Case Title: George L. Brown Ins. v. Star Ins. Co.

Citation: 126 Nev. Adv. Op. No. 31

Docket Number: 

State: nevada

Court: Nevada Supreme Court

Date: 2010-08-12T00:00:00Z

Document:
426Nev, Advance Opinion 3!
IN THE SUPREME COURT OF THE STATE OF NEVADA

GEORGE L. BROWN INSURANCE No. 50741
AGENCY, INC., A NEVADA
CORPORATION; AND TERRI ALSOP,
AN INDIVIDUAL, |
Appellants,

vs.
STAR INSURANCE COMPANY, A
MICHIGAN CORPORATION; FI L E D
MEADOWBROOK, INC., A MICHIGAN
CORPORATION; AND AUG 12 2010
MEADOWBROOK OF NEVADA, INC., A.

NEVADA CORPORATION Agne
Respondents.

_]

 

Appeal from a district court final judgment in an insurance
matter. Eighth Judicial District Court, Clark County; Jessie Elizabeth
Walsh, Judge

Reversed and remanded,
Snell & Wilmer LLP and John 8. Delikanakis, Las Vegas, and Matthew L.

Lalli and Troy L. Booher, Salt Lake City, Utah,
for Appellants.

Laxalt & Nomura, Ltd., and James E. Murphy, Las Vogas; Berman,

Berman & Berman, LLP, and William M. Aitken, Los Angeles, California,
for Respondents.

BEFORE HARDESTY, DOUGLAS and PICKERING, JJ.

OPINIO}

By the Court, DOUGLAS, J.:

 

 
In this appeal, we consider what approach Nevada should
adopt in interpreting indemnity provisions in insurance contracts when an
indemnitee seeks to be indemnified on claims arising out of the
indemnitee’s own negligence. We conclude that Nevada should adopt the
majority rule regarding indemnification; therefore, the contract must
expressly or explicitly reference the indemnitee's own negligence before an
indemnitee may be indemnified for his or her own negligence.
Consequently, we conclude that the district court erred in granting
summary judgment in favor of respondents Star Insurance Company,
Meadowbrook, Inc., and Meadowbrook of Nevada, Ine. (collectively, Star),
because there are genuine issues of material fact concerning fault that
must be decided before the indemnification clause at issue here may be
enforced?
FACTS

‘The parties and their relationship

Appellant George L. Brown Insurance Agency, Inc, is an
independent insurance agency that contracts to sell insurance policies for
various insurance carriers, including Star Insurance Company. In
exchange for selling Star's insurance policies, Brown receives a
commission.

Brown and Star's contract (Producer Agreement) contains an
indemnification provision, which requires Brown to indemnify Star for
losses arising from Brown's performance under the contract. The
provision states that:

"We do not reach the other issues appellants raise as they are
resolved by our reversal and remand.

 

 
[Brown] shall defend, indemnify and hold
harmless [Star] for any and all damages, losses,
liabilities, fines, penalties, costs, and all other
expenses reasonably incurred by [Star] including
reasonable attorneys fees, for liabilities imposed
upon [Star] in connection with or arising out of
any claim, suit, hearing, action or proceeding, or
threat thereof in which [Star] is involved by
reason of [Brown] having performed services for
[Star] under this Agreement, or having failed to
perform services required under this Agreement.

The contract also requires that Brown receive prompt notice of any claim,
suit, hearing, action, or proceeding to invoke the indemnification
provision,
Disputed insurance policy

James Seeley is the sole owner of JBC Drywall, Inc. In
September 1998, Seeley incorporated JBC in California, where the
company established its principal place of business and cities of licensure.
JBC employee Oscar Shatswell resided in La Mirada, California, and was
employed to transport materials for JBC, Although Shatswell left his JBC
truck in Las Vegas an average of one day per week, Shatswell’s work for
JBC was predominately in California,

In February 2000, Seeley began moving JBC’s operations from
California to Las Vega:

 

Nevada. That same month, Seeley contacted
Terri Alsop, Brown's agent, to obtain workers’ compensation insurance for
JBC’s employees. However, Alsop advised JBC that his workers’
compensation insurance would only cover employees that lived and

worked in Nevada. Seeley informed her that would not be an issue

 

because if he kept any of his California employees, they would be moving
to Nevada. He further stated that his employees would only be traveling
into California occasionally for business.

 

 
In April 2000, Seeley personally moved to Henderson, Nevada,
where he began to operate JBC from his home. Although JBC conducted
business in Nevada, it was still incorporated in California and continued
some of its operations in California. Additionally, JBC continued to
employ individuals who lived and worked in California, including
Shatswell, who remained a resident of California after JBC's move. In
May 2000, Alsop completed a workers’ compensation insurance application
on behalf of JBC. Alsop testified that everything she was told about JBC’s
operations was contained in the narrative portion of the application. The
narrative portion of the application described JBC’s operations as follows:

[Insured trucks drywall from the Mfg to job sites.
He has employees of the job site who drive Grade
All and lifts the drywall into the buildings (no
more than 2 stories), He pick ups drywall from 3
mfg [sic] in Las Vegas (95% of his business) and
‘one Mfg in La Mirada, California (6% one truck
once a week).?

In August 2000, Alsop notified JBC that she had secured
insurance in accordance with his requests through Star Insurance. Alsop
testified that she informed Seeley both orally and in writing that the
workers’ compensation policy would only cover “those of his employees
that live or are a resident in Nevada.” In Alsop's letter to Seeley, she
stated:

I have secured a quote from Star Insurance
Company which is enclosed for your review. The
annual premium is $16,897. ‘This quote is based
on three employees at $36,000 each annual payroll
who are employed and live in Nevada. I have

2We understand “Mfg” to mean manufacturer or manufacturing site.

 

 
om

 

roquested an All State Endorsement be added to
your policy. This will cover your employees who
are employed in Nevada but are temporarily
working in another state.

The policy, which was effective August 2, 2000, inchided coverage for
JBC's employees for bodily injury by accident and promised coverage in
other states; California was not specifically excluded,

Gary Cooper, senior program director and underwriter of
Meadowbrook Insurance Company and Star, testified that he never saw
JBC's application. However, Alsop testified that she advised Cooper in
May 2000 that JBC had moved or was moving to Nevada from California.
Cooper only remembered Alsop informing him that JBC was no longer in
California. Cooper's understanding was that JBC was solely a “Nevada
risk,” meaning JBC only did business in and worked in Nevada. He
further testified that at the time JBC purchased the policy, he told Alsop
that he “was not interested in writing a California account” and that he
“made it very clear to [Alsop].” He explained that Star's system only
allowed Nevada policies to be written because one could only designate
Nevada payroll and class codes in the Internet system Alsop used to write

the policy.
Accident in California and arbitration

On September 6, 2000, while transporting materials in
California for JBC, Shatswell was injured in an accident. Shatswell and
JBC made a claim under the Star policy. However, Star denied coverage
stating that the policy only insured JBC’s employees and operations in
Nevada, not in California.

In December 2000, Seeley and JBC commenced litigation in
California regarding Shatswell’s workers’ compensation claim. The

California Worke:

 

Compensation Board referred the issue of insurance

 
ose

 

coverage to an arbitrator with the California Workers’ Compensation
Appeals Board. The California arbitrator ruled that the policy covered
Shatawell’s injury in California. The arbitrator stated that “the insurance
policy which ultimately issued to Seeley and JBC does not expressly limit
the terms of its coverage to Nevada operations.” This conclusion was
predicated on the “Other States Coverage” provision on the first page of
the policy, which stated that the policy applied to all states except five
that were expressly listed on the policy. California was not among the
expressly excluded states in the policy. ‘Thus, the arbitrator ruled that
JBC is “covered for an injury involving work in ‘other states.”

Moreover, the arbitrator ruled that Star had “actual and
constructive knowledge of the fact that [JBC] had an on-going business
operation within the State of California.” The arbitrator based this
conclusion on Alsop's knowledge of JBC's business operations in
California, which the arbitrator appeared to impute to Star based on
Star's relationship with Alsop. In fact, the arbitrator stated that Alsop
was “speaking on behalf of the insurance company.”

After the arbitrator's ruling, the California Court of Appeals
and the California Supreme Court upheld the decision, which stated that
Star was required under JBC's policy to provide coverage for Shatswell’s
injuries. Star is currently paying the insurance benefits to Shatswell
under the policy.

 
Procedural history of this case

After the California arbitration, JBC initiated this lawsuit by
filing a complaint against both Star and Brown in Nevada.? Subsequently,
Star filed an amended answer to the complaint and filed a cross-claim for
indemnity against Brown and Alsop. Specifically, Star sought contractual
indemnification for defending this lawsuit against JBC, defending the
California arbitration against Shatswell’s claims, and past and future
payments made to Shatswell under the JBC insurance policy.

Star filed a motion for summary judgment against Brown and
Alsop on the contractual indemnification claims, seeking to recover the
payments it made to Shatswell and any other liability it has in connection
with JBC’s complaint, by invoking the indemnity provision. Specifically,
Star sought

(2) indemnity from Brown and Alsop in the event
it is found liable to JBC on the complaint; (2)
indemnity from Brown and Alsop for all sums
which Star has paid or will pay to JBC’s injured
employee; and (3) the fees and costs Star has
incurred in the various litigation arising from the
claims of JBC and its employee.

Based on the indemnification clause, the district court entered summary

 

judgment in favor of Star. Brown and Alsop now appeal.

After prevailing on their workers’ compensation claim in California,
Seeley and JBC brought claims against Brown and Alsop for professional
negligence and against Star for breach of insurance contract, breach of
duty of good faith and fair dealing, and breach of statutory duties. Seeley
and JBC’s claims were dismissed on various motions unrelated to the
issues in this appeal in February 2005, and only the claims between
Brown, Alsop, and Star remain.

 

 
DISCUSSION

Brown argues that the district court erred when it granted
Star's motion for summary judgment. Brown contends that the district
court erred when it interpreted the indemnification provision as requiring
Brown to indemnify Star's negligence in the absence of express language
that includes indemnity for the indemnitee’s own negligence. We agree.
Where the indemnification clause does not specifically and expressly
include indemnity for the indemnitee’s own negligence, an indemnification
clause “for any and all liability” will not indemnify the indemnitee’s own
negligence. Because we conclude that indemnification only applies when
the indemnitee is not negligent, in the absence of explicit and express
contractual language to the contrary, summary judgment was not
appropriate in this case.
Standard of review

“This court reviews a district court's grant of summary
judgment de novo, without deference to the findings of the lower court.”
Wood v. Safeway, Inc, 121 Nev. 724, 729, 121 P.3d 1026, 1029 (2005).
‘Summary judgment is proper when, viewing the evidence in the light most
favorable to the nonmoving party, there is no genuine issue of material
fact and the moving party is entitled to judgment as a matter of law. Id.
An issue of material fact is genuine when the evidence is such that a
rational jury could return a verdict in favor of the nonmoving party. Id. at
781, 121 P.3d at 1031.

Contractual indemnity based on the indemnitee's negligence
‘Contractual indemnity is where, pursuant to a contractual

provision, two parties agree that one party will reimburse the other party
for liability resulting from the former's work,” Medallion Dev. v. Conve)
Consultants, 113 Nev. 27, 83, 930 P.2d 115, 119 (1997), superseded by

 

 
statute as

  

ated in Doctors Company v. Vincent, 120 Nev. 644, 654, 98
P.3d 681, 688 (2004). The scope of a contractual indemnity clause is
determined by the contract and is generally interpreted like any contract.
Rossmoor Sanitation, Inc. v, Pylon, Inc., 632 P.2d 97, 104 (Cal. 1975).

‘An indemnitor’s contractual obligation to indemnify its
indemnitee for the indemnitee’s own negligence is a matter of first
impression in Novada, The United States District Court for the District of
Nevada dealt with interpretation of an express contractual indemnity
agreement in Aetna Casualty and Surety Co, v. LK, Comstock & Co., 488
F. Supp. 732 (D. Nev. 1980), rev'd on other grounds, 684 F.2d 1267 (9th
Cir, 1982). The Aetna court, in the absence of controlling Nevada
precedent, noted that while “[t]he traditional majority position is that
strict construction should be applied to such indemnity contracts so that
express or explicit reference to the indemnites's own negligence is
required,” id, at 740, the court assumed “that Nevada would follow the
modern minority rule because it is the more enlightened view.” Id, at 742
“The modern minority rule is that an indemnity provision ‘for any and all
liability’ means all liability, including that arising from the indemnitee’s
Ta,

‘The rationale behind “the minority view is that such

 

concurrent negligence

indemnity contracts are so common in the modern business world that
courts should leave the parties with their bargain for ‘any and all
liability.” Id. (citing Martin v. Maintenance Co., Ine,, 588 F.2d 355 (24
Cir. 1978); Jacksonville Terminal Co. v, Railway Express Agency. Inc., 296
F.2d 256, 262 (6th Cir. 1961)). Applying the minority rule, the Aetna
court held that the fact that the indemnitee was concurrently negligent

was immaterial, and the indemnitor was bound by its contract to

 

 
os ae

indemnify the indemnitee in full. Id, at 742, We find this rationale
unpersuasive,

In this case, it appears the district court applied the minority
view in granting summary judgment in favor of Star in finding that the
indemnification provision of the Producer Agreement was “clear and

 

mbiguous . . . [and] entitled to be enforced by the court.”

We reject the rationale of the so-called minority rule because a
general clause is not sufficient to impose such an extraordinary remedy
Instead, we adopt the majority rule—an express or explicit reference to
the indemnitee's own negligence is required to indemnify an indemnitee
for his or her own negligence—because “the character of [such an]
indemnity [is] so unusual and extraordinary, that there can be no
presumption that the indemnitor intended to assume the responsibility
unless the contract puts it beyond doubt by express stipulation, and no
inference from words of general import can establish it.” 41 Am. Jur. 24
Indemnity § 16 (2005).

Consistent with the majority rule, “contracts purporting to
indemnify a party against its own negligence will only be enforced if they
clearly express such an intent and a general provision indemnifying the
indemnitee ‘against any and all claims,’ standing alone, is not sufficient.”
Camp. Dresser & McKee v. Paul N. Howard, 853 So. 2d 1072, 107 (Fla.
Dist. Ct. App. 2003) (internal citations omitted); see also 41 Am. Jur. 2d
Indemnity § 18 (2005). “{A] contract of indemnity will not be construed to
indemnify a party against loss or damage resulting from its own negligent
acts unless such intention is expressed in clear and unequivocal terms.”
Economy Forms v. J.S. Alberici Constr., 53 $.W.3d 552, 554 (Mo. Ct. App.
2000). Unlike the modern minority rule, the majority rule provides clarity

10

 

 
co Be

 

and fairness to the parties involved. Under the majority rule, the
wrongdoer faces the consequences of his or her actions rather than

“cast[ing] the burden of negligent actions upon those who were not

 

actually at fault.” United States v. Seckinger, 397 U.S. 203, 212 (1970).
Thus, tho modern minority rule allows for too much to be read into the
terms of a contract that the parties may not have intended and could
substantially benefit one party to the extreme detriment of the other.

Adopting the majority rule is also consistent with our
recognition of the express negligence doctrine, which “provides that a
party demanding indemnity from the consequences of its own negligence
must express that intent in specific terms.” Lehmann v. Har-Con Corp.
76 S.W.3d 555, 659-60 (Tex. App. 2002). “[T}he purpose of the express
negligence doctrine [is] to prevent surprise to the indemnitor.” Id, at 560.
“Under the doctrine of express negligence, the intent of the parties must
be specifically stated within the four corners of the contract.” Id, Further,
indemnification “provisions are strictly construed and will not be held to
provide indemnification unless it is so stated in clear and unequivocal
terms.” GKN Co, v, Stames Trucking, Inc,, 798 N.E.2d 548, 552 (Ind. Ct.
App. 2008) (‘[W]e are mindful that to obligate one party for the negligence
of another is a harsh burden that a party would not lightly accept”)

The indemnification provision of the Producer Agreement
states, “[Brown] shall defend, indemnify and hold harmless [Star] for any
and all damages, losses, liabilities, fines, penalties, costs, and all other

expenses reasonably incurred by [Star] There is no express or
explicit reference to negligence and this general provision is not sufficient
to indemnify Star against its own (possible) negligence. Because the

indemnification clause does not cover Star's own negligence, the district

u

 
court’s grant of summary judgment is improper because it must first be
determined whether Star was negligent before enforcoment of the
indemnification clause is appropriate.

Here, the
instead stating “[tJhat, as a matter of law, Star is not required to prove, as

 

rict court did not make a finding of negligence,

part of its prima facie claim for contractual indemnity, that it was not
negligent” and “[t]hat the issue of negligence is speculative.” We disagree
and conclude that the district court must make a finding of whether Star
was negligent before it can determine the applicability of the
indemnification clause. Therefore, summary judgment was not
appropriate in this case, as genuine issues of material fact remain
concerning Star's fault that must be decided before the indemnification
clause at issue here may be enforced.

Accordingly, we reverse the district court's grant of summary
judgment and remand for further proceedings consistent with this opinion.

 

 
om Be

 

PICKERING, J., concurring:

While I concur in the decision to reverse summary judgment
and remand for further proceedings in this case, I do so because I find an
issue of fact as to whether Star issued the problematic insurance policy
“by reason of [Brown] having performed services for [Star] under this
Agreement,” as the indemnity clause in the Producer Agreement requires,
‘This conclusion depends on reading the indemnity clause as applying only
when Brown's acts or omissions caused Star to incur liability it could not
avoid and would not have incurred otherwise. I read the clause this way
not because Star seeks indemnity for negligence—I don't see that it does—
but based on ordinary rules of contract construction,

As noted, I do not see this case as involving a question of
indemnity for negligence. ‘The party seeking indemnification, Star, was
held contractually liable on a policy of insurance that Brown, acting as
Star's producing agent, originated. Star now seeks contractual indemnity
from Brown. There is no claim that Star was negligent toward the insured
or toward Brown; hence, there is no question of Star being indemnified by
Brown for Star's negligence. At most, Star secks indemnity for having
issued a policy it wouldn't have if Brown had provided complete
information about the prospective insured’s business on the application
Brown forwarded. Brown and Star disagree on whether Star knew what
Brown knew (or should have known) about the insured when Star issued
the policy.

‘The Producer Agreement defined the insurance risks Star
authorized Brown to solicit and submit. If Brown exceeded the scope of its
authority in taking this partly California-based insured’s application and
forwarding it to Star as unexceptionable, then Brown may be liable to Star

 
as a matter of agency law, Restatement (Third) of Agency § 8.09 cmt. b,
illus. 1 (2006), and/or under the indemnity clause in the Producer
Agreement (Star having become “involved” in a “claim, suit, hearing,
action or proceeding” giving rise to “liabilit{y]” “by reason of [Brown]
having performed services for [Star] under this Agreement’). However,
Brown opposed summary judgment with competent proof that Star knew
that the insured still had operations in California when it accepted the

in other words, that Star knew what
Brown knew about the applicant and chose to write the policy anyway.

 

application and issued the policy

 

‘This was sufficient to create a genuine issue of material fact as to whether
Star incurred contractual liability to the insured on its own and not “by
reason of’ Brown, See id. cmt. b (an agent's liability to a principal for
unauthorized actions “does not extend to loss that the principal could have
avoided"). Star's different interpretation of the indemnity clause would
lead to Brown being a reinsurer, not simply a producer, which is an
unreasonable reading of the Producer Agreement as a whole. See 5
Margaret N. Kniffin, Corbin on Contracts § 24.22, at 240 (1998) (noting
“preference for an interpretation that will result in contract terms that are
reasonable”). Using the fault-based rubric the parties persuade the
majority to adopt, if this commercially extraordinary result was what the
parties intended, they should have said so much more clearly than they
did. Cf, Restatement (Third) of Torts:
£ (2000) (“An indemnitee can recover contractual indemnity for his or her

 

\pportionment of Liability § 22 emt.

 

own legally culpable conduct only if the contract is clear on that point,” but
noting that, “[ilf the contract is otherwise clear, it need not contain specific
words, such as ‘negligence’ or ‘fault.”).

 

 
10 905

 

I thus concur in my colleagues’ decision to reverse summary
judgment and remand but for the reasons and on the limited issues

outlined above.

Pickering