What does the Texas Oilfield Anti-Indemnity Act mean for my MSA and my insurance?

The Texas Oilfield Anti-Indemnity Act is Chapter 127 of the Civil Practice and Remedies Code. The legislature's stated reason is that "an inequity is fostered on certain contractors by the indemnity provisions in certain agreements pertaining to wells for oil, gas, or water" (§127.002(a)).

The core rule is in §127.003. An indemnity in an oilfield agreement is void if it protects someone against loss caused by their own "sole or concurrent negligence" arising from personal injury, death or property injury.

The escape valve is §127.005. The act "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." That is why nearly every Texas MSA has both an indemnity section and a detailed insurance exhibit. The second makes the first enforceable.

This page explains what the statute says and how courts have read it, so you can make sure your insurance matches what you are agreeing to. Indemnity language should be reviewed by your attorney. Our role is making the insurance match the contract.

The act applies to an "agreement pertaining to a well for oil, gas, or water or to a mine for a mineral" (§127.001(1)). That means a written or oral agreement "concerning the rendering of well or mine services," or an agreement to perform part of those services "or an act collateral to those services, including furnishing or renting equipment, incidental transportation, or other goods and services furnished in connection with the services."

"Well or mine service" is defined broadly (§127.001(4)). It includes "drilling, deepening, reworking, repairing, improving, testing, treating, perforating, acidizing, logging, conditioning, purchasing, gathering, storing, or transporting oil, brine water, fresh water, produced water, condensate, petroleum products, or other liquid commodities, or otherwise rendering services in connection with a well drilled to produce or dispose of oil, gas, other minerals or water."

That reaches most of the contractors we work with: roustabout crews, well servicing, water haulers, hot oil units and inspection firms working at the well.

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

Mutual indemnity

A "mutual indemnity obligation" is one where "the parties agree to indemnify each other and each other's contractors and their employees against loss, liability, or damages arising in connection with bodily injury, death, and damage to property of the respective employees, contractors or their employees, and invitees of each party" (§127.001(3)). That is a statutory description of knock-for-knock.

For mutual indemnity, "the indemnity 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 party as indemnitee" (§127.005(b)). There is no statutory dollar cap. The cap is whatever insurance the parties agreed to.

Unilateral indemnity

A "unilateral indemnity obligation" is one where the contractor indemnifies the operator for injuries to the contractor's own people "but in which the indemnitee does not make a reciprocal indemnity" (§127.001(6)).

For unilateral indemnity, "the amount of insurance required may not exceed $500,000" (§127.005(c)).

Either way, the parties have to agree in writing that the indemnity will be supported by liability insurance furnished by the indemnitor (§127.005(a)). A handshake understanding that "everybody carries insurance" is not the same thing.

The statute says mutual indemnity is limited to the insurance each party "agreed to obtain for the benefit of the other." What happens when the two sides agree to, or buy, different amounts? Three decisions frame the answer.

Ken Petroleum v. Questor Drilling (Tex. 2000)

The Texas Supreme Court held that the statute, as worded at the time, did not require the parties to agree to equal amounts of insurance for the indemnity to be valid. Instead, the indemnity is enforceable only up to the amount equally provided: "If one party provides more insurance than the other, the party providing the higher amount of coverage may not enforce its right to indemnity beyond the amount of coverage that the other party agreed to provide. And the party providing the lower amount of insurance may not enforce its right to indemnity beyond its own amount of coverage." Later courts summarize this as the "lower amount" or lowest common denominator rule. (Ken Petroleum, 24 S.W.3d 344)

Cimarex v. CP Well Testing (5th Cir. 2022)

The MSA required the contractor to carry at least $1 million GL and $2 million excess, and the operator at least $1 million GL and $25 million excess. The contractor actually bought a $10 million excess policy. After a settlement, the operator sought indemnity beyond $3 million. The Fifth Circuit, applying Texas law, held the MSA set a "floor" but not a ceiling, and looked to the contractor's excess policy, which limited coverage for parties it was obligated by contract to insure to "the lesser of" the policy limits or the minimum limits agreed in the contract. Result: the indemnity was capped at $3 million. The court noted that Ken Petroleum applied an earlier version of §127.005(b) and left the effect of the 1999 wording change to Texas courts. (Cimarex opinion)

Century Surety v. Colgate Operating (5th Cir. 2024)

The MSA required both parties to carry indemnity insurance with limits of "not less than $5 million." The operator carried far more. The Fifth Circuit held that because the only amount stated, applying equally to both parties, was $5 million, it served "as both a floor and a ceiling," so the operator owed nothing more. It did not need to decide whether the Ken Petroleum rule still applies under the current statute. (Colgate opinion)

A frequent point of confusion: if Chapter 127 limits the indemnity, does it also limit the operator's additional insured status on your policies?

Not automatically. The Texas Supreme Court addressed this in Getty Oil v. Insurance Co. of North America (1992), decided under the predecessor statute. The court said the anti-indemnity statute "does not purport to regulate any agreements for the purchase of insurance unless they are in support of indemnity agreements," and held that an additional insured provision that did not support the indemnity was "a separate obligation" not prohibited by the act. The current statute also says the chapter does not affect "the validity of an insurance contract" (§127.006).

For you, that means two promises in the MSA can work differently:

• Your indemnity to the operator, limited by Chapter 127 and paid through your GL's contractual liability coverage.
• The operator's status as an insured on your policies, governed by your policy language and endorsements.

Whether a particular additional insured requirement "supports" the indemnity depends on how the MSA is written. That is a question for your attorney. What we check is that your endorsements give the operator exactly what the MSA requires, and no broader than you meant.

Section 127.004 lists losses the chapter "does not apply to." Indemnities for these are not limited by Chapter 127 at all:

1. Personal injury, death or property injury "that results from radioactivity."
2. Property injury "that results from pollution, including cleanup and control of the pollutant."
3. Property injury "that results from reservoir or underground damage, including loss of oil, gas, other mineral substance, or water or the well bore itself."
4. Injury from performing services to control a wild well "to protect the safety of the general public or to prevent depletion of vital natural resources."
5. "Cost of control of a wild well, underground or above the surface."

These line up with the carve-outs you see in knock-for-knock clauses: pollution, reservoir and underground damage, and well control. Because Chapter 127 does not limit those indemnities, they can be uncapped. Your pollution coverage and umbrella need to be read against exactly how your MSA allocates them.

Two other limits on the act: it does not apply to joint operating agreements between working interest owners (§127.001(1)(B), §127.002(c)), and it does not stop a surface owner from getting indemnity from an operator or contractor working on the owner's land (§127.007).

Separate from Chapter 127, Texas courts apply "fair notice" requirements to indemnities that cover the other party's own negligence.

• Express negligence. In Ethyl Corp. v. Daniel Construction (Tex. 1987), the court adopted the rule that parties seeking to indemnify someone "from the consequences of its own negligence must express that intent in specific terms," within "the four corners of the contract."
• Conspicuousness. In Dresser Industries v. Page Petroleum (Tex. 1993), an oilfield case, the court held "the fair notice requirements of conspicuousness and the express negligence doctrine apply to both indemnity agreements and to releases," and found the provisions there were "not conspicuous as a matter of law."

That is why operator MSAs put indemnity sections in capital letters and say "REGARDLESS OF FAULT" and "INCLUDING THE SOLE OR CONCURRENT NEGLIGENCE" of the indemnitee. It is also why your attorney should read them. Whether a specific clause clears these tests is a legal question.

Put the law and the cases together and a few practical rules fall out.

Your GL has to cover the indemnity as an insured contract. If your GL has a contractual liability limitation (ISO's CG 21 39 strips most business contracts from the "insured contract" definition), the indemnity you gave the operator is effectively uninsured. That is a problem under the MSA and potentially under §127.005.

Your umbrella has to sit over the indemnity, too. The Cimarex excess policy is a good example of how umbrella wording about contractual indemnitees can control the outcome. Read yours before a claim, not after. See oilfield umbrella insurance.

Mutual limits matter. If you agree to carry $2 million for the operator's benefit and the operator agrees to $25 million, your recovery from the operator for injuries to your people may still be limited by what you agreed to carry. Ask yourself whether the numbers in the exhibit reflect the indemnity you want both directions.

Unilateral indemnity cannot require more than $500,000 of insurance. If an MSA asks you to indemnify the operator for your own employees' injuries without any reciprocal promise, the required insurance cannot exceed that figure under §127.005(c). Flag it.

Workers comp still matters. Chapter 127 does not affect "a benefit conferred by the workers' compensation statutes" (§127.006). Carrying comp and the Texas waiver of subrogation remains a separate requirement.

For a short answer on the most common question, see does Chapter 127 require mutual insurance.