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Texaco Failed to Limit Its Liability

January 26, 1986

Texaco's attorneys made another serious error not mentioned in "The Deal: How Getty Fell Into Texaco's Lap," (Jan. 19). Texaco gave Getty an open-ended indemnity agreement protecting it from liability in the event of future lawsuits.

Any experienced attorney knows that open-end provisions are dangerous.

Whenever possible they should be qualified, and in this case they should have been limited to a specific dollar amount--perhaps $125 a share (the price Texaco originally agreed to pay--it eventually paid out $128 a share) plus a contingent liability of up to $500 million.

Then, if Getty insisted on a substantially higher limit of liability, Texaco might have concluded that the total package for Getty was too high.

Instead, Texaco granted the open-ended indemnity without any investigation of the conduct of Getty and its agents that Texaco might be held liable for.



(Texaco argues that it did investigate the events at Getty leading up to the 1984 acquisition of Getty Oil by Texaco. It also says it repeatedly questioned the Getty interests about their insistence on receiving indemnities before granting them.)

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