Opinion ID: 767146
Heading Depth: 4
Heading Rank: 2

Heading: The Contractual Indemnity Claims

Text: 36 Budd's motion for summary judgment also alleged contractual bases for its indemnity claims. Kentucky law provides that [t]he nature of an indemnitor's liability under an indemnity contract shall be determined by the provisions of the indemnity agreement itself. United States Fidelity & Guar. Co. v. Napier Elec. & Constr. Co., Inc., 571 S.W.2d 644, 646 (Ky. Ct. App. 1978). Under Napier, parties may contractually provide for indemnification for--among other things--the costs incident to potential legal liability as well as for the legal liability itself 3 . Wenow decide whether Budd contracted with Merrick and Barton for indemnification for its legal expenses in defending the suit brought by Thompson irrespective of whether liability has been imposed on Budd. 37
38 Budd and Merrick argue that three different documents represent their contractual agreement: (1) Purchase Order 94-06004 (First Purchase Order); (2) Purchase Order 94-06539 (Second Purchase Order); and (3) Budd's Quotation Request Form (Bid Request). In terms of their actual indemnity language, which contract controls is immaterial because each indemnity provision has the same legal effect as to the events in question. Paragraph fourteen on the reverse side of both the First Purchase Order and the Second Purchase Order contains the following language: 39 Seller [Merrick] agrees to indemnify, defend and hold harmless the Buyer [Budd] ... and [defend] 4 from and against any and all demands, actions, causes of actions, suits, costs, fees, penalties, damages (consequential and otherwise), attorneys' fees and all other liabilities and obligations whatsoever (Losses) arising out of or relating to: (a) personal injuries, damages or death to any natural person ... which relates to, in whole or part, (i) any manufacturing, design, or other defect, failure to warn, improper handling, and improper operating installation or other act or omission of Seller with respect to any of the Products or (ii) the performance by Seller of any services .... 40 The language in this contract is very broad; it requires indemnification not only for penalties and damages but also for suits, costs, attorney fees, and all other liabilities and obligations. As the contract provides, only where the costs or attorney fees are clearly shown to have resulted solely and directly from [Budd's] gross negligence or willful misconduct can Merrick avoid liability under either one of these contractual provisions. 41 The Bid Request also contains indemnity language; its language, however, differs from the indemnity provision just quoted. Specifically, paragraph seventeen on the reverse side of the Bid Request provides as follows: Seller agrees to indemnify and protect Buyer against all liabilities, claims or demands for injuries or damages to any person or property arising out of any labor performed on Buyer's premises by Seller under this contract or out of any use by Seller or Buyer's tools or equipment, including any legal fees or cost incurred by Buyer in connection therewith. 42 This provision, like the purchase order indemnity provisions, is very broad; it provides for indemnity not only for legal liabilities but also for costs associated with mere claims or demands as well as legal fees. Although not as clear as the language in the purchase orders, the Bid Request indemnity provision would also require Merrick to indemnify Budd for Budd's negligence. See Fosson v. Ashland Oil & Ref. Co., 309 S.W.2d 176 (Ky. 1958). In Fosson, the court considered a contract with indemnity language similar to the Bid Request: 43 The Contractor shall indemnify the Owner against all claims, demands, liens, taxes, loss or damages of any character suffered by the Owner and shall savethe Owner harmless from all liability growing out of or incurred in the prosecution of said work or arising from any operations, acts, or omissions of Contractor. 44 Id. at 177. The court construed such language to include indemnity for the owner's negligence. SeeId. at 178. The court expressly refused to require a specific statement to the effect that indemnity include[s] the owner's own negligence. Id. The court noted, we can hardly envision a more inclusive indemnity provision. Id. The Fosson court also relied on the fact that the contractor was required to carry insurance satisfactory to the owner. Id. The Bid Request, immediately after the indemnity provision, allows Budd to require Merrick to prove the level of its insurance coverage--indicating that Budd had a vested interest in Merrick's insurance. Fossoncompels us to find that the Bid Request contract includes indemnification for Budd's own negligence. Thus, as to their meaning, which indemnity provision controls is immaterial. 45 Merrick next seeks to raise a genuine issue of material fact by challenging the legal validity of the indemnity provisions in particular contracts. First, Merrick argues that the Second Purchase Order is unsigned, thus making its indemnity provision unenforceable if the Second Purchase Order controls. 5 For support in this claim, Merrick looks to Kentucky Revised Statutes 371.010(4) 6 and 342.690(1). 7 Under these provisions, an indemnity provision generally must be in writing and signed by the indemnitor. The Court of Appeals of Kentucky, however, has noted that if one promises to pay the debt of another in order to further some purpose of his own, ... such promise is not within section 371.010(4). Barnett v. Stewart Lumber Co., 547 S.W.2d 788, 790 (Ky. Ct. App. 1977). In this case, Merrick agreed to indemnify Budd as part of its consideration for being awarded the maintenance service contract. Because Merrick agreed to indemnify Budd in order to advance its own purpose, Merrick cannot seek cover under Kentucky's statute of frauds. Similarly, section 342.690(1) provides no relief for Merrick. This statute merely requires that the contract be written. In this case, the Second Purchase Order is written and specifically provides for acceptance by performance or signature. Moreover, Merrick admits that it has a history of including indemnity provisions in its contractswith Budd. Both the explicit language of the statute and the equities of the situation prevent the conclusion that section 342.690(1) would invalidate the Second Purchase Order's indemnity provision. 46 Finally, Merrick seeks to raise a genuine issue of material fact as to which contract controls by arguing that the First Purchase Order improperly incorporates its indemnity provision. 8 Merrick's argument does not raise a genuine issue of material fact. Merrick claims that Kentucky law requires language incorporating provisions from the back of a contract be conspicuous by being in larger or other contrasting type or color. Hertz Commercial Leasing Corp. v. Joseph, 641 S.W.2d 753, 756 (Ky. Ct. App. 1982). Merrick, however, gives too much weight to Hertz; subsequent cases apply a lower standard. In Bartlett Aviation, Inc. v. Dry Lake Coal Co., Inc., 682 S.W.2d 796 (Ky. Ct. App. 1985), the court of appeals noted that Hertz relied on case law addressing a provision seeking to limit implied warranties--a provision which the law requires to be conspicuous, that is, to be in larger or contrasting type. SeeBartlett, 682 S.W.2d at 798. The Bartlett court addressed an arbitration provision and concluded that when the incorporating language is above a contractor's signature, we know of no case law or statutes which require that the incorporation language for the arbitration provision be stated in bold type or in any unusual form. Id. In another arbitration clause case, Kentucky likewise required that the incorporating language merely be plain and clear. See Home Lumber Co. v. Appalachian Reg'l Hosps., Inc., 722 S.W.2d 912, 914 (Ky. Ct. App. 1987). 47 Although the issue in this case is an indemnity provision as opposed to an arbitration provision, the distinction is immaterial. The first purchase order contains the following incorporating provision: 48 THE SELLER IN ACCEPTING THIS ORDER AGREES TO ALL TERMS AND CONDITIONS SET FORTH ON THE FACE AND REVERSE HEREOF ALL OF WHICH ARE MADE PART OF THIS ORDER[.] 49 This language is undoubtably clear. The fact that the this language is in a smaller font-albeit in all capitals--than much of the rest of the contract is immaterial. In every alleged contract between Merrick and Budd-including the bid request--the indemnity provision is on the reverse side of the purchase order. Merrick has acknowledged that indemnity provisions of some sort were included in past contracts. Thus, Merrick cannot now claim that it was unaware that the provisions on the reverse side of the purchase order were part of the contract. 50 Despite the fact that Merrick has failed to establish a material issue of fact as to which contract covers Thompson's injuries, summary judgment must be denied. As the district court noted, genuine issues of material fact remain as to whether Budd was grossly negligent or engaged in willful misconduct which led to Thompson's injuries. This issue must be remanded for further factual determinations. 51
52 Article 25 of the contract between Budd and Barton contains the following indemnification clause: 53 With regard to the work to be performed hereunder by the contractor on the owner's premises, contractor agrees to and will indemnify and hold harmless owner from and against any claims, losses, or damages due to the death of or injury to the person or the property of any person, or persons, ... arising out of, or in connection with, contractor's performance hereunder, except as to any such loss or damage which is causedby the sole negligence, or wanton and willful misconduct of owner or owner's agents, servants or employees. 54 The first issue is whether such a clause includes attorney fees. In United States v. Hardy, 916 F. Supp. 1385 (W.D. Ky. 1996), the United States District Court for the Western District of Kentucky addressed a contract that provided indemnity for any and all loss, damage, injury, liability, and any claim or claims therefor, including claims for injury or death to any and all persons or property. Id. at 1390. The court awarded attorney fees based on this contract, but two qualifications must be noted. First, liability had already attached. SeeHardy, 916 F. Supp. at 1388 (noting that indemnitee had already paid the United States for CERCLA liability). Second, the court noted that award of attorney fees was not automatic but based on equitable distinctions. See id.at 1391 n.5. 55 Applying Hardy, the language against any claims, losses, or damages encompasses more than legal liability (i.e., damages). It is not dispositive that Budd, unlike the indemnitee in Hardy, has not been held liable in the underlying claim. See Napier, 571 S.W.2d 644. In Napier, the court of appeals found indemnity proper although there had been no judicial determination of liability where the contract provided indemnification for all 'liabilities, losses and expenses' incurred by the appellant, including all amounts paid by appellant 'in good faith under the belief that: (1) Surety was or might be liable therefore; (2) Such payments were necessary or advisable to protect any of Surety's right or to avoid or lessen Surety's liability or alleged liability.['] Napier, 571 S.W.2d at 645. Considering Napier in conjunction with Hardy leads to the conclusion that the contract between Barton and Budd allows-but does not require--a court to award attorney fees despite the absence of liability unless Budd was defending claims that arise out of its sole negligence, or wanton and willful misconduct. 56 Because Kentucky applies comparative negligence principles, Barton argues that by definition Thompson's claim was for Budd's sole negligence. Kentucky case law has not specifically interpreted the meaning of loss or damage caused by the sole negligence, or wanton and willful misconduct as an exception to an indemnification contract. Michigan courts, however, have construed a statute which bars indemnification for damages arising out of bodily injury to persons ... caused by or resulting from the sole negligence of the promisee or indemnitee. Burdo v. Ford Motor Co., 828 F.2d 380, 382 (6th Cir. 1987). In construing that statute, Michigan courts found that such language bars indemnity only where 'the bodily injury as a whole, results from the sole negligence of the indemnitee.' Id at 384 (citing Fischbach-Natkin v. Power Process Piping, 403 N.W.2d 569, 574 (Mich. Ct. App. 1987)). Thus, even where comparative negligence regimes exist, an indemnitee may recover under the indemnity agreement as long as it was not 100% responsible for the plaintiff's injuries. See generally Burdo, 828 F.2d 380; Paquin v. Harnischfeger Corp., 317 N.W.2d 279 (Mich. Ct. App. 1982). Although not binding, this interpretation is persuasive and imminently reasonable under Kentucky law. 57 Budd's attorney fee indemnity claims are remanded to the district court. The district court in its discretion may award Budd attorney fees based on its contract with Barton, unless the facts indicate that all of the injuries suffered by Thompson arose because of Budd's sole negligence, or wanton and willful misconduct.