§ 127.005.Insurance Coverage

The exception that made the chapter workable, and it is where oilfield indemnity now lives.

The chapter does not apply to an agreement that provides for indemnity if the parties agree in writing that the indemnity obligation will be supported by liability insurance coverage to be furnished by the indemnitor, subject to two limits.

The condition is insurance, and it changes the character of the bargain. A void indemnity would have shifted an unlimited liability onto a contractor’s own balance sheet; a supported one shifts a defined risk to an insurer that has priced it.

"Agree in writing" is a formal requirement. The chapter reaches oral agreements, but this escape from it is available only in writing.

For a mutual indemnity obligation, the obligation is limited 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 the other.

That produces the knock-for-knock arrangement familiar in oilfield contracting. Each side indemnifies the other for its own people and property, each buys insurance to back it, and the indemnity is good only up to what was bought.

Qualified self-insurance counts, which allows a large operator to stand behind its own obligation rather than purchase cover.

For a unilateral indemnity obligation, the amount of insurance required may not exceed $500,000.

The cap is the section’s most consequential number. Where indemnity runs one way only, exposure is limited to half a million dollars however the contract is drafted.

The asymmetry is deliberate. Mutual obligations are bargains between parties each giving and receiving; a one-way indemnity is the arrangement the chapter was enacted to constrain, and it is capped accordingly.