Title: NORTHWINDS OF WYOMING, INC. v. PHILLIPS PETROLEUM COMPANY, A Delaware Corporation ; ONSHORE QUALITY CONTROL SPECIALISTS, INC. v. PHILLIPS PETROLEUM COMPANY, A Delaware Corporation

State: wyoming

Issuer: Wyoming Supreme Court

Document:

NORTHWINDS OF WYOMING, INC. v. PHILLIPS PETROLEUM COMPANY, A Delaware Corporation ; ONSHORE QUALITY CONTROL SPECIALISTS, INC. v. PHILLIPS PETROLEUM COMPANY, A Delaware Corporation1989 WY 173779 P.2d 753Case Number: 89-33, 89-34Decided: 09/08/1989Supreme Court of Wyoming
NORTHWINDS OF WYOMING, 
INC., APPELLANT (THIRD-PARTY DEFENDANT),

v.

PHILLIPS PETROLEUM 
COMPANY, A DELAWARE CORPORATION, APPELLEE (DEFENDANT THIRD-PARTY 
PLAINTIFF).

ONSHORE QUALITY CONTROL 
SPECIALISTS, INC., APPELLANT (DEFENDANT),

v.

PHILLIPS PETROLEUM 
COMPANY, A DELAWARE CORPORATION, APPELLEE (DEFENDANT THIRD-PARTY 
PLAINTIFF).

Appeal from the District 
Court, ConverseCounty, William A. Taylor, 
J.

G.G. Greenlee of 
Murane & Bostwick, Casper, for appellant, Northwinds of Wyoming, 
Inc.

Jeffrey C. 
Brinkerhoff of Brown & Drew, Casper, for appellant, Onshore Quality Control 
Specialists, Inc.

Frank D. Neville 
and Stuart R. Day of Williams, Porter, Day & Neville, P.C., Casper, for appellee, Phillips Petroleum Co. 

Before CARDINE, C.J., and THOMAS, URBIGKIT and 
MACY, JJ., and HANSCUM, District Judge.

MACY, 
Justice.

[¶1.]     These consolidated 
appeals are from a judgment of the district court finding that appellee Phillips 
Petroleum Company (Phillips) is contractually entitled to indemnification from 
appellants Onshore Quality Control Specialists, Inc. (Onshore) and Northwinds of 
Wyoming, Inc. (Northwinds) for its liability arising from an underlying action 
for personal injury and wrongful death. The district court determined that 
Phillips was entitled to indemnification, including attorneys' fees and costs, 
and correspondingly that appellants were not entitled to contribution from 
Phillips with respect to the settlement reached with the plaintiffs in the 
underlying action.

[¶2.]     We affirm in part and 
reverse in part.

[¶3.]     The parties have 
stipulated as to the issue to be resolved by this Court:

Did the District Court 
err by holding that Appellee Phillips Petroleum Company ("Phillips") is entitled 
to indemnity, including its costs and attorneys['] fees, under its agreements 
with Appellant Onshore Quality Control Specialists, Inc. ("Onshore") and 
Appellant Northwinds of Wyoming, Inc. ("Northwinds") and that Onshore and 
Northwinds are not entitled to contribution from Phillips for its proportionate 
share of the settlements made with the plaintiffs in the underlying actions? 
More simply stated: [M]ay Phillips be indemnified for its own negligence under 
the agreements with Onshore and Northwinds?

[¶4.]     The facts in this case 
are undisputed, and the parties have stipulated to the relevant facts and to the 
course of proceedings in the district court. In connection with the construction 
and maintenance of a natural gas pipeline in Converse County, Wyoming, Phillips, in addition to using its 
own employees, contracted with appellants for various services. Pursuant to the 
contracts, Onshore provided pipeline inspection services and Northwinds provided 
construction related services, including labor and equipment. A third 
contractor, David Markwardt (Markwardt), provided services as an independent 
pumper.1

[¶5.]     On December 28, 1984, 
Lance Jung (Jung) and Roy Claude Meek (Meek), both employees of Northwinds, cut 
through a high-pressure natural gas pipeline which had not been completely 
depressurized. As a result, high-pressure gas escaped with tremendous force, 
causing the death of Meek and serious injury to Jung.

[¶6.]     By amended complaint 
filed October 23, 1985, the personal representative of the estate of Meek 
commenced an action for wrongful death against Phillips, Onshore, Markwardt, and 
certain individual employees of Phillips and Onshore.2 Onshore answered and asserted 
cross-claims for contribution against all co-defendants, including Phillips. On 
March 21, 1986, Jung filed a separate complaint against Phillips, Onshore, 
Markwardt, and individual employees of Phillips and Onshore. Jung alleged that 
his injuries resulted from the negligence of the 
defendants.

[¶7.]     Phillips filed 
third-party complaints against Northwinds3 in both the Meek and Jung actions, 
alleging that, pursuant to the contract between Phillips and Northwinds, 
Northwinds must indemnify Phillips. Similarly, Phillips cross-claimed against 
Onshore in both the Meek and Jung actions, again alleging a contractual right to 
indemnity. Thereafter, Northwinds asserted cross-claims for contribution against 
all defendants, including Phillips. 

[¶8.]     In December 1986, 
Onshore and Northwinds both moved for partial summary judgment on Phillips' 
claims for indemnity. After receiving memoranda from the parties and conducting 
a hearing, the district court issued a decision letter on February 23, 1987, 
ruling that the indemnity provisions in the respective contracts required 
Onshore and Northwinds to indemnify Phillips, including indemnification for 
Phillips' liability arising from its own negligence. Upon appellants' motions to 
reconsider, the district court issued a second decision letter on April 3, 1987, 
reaffirming its previous ruling.

[¶9.]     On April 10, 1987, the 
defendants in the consolidated Meek and Jung actions reached a settlement 
agreement with the plaintiffs. Under the terms of the agreement, the defendants 
paid certain sums of money to the plaintiffs and the plaintiffs executed 
releases of all claims against all the defendants, including Phillips. Phillips 
did not contribute to the consideration given for the releases. The Meek and 
Jung actions were dismissed with prejudice on May 22, 1987, in accordance with a 
stipulation entered into by the parties. This stipulation preserved all rights 
of contribution and indemnity which the defendants could legally assert against 
each other.

[¶10.]  The defendants additionally entered into 
a further stipulation concerning the parties' percentages of respective fault 
for the damages to the plaintiffs. The defendants agreed that the fault should 
be allocated as follows:

Phillips (including its 
individual employees) ................ 35% 

Onshore (including one of 
its employees) ..................... 35% 

Northwinds (including one 
of its employees) .................. 20% 

Markwardt 
.................................................... .10% 

____ 

TOTAL 
................................................... 100%

These parties 
also stipulated that, if it should be ultimately determined that the indemnity 
provisions in the contracts do not entitle Phillips to indemnification for its 
own negligence, then Phillips will reimburse Onshore and Northwinds for 
thirty-five percent of the total amount paid to the 
plaintiffs.

[¶11.]  After a hearing pursuant to the 
stipulation, the district court entered its judgment and order on December 29, 
1988, which essentially incorporated both the defendants' stipulation and the 
decision letter determinations that Phillips was entitled to indemnity for its 
own negligence and that Northwinds and Onshore were not entitled to contribution 
from Phillips. The district court further found and ordered that, pursuant to 
the indemnity agreements, Onshore and Northwinds must reimburse $84,412.28 to 
Phillips for attorneys' fees and costs.4 Northwinds and Onshore then 
perfected this appeal.

[¶12.]  The identical indemnification provisions 
in the contracts between Phillips and Northwinds and Phillips and Onshore 
provide:

Contractor shall 
indemnify and hold Company harmless from any and all claims, liabilities and 
causes of action of, to, or by third persons, including Contractor, his 
subcontractors, or the employees of either, for injury to or death of any person 
and for damage to or destruction of any property, resulting directly or 
indirectly from any and all acts or omissions of Contractor, his subcontractors, 
or of anyone directly or indirectly employed by either of them in connection 
with the performance of any work provided for herein and regardless of whether 
such injury death, damage and/or destruction is contributed to by the negligence 
of Company, its agents, servants, and/or employees, and on behalf of Company and 
in Company's name will handle or defend at its own expense any claim or 
litigation in connection therewith. The indemnity provided for in this paragraph 
shall have no application to any claim, liability or cause of action resulting 
from the sole negligence of Company, its agents, servants, and/or 
employees.

The question 
presented by the above provision is simply whether, under the contracts, 
Phillips is entitled to indemnity for its own negligence where the plaintiffs' 
injuries and death in the underlying action were the result of the negligence of 
both Phillips and appellants. The district court, although observing that it was 
an "extremely difficult question[]," determined that Phillips was entitled to 
such indemnity. We are of the opinion, however, that the provision does not 
clearly state that Phillips is entitled to indemnity for its own negligence 
where it has been concurrently negligent, and, therefore, the district court's 
decision to that effect cannot be sustained.

[¶13.]  Onshore contends that the agreement only 
requires Onshore to indemnify Phillips for Onshore's negligence; that the 
indemnification obligation is limited by the words "of Contractor"; that the 
provision says nothing about indemnification for Phillips' own negligence except 
to state that the indemnity does not apply to Phillips' "sole" negligence; and 
that the provision says nothing about concurrent negligence. Onshore argues that 
the provision, stripped to its essentials, could be read in this 
manner:

Onshore shall indemnify and hold Phillips harmless 
from all claims resulting from the acts 
of Onshore [contractor] and regardless of whether such injury is contributed to by the 
negligence of Phillips and on behalf of Phillips and in Phillips['] name will handle or defend at its own expense any 
claim in connection 
therewith.

(Emphasis added 
by Onshore.) Onshore suggests that the agreement imposes two distinct 
obligations upon Onshore: (1) indemnity for Onshore's own negligence, and (2) a 
duty to defend Phillips. Onshore emphasizes that the agreement does not 
specifically state that Onshore must indemnify Phillips for Phillips' concurrent 
negligence.

[¶14.]  Northwinds' argument is similar, and it 
additionally suggests that the indemnity provision had the purpose of protecting 
Phillips from vicarious and derivative liability. Northwinds contends that the 
intent of the indemnity provision was to protect Phillips from liability which 
arises from the negligent acts of others (i.e., vicarious liability) and not to 
protect Phillips against its own negligence. Northwinds identifies what it 
considers to be the critical clause of the provision and synthesizes it in this 
manner:

Contractor [Northwinds] 
shall indemnify and hold Company [Phillips] harmless [a]gainst * * * injury or 
death of any person * * * resulting directly or indirectly from any and all acts 
or omissions of Contractor * * * in connection with the performance of any work 
provided for 
herein.

(Emphasis added 
by Northwinds.) Northwinds further argues that the clause, "regardless of 
whether such injury death, damage and/or destruction is contributed to by the 
negligence of Company," is not adequate to impose an obligation upon Northwinds 
to protect Phillips from Phillips' own negligence. Northwinds reads that clause 
as simply providing assurance to Phillips that Phillips' own negligence will not 
affect Phillips' right to protection for any vicarious or derivative liability 
it may incur because of the negligence of Northwinds. Both appellants assert 
that the final sentence of the provision simply means what it says - that the 
indemnity provision is inapplicable to claims resulting from the sole negligence 
of Phillips - and that an added duty to indemnify Phillips in the case of 
concurrent negligence cannot be implied or inferred from the express denial of 
any indemnity obligation where Phillips alone is 
negligent.

[¶15.]  Phillips, of course, argues that the 
provision requires indemnification for its own negligence unless the liability 
results solely from its negligence. Phillips analyzes the indemnity language in 
this manner:

1. That the Contractor 
agrees to indemnify Company as follows:

(a) from any and all 
claims. . . .

(b) for injury to or 
death of any person. . . .

(c) resulting directly or 
indirectly from any and all acts or omissions of Contractor. . . . 

(d) regardless of whether such injury, death, 
damage and/or destruction is contributed to by the negligence of the 
Company.

and

(e) In the event any 
claim resulted from the sole negligence of the Company, the indemnity language 
would have no application.

(Emphasis added 
by Phillips.) Although Phillips' reading of the provision is persuasive, we 
think the interpretations offered by appellants are tenable, and therein lies 
the problem for Phillips.

[¶16.]  We agree with the parties and the 
district court that the controversy in this case is controlled by our decision 
in Wyoming Johnson, Inc. v. Stag Industries, Inc., 662 P.2d 96 (Wyo. 1983).5 In Wyoming Johnson, Inc., a general contractor 
(and its insurer) sought indemnity for its own negligence from a subcontractor. 
The general contractor paid a personal injury settlement upon the claim against 
it brought by an employee of the subcontractor. The general contractor argued 
that its contract with the subcontractor specifically provided that the 
subcontractor would indemnify the general contractor for its own negligence. The 
indemnity provision relied upon by the general contractor provided that the 
subcontractor would

"indemnify Contractor against and save him 
harmless from any and all claims, suits or liability for injuries to property, 
injuries to persons including death and from any other claims, suits or 
liability on account of any act or omission of Subcontractor, or any of his 
officers, agents, employees or servants."

Id. at 98 (emphasis in 
original). We held that the above provision limited the subcontractor's 
indemnification obligation to acts of the 
subcontractor and that the general contractor's claim for indemnification 
for its own negligence must fail under this provision. The general contractor in 
that case, however, also relied upon the fact that its contract with the 
subcontractor incorporated by reference the terms of the prime contact between 
the general contractor and the owner, which contained an indemnity provision 
stating in part:

"To the fullest extent 
permitted by law, the Contractor * * * shall indemnify and hold harmless the Owner and the Architect * * * and 
their agents and employees from and against all claims, damages, losses and 
expenses, including but not limited to attorneys' fees, arising out of or 
resulting from the performance of the Work, provided that any such claim, 
damage, loss or expense (1) is attributable to bodily injury, * * * and (2) is 
caused in whole or in part by any 
negligent act or omission of the Contractor, * * * anyone directly or indirectly 
employed by any of them or anyone for whose acts any of them may be liable, 
regardless of whether or not it is caused in part by a party indemnified 
hereunder."

Id. at 98 (emphasis in 
original). We noted that the latter provision was much broader than the 
provision in the contract between the general contractor and the subcontractor 
because it provided indemnity for "`all claims, damages, losses and expenses'" 
while the former provision, similar to the provisions in the instant case, 
limited the indemnity to "`acts or omissions of the [S]ubcontractor.'" 
Id. at 99. We 
held, however, that the incorporation by reference of the prime contract into 
the contract between the contractor and the subcontractor was not a clear and 
unequivocal agreement to indemnify the general contractor for its own 
negligence. Id. at 99.6 

[¶17.]  In reaching our decision in Wyoming Johnson, Inc., we 
stated the applicable law in the following passages:

"A contract of indemnity 
purporting or claimed to relieve one from the consequence of his failure to 
exercise ordinary care must be strictly construed. Accordingly, it is frequently 
stated as the general rule that a contract of indemnity will not be construed to 
indemnify the indemnitee against losses resulting from his own negligent acts 
unless such intention is expressed in clear and unequivocal terms, or unless no 
other meaning can be ascribed to it. Mere general, broad, and seemingly 
all-inclusive language in the indemnifying agreement has been said not to be 
sufficient to impose liability for the indemnitee's own negligence. It has been 
so held, for instance, with regard to the words `any and all liability.'" 41 
Am.Jur.2d, Indemnity, § 15, pp. 699, 700 (1968).

"Where the injury was 
caused by the concurrent negligence of the indemnitor and the indemnitee, the 
courts have frequently read into contracts of indemnity exceptions for injuries 
caused in part by the indemnitee, although there is authority to the contrary. 
Even the fact that the contact requires the indemnitor to hold the indemnitee 
harmless from damage caused by the indemnitor's `negligent acts and omissions' 
has been held insufficient to make the indemnity clause applicable in a case 
where the indemnitee's negligence concurred with that of the indemnitor to cause 
the injury." 41 Am.Jur.2d, Indemnity, § 16, pp. 703, 704 
(1968).

Id. at 99. We further said 
in that case:

Generally, 
contracts exculpating one from the consequences of his own acts are looked upon 
with disfavor by the courts. Therefore, an agreement for indemnity is construed 
strictly against the indemnitee, particularly when the indemnitee was the 
drafter of the instrument. If the indemnitee means to throw the loss upon the 
indemnitor for a fault in which he himself individually shares, he must express 
that purpose beyond any peradventure of doubt. The test is whether the contract 
language specifically focuses attention on the fact that by the agreement the 
indemnitor was assuming liability for indemnitee's own 
negligence.

Id. at 99 (citations 
omitted).

[¶18.]  Applying a strict construction to the 
indemnity provision in the instant case, we are persuaded that Phillips, as 
drafter of the provision, did not, in clear and unequivocal terms, express that 
Onshore and Northwinds would indemnify Phillips for Phillips' own negligence. 
Appellants, with reference to Wyoming Johnson, Inc., 662 P.2d 96, rely on the 
language in the provision which appears to limit the indemnity to acts of 
Contractor. Appellants further contend that the phrase "regardless of whether 
such injury [or] death * * * is contributed to by the negligence of Company" 
refers to the succeeding duty to defend clause or, alternatively, that it 
operates to insure appellants will indemnify Phillips for appellants' negligence 
even if Phillips is concurrently negligent. In any event, the clause limiting 
the indemnity to acts of Contractor and the later clause stating regardless of whether Company contributed to 
the negligence are inconsistent and ambiguous if read 
together.

[¶19.]  Phillips conversely urges that the latter 
language, as bolstered by the inference to be obtained by the final sentence, 
imposes an obligation upon appellants to indemnify Phillips for all claims 
unless Phillips was solely negligent. Phillips' reliance, however, on any 
inference to be obtained from the final sentence of the provision, which 
excludes any indemnity obligation where Phillips is solely negligent, is 
misplaced. In Cities Service Company v. Northern Production Company, Inc., 705 P.2d 321, 327 (Wyo. 1985), we said, with respect to a similar 
provision:

The agreement is not 
clear and unambiguous. It is obscure in its meaning when it excludes from 
indemnity the sole negligence of Cities Service but does not address the 
situation in which the negligence of Cities Service concurs with the negligence 
of Northern Production in causing the employee's injury.

[¶20.]  If we were applying a broad construction 
to the provision, we might be inclined to accept Phillips' interpretation, after 
resolving the ambiguities. As drafted, however, and no matter how it is read, 
the provision simply does not state, except possibly by inference, that 
appellants must indemnify Phillips for Phillips' own negligence in the case of 
concurrent negligence of the indemnitee and indemnitor. Under the strict 
construction required by Wyoming Johnson, Inc., 662 P.2d 96, the language of the 
provision is not sufficiently clear and unequivocal to throw the loss upon the 
appellants/indemnitors for the fault attributable to Phillips as indemnitee. We 
hold, therefore, that Phillips was not entitled to indemnification from 
appellants for its own negligence and that appellants are accordingly entitled 
to contribution from Phillips for Phillips' share of the settlements reached 
with the plaintiffs.

[¶21.]  As a final matter, Northwinds advances 
the argument that, under the terms of the indemnity provision, Phillips was not 
entitled to a defense at appellants' expense with respect to the claims against 
Phillips for its own negligence.7 The district court determined that 
the indemnity agreements entitled "Phillips to be indemnified for its reasonable 
attorneys' fees and costs expended by it in the defense of the plaintiffs'[] 
claims in the underlying actions." The record does not indicate what percentage 
of the fees and costs was expended by Phillips in defense of the claims against 
Phillips as opposed to expenditures with respect to the claims against 
appellants.

[¶22.]  We first observe that, with respect to 
the attorneys' fees and costs, Phillips is not seeking indemnification for its 
own negligence but rather is simply seeking to enforce an alleged contractual 
duty to defend. Therefore, the rule of strict construction does not apply, and 
the duty to defend provision is subject to a broad rule of construction. See 
Cities Service Company, 705 P.2d  at 328 (rule of strict construction applies 
only when indemnitee seeks indemnification for its own negligent acts). Thus, we 
consider the contract as a whole, placing a broad construction upon it which 
reasonably gives effect to the intention of the parties as expressed by its 
terms in light of the applicable law. Id. at 
328; Wyoming Game and Fish Commission v. Mills 
Company, 701 P.2d 819 (Wyo. 1985).

[¶23.]  Returning to the subject provision, we 
note the following phrases: (1) "and regardless of whether such injury death, 
damage and/or destruction is contributed to by the negligence of Company," and 
(2) "and on behalf of Company and in Company's name will handle or defend at its 
own expense any claim or litigation in connection therewith." We are of the 
opinion that this language, regardless of whether the first quoted phrase is 
considered to modify the words preceding it or to apply to the quoted phrase 
following it, indicates an intention that appellants were to defend claims 
brought against the parties jointly. This interpretation is also supported by 
and gives effect to the final sentence of the provision which eliminates any 
obligation to indemnify or defend where Phillips was solely negligent. In other 
words, the final sentence indicates that the duty of appellants to defend does 
not extend to situations where the negligence was solely attributable to 
Phillips. We recognize that our interpretation of the duty to defend resembles 
Phillips' argument with respect to indemnification for its own negligence. 
Again, however, in analyzing the duty to defend, we are applying a broad or 
liberal rule of construction in order to reasonably give effect to the intention 
of the parties, and we are not bound by the "clear and unequivocal rule" applied 
to the primary issue of Phillips' entitlement to indemnity for its own 
negligence. We hold, therefore, that the district court correctly determined 
that Phillips was entitled to its reasonable attorneys' fees and costs expended 
in defense of the underlying action.

[¶24.]  Affirmed in part and reversed in 
part.

FOOTNOTES

1 Markwardt, a defendant 
in the underlying action, did not pursue an appeal.

2 Northwinds was immune to 
direct suit by the plaintiffs by virtue of the immunity provided to contributing 
employers by the Wyoming Worker's Compensation Act. See Wyo. Stat. § 27-14-104 
(1977).

3 Although the Wyoming 
Worker's Compensation Act bars an employee and those claiming under him from 
suing the employer, the Act does not bar other third-parties sued by the 
employee from bringing an action against the employer for indemnity based on a 
contract between the employer and the third-party. Cities Service Company v. 
Northern Production Company, Inc., 705 P.2d 321 (Wyo. 1985).

4 In their stipulated 
statement of the case upon appeal, the parties state that the amount and 
reasonableness of the attorneys' fees and costs are not issues on appeal. 
Northwinds, however, contests its liability as to certain expenses. See 
infra

5 Neither party suggests 
that this is a case to which Wyo. Stat. § 30-1-131 (1977) applies. Section 
30-1-131 embodies the legislative public policy determination that contract 
provisions indemnifying against loss or liability resulting from one's own 
negligence in an agreement pertaining to wells for oil, gas, or water or mines 
for minerals shall be void and unenforceable. See Cities Service Company, 705 P.2d  at 326. We agree that § 30-1-131 has no applicability to the instant case. 
See also Wyo. Stat. § 30-1-132 and Reliance Insurance Company v. Chevron 
U.S.A., Inc., 713 P.2d 766 
(Wyo. 1986) (§ 
30-1-131 construed to cover only services closely related to well 
drilling).

6 Although the case does 
not directly so state, we recognize that Wyoming Johnson, Inc. could be read as 
intimating that the language of the prime contract, standing alone and not 
incorporated by reference, and without the limitation imposed by the acts of subcontractor phrase, could be 
sufficient to impose an obligation to indemnify the indemnitee for its own 
negligence.

7 Onshore, in its brief, 
concedes that the agreement required appellants to pay for Phillips' 
defense.

CARDINE, Chief Justice, 
dissenting.

[¶25.]  I dissent. I would have affirmed the 
district court judge. The essence of this opinion is found in the statement, "We 
are of the opinion, however, that the provision does not clearly state that 
Phillips is entitled to indemnity for its own negligence where it has been 
concurrently negligent * * *." Majority opinion at p. 756. The provision 
referred to provides:

"Contractor shall 
indemnify and hold Company harmless from any and all claims * * * regardless of 
whether such * * * is contributed to by the negligence of Company * * *. The 
indemnity provided for in this paragraph shall have no application to any claim 
* * * resulting from the sole negligence of Company." (emphasis 
added)

[¶26.]  The concurrent negligence of Phillips 
contributed to the final result. The provision is clear. Phillips is entitled to 
indemnity for any loss or claim unless caused by Phillips' sole negligence.