Opinion ID: 1100512
Heading Depth: 2
Heading Rank: 2

Heading: Contractual Indemnity and Defense

Text: We now turn to Boh Brothers and National Union's claim that the Third Circuit erred in finding (1) that Boh Brothers owed a duty to defend the City and Dubroc against the plaintiff's absolute liability claim under the indemnity clause of the public contract between Boh Brothers and the City, and (2) that National Union owed a duty to defend the City and Dubroc against the absolute liability claim under the additional insured provision of the insurance contract between Boh Brothers and National Union.
We first consider whether the indemnity clause in the public contract between Boh Brothers and the City imposed a duty upon Boh Brothers as a matter of law to defend the City and Dubroc against the plaintiff's claims. The contract clause required Boh Brothers to defend and indemnify the City and Dubroc against claims arising out of the performance of the work under the contract, including, but not limited to, any and all claims ... which result from any breach by the contractor of any of the terms... of the contract, as well as any and all claims resulting from the sole negligence, liability, strict liability and/or fault of the contractor and/or the joint and/or concurrent negligence, liability, strict liability and/or fault of the contractor with any other persons or parties whomsoever. The provision relieved Boh Brothers of the obligation to defend and indemnify Dubroc, as the Engineer / Consultant, for liability of the Engineer / Consultant, his agents or employees arising out of the preparation or approval of maps, drawings, opinions, reports, surveys, change orders, designs, or specifications. We find that the City's and Dubroc's claim for defense under the indemnity agreement is premature under settled law, as these parties have not yet sustained any compensable loss. This court has observed that an indemnity agreement is a specialized form of contract which is distinguishable from a liability insurance policy. Meloy v. Conoco, Inc., 504 So.2d 833, 839 (La.1987). An indemnitor is not liable under an indemnity agreement until the indemnitee actually makes payment or sustains loss. Id. Thus, this court has held that a cause of action for indemnification for cost of defense does not arise until the lawsuit is concluded and defense costs are paid. Id.; Morella v. Bd. of Comm'rs of Port of New Orleans, XXXX-XXXX (La.App. 4 Cir. 10/27/04), 888 So.2d 321, 325. As this lawsuit is still pending, and no determination of liability has been made, the court of appeal erred in finding that Boh Brothers owed a duty to defend, or pay for defense costs, under the terms of the contractual indemnity provision. We therefore reverse the court of appeal's holding that Boh Brothers owed a duty as a matter of law to defend the City and Dubroc, and defer this claim until the lawsuit is concluded and liability is determined.
We now consider what duty, if any, National Union owed to defend the same parties. The City and Dubroc claimed in their third party demand against National Union that they were owed a defense as additional insureds under the insurance contract between National Union and Boh Brothers. We observe, at the outset, that the scope of the duty to defend under an insurance agreement is broader than the scope of the duty to provide coverage. Steptore v. Masco Constr. Co., 93-2064 (La.8/18/94), 643 So.2d 1213, 1218. A court must examine the well-pleaded allegations of the plaintiff's petition to determine whether the plaintiff's allegations unambiguously exclude[] coverage. Id. Unless unambiguous exclusion of all of the plaintiff's claims is shown, the duty to defend arises. Id. Thus, the duty to defend does not depend upon the outcome of the suit, as it does where the purported source of the duty is an indemnity agreement; rather, where the pleadings disclose even a possibility of liability under the contract, the duty is triggered. Id. The additional insured provision in the contract between Boh Brothers and National Union states that National Union will include as an additional insured [a] person or organization [Boh Brothers] [is] required in a written contract to name as an insured. But, the provision states, coverage to an additional insured shall not, in any event, exceed the coverage afforded under the policy. And, coverage to an additional insured shall be limited to the extent of any legally enforceable defense and indemnification clause in the contract with the additional insured. We find that Dubroc is not entitled to defense from National Union, because Dubroc cannot demonstrate that it meets the first requirement for additional insured status under the National Union policy. Specifically, the policy only provides coverage to parties whom Boh Brothers was required to name as additional insureds in a written contract. The terms of the public contract between Boh Brothers and the City required only that Boh Brothers cover the City and its officials, employees, and volunteers as additional insureds. Thus, Dubroc may not claim a right to defense from National Union as an additional insured. In contrast, the City clearly satisfies the initial requirement for additional insured status, as the public contract expressly required Boh Brothers to cover the City as an additional insured. As the scope of National Union's obligation to provide additional insured coverage is limited by the terms of the indemnity provision in the contract between Boh Brothers and the City, we must determine whether the terms of the indemnity provision unambiguously exclude the plaintiff's claims. The indemnity provision requires Boh Brothers to indemnify and defend the City against any and all claims resulting from... the joint and / or concurrent negligence, liability, strict liability and / or fault of the contractor with any other persons or parties whomsoever. The plaintiff has claimed that all defendants are jointly liable under both negligence and strict or absolute liability theories. These claims fall within the coverage of the indemnity provision. Thus, in the absence of any other protest from National Union, the duty to defend the City as an additional insured would be triggered with respect to the plaintiff's joint negligence and strict or absolute liability claims. But, National Union argues, the insurance agreement only obligates National Union to provide additional insured coverage to the extent of any legally enforceable contractual indemnity provision between Boh Brothers and the additional insured. And, National Union contends, the indemnity provision in the contract between Boh Brothers and the City is unenforceable because it violates public policy as expressed in (1) La.Rev.Stat. 38:2216(G), a statute that limits the extent to which a public body or engineer may require indemnity from a contractor in the terms of a public contract, and (2) La.Rev. Stat. 9:2773, a statute that limits the responsibility of contractors in claims brought under La. Civ.Code art. 667. Because the indemnity clause is unenforceable, National Union argues, the City is not entitled to coverage as an additional insured. To address National Union's first statutory argument, we must determine whether the contractual indemnity provision at issue violates La.Rev.Stat. 38:2216(G), which provides as follows: It is hereby declared that any provision contained in a public contract, other than a contract of insurance, providing for a hold harmless or indemnity agreement, or both, (1) from the contractor to the public body for damages arising out of injuries or property damage to third parties caused by the negligence of the public body, its employees, or agents . . . is contrary to the public policy of the state, and any and all such provisions in any and all contracts are null and void. This statute prohibits any clause in a public contract by which a public body attempts to obtain indemnity for damages caused by the public body's own negligence. See, e.g., Systems Contractors Corp. v. Williams & Assocs. Architects, 99-1221 (La.App. 5 Cir. 9/26/00), 769 So.2d 777, 781 (reasoning that 38:2216(G) forbids a public entity . . . from requiring a contractor to provide indemnity for the public entit[y's] own negligence). Therefore, we must examine the language of the contractual indemnity provision to determine whether it purports to indemnify the City against the City's own negligence. This court has stated that any attempt by a party to obtain indemnity for damages due to the party's own negligence must be expressed in unequivocal terms. Polozola v. Garlock, 343 So.2d 1000, 1003 (La.1977). On its face, the clause at issue does not provide indemnity for the City's and Dubroc's sole negligence. But, the indemnity provision does purport to require indemnity to the City against claims resulting from the joint and / or concurrent negligence . . . of the contractor with any other persons or parties whomsoever. This broad language conceivably could obligate Boh Brothers to defend and indemnify the City against the plaintiff's claims that Boh Brothers and the City were jointly or concurrently negligent. To the extent that the language of the clause might require defense and indemnity for the City's negligence of a joint or concurrent sort, we hold that the clause violates La. Rev.Stat. 38:2216(G). See, e.g., Jenkins v. State, Dep't of Transp. & Dev., 619 So.2d 1188, 1199 (La.App. 1 Cir.1993) (holding that La.Rev.Stat. 38:2216(G) precluded the DOTD from recovering under an indemnity clause against a contractor where the DOTD had been found concurrently negligent with the contractor), rev'd in part on other grounds, 625 So.2d 1050 (La.1993). But, this holding does not render entirely null the indemnity clause, in this case, a clause which speaks as well about strict or absolute liability. The specific language of the statute only refers to indemnification against a public body's negligence, and does not bar contractual indemnity for the City's strict or absolute liability. We hold that the indemnity clause remains valid, so long as it is not interpreted to require indemnification and defense against the City's own sole, joint, or concurrent negligence. So, we reject National Union's argument that the City is not entitled to additional insured coverage for the reason that the entire indemnity clause is null and therefore not legally enforceable under the terms of the insurance agreement. And, we find that National Union's duty to defend the City against the absolute liability claim survives the application of La.Rev.Stat. 38:2216(G). National Union also argues that the indemnity clause is impermissible because it violates public policy as expressed in La.Rev.Stat. 9:2773, which limits a contractor's responsibility in absolute liability claims brought under La. Civ.Code art. 667: A. It is the public policy of the state that the responsibility which may be imposed on [a] ... contractor ... by reason of the responsibility of proprietors under Article 667 of the Louisiana Civil Code shall be limited solely to the obligation of such ... contractor ... to act as the surety of such proprietor in the event the proprietor is held to be responsible to his neighbor for damage caused him and resulting from the work of such . . . contractor . . . and only in the event the proprietor is unable to satisfy any claim arising out of such damage.... . . .