Does Texas Chapter 127 require mutual insurance?

Chapter 127 is usually called the Texas Oilfield Anti-Indemnity Act. It applies to an "agreement pertaining to a well for oil, gas, or water or to a mine for a mineral," which includes MSAs for well services, equipment rental, and incidental transportation. Joint operating agreements are excluded.

The core rule is in Section 127.003. A promise in one of these agreements is void if it tries to indemnify someone against loss caused by their own "sole or concurrent negligence" when the loss comes from personal injury, death, or property injury. In plain terms: absent an exception, an operator cannot make a contractor pay for the operator's own negligence.

The exception that matters most is insurance. Section 127.005(a) says the chapter does not apply 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 the limits in subsections (b) and (c). Our Texas oilfield anti-indemnity act page covers the full statute.

The statute defines two kinds of indemnity and treats them differently.

Because the statute rewards it. A one-way indemnity from a contractor to an operator can only be supported by up to $500,000 of required insurance. A mutual indemnity, where each side covers its own people and property regardless of fault, can be supported up to whatever limits both parties agreed to carry. That's the legal backbone of the knock-for-knock structure you see in most Texas MSAs.

The tradeoff for you: in a mutual scheme, your insurance is expected to protect the operator group for injuries to your own employees, even where the operator was negligent. That is why the MSA will also require additional insured status, a waiver of subrogation, and primary and non-contributory wording. Those endorsements are how the agreed insurance actually reaches the other party.

Section 127.004 carves out several categories. The chapter does not apply to loss or liability arising from:

• personal injury, death, or property injury from radioactivity
• property injury from pollution, including cleanup and control of the pollutant
• property injury from reservoir or underground damage, including loss of oil, gas, water, or the well bore itself
• injury or damage from services to control a wild well to protect public safety or prevent depletion of natural resources
• the cost of controlling a wild well

The pollution carve-out matters for water haulers and anyone handling produced fluids: an indemnity for pollution property damage is outside Chapter 127 entirely, so the contract language controls. See oilfield pollution liability.

Read the indemnity section and the insurance section side by side and answer three questions:

1. Is the indemnity mutual or one-way? Look at whether the operator also indemnifies you for injuries to its people.
2. Does the MSA say in writing that the indemnity is supported by insurance? That language is what triggers Section 127.005.
3. Do the limits in the insurance exhibit match on both sides? In a mutual scheme the obligation follows the coverage each party agreed to obtain, so mismatched or vague limits create arguments later.

Indemnity language is a legal question, and it should be reviewed by your attorney. Our part is making sure the policies you carry actually deliver what the contract says they will.