On December 9, 2014, the US Court of Appeals for the Tenth Circuit held in Martin K. Eby Construction Company v. OneBeacon Insurance Company, that an indemnification clause that failed to satisfy Texas' fair notice rule's requirement of conspicuousness was unenforceable (No. 13–3076, (10th Cir. Dec. 9, 2014)).

This case arises from an indemnity dispute between Martin K. Eby Construction Company, Inc. and Kellogg Brown & Root, LLC. After agreeing to build a water pipeline, Eby engaged Kellogg to help with construction. As part of its contract with Kellogg, Eby promised to indemnify Kellogg for all claims, including attorneys' fees and expenses, directly or indirectly arising from or caused by Eby's work.

While building the water pipeline, Eby accidentally hit a methanol pipeline, which caused a leak. When the leak was discovered over twenty years later, the owner of the methanol pipeline paid for the cleanup. The methanol pipeline owner then unsuccessfully sued Kellogg and Eby to recover its expenses. While defending itself in that dispute, Kellogg incurred over $2 million in legal fees. Kellogg invoked Eby's indemnity promise to recover those legal costs.

Eby acknowledged that the indemnity clause would cover the claims that the methanol pipeline owner asserted against Kellogg, but argued that the indemnity clause itself was unenforceable. The US District Court For the District of Kansas granted summary judgment to Eby and found that the indemnity clause was unenforceable under the fair notice rule because the clause was not conspicuous.

The Tenth Circuit affirmed the district court's decision. The court agreed that the clause's language was broad enough to cover claims involving Kellogg's failure to take action once Eby damaged the pipeline. However, it found that the clause was unenforceable because the clause was not conspicuous in the contract.

The court relied on Texas law, which the parties agreed governed the enforceability of their indemnification clause. Under Texas law, the enforceability of an indemnification provision that covers claims against a party for its own actions is restricted by the fair notice rule. Under this rule, promises to indemnify a party for its own fault must be expressly stated and conspicuous. A clause is considered conspicuous when it would attract a reasonable person's attention.

The court found that the indemnification provision here did not comply with the fair notice rule's conspicuousness requirement. In particular, the court found that the clause was inconspicuous because it was:

When including indemnification promises in a contract, especially in jurisdictions that follow the fair notice rule, parties should ensure that those promises are expressly and conspicuously stated. To ensure that a clause is conspicuous, parties should consider:

For more information on drafting indemnification provisions, see Practice Note, Indemnification Clauses in Commercial Contracts and Drafting and Negotiating an Indemnification Clause Checklist.