Opinion ID: 1123491
Heading Depth: 4
Heading Rank: 1

Heading: AS 45.45.900 applies to the equipment lease

Text: We have never been asked to decide whether AS 45.45.900 applies to leases of construction equipment. However, at least eighteen other states have enacted statutes identical or similar to AS 45.45.900, [1] and the weight of authority from the jurisdictions that have considered this question indicates that the statute does govern such leases. This body of authority, coupled with the language of the Marion-Wright lease, convinces us that AS 45.45.900 applies. Calkins v. Lorain Division of Koehring Co., 26 Wash. App. 206, 613 P.2d 143 (1980), dealt with contractual relationships identical to the case at bar, although it examined an indemnity clause that ran in the opposite direction. In Calkins, the Mitchell Brothers Crane Division leased a crane to the Earley Company, which operated and maintained it while dismantling a chemical plant. An indemnity clause in the lease agreement said that Earley would assume liability for all damages caused by the operation of the crane. An Earley employee was injured by the crane's operation, and sued Mitchell. Mitchell tendered a claim to Earley, was rebuffed, and subsequently sued Earley under the indemnity clause. Although the court based its holding on other grounds, it concluded that the indemnity clause violated the policy expressed by Washington's version of AS 45.45.900. [2] Id. 613 P.2d at 145. Two Illinois courts have applied that state's statute [3] to leases of construction equipment. Folkers v. Drott Manufacturing Co., 152 Ill. App.3d 58, 105 Ill.Dec. 263, 504 N.E.2d 132 (1987), factually mirrors Calkins. Imperial Crane Services leased a crane to Clark Painting Company. Under the lease, Clark indemnified Imperial for liabilities arising out of the crane's operation. An employee of Clark was injured by the crane and sued Imperial, prompting Imperial to sue Clark under the indemnity clause. The court found that the indemnity provision fell squarely within the parameters of the statute, basing this holding on the fact that the lease agreement explained that the crane would be for use in construction. Id. 105 Ill.Dec. at 268, 504 N.E.2d at 137. In the case at bar, the lease contains an effectively identical provision: it obligates Marion to furnish [the hoist] ... for the construction of ANCHORAGE 5TH AVENUE [mall]. The lease gives further evidence that it is an agreement collateral to a construction contract, by obligating Marion to be bound by the terms of said MAIN CONTRACT [between Wright and the mall developers] ... in any way applicable to this Subcontract. An earlier Illinois case is American Pecco Corp. v. Concrete Building Systems Co., 392 F. Supp. 789 (N.D.Ill. 1975). In that case, Central Contractors Service leased a crane and provided an operator to Gateway Erectors. A clause in the lease obligated Gateway to assume liabilities arising from the use of the leased equipment. After Central was sued for damages arising from the crane's operation, Central sought indemnity from Gateway. The court disallowed the suit under Illinois' version of AS 45.45.900. Id. at 794. Aetna attempts to distinguish American Pecco on the grounds that the lessor in that case provided an operator as well as a crane. American Pecco 's holding, however, does not rely solely on the court's conclusion that, [b]y providing the crane and operator, [the lessor] became in substance, a subcontractor. [4] 392 F. Supp. at 793. The court ruled that [d]oubts as to who is properly covered by this legislation should be resolved consistent with legislative policy, which the court defined as a clear intent to void exculpatory clauses that purport to hold a person harmless from his own negligence in construction related activities. Id. at 793-94. The court stated, in terms applicable to the case at bar: The crane was designed to be used in construction activities. Central cannot logically claim it was unaware of the use to which the crane would be put, when the crane was in fact put to a designed use. Id. at 793. Finally, Elliott Crane Service v. H.G. Hill Stores, 840 S.W.2d 376 (Tenn. App. 1992), stands in direct opposition to one of Aetna's arguments against applying AS 45.45.900. Aetna argues that the lease agreement here is not contained in, collateral to, or affecting a construction contract because, under Alaska law, Marion is not a contractor and cannot sign construction contracts. In the Tennessee case, Elliott leased a crane and provided an operator to Hill, under an agreement in which Hill agreed to indemnify Elliott for liabilities arising out of the Lessee's operation. A Hill employee was injured and sued Elliott, prompting Elliott's indemnity claim against Hill. The court held that Elliott did not fit Tennessee's statutory definition of a construction contractor, but, quoting American Pecco, the court applied Tennessee's version of AS 45.45.900 [5] to the indemnity claim. 840 S.W.2d at 380. In sum, there is a substantial body of authority which implies that the lease agreement before us is subject to AS 45.45.900. There are also cases which refuse to apply anti-indemnity statutes similar to AS 45.45.900 to leases of equipment used on construction sites. However, we find that these cases are not only factually distinguishable from the case at bar, but that their analysis actually favors applying AS 45.45.900. In McMunn v. Hertz Equipment Rental Corp., 791 F.2d 88 (7th Cir.1986), the court considered applying Indiana's version of AS 45.45.900 [6] to an indemnity provision in Hertz's lease of a bobcat loader to a construction contractor. The lease indemnified Hertz from liabilities arising from the loader's operation. The lessee contractor used the loader on a construction site. A worker was injured and sued Hertz, prompting Hertz's indemnity claim against the contractor. McMunn allows us to evaluate Aetna's argument that if the lease agreement in this case is subject to AS 45.45.900, then any lessor of trucks, cars, or tools whose equipment finds its way onto a construction site will be unwittingly and unfairly deprived of its ability to enter into indemnity agreements. Judge Posner based the court's ruling on the public policy underlying anti-indemnity statutes of this type, which legislatures have enacted in an effort to increase safety at construction sites. [7] The McMunn court decided that the policy behind the statute would be only weakly engaged by the facts of that case. 791 F.2d at 93. It reached that conclusion by means of a syllogism which began with the assumption that a negligible number of bobcats leased by Hertz were used in construction jobs. [8] From this the court reasoned that even if the bobcat lease were held subject to the anti-indemnity statute, Hertz [would] not make appreciably more careful inspections on the off chance that the loader might be put to a use for which it would not have indemnity. Id. Because the application of the statute to the lease would not further the statute's goal of promoting worksite safety, McMunn concluded that Indiana's anti-indemnity statute should not be held to govern the rental agreement. While its empirical assumption regarding the uses of a bobcat loader may be questionable, McMunn 's analysis is helpful. Following Judge Posner's reasoning, AS 45.45.900 should be applied to void indemnity clauses in equipment lease agreements if such a legal rule would advance the purposes of the anti-indemnity statute by inducing careful inspection and use of the leased equipment. Unlike McMunn, the indemnitee in the instant case is not the equipment supplier, Marion, but the general contractor and a party to the construction contract, Wright. We believe that where the indemnity clause runs in this direction, applying AS 45.45.900 to the indemnity clause is consistent with the legislative goal of increasing safety at construction sites. Moreover, in the case at bar, the equipment leased was a construction hoist which was designated by the terms of the lease agreement for use in the construction of the Fifth Avenue Mall. It is useful to note that while Judge Posner considered only those indemnity clauses which ran in favor of the equipment lessor, he hypothesized that where the equipment supplied to the party to the construction contract is specialized to ... construction or otherwise clearly intended for it, the statutory policy would be served by holding the agreement subject to the indemnity bar. McMunn, 791 F.2d at 93. Therefore, even if the indemnity clause at issue ran in favor of Marion, this case would be identical to Judge Posner's hypothetical, and the safety incentives of the supplier might be enhanced by forbidding indemnity. Id. In sum, although McMunn held that the lease agreement at issue was not subject to Indiana's anti-indemnity statute, the opinion leads us to conclude that in order to give effect to the purpose of AS 45.45.900, we must apply the statute to the lease at issue. McMunn also answers Aetna's floodgates argument, which implies that there is no principled way to apply AS 45.45.900 to leased equipment without extending the holding to every truck rented from Hertz [and every] hammer rented from Stephan's Tool Rental. Assuming the validity of this concern, it is surely satisfied in cases like the present where the equipment is specialized to ... construction or otherwise clearly intended for it. McMunn, 791 F.2d at 93; see also American Pecco, 392 F. Supp. at 793 (holding lease subject to anti-indemnity statute because equipment was designed to be used in construction activities ... and was in fact put to [that] designed use). In the face of the authority discussed above, Aetna relies on a Michigan case which it claims is the only reported decision which squarely addresses this issue. In Pritts v. J.I. Case Co., 108 Mich. App. 22, 310 N.W.2d 261, 267 (1981), the Mi-Jack Products Company leased a travel lift to American Pre-stressed Concrete Company (APC), a manufacturer of prestressed concrete components. The lease agreement obligated APC to indemnify Mi-Jack for liabilities arising out of the use of the lift. After an industrial accident involving the lift, id. 310 N.W.2d at 263, APC argued that indemnity was prohibited by Michigan's version of AS 45.45.900. [9] The court refused to apply the statute to suppliers of those engaged in construction. Id. 310 N.W.2d at 267. Another case refusing to apply an indemnity to a lease of construction equipment is Orville Milk Co. v. Beller, 486 N.E.2d 555 (Ind. App. 1985), which involved the rental of space heaters by a construction contractor who used them to warm part of a building under construction. The heaters caused the carbon monoxide poisoning of a worker, who was injured after he became dizzy and fell. Id. at 558-59. The lease agreement indemnified the lessor from liabilities arising from the heaters' operation. The contractor attempted to avoid indemnification by arguing that Indiana's version of AS 45.45.900 voided the indemnity agreement. The court summarily refused to apply the statute. Id. at 561. We decline to follow Pritts and Beller. First, as the trial court in the instant case observed, the Pritts court apparently struggled with what it perceived to be a dearth of legal authority on this subject: [the defendant] has not cited, nor can we find, any cases in which the statute has been held to apply to equipment suppliers. 310 N.W.2d at 267. We face no such dilemma here, as shown by the authority discussed above. Second, both cases are factually distinguishable from the case at bar. Although its description of the facts is ambiguous, Pritts implies that the leased travel lift was in use at an industrial site rather than on a construction project. Id. The heaters leased in Beller were not specifically designed for use in construction, as was the hoist in the case before us. Moreover, the lessor in Beller was not told of the purpose for which the equipment was rented, 486 N.E.2d at 557, whereas the lease agreement in the case at bar explicitly stated that the hoist would be used in construction. Third, to the extent that these cases support Aetna's contention that AS 45.45.900 does not apply to suppliers of those engaged in Construction, we decline to adopt such a rule. Our analysis of the case law, the lease at issue here, and the purpose of AS 45.45.900 lead us to conclude that the Marion-Wright lease is governed by the statute. It now remains for us to determine whether the statute renders the indemnity agreement in the lease void and/or unenforceable.