Opinion ID: 1956871
Heading Depth: 1
Heading Rank: 3

Heading: The Allegation Provision.

Text: CCSI argues that the allegation provision of the indemnity clause is ambiguous and that one reasonable reading of the provision would be that a duty of indemnity on CCSI's part would be triggered only when it was explicitly charged or alleged in a claim, lawsuit, or demand that CCSI in particular had been in some way at fault in causing or contributing to Evodio's death. CCSI points out that by the time Cynthia amended her complaint to allege that FabArc and any employees and/or agents thereof' had failed to provide and/or install proper and adequate supports and anchors for the wall that collapsed and killed Evodio, she knew through discovery conducted in the case that FabArc had subcontracted to CCSI the responsibility for installing the anchor clips. CCSI argues that despite that knowledge, Cynthia avoided naming CCSI as a defendant along with FabArc, choosing instead to reference only FabArc's employees and/or agents, not FabArc's employees and/or agents and/or subcontractors. CCSI argues that the allegation provision, because it is ambiguous, must be construed against FabArc, the drafter of the subcontract. FabArc counters that the allegation provision was triggered by Cynthia's complaint because, it argues, after all is said and done, the only theory of potential liability against FabArc ever identified by any of the parties from within Cynthia's umbrella allegation was that FabArc was liable because the angle clips had not been installed, which task, as between FabArc and CCSI, was solely the responsibility of CCSI. Thus, according to FabArc, the complaint implicitly and sufficiently charged or alleged that CCSI was in some way at fault in causing or contributing to Evodio Sanchez's death. We agree with CCSI that the provision is ambiguous, a determination that is a matter of law, which we decide de novo. SouthTrust Bank v. Copeland One, LLC, 886 So.2d 38 (Ala.2003). A contractual provision is ambiguous if it is reasonably susceptible of more than one meaning. Alfa Mut. Ins. Co. v. Nationwide Mut. Ins. Co., 684 So.2d 1295, 1299-1300 (Ala.1996). [I]f the court determines that the terms are ambiguous (susceptible of more than one reasonable meaning), then the court must use established rules of contract construction to resolve the ambiguity. Homes of Legend, Inc. v. McCollough, 776 So.2d 741, 746 (Ala.2000) [I]f all other rules of contract construction fail to resolve the ambiguity, then, under the rule of contra proferentem, any ambiguity must be construed against the drafter of the contract. 776 So.2d at 746. However, [t]he rule of contra proferentem is generally a rule of last resort that should be applied only when other rules of construction have been exhausted. 3 Arthur L. Corbin, Contracts § 559 at 268-69 (1962); see also Molton, Allen & Williams, Inc. v. St. Paul Fire & Marine Ins. Co., 347 So.2d 95, 99 (Ala.1977) (indicating that ambiguities must be interpreted against the party drawing the contract if the circumstances surrounding the contract do not make the terms clear). Lackey v. Central Bank of the South, 710 So.2d 419, 422 (Ala.1998). Contract terms will not be construed against the party who framed them if other rules of construction would be thwarted in their legitimate operation by the application of that rule of construction. Denson v. Caddell, 201 Ala. 194, 77 So. 720, 722 (1917); G.F.A. Peanut Ass'n v. W.F. Covington Planter Co., 238 Ala. 562, 192 So. 502 (1939). [T]he intention of the party to a contract controls its interpretation and... to ascertain such intention, regard must be had to the subject matter, the relationship of the parties at the time of the contract, and the law which it is justly inferable they had in view while contracting. G.F.A. Peanut Ass'n, 238 Ala. at 566, 192 So. at 506. `It is well settled that where there is uncertainty and ambiguity in a contract, it is the duty of the court to construe the contract so as to express the intent of the parties.' Bell-South Mobility Co. v. Cellulink, Inc., 814 So.2d 203, 216 (Ala.2001) (quoting Weathers v. Weathers, 508 So.2d 272, 274 (Ala.Civ.App.1987)). [I]f the trial court finds the contract to be ambiguous, it `must employ established rules of contract construction to resolve the ambiguity.' Voyager Life Ins. Co. v. Whitson, 703 So.2d 944, 948 (Ala.1997). If the application of such rules is not sufficient to resolve the ambiguity, factual issues arise: `If one must go beyond the four corners of the agreement in construing an ambiguous agreement, the surrounding circumstances, including the practical construction put on the language of the agreement by the parties to the agreement, are controlling in resolving the ambiguity.'  Id. at 949. Where factual issues arise, the resolution of the ambiguity becomes a task for the jury. McDonald v. U.S. Die Casting & Dev. Co., 585 So.2d 853 (Ala.1991). Alfa Life Ins. Corp. v. Johnson, 822 So.2d 400, 405 (Ala.2001). In construing indemnity provisions, the degree of control retained by the indemnitee over the activity or property giving rise to liability is a relevant consideration. This is true because the smaller the degree of control retained by the indemnitee, the more reasonable it is for the indemnitor, who has control, to bear the full burden of responsibility for injuries that occur in that area. City of Montgomery v. JYD Int'l, Inc., 534 So.2d 592, 595 (Ala.1988). See also Royal Ins. Co. of America v. Whitaker Contracting Corp., 824 So.2d 747 (Ala.2002). In construing an ambiguous contract to determine the intent of the parties, the Court should be guided by the following principles. The Court derives the intent of the parties from the contract as a whole. Ex parte University of South Alabama, 812 So.2d 341 (Ala.2001); Land Title Co. of Alabama v. State ex rel. Porter, 292 Ala. 691, 299 So.2d 289 (1974). The relations of the parties, the subject matter of the contract, and the object to be accomplished may be looked to in construing the contract to ascertain the intention of the parties. Pacific Ins. Co. v. Wilbanks, 283 Ala. 1, 214 So.2d 279 (1968); City of Birmingham v. I.E. Morris & Assocs., 256 Ala. 273, 54 So.2d 555 (1951); Merchants' Nat'l Bank of Mobile v. Hubbard, 220 Ala. 372, 125 So. 335 (1929). Donald Dobbins, the president of CCSI, testified that FabArc was perhaps CCSI's best customer and that FabArc and CCSI had been working together for between 5 and 10 years, during which time a significant portion of the thousands of jobs CCSI had performed were performed in conjunction with FabArc. He stated that he was aware that FabArc had never had its own erection force and that FabArc was essentially a fabricator that used subcontractors to install the items it fabricated. According to Dobbins, CCSI and FabArc had had a long-standing, mutually beneficial relationship for many years prior to the Toray project. FabArc used the same form contract again and again with CCSI, Dobbins testified, and he became very familiar with it. Stewart would generally do the initial negotiating with FabArc concerning the scope of the work and the financial terms, and if those details were resolved, the contract would then be passed on to Dobbins for review. At that point, Dobbins's function was primarily to overview all of the contracts in terms of legal language and all of the clauses, the boilerplate, all that kind of stuff. According to Dobbins, the contract submitted to CCSI by FabArc for the Toray project was the pretty much standard subcontract between us and them ... [a]nd there was an attachment and that was their contract with the owner. And I did review both of those documents on this job. Dobbins reviewed the contract between CCSI and FabArc for the Toray project pretty extensively because it was such a large project. If Dobbins decided there were any changes that needed to be made in the contract he would instruct Stewart, who would then get back with FabArc and negotiate the terms. For the Toray project, according to Stewart's deposition, several people at CCSI participated in drafting a 2-page listing of 19 additions or changes CCSI wanted to make to the contract; that list was attached to the final version of the contract and the contract contained the notation, CCSI's attachment is hereby made part of this contract. FabArc argues that because the final version of this contract was negotiated equally between FabArc and CCSI, and the boilerplate text of the contract represented the same contract the parties had used in the course of their dealings over many years and for numerous projects, the rule of contra proferentem should not automatically apply. As this Court observed in Western Sling & Cable Co. v. Hamilton, 545 So.2d 29, 32 (Ala.1989), quoting approvingly from a North Carolina case, the rule of contra proferentem is essentially one of legal effect, of construction rather than interpretation, because it can scarcely be said to be designed to ascertain the intent of the parties. In Western Sling one of the parties urged this Court to adopt an exception to the rule of contra proferentem in those situations where sophisticated, intelligent business persons who are each represented by legal counsel enter into a contract after an arm's-length negotiation wherein all parties have ample opportunity to negotiate all of the contract's terms.... 545 So.2d at 31. Finding the logic of the proposed exception persuasive, this Court adopted it, stating that [w]here both parties to a contract are sophisticated business persons advised by counsel and the contract is a product of negotiations at arm's length between the parties, we find no reason to automatically construe ambiguities in the contract against the drafter. 545 So.2d at 32. Although there is no evidence indicating that either FabArc or CCSI had the advice of counsel in negotiating the particular version of the standard contract they entered into for the Toray project, the record supports the conclusion that both FabArc and CCSI were sophisticated business entities and the contract between them was the product of arm's-length negotiations. Dobbins testified that he had been in the business of structural-steel erection for 30 years, that he had completed many jobs in conjunction with steel fabricators, and that in a majority of the work we do, we end up being in a package with the fabricators because the general contractor on the job did not want to have the steel erection bid and contracted separately from the steel fabrication. Although the party requesting recognition of an exception to the contra proferentem rule in Western Sling included the element of advice of counsel because that circumstance existed in that case, this Court has not had occasion to consider whether an exception should be recognized where that particular element is not present, but where both parties to the contract are sophisticated business entities, the contract resulting from negotiations at arm's length between the parties is based substantially on one used repetitively by them over many years, and the chief executive of the business seeking to invoke the rule of contra proferentem, equipped with 30 years experience in the industry, closely analyzes the contract, as did Dobbins. Numerous courts from other jurisdictions have concluded that automatic application of the contra proferentem rule is inappropriate where experienced and sophisticated business persons of relatively equal bargaining power have negotiated a contract. See, e.g., Tranzact Techs., Ltd. v. Evergreen Partners, Ltd., 366 F.3d 542 (7th Cir.2004); County of San Joaquin v. Workers' Comp. Appeals Bd., 117 Cal.App.4th 1180, 12 Cal.Rptr.3d 406 (2004); Tri City Nat'l Bank v. Federal Ins. Co., 268 Wis.2d 785, 674 N.W.2d 617 (Ct.App.2003); Kozura v. Tulpehocken Area School Dist., 568 Pa. 64, 791 A.2d 1169 (2002); Bristol-Myers Squibb Co. v. United States, 48 Fed. Cl. 350 (2000); Sentinel Prods. Corp. v. Scriptoria, N.V., 124 F.Supp.2d 115 (D.Mass.2000); Cray Research Inc. v. United States, 44 Fed. Cl. 327 (1999); Eley v. Boeing Co., 945 F.2d 276 (9th Cir.1991); Centennial Enters., Inc. v. Mansfield Dev. Co., 193 Colo. 463, 568 P.2d 50 (1977); Consumers Ice Co. v. United States, 201 Ct.Cl. 116, 475 F.2d 1161 (1973); and Spatz v. Nascone, 364 F.Supp. 967 (W.D.Pa.1973). We conclude that rule of contra proferentem should not control the resolution of the dispute between FabArc and CCSI concerning the proper interpretation of the allegation provision because of the following unique considerations applicable to this case. The relevant factor our caselaw says should be considered in interpreting an indemnity agreement is the degree of control retained by the indemnitor over the activity alleged to have given rise to the liability on the part of the indemnitee; in this case the degree of control retained by CCSI was total and exclusive. As noted earlier, the smaller the degree of control retained by the indemnitee [FabArc], the more reasonable it is for the indemnitor [CCSI], who has control, to bear the full burden of responsibility for injuries that occur in that area. City of Montgomery, 534 So.2d at 595. To apply the rule of contra proferentem in this case would thwart the legitimate operation of that rule of construction. Denson and G.F.A. Peanut Ass'n, supra. CCSI committed to indemnify FabArc not only for liability for injury or death arising out of any work or operation performed by CCSI or arising out of CCSI's negligence, but also whenever it was charged or alleged in a claim or lawsuit that CCSI had been in any way at fault in causing or contributing to such injury or death. With respect to the allegation of Cynthia's complaint that FabArc and any of its employees and agents had failed to install supports, anchors, and fasteners, Donald Dobbins acknowledged during his deposition that only CCSI was performing installation work for FabArc and that installation of the angle clips would have been the responsibility of CCSI under its subcontract with FabArc. CCSI assumed the role of being FabArc's eyes and ears on the job site and undertook to attend job-site meetings and safety meetings on its behalf. Although the allegations of Cynthia's complaint were broad enough to cover various scenarios, the charge and allegation that FabArc, through CCSI, negligently or wantonly failed to install proper and adequate angle clips, fits easily within the scenarios included within the complaint. The allegation provision does not require that the only allegation of the primary plaintiff be that of fault on the part of CCSI, just that such a charge or allegation be present, even if accompanied by others. We do not think it reasonable to read Cynthia's allegations so strictly as to assume that she used the word agents only in a legalistic and technical sense, so as to exclude a subcontractor. The fact that she was aware of CCSI's involvement as FabArc's sole work crew on the job makes it just as logical to understand her use of the word agents in its more generic sense. In his deposition, Heathcock characterized CCSI as one of our agents. Accordingly, as applied to Cynthia's allegations, we reject CCSI's argument that the allegation provision could be triggered only by the filing on an action naming it as a defendant; all the provision requires is that there be a charge or allegation of fault on the part of CCSI. It would be inappropriate conclusively to resolve the ambiguity of the allegation provision by the simple expedient of applying the rule of last resort, the contra proferentem rule, although the ambiguity is not conclusively resolved by application of other rules of contract interpretation. Because ambiguity remains, a summary judgment as to the meaning and proper application of the allegation provision to the facts of this case was improper: [I]f the trial court finds the contract to be ambiguous, it `must employ established rules of contract construction to resolve the ambiguity.' If the application of such rules is not sufficient to resolve the ambiguity, factual issues arise: `If one must go beyond the four corners of the agreement in construing an ambiguous agreement, the surrounding circumstances, including the practical construction put on the language of the agreement by the parties to the agreement, are controlling in resolving the ambiguity.' Where factual issues arise, the resolution of the ambiguity becomes a task for the jury. Alfa Life Ins. Corp. v. Johnson, 822 So.2d 400, 404-05 (Ala.2001) (citations omitted). See also Tucker v. Cullman-Jefferson Counties Gas Dist., 864 So.2d 317 (Ala.2003); Ex parte Mountain Heating & Cooling, Inc., 867 So.2d 1112 (Ala.2003); Ex parte Harris, 837 So.2d 283 (Ala.2002); and Ex parte Conaway, 767 So.2d 1117 (Ala.2000). Ambiguity in a contract precludes the trial court from entering a summary judgment in an action for breach of contract. Whitetail Dev. Corp. v. Nickelson, 689 So.2d 865, 867 (Ala.Civ.App.1996). Accordingly, we reverse the summary judgment in favor of CCSI on FabArc's claim for indemnity from CCSI for the amount it incurred to settle Cynthia's claim against it to the extent that judgment involved the allegation provision, and we remand the case for further proceedings consistent with this opinion in that regard. Although FabArc makes passing references in its brief to the fact that Shimizu and Great American, in addition to Cynthia, asserted claims against FabArc for its alleged failure to install the angle clips, FabArc focuses its argument on the allegations made by Cynthia, in apparent recognition that her action was the only one  for [the] death  of Evodio Sanchez and that the allegation provision relates only to  such ... lawsuits ... where it is charged, alleged or proven that [CCSI] was in anyway at fault in causing or contributing to such ... death.... FabArc makes no attempt to characterize the cross-claim by Shimizu or the intervention by Great American as a lawsuit for [the] death of Evodio Sanchez, and we see no basis for so characterizing those actions. Rather, they are lawsuits for contractual indemnity secondary only to Shimizu's exposure to liability for Evodio's death. Additionally, FabArc did not claim in its third-party complaint against CCSI or in any of its submissions to the trial court relating to the motions for a summary judgment filed by it and CCSI that indemnity was due from CCSI for any of the various claims and demands under paragraph 5 of the subcontract between FabArc and CCSI. It argued only that the provisions of paragraph 4 provided indemnity. We likewise find no argument in FabArc's briefs to this Court invoking the provisions of paragraph 5 as an independent basis for finding a duty of indemnity on the part of CCSI. Failure to Procure Insurance Agreements to procure insurance are generally enforceable under Alabama law, and a party who breaches such an agreement is liable for damages resulting from the failure to obtain the promised insurance. A contractual obligation to indemnify is distinct from a contractual obligation to procure insurance. Under an agreement to indemnify, the promisor assumes liability for all injuries and damages upon the occurrence of a contingency. In contrast, an agreement to obtain insurance involves the promisor's agreement to obtain or purchase insurance coverage, regardless of whether [a] contingency occurs. Goodyear Tire & Rubber Co. v. J.M. Tull Metals Co., 629 So.2d 633, 639 (Ala.1993) (citations omitted). As noted, in paragraph 4 of the subcontract between FabArc and CCSI, CCSI agreed that FabArc shall be named as an additional insured in [CCSI's] general comprehensive and public liability policy. Paragraph 3 of the subcontract obliged CCSI to obtain public and general liability insurance covering ... personal injury damages ... for a minimum of $1,000,000/occurrence and $1,000,000/aggregate. Further, CCSI was obligated to furnish a certificate satisfactory to FabArc for each insurance company showing the required insurance is in force and effect. FabArc charged in its third-party complaint that CCSI had breached it contractual obligation to name FabArc as an additional insured in CCSI's general comprehensive and public liability policy by failing to name FabArc Steel as an additional insured without exception(s) under its comprehensive liability policy, with the result that CCSI's liability insurance carrier, Zurich, has refused to defend and indemnify FabArc Steel without exception(s) in [the Sanchez] lawsuit. In its principal brief to this Court, FabArc states that it does not dispute that CCSI provided a certificate of insurance from Zurich listing FabArc and Shimizu as additional insureds under the Zurich policies; however, CCSI's delivery of an insurance certificate is insufficient to meet the contract requirement that CCSI provide insurance. FabArc has filed a separate action against Zurich in the United States District Court for the Northern District of Alabama, seeking a judgment declaring that FabArc is covered under the Zurich policies in question for the claims brought against FabArc by Cynthia, Shimizu, and Great American, respectively. FabArc advises this Court that on February 10, 2004, the federal district judge handling that case entered summary judgment in favor of FabArc and found as a matter of law that Zurich owed insurance coverage to FabArc under the primary and excess insurance policies issued to FabArc subcontractor, CCSI. On March 10, 2004, Zurich filed a Notice of Appeal to the Eleventh Circuit. (FabArc's brief, p. 23 n. 3.) FabArc argues that should Zurich ultimately prevail before the United States Court of Appeals for the Eleventh Circuit, then CCSI will have breached its duty to procure the required insurance. According to FabArc, as summarized in its narrative summary in opposition to CCSI's motion for a summary judgment and in FabArc's brief to this Court, Zurich initially, on June 3, 2000, committed that it would provide FabArc with a complete defense and indemnification in the Sanchez action. Eleven days later, however, Zurich changed its position and withdrew its acceptance of defense and indemnification for FabArc, stating instead that FabArc would be accorded additional insured status but only in an excess capacity. After FabArc filed its declaratory-judgment action in the federal court, Zurich again changed its position, asserting in response to requests for admissions by FabArc that FabArc was not covered under the Zurich policies for the matters in question, not even with respect to excess coverage. Based on these developments, FabArc argues (1) that the trial court acted prematurely in entering a summary judgment for CCSI with respect to FabArc's claim alleging breach of the contractual duty to procure insurance, pending the outcome of the federal litigation, and (2) that a summary judgment was not warranted on the merits, given the position Zurich has taken concerning FabArc's status under its policy. FabArc has not moved for a summary judgment on this issue in its own behalf, choosing only to oppose the summary judgment sought by CCSI. FabArc further argues that because the contract between it and Shimizu required that [a]ll insurance furnished in connection with this project shall provide that it is primary coverage regarding any insurance event and because under paragraph 5 of the contract between CCSI and FabArc CCSI assumed toward FabArc all of FabArc's obligations toward Shimizu with respect to CCSI's work, that CCSI's obligation to FabArc was to provide it with primary coverage. We note further that the record contains Zurich's opposition to a claim for indemnification made on behalf of FabArc by its insurer, in which Zurich asserted that because the indemnity provision in the contract between FabArc and CCSI was not an insured contract there was no coverage. Paragraph 4 of the contract between FabArc and CCSI specified that CCSI's liability insurance policies shall each contain contractual insurance coverage as to the covenant contained in this section, i.e., the indemnification provisions of paragraph 4. CCSI's position in opposition on this issue is simply that CCSI's only contractual obligation was to name FabArc as an additional insured under its general liability policy and that it is undisputed that FabArc was so named in CCSI's policy. CCSI argues that it is also undisputed that it provided FabArc with a copy of the certificate of insurance listing FabArc and Shimizu as additional insureds, which FabArc accepted as satisfactory. With respect to the implications of Zurich's refusal to provide FabArc with coverage, CCSI argues that the outcome of the federal litigation on the issue of coverage does not affect the merits of the issue of whether CCSI met its contractual insurance obligation to name FabArc as an additional insured. We conclude that genuine issues of fact remain with respect to whether CCSI was obligated to name FabArc as an additional insured without exception(s) under its liability insurance policies, including whether such coverage was to be primary as opposed to only excess. FabArc admitted in its memorandum of law in opposition to CCSI's motion for a summary judgment that if FabArc ultimately prevails against Zurich in its federal declaratory-judgment action, FabArc's claim against CCSI alleging breach of the contractual duty to procure insurance may be moot. Conversely, FabArc argued that should it not prevail, and the ultimate ruling in the federal declaratory-judgment action be that Zurich provides no coverage to it, then FabArc's claim against CCSI for failure to provide insurance will be ripe since the complete primary coverage required by the FabArc/CCSI subcontract (which incorporates all the provisions of the Shimizu/FabArc contract) will have been breached by CCSI. Because CCSI has not carried its burden of demonstrating the absence of any genuine issues of material fact as to this issue, a summary judgment as to the issue was not in order. Accordingly, we reverse the summary judgment entered in favor of CCSI as to this aspect of FabArc's third-party complaint against CCSI and remand the case.