Opinion ID: 2734151
Heading Depth: 2
Heading Rank: 2

Heading: Indemnification for Vicarious Liability

Text: Mid-Continent next contends the district court improperly held it had a duty to indemnify True Oil against the allegations of vicarious liability. In granting summary judgment, the court explained: Pennant agreed to indemnify True in the MSC. Coverage for this agreement is provided for in the CGL. The agreement to indemnify is void only to the extent that it was one which purported to relieve True Oil from loss of liability caused by True Oil’s own negligence. The agreement providing for indemnification from all claims and damages caused by the negligence of others, which would include the claims of vicarious liability in this case, is valid and enforceable under applicable Wyoming law. -10- Aplt. App., vol. 4 at 1244-45 (footnote omitted). Under its CGL policy, Mid-Continent agreed to cover Pennant’s liability for damages “[a]ssumed in a contract or agreement that is an ‘insured contract.’” Aplt. App., vol. 1 at 24. Thus, although the CGL policy generally excluded contractual liability from coverage, it excepted damages assumed in an insured contract. According to the policy, an “insured contract” includes: [t]hat part of any other contract or agreement pertaining to your business . . . under which you assume the tort liability of another party to pay for “bodily injury” or “property damage” to a third person or organization. Tort liability means a liability that would be imposed by law in the absence of any contract or agreement. Aplt. App., vol. 1 at 34. A promise to indemnify an indemnitee for its indemnitor’s negligence is valid and enforceable under Wyoming law. Gainsco Ins. Co. v. Amoco Prod. Co., 53 P.3d 1051, 1075 (Wyo. 2002). Pennant agreed to indemnify True Oil for all damages, including attorney fees, “arising out of, caused in whole or in part by or resulting directly or indirectly from any act or omission, including negligence of [Pennant and True Oil].” Aplt. App., vol. 1 at 44. While we held on appeal in the first action that the Wyoming Anti-Indemnity Statute voided the MSC indemnity agreement as applied to coverage of True Oil’s own negligence, we noted that “were it not for the operation of Wyo. Stat. Ann. § 30-1-131, an insured contract would exist between Pennant and True Oil – and, accordingly, True Oil would be an additional insured on Pennant’s CGL policy with Mid- -11- Continent.” True Oil Co., 173 F. App’x at 650. 6 Wyoming has previously recognized contractual liability coverage for an “insured contract” under almost identical CGL policy language and circumstances. See, e.g., Gainsco, 53 P.3d at 1054-57, 1066. In Gainsco, Amoco Production Company (Amoco) and Andrews Trucking Company (Andrews) entered into an MSC whereby Andrews agreed to indemnify Amoco against tort liability to Andrews’ employees and its subcontractors’ employees. Id. at 1054. Andrews was insured by Gainsco Insurance Company (Gainsco). Id. Like MidContinent’s CGL policy, Gainsco’s policy included an exception to the coverage exclusion for “liability . . . assumed under an ‘insured contract.’” 7 Id. at 1057. After one of Andrews’ subcontractor’s employees was killed, the employee’s 6 We also pointed out “[a]s an initial matter, it is important that we emphasize what is not at issue in this case. True Oil has not sued Pennant. Thus, we are not called upon to interpret the exact contours of the MSC, which appears to obligate Pennant to obtain insurance in favor of True Oil.” True Oil Co., 173 F. App’x at 649. 7 The “insured contract” definition in Gainsco’s policy is almost identical to the policy here except it included an exclusion for contracts that indemnify a party for the indemnitee’s sole tort liability. Compare Gainsco, 53 P.3d at 1057, with Aplt. App., vol. 1 at 34-35. The only substantial difference is that Gainsco’s policy states: “However, this insurance does not apply to that part of any contract or agreement that indemnifies any person or organization for the indemnitee’s sole tort liability.” Gainsco, 53 P.3d at 1057; see Aplt. App., vol. 1 at 34-35. As “no one contended that Amoco was 100% at fault, . . . the contract indemnifying Amoco was an insured contract.” Gainsco, 53 P.3d at 1066. -12- estate sued Amoco and Amoco settled. 8 Id. at 1054. Amoco then sued Andrews under the MSC’s indemnity provision. Id. at 1055. Andrews settled with Amoco, including an agreement for a confessed judgment for Amoco and the condition that Amoco would only execute it against Gainsco. Id. Amoco sought a declaratory judgment against Gainsco. The Wyoming Supreme Court held that “Amoco’s claims were within the coverage of Gainsco’s policy.” Id. at 1080. 9 Mid-Continent contends the intervening state court decision in Pennant only resolved a contractual question, “whether . . . Pennant was liable to True contractually,” rather than a coverage question. Aplt. Br. at 26. It argues its policy does not provide coverage for breach of contract damages, and also contends True Oil voluntarily settled without being either legally liable or an insured. We disagree with these contentions. Despite this case’s convoluted history, we decline Mid-Continent’s invitation to relitigate matters resolved most recently by the Wyoming Supreme Court. When “an intervening decision of a state’s highest court has resolved an issue of state law directly contrary to this circuit’s prediction of how the state 8 The claimant also sued the subcontractor and Andrews, but the claim against the subcontractor was dismissed because of workers’ compensation immunity and the claim against Andrews was decided in favor of Andrews on summary judgment, with the court finding Andrews owed no legal duty to the deceased. Gainsco, 53 P.3d at 1054. 9 The court found, however, that Amoco’s settlement amount was unreasonable, and that Gainsco had not received notice of a key settlement term and was thus excused from payment. Gainsco, 53 P.3d at 1080. -13- would resolve the same issue, we are bound by the later state ruling, not by our prior panel’s interpretation of state law.” Blackhawk-Central City Sanitation Dist. v. Am. Guar. & Liab. Ins. Co., 214 F.3d 1183, 1194 n.4 (10th Cir. 2000); Kinnison v. Houghton, 432 F.2d 1274, 1277 (10th Cir. 1970) (holding we had to follow intervening state court decision despite it being contrary to an earlier Tenth Circuit decision involving the same case). First, we cannot follow Mid-Continent’s semantic gymnastics, which characterizes the settlement payment as breach of contract damages rather than indemnification damages in order to deny coverage. To the contrary, the Wyoming Supreme Court found that True Oil’s $500,000 settlement payment to Mr. Van Norman was “indemnification damages for bodily injuries.” Pennant, 249 P.3d at 707-08. Second, Mid-Continent contends the Wyoming Supreme Court’s postsettlement determination that Pennant was an independent contractor 10 and 100% at fault negates the requisite “potential liability” required for a settlement to be made in good faith. Moreover, Mid-Continent asserts that True Oil was never even potentially liable for Pennant’s negligence because True Oil’s “vicarious liability was a legal impossibility . . . where [Pennant’s employee] received . . . 10 The workplace owner contracting with an independent contractor is generally not held vicariously liable for tortious acts or omissions of the contractor or the contractor’s employees, unless the owner maintains control over the contractor’s work or assumes affirmative safety duties. Franks v. Indep. Prod. Co., 96 P.3d 484, 490 (Wyo. 2004). -14- workers compensation benefits.” Aplt. Br. at 38-39. Mid-Continent is wrong on both counts. Where an indemnitor is given notice of settlement discussions and chooses not to participate, an “indemnitee is only required to prove . . . potential liability to the original plaintiff in order to support a claim against the indemnitor.” Pan Am. Petroleum Corp. v. Maddux Well Serv., 586 P.2d 1220, 1225 (Wyo. 1978). Potential liability exists unless an indemnitee faced “no exposure to legal liability.” Pennant, 249 P.3d at 704. The threshold for ‘potential liability’ is not high, nor should it be. Where notice has been given to the indemnitor and the indemnitor has elected not to act to protect himself, he, in effect, consents to allow the indemnitee to act for him and will not be heard to complain about the outcome—except in the very limited circumstance where the indemnitee was not, in fact, at risk, but nevertheless paid money that it would never have owed to the plaintiff. Id. (internal quotation marks and citation omitted). At the time True Oil settled with Mr. Van Norman, the state trial court had denied its motion for summary judgment, concluding that “genuine issues of material fact exist concerning the degree of control exercised by True Oil and True Oil’s assumption of affirmative safety duties.” Aple. Supp. App. at 28. Furthermore, as the Wyoming Supreme Court held, “potential liability was established when the Van Norman complaint was amended to include a claim for vicarious liability. This conclusion was based upon much more than the mere allegation, but the showing by True Oil throughout the lawsuit [thereafter] that it -15- was potentially liable.” Pennant, 249 P.3d at 707. The state trial court’s factual findings subsequent to the settlement, to which Mid-Continent points, cannot negate True Oil’s potential liability at the time of settlement. Likewise, Wyoming’s Worker’s Compensation Act does not bar an employee who is paid worker’s compensation from asserting a claim against a third party, or the third party’s resulting claim for indemnity against the employer. Cities Serv. Co. v. N. Prod. Co., 705 P.2d 321, 323-24 (Wyo. 1985). While the Worker’s Compensation Act prevents a third party from recovering from an employer by way of contribution, “[t]he clearest exception to the exclusive-liability clause [of the Act] is the third party’s right to enforce an express contract in which the employer agrees to indemnify the third party for the very kind of loss that the third party has been made to pay to the employee.” Id. at 325-26 (quoting 2A Larson, The Law of Workmen’s Compensation § 76.42) (internal quotation marks omitted). Where there is an express indemnity agreement between the third party and the employer, as there is in our case, the employer has “contract[ed] away th[e] protection” otherwise afforded by worker’s compensation. Id. at 326. Finally, we are bound by the Wyoming Supreme Court’s holding that the indemnity agreement is a “valid and enforceable part of the MSC” to the extent that it indemnifies True Oil for its vicarious liability. Pennant, 249 P.3d at 710. As such, it is an “insured contract” under Mid-Continent’s CGL policy, and the -16- damages assumed therein are covered by the policy.