People Law | An Indemnity Contract Method Exactly What it States
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An Indemnity Contract Method Exactly What it States

An Indemnity Contract Method Exactly What it States

We are reminded in Claybar v. Samson Exploration that a court will (if it’s doing its job) enforce an agreement according to what it actually says, not by that which one party or the other would have liked it to say or imagines that it said.

Under a “Surface Location, Subsurface, Saltwater Disposal, Roadway, and Pipeline Easement” Samson was allowed to drill wells and conduct operations on 15 acres owned by Mr. Claybar. The agreement allowed Samson to place oil tanks on the property. An amine treating plant owned by Kinder Morgan failed, spilling chemicals on Claybar’s property. Then, as we are fond of saying on these pages, “litigation ensued”.

The agreement allowed Samson to contract with Kinder Morgan, and had this indemnity provision:

Sampson shall indemnify Claybar against any claims … to the extent arising from or related to the negligence or misconduct of [Samson] or its … contractors or invitees in the course of their exercise of rights granted by this instrument … .

Claybar released its claims against Kinder Morgan and settled. Samson and Claybar streamlined the litigation by stipulating the facts and asking the court to rule on this question of law: Did the indemnity provision require Samson to pay Claybar’s attorney’s fees and costs in pursuing his negligence claim against Kinder Morgan?

Samson stipulated that Kinder Morgan’s negligence proximately caused the damages to Claybar’s property, and Claybar’s only claim was breach of contract for failure to indemnify Claybar for its negligence suit against Kinder Morgan.

Samson’s position

  • The provision only indemnifies Claybar against claims from third parties and there is no third-party claim here. The provision does not apply to claims between the parties to the agreement.

Claybar’s position

  • The indemnity provision imposes an obligation on Samson to pay the fees because the plain language of the agreement says so. The agreement requires indemnity for claims arising out of the negligence of Samson’s agents, contractors and invitees.
  • The agreement allows for recovery because of negligence or misconduct of Samson.

The Court

Generally, indemnity agreements do not apply to claims between the parties but apply to claims made by others who are not parties to the agreement. However, the parties can write an agreement to indemnify one another against claims they later assert against each other. To do so, the parties must expressly and specifically state that intention.

The plain language of the agreement did not show that the parties intended for Samson to indemnify Claybar for attorney’s fees in pursuing claims against Samson and Kinder Morgan for damage to Claybar’s property. If the parties had intended to include claims between them, they would have had to specifically add such language to the agreement. Thus, the indemnity provision did not apply to claims between Claybar and Samson.

The court did not reach the question whether, in releasing Kinder Morgan, Claybar also released its claims against Samson.

Is it just me or does this musical interlude remind one of explorationists?

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