Title: Todd Deminsky v. Arlington Plastics Machinery
Citation: 2003 WI 15
Docket Number: 2001AP000242
State: Wisconsin
Issuer: Wisconsin Supreme Court
Date: March 6, 2003

2003 WI 15 
 
 
 
SUPREME COURT OF WISCONSIN 
 
 
 
 
 
CASE NO.: 
01-0242 
 
 
COMPLETE TITLE: 
 
 
Todd Deminsky,  
 
Plaintiff-Respondent-Petitioner, 
 
v. 
Arlington Plastics Machinery, Locator 
Corporation, Alpha Omega Plastics Company, 
Conair, Inc., and Steadfast Insurance Company,  
 
Defendants, 
Image Plastics, Inc. and Federated Mutual 
Insurance Company,  
 
Defendants-Appellants-Petitioners. 
 
 
 
 
REVIEW OF A DECISION OF THE COURT OF APPEALS 
2001 WI App 287 
Reported at:  249 Wis. 2d 441, 638 N.W.2d 331 
(Published) 
 
 
OPINION FILED: 
March 6, 2003   
SUBMITTED ON BRIEFS: 
        
ORAL ARGUMENT: 
September 10, 2002   
 
 
SOURCE OF APPEAL: 
 
 
COURT: 
Circuit   
 
COUNTY: 
Barron   
 
JUDGE: 
Edward R. Brunner   
 
 
 
JUSTICES: 
 
 
CONCURRED: 
ABRAHAMSON, C.J., concurs (opinion filed). 
SYKES, J., concurs (opinion filed). 
BRADLEY, J., joins concurrence.   
 
DISSENTED: 
        
 
NOT PARTICIPATING:         
 
 
 
ATTORNEYS: 
 
For 
the 
defendants-appellants-petitioners, 
there 
were 
briefs by Laura J. Hanson, Katherine A. McBride and Meagher & 
Geer P.L.L.P, Minneapolis, Minnesota, and oral argument by Laura 
J. Hanson. 
 
For the plaintiff-respondent-petitioner, there were briefs 
by John P. Richie and Richie, Wickstrom & Wachs, LLP, Eau Claire 
and oral argument by John P. Richie. 
 
2003 WI 15 
NOTICE 
This opinion is subject to further 
editing and modification.  The final 
version will appear in the bound 
volume of the official reports.   
No.  01-0242  
(L.C. No. 
98 CV 150) 
STATE OF WISCONSIN  
 
 
   : 
IN SUPREME COURT 
 
 
Todd Deminsky,  
 
          Plaintiff-Respondent-Petitioner, 
 
     v. 
 
Arlington Plastics Machinery, Locator  
Corporation, Alpha Omega Plastics  
Company, Conair, Inc., and Steadfast  
Insurance Company,  
 
          Defendants, 
 
Image Plastics, Inc. and Federated Mutual  
Insurance Company,  
 
          Defendants-Appellants- 
          Petitioners. 
 
FILED 
 
MAR 6, 2003 
 
Cornelia G. Clark 
Clerk of Supreme Court 
 
 
 
 
 
REVIEW of a decision of the Court of Appeals.  Modified and 
affirmed and, as modified, cause remanded.   
 
¶1 
JON P. WILCOX, J.   In this case we review a published 
decision of the court of appeals, Deminsky v. Arlington Plastics 
Machinery, 2001 WI App 287, 249 Wis. 2d 441, 638 N.W.2d 331, 
which reversed and remanded a summary judgment order of the 
Barron County Circuit Court, Edward R. Brunner, Judge.  Two 
No. 
01-0242   
 
2 
 
issues are presented to this court.  First, we must determine 
whether an indemnity agreement is valid and enforceable under 
the circumstances presented.  Second, if the provision is valid, 
we must decide the extent to which an indemnitor is bound by a 
settlement agreement reached between the plaintiff and the 
indemnitee before trial.   
¶2 
The plaintiff in this case, Todd Deminsky (Deminsky), 
sued Arlington Plastics Machinery, Inc. (Arlington) when he was 
injured while using a grinding machine sold by Arlington to 
Deminsky's employer, Image Plastics, Inc. (Image).  When 
Deminsky learned that there was an indemnification agreement 
between Arlington and Image in the contract for the sale of the 
machine, he impleaded Image and its insurer, Federated Mutual 
Insurance Company (Federated).1  Deminsky and Arlington then 
reached a settlement agreement.  The circuit court approved the 
stipulated judgment and entered judgment against Arlington.  The 
agreement 
assigned 
Arlington's 
indemnification 
claims 
to 
Deminsky.  Deminsky amended his complaint to include an 
indemnification claim against Image.  Both parties then moved 
for summary judgment.  The circuit court granted Deminsky's 
motion for summary judgment and awarded him the full amount of 
the judgment ordered against Arlington, plus interest and costs.  
Image appealed.  The court of appeals upheld the circuit court's 
                                                 
1 We will refer to the appellant-petitioners, Image and 
Federated, as Image, except where it is necessary to separately 
identify the parties.  Image, Federated, and Deminsky are the 
only parties to this review.  Arlington and all others named as 
defendants in the caption are not participating. 
No. 
01-0242   
 
3 
 
finding that the indemnity agreement was valid, but reversed and 
remanded the case, finding that Image should not be bound by the 
terms of the stipulation reached by Deminsky and Arlington.  The 
court of appeals believed Image should be afforded a full trial 
on the issues of liability and damages.  We agree that the 
indemnity provision in the sales contract between Image and 
Arlington is valid.  We also agree that Image may not be bound 
to the terms of the settlement agreement, but find that the 
scope of the remand should be limited because Image rejected the 
tender of the defense.   
¶3 
Accordingly, we affirm the holding of the court of 
appeals and remand the case to the circuit court for a limited 
court trial on the issue of whether the settlement agreement 
reached is reasonable and not the product of fraud or collusion. 
If the circuit court finds that the settlement agreement is 
reasonable and there was no fraud or collusion, then the 
judgment against Image will stand.  However, if the circuit 
court finds that the settlement agreement was unreasonable or 
involved fraud or collusion, then the parties will be back to 
the position they were in before any settlement agreement was 
reached between Deminsky and Arlington.  That means that the 
parties will be headed for a trial on Arlington's liability and 
damages.  Unlike before, though, Image will have the benefit of 
this court's opinion and know that the indemnity agreement in 
its contract with Arlington is valid and binding upon them. 
 
 
No. 
01-0242   
 
4 
 
I 
¶4 
For purposes of this review, the parties agree on the 
following facts.  Image is a Wisconsin corporation that recycles 
and reprocesses plastic.  In 1995, one of Image's customers 
asked it to grind up plastic snow fencing.  However, Image had 
no machine suitable for such a purpose.  The owner of Image, 
Gregory Harm, determined that new machines were too expensive 
and decided to seek an appropriate used machine.  Harm contacted 
John Clarke, the president of Arlington Plastics Machinery, an 
Illinois 
corporation 
that 
buys 
and 
sells 
used 
plastics 
processing equipment.  Arlington was the closest of the 
available suppliers.  Image had purchased equipment from 
Arlington on prior occasions.  Clarke told Harm that he had a 
machine that might work.   
¶5 
On November 3, 1995, Harm drove to Elk Grove Village, 
Illinois, to meet with Clarke at Arlington's plant and inspect 
the machine.  He took some of the snow fencing along with him to 
test on the machine.  After inspecting the machine, Harm gave 
Clarke a verbal order, agreeing to purchase the machine.  Clarke 
then had an administrative assistant type up the sales order 
containing the purchase price and other terms of the sale.  
While 
Arlington's 
sales 
orders 
are 
typically 
mailed 
to 
customers, Clarke may have given Harm the paperwork while he was 
there.  Neither Clarke nor Harm recall exactly when or how the 
sales order was transmitted. 
No. 
01-0242   
 
5 
 
¶6 
The sales order form was one page, front and back, 
with the terms and conditions listed on the back of the order.  
For purposes of this review, the relevant language included: 
 . . . WE [Arlington] ACCEPT YOUR ORDER ONLY ON THE 
EXPRESS CONDITION THAT YOU ASSENT TO THE TERMS 
CONTAINED BELOW AND YOUR ACCEPTANCE AND RECEIPT OF THE 
GOODS SHIPPED HEREUNDER SHALL CONSTITUTE ASSENT TO 
SUCH TERMS.   
 . . . . 
3 - BUYER'S INDEMNITY OF ARLINGTON. 
A.  WARNING . . . Seller will not be responsible for 
any loss or injury resulting from defects in the items 
sold or from the subsequent use of the items.  Buyer 
expressly agrees as a condition of the purchase of 
these items that it will indemnify and hold Seller 
harmless from any and all claims that may hereafter at 
any time be asserted by any subsequent owner or user 
of the items sold hereunder or asserted by any agent 
or employee of such user or by any third party arising 
from any purported defect in the items or by reason of 
the use of these items.  Purchaser agrees to assume 
all responsibility in connection with the goods upon 
delivery thereof to the customer or to a common 
carrier. 
B.  HAZARDS LIABILITY-Purchaser shall indemnify and 
hold harmless Seller . . . from and against any and 
all losses, expenses, demands, and claims made against 
Seller . . . by Buyer, any agent, servant, or employee 
of Buyer, any subsequent Purchasers . . . because of 
injury or illness (including death) . . . actual or 
alleged whether caused by the sole negligence of 
Seller, the concurrent negligence of Seller with 
Buyer, any agent, servant, or employee of Buyer, any 
subsequent Purchasers . . . resulting from, or in any 
way 
connected 
with 
the 
operation, 
maintenance, 
possession, use, transportation, or disposition of the 
Articles . . . Buyer agrees to defend any suit action 
or cause of action brought against Seller, its agents, 
servants, or employees based on any such alleged 
injury, illness, or damage and to pay all damages, 
No. 
01-0242   
 
6 
 
costs, and expenses including attorney's fees in 
connection therewith or resulting therefrom.   
¶7 
Clarke 
admits 
that 
he 
and 
Harm 
never 
verbally 
discussed the indemnity language included in the sales order, 
but he testified that Harm would have been instructed to look 
the order over, sign it, and return a signed copy to Arlington.  
Clarke filled out an "Estimate and Repair Order" on November 3rd 
to have the machine cleaned, painted, and tested.  On Monday, 
November 6, 1995, Harm signed the contract on behalf of Image 
and faxed the signed contract back to Arlington.  Harm did not 
read the back of the contract, but he did flip over the contract 
and was aware that "Terms and Conditions" were on the back of 
the form from prior purchasing experience with Arlington.  Harm 
signed the form directly below a warning about the terms on the 
back of the form:  
We offer to purchaser the following articles for the 
purchase price specified above and subject to the 
terms and conditions set forth on the reverse side of 
this Agreement and Offer.  This Agreement shall become 
effective upon, but not until, execution by ARLINGTON 
PLASTICS MACHINERY, INC. AND PURCHASER.  The terms and 
conditions on the reverse side are part of this 
agreement as effectively as though they precede the 
signature of the purchaser. 
AGREED 
¶8 
In late 1995, Image paid Arlington the $10,000 owed 
for the grinder.  Image then transported the grinder to its 
recycling plant in Rice Lake, Wisconsin.  In order to recycle 
the plastic snow fencing, it had to be cut into small pieces.  
That was the purpose of the grinder.  Arlington did not give 
Image an instruction manual or warnings regarding proper use.  
No. 
01-0242   
 
7 
 
There was no sign on the machine warning the user that the 
guards should not be removed.  The grinder had a problem with 
clogging and a metal guard box had to be unbolted and removed in 
order to unclog it.  Employees found the process inconvenient 
and time-consuming.  Because the grinder clogged repeatedly, the 
operators used the machine with the guard off at least some of 
the time.  Some employees even refused to operate the machine, 
because they felt it was too dangerous. 
¶9 
On September 18, 1996, Todd Deminsky was seriously 
injured when his right hand and arm got caught in the gears of 
the grinding machine after his sweatshirt sleeve stuck in the 
machine while he was operating it.  The guard was not in place 
on the machine at the time. 
¶10  In May 1998, Deminsky brought suit against Arlington, 
alleging that the grinder was unreasonably dangerous and 
defective at the time that Arlington sold it to Image.  Deminsky 
claimed that Arlington:  1) altered a guard on the grinder or 
caused the guard to be altered; 2) negligently designed, 
installed, and constructed the guard; and 3) allowed the grinder 
to be sold in such condition.  Deminsky also claimed that 
Arlington was negligent. 
¶11 Through discovery, Deminsky learned that there was an 
indemnification clause in the contract between Arlington and 
Image for the sale of the machine.  Deminsky filed an amended 
complaint, adding Image and its liability insurer, Federated 
Mutual Insurance Company, as defendants in the case.   
No. 
01-0242   
 
8 
 
¶12 In a letter dated June 4, 1999, counsel for Arlington 
tendered the defense of Arlington in this case to Image based on 
the indemnification clause.  Federated wrote a reply to both 
Image and Arlington.  In a letter dated July 15, 1999, Federated 
informed Image: 
Federated will pay for Arlington's defense costs 
incurred 
in 
the 
Deminsky 
litigation 
under 
a 
reservation of rights. 
 . . . If the indemnity agreement is valid under 
applicable law, the purchase order indemnification 
language meets the definition of an "insured contract" 
as that term is defined in Federated's general 
liability policy. 
 . . . Image's 
obligation 
to 
provide 
Arlington 
a 
defense against the claims of the Deminsky lawsuit is 
covered under the Federated policy. 
 . . . Federated will pay Arlington's defense costs 
only at the conclusion of the litigation . . . .  
Federated's decision to pay for Arlington's defense 
costs is made under a reservation of rights because, 
under both Wisconsin and Illinois law, the indemnity 
provision may prove invalid and void as against public 
policy . . . .  In the event it is determined the 
contract is invalid under Wisconsin or Illinois law, 
Federated will refuse to pay Arlington's defense costs 
as the indemnity clause would no longer constitute an 
"insured contract." 
 . . . . 
 
With respect to the Amended Complaint and Mr. 
Deminsky's 
direct 
claims 
against 
Image 
Plastics, 
Federated will defend Image Plastics under a complete 
reservation of rights . . . .  We will contact you 
shortly regarding assigning counsel to defend you on 
the Amended Complaint.2 
                                                 
2 A copy of this letter was also sent to Arlington's 
counsel. 
No. 
01-0242   
 
9 
 
¶13 On August 9, 1999, Image and Federated filed separate 
answers to the amended complaint, denying liability to Deminsky 
for his injuries.  On that same day, Deminsky and Arlington 
entered into an assignment and indemnification agreement, a 
"Stipulation for Entry of Judgment."  Arlington stipulated that 
it did not maintain liability insurance and that it faced 
potential liability given the claims made against it.  The 
agreement also included statements that 1) there was a conflict 
in deposition testimony regarding whether the grinder had an 
interlock safety device when Arlington sold it to Image; 2) the 
disputed evidence "creates for Arlington a substantial exposure 
to liability"; 3) Arlington has "neither the assets or the 
anticipated cash flow to defend this case," and thus, "the 
defense costs alone would put Arlington into bankruptcy."  The 
agreement noted Deminsky's injuries and damages, and set out the 
agreement between Deminsky and Arlington.  Arlington withdrew 
its answer and consented to entry of judgment against it in the 
amount of $1.475 million, without costs.  This amount is $25,000 
less than Federated's $1.5 million limits.  Arlington assigned 
to Deminsky "any and all claims it currently has or may have in 
the future, for contribution, [or] indemnity . . . against any 
other person or entity."  Deminsky agreed not to execute the 
judgment against Arlington.  Image was not involved in any part 
of the settlement agreement or the subsequent judgment ruling 
against Arlington. 
¶14 Deminsky amended his complaint again to include the 
indemnity claim against Image.  Subsquently, the parties filed 
No. 
01-0242   
 
10 
 
cross-motions for summary judgment.  On December 13, 2000, the 
circuit court entered judgment for Deminsky against Image for 
the full amount of the Arlington judgment, plus interest and 
costs.  Image appealed.  The court of appeals upheld the circuit 
court's ruling that the indemnity provision was valid and 
enforceable, but reversed and remanded the case to the circuit 
court to allow Image the opportunity for a full trial on 
liability and damages.  Both Image and Deminsky now appeal to 
this court. 
II 
¶15 We review a grant of summary judgment by using the 
same standards as the circuit court applied in making its 
initial determination.  Verdoljak v. Mosinee Paper Corp., 200 
Wis. 2d 624, 630, 547 N.W.2d 602, 604 (1996).  Summary judgment 
is appropriate "if the pleadings, depositions, answers to 
interrogatories, and admissions on file, together with the 
affidavits, if any, show that there is no genuine issue as to 
any material fact and that the moving party is entitled to a 
judgment as a matter of law."  Wis. Stat. § 802.08(2) (1995-96).  
Where no material facts remain in dispute, this court determines 
which party is entitled to judgment as a matter of law.  See 
Doyle v. Engelke, 219 Wis. 2d 277, 283, 580 N.W.2d 245 (1998).  
We review these issues de novo, without deference to the trial 
court's decision.  Lucas v. Godfrey, 161 Wis. 2d 51, 56, 467 
N.W.2d 180 (Ct. App. 1991).  Interpretation of a contract is a 
question of law which this court reviews de novo.  Yauger v. 
Skiing Enter., Inc., 206 Wis. 2d 76, 80, 557 N.W.2d 60 (1996). 
No. 
01-0242   
 
11 
 
III 
¶16 As noted, there are two issues presented for this 
court to review.  The first issue is whether the court of 
appeals erred in finding that the indemnity provision in the 
sales contract between Arlington and Image is valid and 
enforceable.  Image claims that the indemnity provision is void 
as against public policy and unconscionable.  The parties no 
longer contest the creation of the contract, including when the 
contract between Image and Arlington arose for the sale of the 
machine and what its terms were.  The court of appeals stated 
that whatever the timing of the agreement reached, the indemnity 
provision was part of the contract.3  Since the parties no longer 
dispute what the terms of the contract were, we now take on only 
the issues of whether the provision is valid and enforceable.  
Image claims, specifically, that the contract is void because 
the indemnity clause violates public policy by delegating the 
nondelegable 
duty 
to 
produce 
a 
safe 
product 
and 
is 
unconscionable because of a lack of notice and conspicuousness 
of the indemnity clause.   
¶17 We begin by examining the question of which state law 
applies to this contractual agreement.  The parties agree that 
the Uniform Commercial Code (Code) governs the transaction 
between them, and that both Wisconsin and Illinois have adopted 
                                                 
3 At oral argument, counsel for Image and Federated was 
asked specifically whether the "there is no contract" argument 
was settled by the court of appeals, and counsel’s reply was, 
"That’s correct." 
No. 
01-0242   
 
12 
 
the Code.  Deminsky argues that because the contract contains a 
choice of law provision specifying that the contract would be 
subject to Illinois law, under the Code, Illinois law should be 
used to determine the validity of the contract.4  Image, on the 
other hand, argues that the clause violates fundamental public 
policies of Wisconsin that established strict liability for 
manufacturers 
in 
products 
liability 
cases, 
and 
therefore 
Wisconsin law should apply.   
¶18 Wisconsin Stat. § 401.105(1)(1995-96) 
allows 
that 
parties to a contract may agree that the law of a particular 
jurisdiction will apply to that contractual relationship.5  In 
Bush v. National School Studios, Inc., though, this court 
recognized that while Wisconsin allows parties the freedom to 
stipulate to applicable law in a contract, such stipulations 
                                                 
4 One of the provisions listed with the "Terms and 
Conditions" on the 
back 
of 
the 
contract 
states: 
 
"10-
MISCELLANEOUS.  This contract and all causes of action relating 
to the sale is to be construed according to the laws of the 
State of Illinois." 
5 Wisconsin Stat. § 401.105(1) provides, in relevant part: 
 
Territorial application of chs. 401 to 411; 
parties' 
power 
to 
choose 
applicable 
law. 
 
(1) 
 . . . [W]hen 
a 
transaction 
bears 
a 
reasonable 
relation to this state and also to another state or 
nation the parties may agree that the law either of 
this state or of such other state or nation shall 
govern their rights and duties.   
All subsequent references to the Wisconsin Statutes are to 
the 1995-96 version unless otherwise indicated.  There have been 
no material changes to this statute; however, the contract at 
issue in this case was created in 1995.   
No. 
01-0242   
 
13 
 
would not be allowed "at the expense of important public 
policies of a state whose law would be applicable if the parties 
choice of law provision were disregarded."  139 Wis. 2d 635, 
642, 407 N.W.2d 883 (1987).  The petitioner in Bush was a 
student 
portrait 
photographer 
who 
was 
terminated 
by 
the 
corporation with which he had an employment contract.  Id. at 
637-40.  The photographer sued, alleging, among other things, 
that the termination violated the Wisconsin Fair Dealership Law 
(WFDL).  Id. at 640.  This court held that although the parties 
agreed that Minnesota law would apply to the contract, because 
the Wisconsin Legislature declared the WFDL fundamental policy 
and explicitly prohibited the protections from being varied by 
contract, the choice of law provision could not be enforced.  
Id. at 641-42, 644-45.  Minnesota law may have had some 
protection for unfair termination of franchises, but it did not 
have an equivalent Fair Dealership Law.  Id. at 641 ("[The 
petitioner] in fact concedes that Minnesota and Wisconsin law 
are not co-extensive.").  Unlike Bush, however, where the 
protection from another state's law was "highly debatable," in 
this case, the protection should be equal.  Illinois employs the 
Code, and Illinois has recognized the rule of strict liability 
for products liability cases.  See Chicago Steel Rule and Die 
Fabricators Co. v. ADT Security Systems, Inc., 763 N.E.2d 839, 
843-44 (Ill. App. Ct. 2002) (discussing the Illinois Supreme 
Court's adoption of the rule of strict liability in tort for 
defective products, based on the provisions of Restatement 
(Second) of Torts § 402A (1965), and the policy reasons for 
No. 
01-0242   
 
14 
 
acceptance of such a rule).  Wisconsin adopted the rule of 
strict liability in Dippel v. Sciano.  37 Wis. 2d 443, 459, 155 
N.W.2d 55 (1967).   
¶19 Both states also allow indemnity contracts that cover 
the indemnitee’s own conduct.  Freislinger v. Emro Propane Co., 
99 F.3d 1412, 1420 (7th Cir. 1996) (stating, "Illinois law does 
not require indemnity contracts to contain an express provision 
providing for the coverage of the indemnitee’s own negligence in 
order for them to be enforceable"); Dykstra v. Arthur G. McKee & 
Co., 100 Wis. 2d 120, 124-25, 301 N.W.2d 201 (1981) (confirming 
that "an indemnity contract which agreed to indemnify a party 
against its own negligence is not against public policy, but [it 
would not be so construed] unless it is apparent that such 
result was clearly intended").6 
¶20 Deminsky argues that even if Wisconsin law is applied 
in this case, the provision is enforceable.  We agree and 
conclude that the decision whether the provision is valid would 
be the same under the law of either state.  Accordingly, we 
apply Wisconsin law.  See Sharp v. Case Corp., 227 Wis. 2d 1, 
¶17, 595 N.W.2d 380 (1999) ("If the laws of the two states are 
the same, we apply Wisconsin law."). 
                                                 
6 See also Owens v. Midwest Tank and Mfg. Co., 549 
N.E.2d 774, 776 (Ill. App. Ct. 1989) (holding that under 
Illinois law, an agreement will not be construed as indemnifying 
a party against its own strict liability unless the language of 
an agreement clearly shows the parties’ intent for such a 
result).  
No. 
01-0242   
 
15 
 
¶21 We first address Image's claim that the indemnity 
provision effects a shift of a nondelegable duty to produce a 
safe product.  In Dippel, this court examined and adopted the 
rule of strict liability for the seller of unreasonably 
dangerous products as found in Restatement (Second) of Torts 
§ 402A.  37 Wis. 2d at 450-59.  Image argues that to allow 
Arlington to rid itself of the financial responsibility for 
liability arising from the products that it sells essentially 
releases Arlington from the duty to create a safe product.  We 
disagree.  Wisconsin has recognized that the rule of strict tort 
liability means that the duty to design and manufacture a safe 
product may not be delegated.  Shawver v. Roberts Corp., 90 
Wis. 2d 672, 683, 280 N.W.2d 226 (1979) ("One who markets an 
unreasonably dangerous product is not entitled to expect that 
others will make it safe.").  However, as this court recognized 
in Dykstra, "to recite this maxim . . . is not explanatory of 
its meaning."  100 Wis. 2d at 130-31.  Strict liability does not 
make the manufacturer or seller an insurer, nor does it impose 
absolute liability.  Shawver, 90 Wis. 2d at 681.  In Dykstra, 
this court rejected a claim that an indemnification agreement 
shifted the nondelegable duties of an employer or owner under 
the safe place statute.  Dykstra, 100 Wis. 2d at 130-31.  The 
court explained: 
Ahern in this case contends that [nondelegable duty] 
means 
that the ultimate 
financial 
liability for 
damages occasioned by the violation of the safe place 
statute must rest upon the party who violates the safe 
place statute.  Ahern contends, therefore, that the 
financial exoneration of McKee, who had the statutory 
No. 
01-0242   
 
16 
 
safe place duty, violates public policy.  We conclude, 
however, that this shifting of responsibility through 
either the principles of common law indemnity or 
contractual indemnity is not what is meant by the 
statement that the duties under the safe place statute 
are nondelegable. . . .  
. . . .  
All that is meant by the statement that duties under 
the safe place statute are nondelegable is that the 
person who has that duty cannot assert that another to 
whom he has allegedly delegated the duty is to be 
substituted as the primary defendant in his stead for 
a violation of safe place provisions.  Under any 
circumstance, it is the owner or the employer who must 
answer to the injured party.  Whether that owner is to 
be made financially whole from another source by 
principles of law or contract is an entirely different 
question. 
Id. at 131-32 (emphasis added). 
¶22 We hold that the same is true for the nondelegable 
duty to design and manufacture a reasonably safe product.  This 
court has held that agreements to indemnify a party against its 
own negligence must be strictly construed, but so long as that 
standard is met, such agreements are valid.  Id. at 124-26, 134-
35; Barrons v. J.H. Findorff & Sons, Inc., 89 Wis. 2d 444, 452, 
278 N.W.2d 827 (1979); Bialas v. Portage County, 70 Wis. 2d 910, 
912, 236 N.W.2d 18 (1975); Time Warner, Inc. v. St. Paul Fire 
and Marine Ins. Co., 2001 WI App 174, ¶¶19-23, 247 Wis. 2d 367, 
633 N.W.2d 640.  The agreement here expressly obligates Image to 
indemnify Arlington, even for liability created by Arlington’s 
own 
negligence 
or 
defects 
with 
the 
machine. 
 
Indemnity 
provisions merely shift the financial burden of potential 
liability.  Arlington did not attempt to substitute Image as the 
No. 
01-0242   
 
17 
 
party responsible for producing a safe product.  It could not.  
Rather, it contracted with Image to take the financial burden if 
the situation should arise where someone claimed Arlington was 
negligent or designed an unreasonably dangerous product.  
¶23 Contrary to Image’s suggestion, indemnity agreements 
do not leave Arlington worry-free with respect to its liability.  
Arlington’s indemnity agreement with Image does it no good if 
Image is unable to pay.  If, for example, Image had no insurance 
coverage and went bankrupt, Arlington would still have been 
liable to Deminsky.  In the "Stipulation for Entry of Judgment," 
Arlington acknowledged that conflicts in deposition testimony 
taken created "substantial exposure to liability" for Arlington 
and that Image had not provided Arlington's defense under the 
indemnification agreement.  Arlington also acknowledged that a 
verdict for Deminsky would "certainly bankrupt the defendant."  
Thus, the settlement agreement offered Arlington a way that the 
company could survive the litigation and stay in business. 
¶24 Given the fact that despite indemnity agreements, 
Arlington could have been financially liable to Deminsky, we 
disagree with Image’s contention that manufacturers and sellers 
such as Arlington would have no incentive to design and create 
safe products.  Further, as noted in Dykstra, disallowing such 
agreements suggests that it is against public policy for a party 
to insure against its own negligence.  100 Wis. 2d at 133-34 
(citing Robert F. Boden, The Problem of Indemnity Under the Safe 
Place Statute, 40 Marq. L. Rev. 349, 366-67 (1957)).  The 
policies behind strict liability support the allowance of 
No. 
01-0242   
 
18 
 
indemnity, particularly under circumstances such as those in 
this case.  Strict liability was intended to make it easier for 
an injured party to recover.  The language used in the 
Restatement (Third) of Torts:  Products Liability § 18 (1998) 
lends credence to this interpretation.  Section 18 states:  
"Disclaimers and limitations of remedies by product sellers or 
other distributors, waivers by product purchasers, and other 
similar contractual exculpations, oral or written, do not bar or 
reduce otherwise valid products liability claims against sellers 
or other distributors of new products for harm to persons." 
Restatement (Third) of Torts: Products Liability § 18 (1998).  
The major concern, then, as stated, is whether the injured party 
can recover.  The indemnity agreement here does not decrease or 
destroy Deminsky’s chance to recover.  In fact, because of 
Arlington’s alleged fragile financial situation, Deminsky’s 
chances of full recovery are better fulfilled if Image and its 
insurer are responsible under the indemnification agreement.  
Comment a to § 18 further supports the view that such agreements 
are allowed:   
a.  Effects of contract defenses on products liability 
tort claims for harm to persons.  A commercial seller 
or other distributor of a new product is not permitted 
to avoid liability for harm to persons through 
limiting terms in a contract governing the sale of a 
product.  It is presumed that the ordinary product 
user or consumer lacks sufficient information and 
bargaining 
power 
to 
execute 
a 
fair 
contractual 
limitation of rights to recover . . . .  Nothing in 
this Section is intended to constrain parties within 
the commercial chain of distribution from contracting 
inter se for indemnity agreements or save harmless 
clauses. 
No. 
01-0242   
 
19 
 
(Emphasis added.) 
¶25 Again, the expressed concern in this section is 
fairness to injured parties.  The situation here involving a 
commercial contract between two businesses of equal bargaining 
power is much different.  Image is not an "ordinary consumer" 
and we cannot and do not presume that such a business lacks 
sufficient information or bargaining power to "execute a fair 
contractual limitation of rights to recover."  Id.  As such, the 
policy concerns toward consumers’ public health and safety are 
not dampened by such indemnity agreements.   
¶26 We next address Image’s claim that the indemnity 
agreement is unconscionable.  Image argues that the terms of the 
agreement are commercially unreasonable, that Image lacked 
notice of the term, and that the term is inconspicuous.  We 
disagree and therefore conclude that the provision is not 
unconscionable. 
¶27 Unconscionability is defined in Wis. Stat. § 402.302.7  
Unconscionability has generally been recognized where there is 
                                                 
7 Wisconsin Stat. § 402.302 states:   
Unconscionable contract or clause.  (1) If the 
court as a matter of law finds the contract or any 
clause of the contract to have been unconscionable at 
the time it was made the court may refuse to enforce 
the contract, or it may enforce the remainder of the 
contract without the unconscionable clause, or it may 
so limit the application of any unconscionable clause 
as to avoid any unconscionable result. 
(2) When it is claimed or appears to the court 
that the contract or any clause thereof may be 
unconscionable 
the 
parties 
shall 
be 
afforded 
a 
reasonable opportunity to present evidence as to its 
No. 
01-0242   
 
20 
 
an absence of meaningful choice on the part of one party, 
together with contract terms that are unreasonably favorable to 
the other party.  Discount Fabric House v. Wisconsin Tel. Co., 
117 Wis. 2d 587, 601, 345 N.W.2d 417 (1984).  There are both 
procedural and substantive factors.  Id. at 602.  Procedural 
unconscionability requires consideration of the factors bearing 
on a meeting of the minds, while substantive unconscionability 
"pertains 
to 
the 
reasonableness 
of 
the 
contract 
terms 
themselves."  Id.; Leasefirst v. Hartford Rexall Drugs, Inc., 
168 Wis. 2d 83, 89-90, 483 N.W.2d 585 (Ct. App. 1992).  In 
Discount Fabric, we held that the unconscionability question 
requires a balancing approach.  117 Wis. 2d at 602.  "To tip the 
scales in favor of unconscionability requires a certain quantum 
of 
procedural 
plus 
a 
certain 
quantum 
of 
substantive 
unconscionability."  Id.  We find that the facts in this case do 
not 
support 
any 
finding 
of 
procedural 
or 
substantive 
unconscionability. 
¶28 In 
Yauger, 
we 
held 
that 
exculpatory 
contract 
provisions must unmistakably inform the signer of what rights 
are being waived and the form must "clearly and unequivocally 
communicate to the signer the nature and significance of the 
document being signed."  206 Wis. 2d at 86-87.  We held that in 
order to pass such a test, the exculpatory terms must be 
conspicuous.  Id. at 87.  Because indemnity contracts in which 
                                                                                                                                                             
commercial setting, purpose and effect to aid the 
court in making the determination. 
No. 
01-0242   
 
21 
 
parties agree to indemnify the indemnitee for the indemnitee's 
own negligence are, like exculpatory contracts, to be strictly 
construed, we now hold that the conspicuousness standards in 
Wis. Stat. 401.201(10) are required for indemnity contracts.8   
¶29 We find that the form and provisions at issue here 
satisfy the conspicuousness requirement.  First, the form was 
one page, front and back.  This was not an onerous form.  
Directly above the space where Harm signed his name was a one-
paragraph warning that there were terms and conditions on the 
back to which the signer would be held.  Right after the 
paragraph and right above Harm's signature, the word "AGREED" 
was placed in capital letters.  The indemnity provision is 
contained in a separate numbered paragraph on the back of the 
form.  The paragraph has a heading in capital letters and bold 
print:  "3 - BUYER'S INDEMNITY OF ARLINGTON."  In addition, on 
the back of the form at the top of the page is another warning 
in all capital letters stating that the buyer shall be held to 
all the included terms and conditions.   
                                                 
8 Wisconsin Stat. § 401.201(10) states: 
(10) 
"Conspicuous": 
 
A 
term 
or 
clause 
is 
conspicuous when it is so written that a reasonable 
person against whom it is to operate ought to have 
noticed it.  A printed heading in capitals (as: NON-
NEGOTIABLE BILL OF LADING) is conspicuous.  Language 
in the body of a form is "conspicuous" if it is in 
larger or other contrasting type or color.  But in a 
telegram any stated term is "conspicuous".  Whether a 
term or clause is "conspicuous" or not is for decision 
by the court. 
No. 
01-0242   
 
22 
 
¶30 While the best policy may be to put indemnity language 
on the front page of a contract, everything does not always fit 
on the front page.  Here, however, for all practical purposes, 
we have a one-page contract.  The reader merely has to flip over 
the piece of paper to read the terms.  Failure to read a 
contract, particularly in a commercial contract setting, is not 
an excuse that relieves a person from the obligations of the 
contract.  "Men, in their dealings with each other, cannot close 
their eyes to the means of knowledge equally accessible to 
themselves and those with whom they deal, and then ask courts to 
relieve them from the consequences of their lack of vigilance."  
Nauga, Inc. v. Westel Milwaukee Co., Inc., 216 Wis. 2d 306, 314-
15, 576 N.W.2d 573 (Ct. App. 1998) (quoting this court's 
decision in Carney-Rutter Agency v. Central Office Bldgs., 263 
Wis. 244, 252-253, 57 N.W.2d 348 (1953)).  Image has not argued 
here that Harm was hurried into signing this contract.  He had 
time to carefully review the terms, but he chose not to do so.  
Additionally, 
the 
relevant 
terms 
of 
this 
contract 
were 
conspicuous and the form provided adequate notice to Image of 
the responsibilities under the contract.  There is no argument 
that the terms of this contract were ambiguous or unclear.  Mr. 
Harm simply chose not to review the contract carefully and such 
a failure does not warrant relief from his obligations under the 
contract.  Had Harm read the terms, we have no difficulty 
concluding that he would have ascertained the obligations of the 
contract terms.  Therefore, the form fulfilled the requirement 
No. 
01-0242   
 
23 
 
to communicate the nature and significance of the indemnity 
provision. 
¶31 Image has previously argued that this is a contract of 
adhesion and specifically, in this court, has asserted that the 
terms of the contract are commercially unreasonable.  In the 
context of this case, such arguments fall under the umbrella of 
substantive unconscionability.  A contract of adhesion is 
generally found under circumstances in which a party has, in 
effect, no choice but to accept the contract offered, often 
where the buyer does not have the opportunity to do comparative 
shopping or the organization offering the contract has little or 
no competition.  Katze v. Randolph & Scott Mut. Fire Ins. Co., 
116 Wis. 2d 206, 212-13, 341 N.W.2d 689 (1984).  Although Image 
has argued that it did not have other comparable options, Image 
admits that it chose Arlington's machine because it was closer 
and cheaper than others.  Image could have bought such a machine 
from someone else; Greg Harm had a trade book with at least a 
few other potential sellers.  Customers make choices such as 
these every day.  That Image did not like the other options 
available does not create a contract of adhesion or make the 
terms of this contract substantively unconscionable.  This is 
not like the Discount Fabric case in which the customer had only 
one viable option for reaching people through an ad in the 
telephone book.  117 Wis. 2d at 603-04. 
¶32 We have already noted that the indemnity provision 
does not violate public policy.  There were no elements of an 
adhesion contract here, because Image had choices.  The form and 
No. 
01-0242   
 
24 
 
terms provided adequate notice to Image of the indemnity clause 
and the indemnity clause and related terms were conspicuous.  
The parties to this contract were two commercial entities with 
prior dealings.  As such, Image has failed to show there is any 
quantum of procedural or substantive unconscionability regarding 
this contract.  We hold that the indemnity clause is valid and 
enforceable. 
IV 
¶33 The second issue that arises in this case is the 
extent to which the settlement agreement reached by Deminsky and 
Arlington may be binding upon Image.  Image argues that because 
it 
had 
no 
information 
about 
a 
potential 
settlement, 
no 
opportunity to participate in the settlement negotiations, and 
no opportunity to dispute the agreement reached, it should be 
allowed a full trial on the issues of liability and damages.  
Arlington asserts that we should adopt Illinois law and find 
that Image is bound to the terms of the settlement agreement.  
Unlike the court of appeals, which found that Image should 
receive a full trial, we find that Image does carry some 
responsibility for refusing to defend the action tendered to it 
by Arlington.  However, because under the circumstances of this 
case, Image did not know that settlement negotiations were in 
progress and had no opportunity to dispute the validity of the 
settlement agreement, we remand the action to the circuit court 
for a limited trial to the court. 
¶34 Deminsky originally filed suit only against Arlington 
in May 1998. At his deposition on Febrary 18, 1999, Greg Harm 
No. 
01-0242   
 
25 
 
testified that he was aware of the indemnification language in 
the contract and had contacted Federated Insurance regarding the 
potential liability.  On June 4, 1999, Arlington formally 
tendered the defense to Image.  Deminsky amended his complaint 
on June 30, 1999, naming Image and Federated as additional 
defendants 
who 
were 
directly 
liable 
to 
him 
under 
the 
indemnification agreement.  On or about July 15, 1999, Federated 
sent a letter stating that it would pay Arlington's defense 
costs in the Deminsky litigation under a reservation of rights, 
because it believed the indemnity clause may not be enforceable.  
Federated acknowledged, however, that if the contract was valid 
under applicable law, then the indemnity language meets the 
definition of an "insured contract" and the policy covers 
Arlington's defense costs.  The letter to Image ended with the 
statement, "We will contact you shortly regarding assigning 
counsel to defend you on the Amended Complaint."   
¶35 On August 9, 1999, Image and Federated filed separate 
answers to the amended complaint.  Also on August 9, Deminsky 
and Arlington filed the "Stipulation for Entry of Judgment" with 
the court.  Deminsky agreed not to execute judgment against 
Arlington; rather, Arlington assigned all rights to indemnity 
under the contract to Deminsky, who could then attempt to 
collect from Image.  On August 9, 1999, the judge accepted the 
stipulation without a hearing and entered judgment against 
Arlington.  The amount of the stipulated judgment was $1.475 
million dollars, without costs.  Deminsky amended his complaint 
a second time to include the assignment of rights regarding the 
No. 
01-0242   
 
26 
 
indemnification agreement.  Image had no knowledge of the 
settlement negotiations and had no opportunity to dispute the 
terms of the settlement.  During subsequent proceedings, Image 
and Deminsky both moved for summary judgment.  The judge granted 
summary judgment in favor of Deminsky and entered judgment in 
the full amount of the Deminsky/Arlington settlement, plus 
interest and costs.  
¶36 Since the judgment was entered in the Wisconsin court 
in which Deminsky brought his action, and because the issue 
deals with Wisconsin's settlement and judgment procedures, we 
find it appropriate to use Wisconsin law.  However, Illinois has 
handled an issue almost exactly like the one in this case.  See 
N.E. Finch Co. v. Mahon Co., 370 N.E.2d 160 (Ill. 1977).  As 
such, we look to relevant Illinois caselaw for guidance on this 
issue, while holding true to Wisconsin precedent. 
¶37 In Finch, the Illinois Court of Appeals handled the 
question of the effect of a settlement agreement between the 
injured party and the indemnitee upon the indemnitor.  Finch, 
370 N.E.2d at 162-63.  There, the defendant in the original 
case, Finch, requested Mahon to assume the defense on the basis 
of implied indemnity.  Id. at 162.  Mahon rejected the request 
and with a trial becoming imminent, Finch settled with the 
injured party and then attempted to recover its costs from 
Mahon.  Id.  Much like the circumstances in the present case, 
the court was left with the issue of "the extent to which the 
prospective indemnitor is bound by a settlement after the 
defense of the original action has been tendered to him and 
No. 
01-0242   
 
27 
 
refused."  Id. at 163.  In the present case, although Federated 
asserted in its July 15, 1999, letter that it would defend under 
a reservation of rights, it took no action. 
¶38 The court in Finch held it of crucial importance that 
Finch gave Mahon the opportunity to defend and Mahon refused.  
Id.  In determining what effect a settlement had on the 
indemnitor, the court stated:  "We believe that once defense of 
the principal action has been tendered to the prospective 
indemnitor and refused by him, the indemnitor can not thereafter 
assert 
that 
the 
indemnitee 
was 
a 
legal 
volunteer 
who 
gratuitously settled the initial action."  Id.  The court held 
that this was true even where the indemnitor seeks to establish 
the non-liability of the indemnitee.  Id.  The court found that 
so long as the prospective indemnitee was responding to a 
"reasonable anticipation of personal liability" in settling the 
original action, the indemnitor is not entitled to question the 
amount of the settlement "absent fraud or collusion between the 
parties to the settlement."  Id. at 162-63. 
¶39 Public policy supports such a finding because amicable 
settlements between parties should be supported.  Id.  In Finch, 
the court noted that the policy of encouraging settlements 
should be furthered by avoiding rules which allow "a defendant 
no alternative but to litigate the question of his liability to 
a plaintiff in order to preserve his cause of action over a 
prospective indemnitor."  Id.  We agree.  In Finch, the court of 
appeals noted that a prospective indemnitor has a direct 
No. 
01-0242   
 
28 
 
interest in defeating the principal action for which indemnity 
may be sought.  Id. at 163. 
¶40 Wisconsin caselaw supports such findings.  In Illinois 
Central Railroad Co. v. Blaha, this court found that when a 
party, such as a potential indemnitor, is notified of a pending 
suit in which they are directly interested, that party  
must exercise reasonable diligence in protecting their 
interests; and if instead of doing so they wilfully 
shut their eyes to the means of knowledge which they 
know are at hand to enable them to act efficiently, 
they cannot subsequently be allowed to turn around and 
evade the consequences which their own conduct and 
negligence have superinduced.   
Blaha, 3 Wis. 2d 638, 644, 89 N.W.2d 197 (1958) (citations 
omitted).  In the insurance context, this court has found that 
when coverage is not determined before a liability trial, "the 
insurer must provide a defense for its insured with regard to 
liability and damages."  Newhouse v. Citizens Security Mut. 
Ins., 176 Wis. 2d 824, 836, 501 N.W.2d 1 (1993).  The court 
noted that an insurance company that refuses to defend does so 
"'at its own peril.'"  Id. at 835.  In that case, the court 
proposed that the best approach for an insurance company which 
contests coverage is to defend under a reservation of rights.  
Id. at 837.   
¶41 Here, Federated suggested that it would defend under a 
reservation of rights. The problem, however, is that the letter 
was the last action taken.  Federated and Image did nothing 
further to act.  In effect, the tender was rejected and 
Arlington was left to defend on its own.  As in Blaha, when a 
No. 
01-0242   
 
29 
 
party's conduct leads an indemnitee to conclude that the 
defendant is ignoring the claim, some responsibility must fall 
to the potential indemnitor.  3 Wis. 2d at 645. 
¶42 Under Finch, it appears that Illinois law would not 
allow a new trial under circumstances like those in this case, 
where a party has rejected the tender of a defense and not 
asserted fraud or collusion.  370 N.E.2d at 163.  However, we 
believe the circumstances of this case warrant allowing Image an 
opportunity to be heard on whether the agreement to which it 
might be bound is unreasonable or infected by fraud or 
collusion.  The timing of the settlement in this case has 
effectively prevented Image from having such an opportunity. 
¶43 Wisconsin 
has 
at 
least 
one 
case 
where, 
in 
a 
contractual setting, an indemnitor has rejected the tender of a 
defense.  See Blaha, 3 Wis. 2d at 643-49.  In Blaha, this court 
held 
that 
although 
the 
indemnitee 
formally 
demanded 
the 
indemnitor take over the defense only five days before trial was 
set to begin, the indemnitor could not claim insufficient notice 
because the indemnitor disregarded the potential liability.  Id. 
at 643-44.  There, the potential indemnitor was aware of the 
circumstances of the injury, was informed about the contract, 
and the defendant's board discussed its potential liability.  
Id. at 642-43.  The court found that, given these facts, the 
indemnitor 
had 
a 
responsibility 
to 
"exercise 
reasonable 
diligence in protecting their interests."  Id. at 644.  Although 
the formal tender of defense in Blaha was made only five days 
before trial, the indemnitor there was made aware of its direct 
No. 
01-0242   
 
30 
 
interest in the case because of the indemnification arrangement 
well before that formal tender, and simply disregarded the case.  
Id. at 644-45.  The same is true here.  Although the formal 
tender of defense was made in June 1999, Image was aware of the 
circumstances 
of 
the 
accident, 
was 
made 
aware 
of 
the 
indemnification agreement at least by February 1999, and had 
contacted Federated regarding the potential liability.  As such, 
Image must be held to have some responsibility when it rejected 
the tender of the defense.  As this court has stated:  
"Considering all the information which defendant had with 
respect to the [] claim long before the trial of the action into 
which it grew, there was ample opportunity to prepare for a 
defense.  It was defendant's own choice not to avail itself of 
that opportunity."  Id. at 646. 
¶44 However, unlike Blaha, communication here regarding 
the settlement negotiations was completely absent.  In Blaha, 
after a trial in which the indemnitee was found liable, the 
indemnitee informed the indemnitor of the judgment.  Id. at 648.  
The indemnitee appealed the judgment, and while appeal was 
pending, it notified the indemnitor that a settlement was being 
contemplated.  Id.  The indemnitor ignored that notice, and the 
matter was settled.  Id.  The court held that the indemnitor was 
bound by the settlement agreement, because the trial court 
allowed the indemnitor an opportunity to show that there was 
fraud, an unlitigated defense, or incompetency in the defense, 
and the indemnitor failed to do so.  Id. at 647-48.  There, too, 
all the issues were tried to a jury.  Id.  Here, however, 
No. 
01-0242   
 
31 
 
settlement was reached before any trial occurred.  Image was not 
informed 
that 
any 
settlement 
was 
contemplated, 
and 
the 
settlement was reached the very same day Image and Federated 
filed their answers to the amended complaint.  Although Image is 
responsible for its failure to provide a defense, we cannot 
conclude that Image is bound by a settlement reached under 
circumstances such as those presented in this case. 
¶45 In Barrons, this court noted that in the situation 
where an indemnitor is given the option of approving settlement 
or taking over the defense of an action, the indemnitee need 
only show potential liability and that the settlement reached 
was reasonable.  Barrons, 89 Wis. 2d at 455-56. 
¶46 None of these cases here examined match what we have 
in this case.  We believe that the Finch analysis is the most 
appropriate for the present circumstances.  However, in this 
case, unlike Finch and the other cases, Image was not kept 
informed of the settlement negotiations.  More troubling is the 
timing of the settlement arrangement.  Arlington formally 
tendered the defense to Image in June 1999.  Image responded in 
mid-July and near the beginning of August, on the very day when 
Image and Federated were due to file answers to the amended 
complaint, Arlington and Deminsky settled.  Further, the 
stipulations were forwarded to the trial judge and approved 
without a hearing and without Image having any knowledge of the 
events.  These facts do not make it equitable to bind Image to 
the settlement agreement.  Both Wisconsin and Illinois have 
allowed for exceptions to binding agreements.  In Finch, for 
No. 
01-0242   
 
32 
 
example, parties may dispute a settlement by showing that there 
was no potential liability or that the settlement involved fraud 
or collusion.  Finch, 370 N.E.2d at 163. 
¶47 We conclude that Image is not entitled to a full trial 
on liability and damages because, just as the indemnitor in 
Finch, Image rejected the tender of the defense.  However, 
because Image had no opportunity to dispute or approve the 
settlement agreement reached and was unaware negotiations were 
even proceeding, either due to the timing of negotiations or 
planning on the part of the settling parties, we hold that Image 
is entitled to a limited hearing to the court on the 
reasonableness of the settlement agreement.  Under circumstances 
such as these, the indemnitor is entitled to produce evidence 
that the settlement was unreasonable, including evidence that 
the indemnitee faced no potential liability or that the settling 
parties were involved in fraud or collusion.   
¶48 As noted earlier, if the circuit court finds that the 
settlement agreement reached between Arlington and Deminsky is 
reasonable and free of collusion or fraud, then following cases 
such as Finch and Blaha, the judgment in the amount of the 
settlement originally assessed by the circuit court will stand.  
On the other hand, if the circuit court finds that the 
settlement reached is unreasonable——if, for example, the circuit 
court finds Arlington faced no potential liability——or involved 
fraud or collusion, then the parties are back to where they were 
before a settlement agreement was reached.  In this case, the 
litigation would be headed for a trial on Arlington's liability 
No. 
01-0242   
 
33 
 
and damages.  Now, however, given the benefit of this opinion, 
Image will know that the indemnity agreement is valid and 
binding upon them. 
¶49 Although the court of appeals extensively analyzes the 
law of issue preclusion, we conclude, as it ultimately did, that 
issue preclusion is not applicable in this case because this 
action was never "actually litigated."  See Restatement (Second) 
of Judgments § 27 (1982).9  Comment d to §  27 of the Restatement 
(Second) of Judgments, states that an issue is actually 
litigated when an issue is "properly raised, by the pleadings or 
otherwise, 
and 
is 
submitted 
for 
determination, 
and 
is 
determined."  The Comment provides that an issue may be 
submitted and determined on a motion to dismiss, a motion for 
summary judgment, a motion for a directed verdict, or their 
equivalents, or a judgment entered on a verdict.  A settlement 
such as the one in this case does not qualify.  As noted in 
Michelle T. v. Crozier, attempts to invoke issue preclusion have 
generally "been conditioned by requirements designed to protect 
against unfairly disadvantaging parties."  Michelle T., 173 
Wis. 2d 681, 687, 495 N.W.2d 327 (1993).  Here, invocation of 
issue preclusion would put Image at a severe disadvantage under 
                                                 
9 Restatement (Second) of Judgments § 27 (1982): 
When an issue of fact or law is actually 
litigated 
and 
determined 
by 
a 
valid 
and 
final 
judgment, and the determination is essential to the 
judgment, 
the 
determination 
is 
conclusive 
in 
a 
subsequent action between the parties, whether on the 
same or a different claim. 
No. 
01-0242   
 
34 
 
circumstances where Image could not control the outcome.  This 
court declines to promote such an outcome. 
¶50 In conclusion, we find that the indemnity agreement 
between Image and Arlington is valid and Deminsky may enforce 
the agreement.  Regarding the second issue, we find that the 
settlement circumstances here did not allow Image an opportunity 
to challenge the reasonableness and validity of the settlement 
agreement.  Accordingly, we affirm the holdings of the court of 
appeals, but modify the judgment to the extent that we remand 
for a limited trial to the court regarding the reasonableness of 
the settlement.  Because Image rejected the tender of the 
defense, the burden on remand will fall upon Image to show that 
the 
settlement 
agreement 
reached 
was 
unreasonable, 
that 
Arlington faced no potential liability, or that the agreement 
involved fraud or collusion. 
By the Court.—The decision of the court of appeals is 
affirmed, as modified, and the cause remanded. 
 
No.  01-0242.ssa 
 
1 
 
 
¶51 SHIRLEY S. ABRAHAMSON, CHIEF JUSTICE   (concurring).  
I agree with both the legal analysis and remedy of the majority 
opinion.  I write separately because I also agree with the 
dissent's concern that the circuit court has not been provided 
with sufficient guidance for conducting the limited hearing on 
remand. 
¶52 In the insurance context, many states require that a 
settlement between an insured and an injured party, after the 
insurer has wrongfully refused to defend, be reasonable and 
entered into in good faith in order to bind the insurer.10  
Guidance can be taken from these cases in setting the parameters 
for the remand in the case at hand. 
¶53 The burden of proving reasonableness typically falls 
on the insured or the injured party, whoever seeks payment from 
the 
insurer. 
 
In 
determining 
whether 
a 
settlement 
was 
reasonable, the court should consider a variety of factors, 
including 
but 
not 
limited 
to 
the 
damage 
sustained, 
the 
likelihood that the injured party would have succeeded in 
                                                 
10 14 Lee R. Russ & Thomas F. Segalla, Couch on Insurance 
§ 202:9 (3d ed. 1999 & Supp. 2002) (Reasonableness of Settlement 
and Good Faith in Making It). 
No.  01-0242.ssa 
 
2 
 
establishing the defendant's liability at trial,11 and whether 
the amount settled for exceeds the policy limits.12  Thus the 
strength of the injured party's case is a fact that is 
considered in determining reasonableness. 
¶54 Minnesota courts have adopted an objective standard 
for measuring the reasonableness of a settlement:  whether a 
reasonably prudent person in the insured's position would have 
settled for the amount in question after considering "the merits 
of the [injured party's] claim, the evidence bearing on 
liability and damages, and the risks of going to trial."13  
Importantly, however, the reasonableness of the settlement 
agreement "is not determined by conducting the very trial 
obviated by the settlement."14 
¶55 The burden of proving fraud or collusion, in contrast, 
typically falls on the insurer.  While some courts maintain that 
collusion should be proven by clear and convincing evidence, the 
same burden placed on a plaintiff to prevail in a civil trial on 
                                                 
11 Black v. Goodwin, Loomis & Britton, Inc., 681 A.2d 293 
(Conn. 1996).  Proof of actual liability, of course, is not 
required.  The claimant need only prove potential liability.  
Id. at 302; see also Barrons v. J.H. Findorff & Sons, Inc., 89 
Wis. 2d 444, 456, 278 N.W.2d 827 (1979).  The point here is that 
where the claim of liability is tenuous, a settlement for 
damages at the high end of the spectrum may be unreasonable, 
whereas in a case in which liability appears clear, that same 
amount may be reasonable. 
12 Russ & Segalla, supra note 1. 
13 Brownsdale Coop. Assoc. v. Home Ins. Co., 473 N.W.2d 339, 
342 (Minn. Ct. App. 1991). 
14 Alton M. Johnson Co. v. M.A.I. Co., 463 N.W.2d 277, 279 
(Minn. 1990). 
No.  01-0242.ssa 
 
3 
 
a claim of fraud,15 others have determined that settlements of 
this sort deserve heightened scrutiny and thus the burden on the 
insurer should be lowered.16   
¶56 The reason for a lesser burden on the insurer is 
especially 
present 
where 
the 
settlement 
is 
a 
"covenant" 
agreement in which the settlement includes an assignment of the 
insured's rights to collect on his policy to the claimant in 
exchange for a covenant not to execute the judgment against the 
policyholder.17  "'With no personal exposure the insured has no 
incentive to contest liability or damages' and 'the insured's 
best interests are served by agreeing to damages in any amount 
as long as the agreement requires the insured will not be 
personally responsible for those damages.'"18  Under these 
circumstances, 
the 
traditional 
collusion 
inquiry 
is 
inappropriate; courts should instead assess the settlement for 
                                                 
15 Lundin v. Shimanski, 124 Wis. 2d 175, 184, 368 N.W.2d 676 
(1985) ("[T]he party alleging fraud has the burden of proving 
the elements by clear and convincing evidence."). 
16 Cont'l Cas. v. Hempel, 4 Fed. Appx. 703, 716 (10th Cir. 
2001) (citing Stephen R. Schmidt, The Bad Faith Setup, 29 Tort & 
Ins. L.J. 705 (1994)).  While unpublished, this case is cited as 
persuasive authority pursuant to U.S. Ct. of App. 10th Cir. Rule 
36.3. 
17 Hempel, 4 Fed. Appx. at 716.  For discussion of covenant 
agreements generally, see Russ & Segalla, supra note 1; Stephen 
R. Schmidt, The Bad Faith Setup, 29 Tort & Ins. L.J. 705 (1994). 
18 Hempel, 4 Fed. Appx. at 716 (quoting Pruyn v. Agric. Ins. 
Co., 42 Cal. Rptr. 2d 295, 305 (Ct. App. 1995)). 
No.  01-0242.ssa 
 
4 
 
indications that "the purpose [of the settlement] is to injure 
the interests of an absent or nonparticipating party."19  
¶57 While I recognize that covenant agreements such as the 
one at issue in this case are inherently suspicious, I conclude 
that there is no reason to lessen the burden on Image to prove 
fraud or collusion.  On remand, there are two issues that must 
be addressed:  (1) whether the settlement is reasonable; and (2) 
whether the settlement is the result of fraud or collusion.  
Therefore, the burden on Image to prove fraud or collusion will 
only be necessary if it has already been determined that the 
settlement is reasonable.  Where a settlement is reasonable, it 
is unlikely to be the subject of either fraud or collusion.  
Moreover, if it is reasonable, it is certainly unlikely to have 
been 
done 
for 
the 
purpose 
of 
injuring 
the 
indemnitor's 
interests.  Thus, in the face of a reasonable settlement, Image 
should be held to a high standard of proving fraud or collusion. 
¶58 For the foregoing reason, I concur. 
 
 
                                                 
19 Id. (citing Schmidt, The Bad Faith Setup, 29 Tort & Ins. 
L.J. 705, 727-28 (1994)).  Some of the indicators include 
"unreasonableness, 
misrepresentation, 
concealment, 
secretiveness, lack of serious negotiations on damages, attempts 
to affect the insurance coverage, profit to the insured, and 
attempts to harm the interest of the insurer." 
No.  01-0242.dss 
 
1 
 
 
¶59 DIANE S. SYKES, J.   (concurring).  I agree with the 
majority's analysis of the first issue regarding whether the 
indemnity agreement is valid and enforceable.  I also agree with 
much of the majority's discussion of the second issue regarding 
whether Image as indemnitor is bound by the $1.475 million 
judgment entered by stipulation between Image's indemnitee, 
Arlington, 
and 
the 
plaintiff, 
Deminsky, 
without 
Image's 
knowledge or participation.  I do not agree, however, with the 
majority's 
ultimate 
conclusion 
that 
the 
judgment 
may 
be 
enforceable 
against 
Image/Federated. 
Accordingly, 
I 
cannot 
subscribe to the limitations the majority has placed on the 
scope and nature of the remand in this case.   
¶60  The majority has concluded that the stipulated 
judgment may be binding upon Image/Federated, provided there is 
a determination that it is reasonable and was procured without 
fraud or collusion.  Majority op., ¶48.  The majority remands 
for "a limited hearing to the court on the reasonableness of the 
settlement agreement."  Majority op., ¶47.  This hearing can 
include "evidence that the indemnitee faced no potential 
liability or that the settling parties were involved in fraud or 
collusion."  Majority op., ¶47. The majority does not say 
whether this "reasonableness" inquiry will include the issue of 
damages.  Also, the majority does not specify the scope of the 
"reasonableness" inquiry as it relates to the evaluation of the 
degree or extent of potential liability or recovery under 
comparative or contributory negligence principles.   Finally, 
the majority does not identify the standards that should govern 
No.  01-0242.dss 
 
2 
 
the circuit court's evaluation of the issues of fraud or 
collusion.  
¶61  The majority adopts this limited-inquiry approach to 
determining the enforceability of the judgment by applying 
several 
cases 
it 
explicitly 
acknowledges 
are 
readily 
distinguishable from the circumstances of this case. See 
majority op., ¶46.  The majority initially concludes that this 
case is unlike Finch, Blaha, Newhouse, and Barrons, because the 
timing of the stipulated judgment is suspect and because it was 
entered into without Image's or Federated's knowledge. Id. I 
agree. 
¶62  In N.E. Finch Co. v. R.C. McMahon Co., 370 N.E.2d 160, 
162 (Ill. 1977), the settlement enforced against the indemnitor 
occurred after the indemnitor had refused the tender of defense 
and when trial on the underlying action between the injured 
party and the indemnitee was imminent.  That is not the case 
here, where the settlement and entry of stipulated judgment 
occurred a mere three and one-half weeks after the tender was 
rejected, 
and 
on 
the 
day 
that 
Image/Federated 
was 
to 
responsively plead to Deminsky's amended complaint on the 
indemnity agreement, long before any trial. 
¶63  In any event, Finch is an Illinois case.   The 
majority has concluded, and I agree, that Wisconsin law applies, 
because the question presented is the enforceability of a 
Wisconsin judgment against a person not a party to it, which 
concerns Wisconsin settlement and judgment rules.  Majority op., 
¶36.  Nevertheless, the majority relies most heavily on Finch in 
No.  01-0242.dss 
 
3 
 
concluding that the stipulated judgment may be enforceable 
against Image/Federated.  Majority op., ¶¶36, 46. 
  ¶64  In Illinois Cenntral Railroad Co. v. Blaha, 3 Wis. 
2d 638, 89 N.W.2d 197 (1958), the indemnitor had full knowledge 
of the circumstances of the underlying claim, as well as the 
indemnitee's claims for indemnification long before trial, and 
received the formal tender of defense five days before the 
scheduled trial, yet did nothing to protect its or its 
indemnitee's interests.  As the court of appeals here noted, 
"the 'settlement' . . . [sought to be enforced] was for a 
discounted sum pending the appeal of a larger judgment, which 
had been entered on a jury verdict, and the settlement amount 
was actually paid by the indemnitee."  Deminsky v. Arlington 
Plastics Machinery, 2001 WI App 287, ¶41, 249 Wis. 2d 441, 638 
N.W.2d 331.  Under those circumstances, the court in Blaha held 
that the prior judgment was conclusive on liability and damages, 
since those issues had been fully tried, and the indemnitor 
would be responsible for the compromised judgment absent proof 
that it was unreasonable or obtained by fraud or bad faith.  
Blaha, 3 Wis. 2d at 648-49.  Here, by contrast, no trial was 
held or was looming; the stipulated judgment was entered shortly 
after the indemnity claim against Image/Federated was alleged, 
and without any notice, well before any interests of the 
indemnitee were at risk of being or had been adjudicated against 
it at trial.  
¶65  Newhouse v. Citizens Security Mutual Insurance, 176 
Wis. 2d 824, 501 N.W.2d 1 (1993), was a suit against an 
No.  01-0242.dss 
 
4 
 
insurance company alleging breach of the duty to defend and bad 
faith denial of coverage.  This is not an insurance dispute.  It 
is a claim on an indemnity clause in a commercial transaction.  
The court of appeals wisely "decline[d] to inject into this case 
the law that has developed in Wisconsin to govern the duties 
owed by insurance companies to their insureds."  Deminsky, 2001 
WI App 287, ¶43.  This court should follow the court of appeals' 
lead and not import insurance law duties into this context. 
¶66  Finally, the majority properly notes the myriad 
distinctions between this case and Barrons v. J.H. Findorff & 
Sons, Inc., 89 Wis. 2d 444, 278 N.W.2d 827 (1979).  There, the 
indemnitor rejected the tender of defense, but was kept fully 
advised of the proceedings and settlement negotiations, and in 
fact was given the opportunity to approve the settlement.  Id. 
at 447-48.  Here, by contrast, the $1.475 million stipulated 
judgment (just shy of Federated's $1.5 million policy limits) 
was entered into within a few short weeks of the rejected 
tender, secretly, without any notice to Image/Federated.  
¶67  Despite the distinguishing characteristics of these 
cases, 
most 
of 
which 
the 
majority 
notes, 
the 
majority 
nevertheless applies their holdings.  Majority op., ¶¶36, 40, 
45.  If the cases are distinguishable, they do not apply, and we 
should not apply them. 
¶68  The majority also concludes, as did the court of 
appeals, that issue preclusion does not apply.  Majority op., 
¶49.  I agree.  This was a confessed judgment and "Arlington's 
liability and the amount of Deminsky's damages were never 
No.  01-0242.dss 
 
5 
 
'actually litigated,' which is a prerequisite for precluding 
issues from being 'relitigated.'"  Deminsky, 2001 WI App 287, 
¶39.   
¶69  If issue preclusion does not apply, then the 
stipulated judgment cannot operate to preclude Image/Federated 
from litigating liability and damages; that is, the stipulated 
judgment cannot be enforced against Image/Federated.  Unless, 
that is, the holdings in the cases cited above are applied.  
Again, the majority distinguishes these cases but nevertheless 
applies them.  I cannot join this conclusion.  I would affirm 
the court of appeals on all issues, and remand the matter for a 
trial on liability and damages, not the limited hearing to the 
court specified by the majority. 
¶70 I am authorized to state that Justice ANN WALSH 
BRADLEY joins this concurring opinion.   
 
 
 
No.  01-0242.dss 
 
 
 
1