipients should consult with counsel before taking any actions based on the information contained within this material. This material may be considered attorney advertising in some jurisdictions.
