Title: Schenkel & Shultz, Inc. v. Hermon F. Fox & Assocs.
Citation: 362 N.C. 269
Docket Number: 631A06
State: north-carolina
Issuer: north-carolina Supreme Court
Date: April 11, 2008

SCHENKEL & SHULTZ, INC. f/k/a SCHENKEL & SHULTZ, ARCHITECTS, P.A.
v. HERMON F. FOX & ASSOCIATES, P.C.
No. 631A06
FILED: 11 APRIL 2008 
1.
Indemnity–express contractual indemnification–primary contract–flow-down
provision of subcontract
Summary judgment should not have been granted for defendant engineering firm on
plaintiff architectural firm’s claim for express contractual indemnification arising from a
subcontract for defendant to create the structural steel design for a school because genuine issues
of material fact existed as to whether the parties intended in their subcontract to incorporate by
reference the term of an express indemnification provision found in plaintiff’s primary contract
with the school board.
2.
Trials–failure to designate an expert–language of scheduling order–summary
judgment
The failure of plaintiff to designate an expert under a scheduling order was not
dispositive in light of the language in the agreement and the evidence in the case and would not
serve as a ground for granting summary judgment for defendant..
3.
Appeal and Error–assignments of error–summary judgment
For purposes of an appeal from at trial court’s entry of summary judgment for the
prevailing party, the appealing party is not required under Rule 10(a) of the Rules of Appellate
Procedure to make assignments of error. 
Justice HUDSON did not participate in the consideration or decision of this case.
Appeal pursuant to N.C.G.S. § 7A-30(2) from the decision of
a divided panel of the Court of Appeals, 180 N.C. App. 257, 636
S.E.2d 835 (2006), affirming an order dated 25 February 2005
entered by Judge Forrest Donald Bridges and reversing an order
entered 9 August 2005 by Judge Timothy Kincaid, both in Superior
Court, Mecklenburg County.  Heard in the Supreme Court 11 April
2007.
Hamilton Martens Ballou & Sipe, LLC, by Herbert W. Hamilton,
and Kennedy Covington Lobdell & Hickman, LLP, by Kiran H.
Mehta, for plaintiff-appellee.
Hamilton Moon Stephens Steele & Martin, PLLC, by David G.
Redding and Adrianne Huffman, for defendant-appellant.
TIMMONS-GOODSON, Justice.
We must determine in the present case whether the parties
intended in their subcontract to incorporate by reference the
terms of an express indemnification provision found in the
primary contract.  Because we conclude there exist genuine issues
of material fact regarding the parties’ intent to indemnify,
summary judgment was inappropriate.  We therefore affirm the
decision of the Court of Appeals.
I. Background
On 24 November 1998, the Charlotte-Mecklenburg Board of
Education (Board) contracted with the architectural firm of
Schenkel & Shultz, Inc. (Schenkel) to design a vocational
technical high school in Mecklenburg County.  The “Standard Form
of Agreement Between Owner and Designer” (Prime Agreement) signed
by the Board and Schenkel provided that Schenkel would retain
outside consultants or engineers to perform those aspects of the
project for which it did not have in-house expertise.  The Prime
Agreement includes the following indemnification provision:
12.4 In the event a claim, suit, or cause of
action is made against the Owner [the Board]
and/or Owner’s representatives for any
personal injury, including death, or property
damage (other than to the work itself), or
other loss or damage resulting solely from
any negligent act or omission of the Designer
[Schenkel] or out of the Designer’s breach of
this Agreement, the Designer agrees to defend
and hold the Owner, its agents, employees,
servants, representatives, successors and
assigns harmless and indemnified from and
against any loss, costs, damages, expenses,
attorneys fees and liability with respect to
such claim, suit, or cause of action.
Schenkel in turn hired Hermon F. Fox & Associates, P.C.
(Fox), an engineering firm, to create the project’s structural
steel design.  The form contract between Schenkel and Fox was
produced by The American Institute of Architects and titled
“Standard Form of Agreement Between Architect and Consultant”
(AIA Document C141 6th ed. 1987) (Subprime Agreement).  Article 1
of the Subprime Agreement, “Consultant’s Responsibilities,”
Section 1 describes the services to be performed by Fox under the
Subprime Agreement.  Section 1.1.2 provides that:
Consultant’s [Fox’s] services shall be
performed according to this Agreement with
the Architect [Schenkel] in the same manner
and to the same extent that the Architect is
bound by the attached Prime Agreement to
perform such services for the Owner [the
Board].  Except as set forth herein, the
Consultant [Fox] shall not have any duties or
responsibilities for any other part of the
Project.
Construction began in the fall of 2000, but by the spring of
2001, project contractors, subcontractors, and consultants
documented in correspondence with Schenkel their concerns
regarding the integrity of the structural steel components of the
project and requested that an independent assessment of the steel
design be performed.  The alleged steel design defects delayed
the project, resulting in cost overruns.  On 2 January 2002, the
Board formally notified Schenkel of the design flaw allegations
and cost overruns, as well as its potential claim against
Schenkel for the cost of steel structure corrective work and
associated delay costs.  Schenkel then notified Fox of its
intention to hold Fox responsible for any claim filed by the
Board.  Subsequent attempts by the parties to resolve the matter
out of court were unsuccessful.
On 1 October 2004, Schenkel filed suit in Mecklenburg County
against Fox, asserting claims for negligence, professional
malpractice, breach of contract, breach of warranty, and
indemnity for alleged errors in the project’s structural steel
design.  Fox made a pretrial motion for judgment on the
pleadings, which the trial court converted to a motion for
partial summary judgment.  The trial court granted the motion by
Fox and dismissed with prejudice, on statute of limitations
grounds, the claims for negligence, professional malpractice,
breach of contract, and breach of warranty brought by Schenkel. 
The trial court also granted subsequent motions by Fox for
summary judgment on Schenkel’s indemnification claim and on a
counterclaim by Fox against Schenkel for breach of contract.  The
trial court awarded Fox $37,787.50 on its counterclaim.  Schenkel
appealed from both the trial court’s entry of partial summary
judgment and the summary judgments dismissing the indemnification
claim and granting Fox’s counterclaim for breach of contract.
The North Carolina Court of Appeals heard the case on 22
August 2006.  The Court of Appeals affirmed the trial court’s
entry of partial summary judgment for Fox on Schenkel’s claims of
negligence, professional malpractice, breach of contract, and
breach of warranty.  Schenkel & Shultz, Inc. v. Hermon F. Fox &
Assocs., P.C., 180 N.C. App. 257, 259, 636 S.E.2d 835, 838
(2006).  The Court of Appeals reversed the trial court’s order
granting summary judgment in favor of Fox on its counterclaim for
breach of contract.  Id.  In a divided opinion, a majority of the
Court of Appeals also reversed the trial court’s order granting
summary judgment in favor of Fox on Schenkel’s claim for
indemnification, concluding that there existed genuine issues of
material fact as to whether the contract expressly provided for a
right to indemnification.  Id.  The dissenting judge concluded
that Fox did not expressly agree to indemnify Schenkel.  180 N.C.
App. at 274, 636 S.E.2d at 846 (Tyson, J., dissenting). 
Alternatively, the dissent concluded that summary judgment was
appropriate because Schenkel failed to timely designate an expert
pursuant to the trial scheduling order and was therefore
precluded from offering expert testimony on the standard of care
applicable to Fox’s work as structural steel designers, which in
turn would prevent Schenkel from establishing the underlying
negligence or breach of contract the indemnity provision
required.  Id. at 272, 636 S.E.2d at 845.  Fox appealed to this
Court on the basis of the dissent.
II. Analysis
In reviewing an appeal based upon a dissent, we consider
only those issues that were a point of dispute set out in the
dissenting opinion of the Court of Appeals.  See N.C. R. App. P.
16(b) (“Where the sole ground of the appeal of right is the
existence of a dissent in the Court of Appeals, review by the
Supreme Court is limited to a consideration of those questions
which are [] specifically set out in the dissenting opinion as
the basis for that dissent . . . .”).  
[1] The central issue in dispute here is whether Fox agreed
to indemnify Schenkel in the Subprime Agreement.  The Prime
Agreement between Schenkel and the Board expressly provides for
indemnification against loss arising from negligence or breach of
contract.  The Subprime Agreement between Fox and Schenkel
requires Fox to perform its services “in the same manner and to
the same extent that [Schenkel) is bound by the attached Prime
Agreement to perform such services for [the Board].”  Fox
contends this language merely requires it to perform its services
in the same manner and to the same extent as Schenkel must
perform its services to the Board, and that the term “services”
is defined in the contract as only engineering services. 
Schenkel responds that the language of the Subprime Agreement is
a typical “flow-down” provision in which all the “same rights and
obligations of the subcontractor . . . flow from the subcontract
up through the general contractor to the owner, and conversely
down the same contractual claim.”  T. Bart Gary, Incorporation by
Reference and Flow-Down Clauses, 10 Construction Law., Aug. 1990,
at 44, 46 [hereinafter Gary].  Schenkel argues that the flow-down
provision of the Subprime Agreement incorporates by reference the
entire Prime Agreement, including the indemnification provision. 
We agree that the parties’ intent to indemnify is not easily
discerned in the present case.
A. Indemnity Provision
An indemnity contract “obligates the indemnitor to reimburse
his indemnitee for loss suffered or to save him harmless from
liability.”  New Amsterdam Cas. Co. v. Waller, 233 N.C. 536, 538,
64 S.E.2d 826, 828 (1951).  Our “primary purpose in construing a
contract of indemnity is to ascertain and give effect to the
intention of the parties, and the ordinary rules of construction
apply.”  Dixie Container Corp. of N.C. v. Dale, 273 N.C. 624,
627, 160 S.E.2d 708, 711 (1968).  The court must construe the
contract “as a whole” and an indemnity provision “must be
appraised in relation to all other provisions.”  Id.  A contract
that is plain and unambiguous on its face will be interpreted by
the court as a matter of law.  See Lane v. Scarborough, 284 N.C.
407, 410, 200 S.E.2d 622, 624 (1973).  When an agreement is
ambiguous and the intention of the parties is unclear, however,
interpretation of the contract is for the jury. Farmers Bank v.
Michael T. Brown Distribs., Inc., 307 N.C. 342, 347-48, 298
S.E.2d 357, 360 (1983).  “An ambiguity exists in a contract when
either the meaning of words or the effect of provisions is
uncertain or capable of several reasonable interpretations.” 
Register v. White, 358 N.C. 691, 695, 599 S.E.2d 549, 553 (2004). 
Thus, if there is uncertainty as to what the agreement is between
the parties, a contract is ambiguous.  Id. 
The Subprime Agreement at issue here incorporates by
reference terms of the Prime Agreement.  “To incorporate a
separate document by reference is to declare that the former
document shall be taken as part of the document in which the
declaration is made, as much as if it were set out at length
therein.”  Booker v. Everhart, 294 N.C. 146, 152, 240 S.E.2d 360,
363 (1978).  Construction industry contracts commonly incorporate
terms of the general contract into the subcontract:
The construction contracting process is
characterized by the large volume of
documents involved.  Incorporating by
reference a number of documents into a single
document is a typical part of the modern
construction contract.  Aside from being a
matter of convenience, the use of
incorporation by reference clauses and flow-
down clauses represents efforts to ensure
consistency of obligations throughout the
various tiers of the contracting process. 
Gary at 44; see generally 2 Justin Sweet & Jonathan J. Sweet,
Sweet on Construction Industry Contracts: Major AIA Documents §
17.05[A] at 567 (4th ed. 1999) [hereinafter Sweet].  “The
relationship of the prime contract to the subcontract generates
contractual attempts for consistency.  Obligations can flow down
to insure that subcontractors commit themselves to the
performance and administrative requirement of the prime
contract.”  Sweet at 567.
We agree with the Court of Appeals that the language of the
“flow-down” clause of the Subprime Agreement is ambiguous and
that the intention of the parties with regard to indemnification
is therefore best left to the trier of fact.  Farmers Bank, 307
N.C. at 347-48, 298 S.E.2d at 360.  Fox asserts that a
contractual indemnification provision against negligence must be
“unequivocally clear,” see Candid Camera Video World, Inc. v.
Mathews, 76 N.C. App. 634, 636, 334 S.E.2d 94, 96 (1985), disc.
rev. denied, 315 N.C. 390, 338 S.E.2d 879 (1986), and should also
be “strictly construed” against Schenkel, Hoisington v.
ZT-Winston-Salem Assocs., 133 N.C. App. 485, 494, 516 S.E.2d 176,
183 (1999), disc. rev. and cert. improvidently allowed, 351 N.C.
342, 525 S.E.2d 173 (2000).  Thus, contends Fox, if any ambiguity
as to indemnity exists in the Subprime Agreement, the court must
read such ambiguity in favor of Fox.  However, this Court has
never held that a standard indemnity provision must be
“unequivocally clear.”  Rather, it is only exculpatory
provisions, whereby a party seeks to protect itself from
liability arising from its own negligence, Gibbs v. CP&L Co., 265
N.C. 459, 467, 144 S.E.2d 393, 400 (1965), that this Court has
strictly construed: 
Contracts which seek to exculpate one of the
parties from liability for his own negligence
are not favored by the law.  Hence it is a
universal rule that such exculpatory clause
is strictly construed against the party
asserting it.  It will never be so construed
as to exempt the indemnitee from liability
for his own negligence or the negligence of
his employees in the absence of explicit
language clearly indicating that such was the
intent of the parties.
Hill v. Carolina Freight Carriers Corp., 235 N.C. 705, 710, 71
S.E.2d 133, 137 (1952) (citations omitted).  “There is a
distinction between contracts whereby one seeks to wholly exempt
himself from liability for the consequences of his negligent
acts, and contracts of indemnity against liability imposed for
the consequences of his negligent acts.  The contract . . . of
the latter class . . . is more favored in law.”  Gibbs, 265 N.C.
at 467, 144 S.E.2d at 400.  A standard contract of indemnity, in
contrast to an exculpatory provision, “will be construed to cover
all losses, damages, and liabilities which reasonably appear to
have been within the contemplation of the parties.”  Dixie
Container Corp., 273 N.C. at 627, 160 S.E.2d at 711.  
Fox concedes that the Prime Agreement expressly provides for
indemnification.  Thus, an express agreement to indemnify is
present.  The ambiguity here arises from the intended scope of
the reference in the Subprime Agreement to the Prime Agreement. 
Whether or not the parties intended to incorporate the express
indemnification provision of the Prime Agreement by use of the
flow-down provision of the Subprime Agreement is the question
here, and one which we conclude to be susceptible to differing
yet reasonable interpretations.  See Farmers Bank, 307 N.C. at
347-48, 298 S.E.2d at 360; see also Gore v. George J. Ball, Inc.,
279 N.C. 192, 201, 182 S.E.2d 389, 394 (1971) (“[I]t is for the
jury to determine whether a particular agreement was or was not
part of the contract actually made by the parties.”).  The party
moving for summary judgment is entitled to such judgment only if
he can show that there is no genuine issue of material fact and
that he is entitled to judgment as a matter of law.  N.C.G.S. §
1A-1, Rule 56 (2007); e.g., Hagler v. Hagler, 319 N.C. 287, 289,
354 S.E.2d 228, 231 (1987).  Based on the contract language, we
cannot say as a matter of law that Fox had no duty to indemnify
Schenkel for liability arising from Fox’s steel structure design
or breach of contract.  Because we conclude that the language of
the Subprime Agreement is susceptible to differing yet reasonable
interpretations, the one broad, the other narrow, the contract is
ambiguous and summary judgment was inappropriate.  In order to
resolve this ambiguity, the case must be remanded to the superior
court for further proceedings.  The Court of Appeals therefore
did not err in reversing summary judgment on the indemnification
claim. 
B. Expert Testimony
[2] Fox argues that, even assuming a right to
indemnification by incorporation exists, the indemnification
provision gives rise to an indemnity obligation only when damages
result from a “negligent act or omission of [Fox] or out of
[Fox’s] breach of this Agreement.”  Fox argues that Schenkel
cannot establish the standard of care needed to substantiate a
negligent act or a breach of contract absent expert testimony,
and thus Schenkel’s failure to timely designate an expert to
support its claim for indemnity is fatal as a matter of law. 
The record indicates that the scheduling order set by the
trial court required Schenkel to timely designate its experts,
and that failure to comply with the deadlines would result in
exclusion of such expert witnesses “absent a showing of excusable
neglect for the noncompliance.”  Schenkel’s complaint alleges it
is entitled to indemnification by Fox “[t]o the extent that any
defects and/or problems associated with the structural steel
and/or its design cause[d] damage or economic loss to
[Schenkel].”  We agree that Schenkel will need to present
evidence to establish such “defects and/or problems” (i.e., a
breach of care) in the design, as well as a causal connection
between Fox’s design and the damages incurred.  However, we do
not agree that Schenkel’s failure to timely designate an expert
under the scheduling order is fatal to its claim at this
juncture.  The question of whether Schenkel must designate an
expert apart from the fact witnesses in this case and when that
designation is required is a matter for the trial court.  The
record contains numerous letters from project contractors,
subcontractors, and consultants expressing their concerns over
the inadequacies of Fox’s original steel design, as well as
evidence that Fox “re-designed” the steel structure in response
to such concerns.  Whether Schenkel is allowed to establish a
breach and causation by using the letters and Fox’s actions in
response, or by other evidence it may possess, is a matter for
consideration by the trial court.  By failing to designate an
expert witness in a timely fashion, Schenkel may have waived its
right to call an expert witness, but in light of the language of
the scheduling order permitting noncompliance where excusable
neglect is shown and the evidence in the record, the failure to
designate an expert is not dispositive of the motion for summary
judgment in this case.  The issue raised by Fox regarding
designation of an expert witness under the scheduling order would
therefore not serve as a ground for granting summary judgment to
Fox.  Accordingly, the Court of Appeals did not err in reversing
the trial court’s order granting Fox summary judgment.
[3] Finally, Fox argues that Schenkel’s failure to assign
error to or challenge the summary judgment order with regard to
the issue of expert testimony required dismissal of the appeal. 
We disagree.  This Court has long held, and the law has not been
changed, that for purposes of an appeal from a trial court’s
entry of summary judgment for the prevailing party, the appealing
party is not required under Rule 10(a) of the Rules of Appellate
Procedure to make assignments of error for the reason that on
appeal, review is necessarily limited to whether the trial
court’s conclusions as to whether there is a genuine issue of
material fact and whether the moving party is entitled to
judgment, both questions of law, were correct.  Ellis v.
Williams, 319 N.C. 413, 415-17, 355 S.E.2d 479, 481-82 (1987).
III. Conclusion
We hold the Court of Appeals did not err in reversing the
entry of summary judgment in favor of Fox on Schenkel’s claim of
express contractual indemnification.  We therefore affirm the
Court of Appeals as to that issue.  The remaining issues
addressed by the Court of Appeals are not before this Court, and
its decision as to those matters remains undisturbed.
AFFIRMED.
Justice HUDSON did not participate in the consideration or
decision of this case.