Opinion ID: 1209932
Heading Depth: 1
Heading Rank: 2

Heading: Does AS 45.45.900 Apply to Reasonable Limitation of Liability Clauses?

Text: The City contends that the scope of the statutory prohibition on indemnification agreements encompasses limitation of liability clauses such as the one in question. According to the City, the legislature intended a broad reading of AS 45.45.900 to prohibit limitation of liability clauses. CH2M Hill disagrees, contending that indemnity and limitation of liability are not synonymous terms: Each has a different purpose and is operative under different facts. Indemnity provides protection against third-party claims, i.e. claims by strangers to the contract. Limitations of liability allow contracting parties to allocate risks, define remedies, and limit liabilities between themselves. CH2M Hill cites a leading treatise for the proposition that courts have generally upheld reasonable limitations of liability. See 15 Samuel Williston & Walter H.E. Jaeger, Williston on Contracts § 1750A (3d ed. 1972). [7] Relying in part on Kodiak Electric Ass'n v. DeLaval Turbine, Inc., 694 P.2d 150 (Alaska 1984), CH2M Hill additionally contends that Alaska case law restricts the operation of an indemnity clause to the context of third-party claims. The dispute in DeLaval Turbine arose from the failure of a rebuilt electric generator, which the defendant had sold to the plaintiff after obtaining repairs from a non-party firm. Id. at 152. The plaintiff sought damages from the defendant under a contractual indemnity clause, on the ground that the defendant had failed to hold the plaintiff harmless against losses resulting from the non-party's negligence. We rejected this claim because the plaintiff was not seeking to recover damages that it had paid to a third party. See id. at 154. [8] However, our task here is not to construe the term indemnity as courts would when adjudicating claims, but to determine the meaning that the legislature intended when using the term in AS 45.45.900. See generally 5 C. Allen Foster et al., Construction and Design Law § 36.4c.6c (1991) (discussing statutes that prohibit indemnity agreements holding a party harmless for its own negligence, and that thus depart from the common-law rule allowing hold harmless agreements). The objective of statutory construction is to give effect to the intent of the legislature, with due regard for the meaning that the statutory language conveys to others. Saunders Properties v. Municipality of Anchorage, 846 P.2d 135, 138 n. 4 (Alaska 1993). Though we give unambiguous statutory language its ordinary and common meaning, we have rejected the plain meaning rule as an exclusionary rule, and we may look to legislative history as a guide to construing a statute's words. North Slope Borough v. Sohio Petroleum Corp., 585 P.2d 534, 540 & n. 7 (Alaska 1978). The plainer the meaning of the statute, the more persuasive any legislative history to the contrary must be. Peninsula Mktg. Ass'n v. State, 817 P.2d 917, 922 (Alaska 1991). Early drafts of the proposed legislation indicate an intent to prohibit not only indemnity clauses but also limitation of liability clauses. These early drafts included a broad statement that the purpose of the proposed chapter was, among other things, to promote the public policy that all wronged persons should have a remedy for injury suffered by [sic] a result of another person's negligence, and to void agreements negating responsibility for a person's own negligence. In addition, the legislature considered, and rejected, an amendment that would have explicitly allowed limitation of liability clauses as an exemption to the prohibition against indemnification for liability resulting from the promisee's sole negligence. [9] CH2M Hill asserts that the value of the legislative history is questionable, because early drafts of the provision were both extremely broad and never enacted. The firm argues that the final language of AS 45.45.900 limiting its scope to ban certain indemnity clauses was quite clear, and accordingly there was no reason to list exemptions for subjects that the statute did not cover, such as limitation of liability. CH2M Hill also relies on Markborough California, Inc. v. Superior Court, 227 Cal. App.3d 705, 277 Cal. Rptr. 919 (1991), in which a California appellate court distinguished indemnity from limitation of liability, and determined that the California legislature intended to broadly exclude limitation of liability clauses from a statutory prohibition on indemnity clauses. See id. 277 Cal. Rptr. at 923-26. We reject CH2M Hill's characterization of the Alaska legislature's intent. The absence in AS 45.45.900 of an exemption for limitation of liability clauses indicates that the legislature did not intend to allow an exemption. See 2A Norman J. Singer, Sutherland Statutory Construction § 48.18 (5th ed. 1992). Furthermore, Markborough is not helpful, because there the court construed a statutory provision that expressly permitted limitation of liability clauses, rather than a general prohibition on indemnity clauses with no express exemption. [10] See 277 Cal. Rptr. at 922. In contrast, a Georgia appellate court, construing a statutory bar on indemnity clauses with no exemptions, [11] concluded that a similar limitation of liability clause was a void indemnity clause. See Bicknell v. Richard M. Hearn Roofing & Remodeling, Inc., 171 Ga. App. 128, 318 S.E.2d 729, 731-32 (1984). Similarly, we read the word indemnify as used in AS 45.45.900 to mean exempt, and thus construe AS 45.45.900 to prohibit limitation of liability clauses. Absent legislative action to the contrary, such an interpretation best fulfills the legislature's express intent to prevent a party to a construction contract from bargaining away liability for his or her own negligent acts. [12] Therefore, the limitation of liability clause in the contract between CH2M Hill and the City is void under AS 45.45.900.