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The Texas Supreme Court recently provided contractors and their insurers a new pathway to recover settlement dollars via proportionate indemnity clauses, which are routinely found in construction and energy contracts. In a March 13, 2026 decision, the Court determined that indemnity rights can survive settlement, with the dissenting justices warning of an increased risk of continued litigation.
In S&B Engineers & Constructors, Ltd. and Zurich American Insurance Co. v. Scallon Controls, Inc., No. 24-0525, a sharply divided 5-4 Court held that a contractor and its insurer may attempt to recover part of a $6.75 million settlement paid to injured workers from a subcontractor whose alleged negligence contributed to a scaffolding accident. Reversing the Ninth District Court of Appeals, the Court held that a settlement does not automatically extinguish contractual indemnification rights where the parties have agreed to proportional indemnity, even if the indemnitor played no part in that settlement.
Following the settlement, S&B and Zurich sought indemnification from Scallon under a contractual provision requiring Scallon to indemnify S&B for losses arising from Scallon’s negligence. The agreement further provided that in situations involving shared fault, Scallon’s duty to indemnify would be limited to its “allocable share of comparative, concurrent and/or contributing negligence.” Scallon refused to indemnify S&B and Zurich, arguing that the voluntary settlement, one to which Scallon was not a party, extinguished any potential indemnification claim. The trial court granted summary judgment for Scallon, and the court of appeals affirmed.
The Texas Supreme Court disagreed. Writing for the majority, Justice Young explained that the lower courts improperly relied on Beech Aircraft Corp. v. Jinkins, which held that a settling defendant cannot preserve contribution rights against a non-settling tortfeasor under common-law or statutory contribution schemes. The Court emphasized that Jinkins addressed contribution claims, not contractual indemnification agreements. The Court observed that Jinkins “did not address or even mention a very different source of legal authority: voluntarily formed contracts providing for indemnification.” Because the dispute in this case arose from a negotiated indemnity agreement, the rule in Jinkins did not apply.
Instead, the Court focused on the parties’ contractual allocation of risk. Texas law permits parties to agree to comparative or proportional indemnity, and the Court reiterated that “[p]arties may contract for comparative indemnity so long as they comply with the express negligence doctrine.” The agreement between S&B and Scallon expressly limited indemnification to Scallon’s share of fault and disclaimed indemnification for S&B’s own negligence. The Court held that this language satisfied the express-negligence doctrine. The Court also rejected the argument that settlement automatically attributes liability solely to the settling parties. Because the parties’ contract required Scallon to indemnify S&B for its “allocable share” of negligence, the Court held that S&B and Zurich may attempt to prove that part of the settlement corresponds to Scallon’s fault. The case was remanded to allow a factfinder to determine whether Scallon bears any responsibility for the accident and, if so, the portion of the settlement attributable to that responsibility.
The Court emphasized that a settling party faces significant burdens when pursuing indemnification after settlement. To recover, the settling party must demonstrate that the settlement was made in good faith and for a reasonable amount and must persuade the factfinder that some portion of the liability is attributable to the indemnitor’s negligence. The Court explained that the settling party “bears the burden to show… the ‘allocable share’ of the indemnitor’s negligence,” and that failure to establish either the reasonableness of the settlement or the indemnitor’s fault will preclude recovery.
Writing for the dissent, Justice Bland argued that the contract did not permit S&B to shift its settlement costs to Scallon because the indemnity provision covered only losses caused by Scallon’s negligence, not S&B’s own. According to the dissent, because the injured workers sued only S&B and Sunoco, the settlement represented payment for their own alleged liability, and the majority’s decision improperly allows a settling party to later attempt to allocate that settlement to a non-settling subcontractor. The dissent warned that allowing post-settlement indemnity trials creates lopsided proceedings with misaligned incentives.
The case will now return to the trial court. To recover, S&B and Zurich must prove the settlement it entered into was reasonable, made in good faith, and that Scallon’s negligence was at least partly to blame.
Key takeaways
1. A settlement does not necessarily extinguish contractual indemnity rights. A party that settles a claim may still pursue indemnification if the contract supports that claim.
2. Insurers and companies that rely on contractual risk-transfer provisions should review indemnity clauses and settlement strategies to ensure those provisions are properly drafted and enforceable.
3. The Texas Supreme Court clarified that the rule in Beech Aircraft Corp. v. Jinkins applies to contribution claims, not contractual indemnity agreements.
4. Proportional indemnity clauses that limit recovery to an indemnitor’s “allocable share” of fault may satisfy the express-negligence doctrine if the contract clearly disclaims indemnification for the indemnitee’s own negligence.
5. Insurers that fund settlements may pursue recovery through subrogation based on their insured’s contractual indemnity rights, but they must prove that the settlement was reasonable and that the indemnitor bears some share of fault.
Insurance and reinsurance
United States