Opinion ID: 1781291
Heading Depth: 2
Heading Rank: 1

Heading: Third-Party Beneficiary to the Express Indemnity Agreement.

Text: As mentioned above, Tanda contractually agreed to indemnify the City for any injuries or damages resulting from the construction of the landfill. The relevant contract provisions provide that: 6.30. To the fullest extent permitted by Laws and Regulations, CONTRACTOR [Tanda] shall indemnify and hold harmless OWNER [City of Fort Smith] and ENGINEER and their consultants, agents and employees from and against all claims, damages, losses and expenses, direct, indirect or consequential ... arising out of or resulting from the performance of the Work, provided that any such claim, damage, loss or expense (a) is attributable to bodily injury, sickness, disease or death... and (b) is caused in whole or in part by any negligent act or omission of CONTRACTOR, and subcontractor, any persons or organization directly or indirectly employed by any of them to perform or furnish any of the Work ... regardless of whether or not it is caused in part by a party indemnified hereunder or arises by or is imposed by Law and Regulations regardless of the negligence of any such party. 6.31. In any and all claims against OWNER or ENGINEER ... by any employee of CONTRACTOR ... the indemnification obligation under paragraph 6.30 shall not be limited in any way by any limitation on the amount or type of damages, compensation or benefits payable by or for CONTRACTOR ... under workers' or workmen's compensation acts, disability benefit acts or other employee benefit acts. For his first argument on appeal, Cherry alleges that he was a third-party beneficiary to this indemnity agreement, and thus, he may sue Tanda for enforcement of this contract without running afoul of Ark.Code Ann. § 11-9-105 (Supp.1995). Tanda is correct that this court recognized in C & L Rural Elec. Coop. Corp. v. Kincaid, 221 Ark. 450, 256 S.W.2d 337 (1953), an exception to the exclusivity provision of the Workers' Compensation Act for the enforcement of indemnity contracts. In C & L , a contractor entered into an express indemnity agreement with the site owner before beginning construction. Id. During the performance of the contract, one of the contractor's employees was injured. Id. The employee received workers' compensation benefits from the employer/contractor and then sued the site owner for damages. Id. The site owner paid the injured employee, and then sued the contractor for reimbursement under the indemnification agreement. Id. The employer asserted that Ark. Code Ann. § 11-9-105 provided the exclusive remedy for both the employee and anyone otherwise entitled to recover damages from the employer which in this case was the site owner. Id. This court rejected the employer's contention, and found that the exclusive remedy provision did not apply because the present suit is one on an indemnity contract and not an action in tort. Id. Hence, according to C & L , an indemnitee may enforce an express indemnity agreement against an employer even though the employer has already paid the injured employee full workers' compensation benefits, and such is not a violation of the exclusivity provision contained in the Workers' Compensation Act. See also, Nabholz Const. Corp. v. Graham, 319 Ark. 396, 892 S.W.2d 456 (1995) (reaching the same result without addressing the exclusivity provision). Likewise, this court has expanded this indemnity exception to situations where the employer's indemnity obligation is implied by law, and not part of an express contract. Smith v. Paragould Light & Water Comm'n, 303 Ark. 109, 793 S.W.2d 341 (1990); Oaklawn Jockey Club, Inc. v. Pickens-Bond Const. Co., 251 Ark. 1100, 477 S.W.2d 477 (1972). In Oaklawn , this court found an implied indemnity contract existed between the site owner and the employer/contractor because the service contract implied a duty on the employer/contractor to perform the work with care and to indemnify the site owner for damages flowing from the breach of that obligation. Oaklawn, supra . Likewise, in Smith, this court held that a duty imposed on the city/employer by a statutory provision carried with it an implied promise that the city/employer would indemnify another who might be held liable for its failure to properly discharge that duty. Smith, supra . Because this court found the existence of implied indemnity agreements in both Oaklawn and Smith, the indemnitees were permitted to sue the employers for reimbursement of damages they paid to the injured employees. As with express indemnity agreements, in both cases the court found that the indemnitees were suing on the indemnity contracts, and not in tort, and thus their claims were not barred by the exclusive remedy provision found at Ark.Code Ann. § 11-9-105 (Supp.1995). Recently, however, this court declined to find the existence of an implied indemnity agreement in Mosley Mach. Co. v. Gray Supply Co., 310 Ark. 214, 833 S.W.2d 772 (1992). In Mosley , this court explained that an implied indemnity agreement will only arise when there is a special relationship carrying with it the obligation to indemnify. Id. Moreover, this court held that in a sales contract, the implied duties or warranties do not run from the purchaser (employer) to the manufacturer, but from the manufacturer to the purchaser. Id. This court further found that in contrast to the services contract in Oaklawn , no such special relationship existed between parties to a mere sales contract, and thus there could be no implied obligation for indemnity. Id. Most importantly, because there was neither an implied nor an express indemnity agreement between the parties, the manufacturer's action for reimbursement for damages it paid to the employer's injured worker was a mere tort action and thus barred by the exclusivity provision of the Workers' Compensation Act. Id. This court explained that: [w]hen the relation between the parties involves no contract or special relation capable of carrying with it an implied obligation to indemnify, the basic exclusiveness rule generally cannot be defeated by dressing the remedy itself in contractual clothes, such as indemnity. Id. See also, Elk Corp. v. Builders Transport Inc., 862 F.2d 663 (8th Cir.1988) and Dulin v. Circle F. Industries, Inc., 558 F.2d 456 (8th Cir.1977) (refusing to find the existence of an implied indemnity agreement, thus the exclusivity provision of the Workers' Compensation Act precluded the shipper or manufacturer from seeking indemnity from the injured employee's employer); W.M. Bashlin Co. v. Smith, 277 Ark. 406, 643 S.W.2d 526 (1982) (refusing to hold an employer liable to a manufacturer or supplier upon a joint tortfeasor theory). Regardless of whether the indemnity contract is express or implied, the common thread among these cases is that the indemnitee sued the employer/indemnitor for enforcement of the indemnity agreement. Cherry's argument is unique in that it asks this court to expand the indemnity exception to the exclusivity provision by allowing the injured employee, and not the indemnitee, to sue the employer for enforcement of the indemnity contract. Cherry alleges that he may do so as a third-party beneficiary to the express indemnity agreement between Tanda and the City. Under Arkansas law, there is a presumption that parties contract only for themselves, and a contract will not be construed as having been made for the benefit of third parties unless it clearly appears that such was the intention of the parties. Little Rock Wastewater Util. v. Larry Moyer Trucking, 321 Ark. 303, 902 S.W.2d 760 (1995). However, a contract is actionable by a third party when there is substantial evidence of a clear intention to benefit that third party. Id. It is not necessary that the person be named in the contract if he is a member of a class of persons sufficiently described or designated in the contract. Id. Cherry asserts that he is a third-party beneficiary to the indemnity contract between Tanda and the City because the language clearly contemplates the payment of damages for injuries to the contractor's employees, such as himself. Whether there may be a third-party beneficiary to an indemnity contract is a matter of first impression for this court. As a general proposition, an indemnitor's obligation to reimburse against loss does not become due until after the indemnitee has paid damages to a third party. Larson Machine v. Wallace, 268 Ark. 192, 600 S.W.2d 1 (1980). In other words: A mere promise to indemnify against damages must also be distinguished. Here the promisor's liability does not arise until the promisee has suffered loss or expense. Until then the promisee has no right of action, and consequently one claiming damages can assert no derivative right against the promisor, much less a direct right. Nor can the promisee sue for the benefit of the persons claiming damages. 2 Samuel Williston & Walter H.E. Jager, A Treatise on the Law of Contracts § 403 (3d ed.1961). See also 4 Arthur Linton Corbin, Corbin on Contracts § 821 (1951). Tanda's liability under its indemnity contract with the City does not arise until the city sustains a loss or expense. Because a condition precedent to any action by the City against Tanda for recovery under the indemnity contract is the City's payment of damages to a third-party claimant, such as Cherry, it follows that the City's payment of damages would also result in satisfaction of the claim by the third party. Under these circumstances, we hold that Cherry is merely an incidental, and not intended, third-party beneficiary to the indemnity contract. Therefore, as in Mosley , Bashlin, Dubin, and Elk , Cherry is suing Tanda in tort, and not on the indemnity contract, and accordingly the exclusivity provision bars his action. Clearly, as in Elk, supra , Cherry has attempted to dress his tort claim in contractual clothes such that he may circumvent the immunity provided to the employer by the exclusivity provision, Ark.Code Ann. § 11-9-105 (Supp.1995). Thus, we must reaffirm as stated in C & L , that: The employer should not be held liable indirectly in an amount that could not be recovered directly, for this would run counter to one of the fundamental purposes of the compensation law. C & L, supra (citing Baltimore Transit Co. v. Maryland, 183 Md. 674, 39 A.2d 858 (1944)).