Exxon Corp. v. Eastman Kodak Co.

• Decision Date: 30 August 1979
• Docket Number: No. 8696,8696
• Parties: EXXON CORPORATION, Appellant, v. EASTMAN KODAK COMPANY, Appellee.
• Court: Texas Court of Appeals

Page 473

589 S.W.2d 473

EXXON CORPORATION, Appellant, v. EASTMAN KODAK COMPANY, Appellee.

No. 8696.

Court of Civil Appeals of Texas, Texarkana.

Aug. 30, 1979.

Rehearing Denied Oct. 23, 1979.

Robert D. McGee, Houston, for appellant.

Thomas W. Hathaway, Hathaway & Jackson, Tyler, for appellee.

CORNELIUS, Chief Justice.

Exxon Corporation appeals from an adverse judgment in its suit against Eastman Kodak Company to recover indemnity for damages paid as a result of a pipeline explosion and fire.

The pipeline was built by Exxon to transport propane from its East Texas gasoline plants to Eastman's facility located in Gregg and Harrison Counties. The parties executed a preliminary letter of intent and later a formal contract which provided generally that Exxon would construct, maintain and operate the pipeline, and Eastman would reimburse Exxon for its costs in doing so and would have the option to acquire title to the line. The contract obligated Exxon, at Eastman's option, to carry liability insurance covering its operation and maintenance of the line. At first, Eastman required Exxon to carry such insurance, but later Eastman requested that the policy not be renewed unless Exxon wished to do so for reasons of its own. The reason for Eastman's decision was stated in its Exhibit B-8:

"Reference is made to attached letter from Humble dated January 23, 1958 on the subject of pipeline casualty insurance.

This policy was discussed on January 27, 1958 with Messrs. G. L. Dickinson and J. S. Witt. It was concluded that we were no longer interested in the policy if we could not also be named insured.

Mr. Dickinson pointed out from the manual that we could not be named. He agrees with USF & G that we are covered under our own liability policy.

We have written Humble that unless they desire to continue the coverage, for reasons of their own, the policy may be cancelled."

Exxon did not renew the policy. After the pipeline had been in use for some twenty years it developed a leak which ultimately caused an explosion and fire in which one person was killed and another was severely injured. It is stipulated that the leak was due to Exxon's negligence. Exxon paid $2,148,305.82 in damage judgments and attorney's fees because of the accident, and then sought recovery of that amount from Eastman on the basis that the contract between them provided that Eastman would indemnify Exxon against losses of that type even though the losses were the result of Exxon's negligence.

Trial was to the court with most material facts stipulated. The trial judge rendered a take nothing judgment supported by written findings of fact and conclusions of law. The basis of his ruling was that the contract did not, as Texas law requires, express in clear and unequivocal terms an obligation on Eastman's part to indemnify Exxon against the consequences of its own negligence.

The correctness of the judgment below depends upon the proper interpretation of the contract. To make such an interpretation we must first review several basic principles of indemnity and contract law, and then examine the pertinent contractual provisions in the light of those principles.

An indemnity agreement will not be construed to protect the indemnitee against the consequences of his own negligence unless the contract so provides in clear and unequivocal terms. Fireman's Fund Ins. Co. v. Commercial Standard Ins. Co., 490 S.W.2d 818 (Tex.1972); Sira & Payne, Inc. v. Wallace & Riddle, 484 S.W.2d 559 (Tex.1972); Joe Adams & Son v. McCann Construction Company, 475 S.W.2d 721 (Tex.1972); Spence & Howe Construction Co. v. Gulf Oil Corp., 365 S.W.2d 631 (Tex.1963); Mitchell's, Inc. v. Friedman, 303 S.W.2d 775 (Tex.1957). But it is not necessary that the contract, in certain words, Expressly state the obligation. Fireman's Fund Ins. Co. v. Commercial Standard Ins. Co., supra; Joe Adams & Son v. McCann Construction Company, supra; Spence & Howe Construction Co. v. Gulf Oil Corp., supra; James Stewart & Co. v. Mobley, 282 S.W.2d 290 (Tex.Civ.App. Dallas 1955, writ ref'd). It is only necessary that the agreement clearly reveal such an intention, so that the indemnitor will have fair notice of the extent of his obligation. Joe Adams & Son v. McCann Construction Company, supra; Spence & Howe Construction Co. v. Gulf Oil Corp., supra; Mitchell's, Inc. v. Friedman, supra; Houston & T.C.R. Co. v. Diamond Press Brick Co., 111 Tex. 18, 222 S.W. 204 (Tex.Com.App.1920, holding approved). It has been said that an exception to the "clear terms" rule obtains when the contract provides for indemnity against injuries or damages caused by defects in Certain premises or resulting from the Maintenance or operation of a specified instrumentality. Fireman's Fund Ins. Co. v. Commercial Standard Ins. Co., supra; Mitchell's, Inc. v. Friedman, supra; Houston & T.C.R. Co. v. Diamond Press Brick Co., supra. That proposition is not a true exception, however, but in reality is only an application of the general rule, for when indemnity is expressed with reference to specific premises or instrumentalities the indemnitor necessarily knows that he is assuming full responsibility for losses in connection with those particular premises or instrumentalities, regardless of whose negligence may cause the losses. Joe Adams & Son v. McCann Construction Company, supra; Spence & Howe Construction Co. v. Gulf Oil Corp., supra; James Stewart & Co. v. Mobley, supra.

We have no difficulty in determining that several provisions of the Exxon-Eastman contract clearly and unequivocally express the intention that the indemnity obligation will include damages arising from the operation and maintenance of the pipeline even though such damages are the result of Exxon's negligence. The following quotations from the contract amply demonstrate that fact:

CONTRACT, Article II, Page 3, Lines 20, 21:

"EASTMAN agrees to reimburse HUMBLE for its costs and expense in operating . . . the pipeline, . . .".

CONTRACT, Article II, Page 3, Lines 7-14:

". . . HUMBLE shall keep an accurate record of its expenditures in carrying out said obligation, . . . The items of expense . . . both in . . . construction of said line and the operation (Not including pumping costs) and the maintenance thereof, shall be in accordance with those listed in the Accounting Procedure attached hereto . . .".

ACCOUNTING PROCEDURE, Article I, Paragraph 8:

". . . Operator shall charge the Pipe Line Account with the following items:

8. All costs and expenses of litigation, . . . for the protection of each party hereto Including attorney's fees and expenses as hereinafter provided, Together with all judgments obtained against the Pipe Line Account or the subject matter of this agreement; actual expenses incurred by any party or parties hereto In securing evidence for the purpose of defending any action or claim prosecuted or urged against the Pipe Line Account or the subject matter of the agreement . . .".

ACCOUNTING PROCEDURE, Article I, Paragraph 8A:

"Pipe Line Operator shall promptly notify Non-Operator of The initiation or filing by third parties of any litigation or claim arising out of or connected with the performance of said agreement. Non-Operator shall have the right, at its option, To participate in the defense of any such litigation and to approve in advance the settlement of any such claim."

CONTRACT, Article II, Page 4, Lines 5-9:

". . . EASTMAN shall have the right of inspection of the line at any time and shall have the right to require changes in maintenance procedures and maintenance work done if in EASTMAN'S opinion such changes are required for safe and economical operation and maintenance."

CONTRACT, Article X, Page 8:

"In the performance of this contract, HUMBLE agrees to carry public liability and property damage insurance in such amounts and limits and with such insurors as EASTMAN may request or approve. Premiums for such insurance shall be reimbursed HUMBLE by EASTMAN pursuant to the provisions of 'Exhibit A' hereof (Accounting Procedure)." (parenthesis supplied.)

ACCOUNTING PROCEDURE, Article I, Paragraph 10A:

"Premiums for workmen's compensation insurance, and any other insurance carried by Pipe Line Operator on the Pipe Line or its operations; together with All expenditures incurred and paid in settlement of claims or judgments not recovered from the insurance carrier to fully discharge all liability of Pipe Line Operator ensuing from an accident occurring on or in connection with operations for the benefit of the Pipe Line account."

ACCOUNTING PROCEDURE, Article I, Paragraph 10B:

"If no insurance is carried on any or all of the above or other risks, All actual expenditures incurred and paid by the Pipe Line Operator In settlement of any and all losses, claims, damages, judgments, and any other expenses including legal services shall be charged to the Pipe Line account."

ACCOUNTING PROCEDURE, Article I, Paragraph 14:

"Any other expenditures incurred by Pine Line Operator for the necessary and proper construction, maintenance, and operation of the Pipe Line."

(All emphasis supplied.)

Since Exxon was to be solely responsible for the operation and maintenance of the line, and in the normal course of events any claim for injury or damage arising out of those activities must necessarily be predicated upon the negligence of Exxon, it is obvious that the foregoing provisions contemplate indemnity to Exxon from losses due to its own negligence. However, two provisions of the contract, at least superficially, appear to be repugnant to those just quoted. For example:

CONTRACT, Article II, Page 3, Lines 17-19 "HUMBLE shall not be liable or responsible for the results of line breakage or other such occurrences, except those which are the result of HUMBLE'S negligence or willful acts."

ACCOUNTING PROCEDURE, Article I, Paragraph 7:

". . . Operator shall charge the Pipe Line Account with the following items:

7. Damages or losses incurred...