Opinion ID: 1660917
Heading Depth: 2
Heading Rank: 2

Heading: The Duty to Indemnify Stone

Text: Star first argues that the record contained no substantial evidence that any negligence by Star caused Cline's injuries. Star's most voluble argument is that, because its job was located on the fifth floor of the building and Cline was injured on the fourth floor, where the job of another unrelated electrical subcontractor, 4 Star, had been located, Star's conduct could not have caused Cline's injuries. The defect in this argument is that the effects of Star's acts and omissions could extend to the fourth floor. The record does contain substantial evidence that negligence by Star in its electrical demolition work on the fifth floor proximately caused Cline's shock and fall injuries on the fourth floor. Hank Mol, an expert on electrical and construction safety, testified that Star performed all of the electrical demolition on the fifth floor, including that which ran through the poke-throughs in the ceiling of the fourth floor. (C.R.2404-05.) Mol testified that the condition of the exposed hot wire, running from a panel on the fifth floor down through a poke-through in the fourth floor, was a violation of industry standards as codified in the National Electrical Code. (C.R. 2391-94; 2396-98.) Finally, Mol testified that Star had a duty to inspect the premises after Star had finished its demolition work. (C.R.2407-08.) Star next argues that the eventual jury verdict, and the judgment thereon, against Cline on his claims against Star defeated Stone's right to indemnification for the settlement money Stone had paid the Clines for a release from liability for the torts of Star or others in injuring Cline. The subcontract in this case, in Section 8, unambiguously obligated Star to indemnify Stone for all liability, claims and demands for bodily injury ... arising out of the work undertaken by [Star]. The general rule is that, if indemnity is sought against an indemnitor without notice of either the original suit or of the settlement by the indemnitee, then the indemnitee has the burden of establishing that it was actually liable to the plaintiff and that the settlement was a reasonable one. Watts v. Talladega Fed. Sav. & Loan Ass'n, 445 So.2d 316, 320 (Ala.Civ.App.1984). However, if the indemnitor has been given notice of the action against the indemnitee and has been given an opportunity to defend or to settle the action, then the indemnitor is precluded from contesting the indemnitee's liability in a subsequent indemnity or third-party action. Id. Indemnity against losses does not cover losses for which the indemnitee is not liable to a third person, and which the indemnitee improperly pays. A person legally liable for damages who is entitled to indemnity may settle the claim and recover over against the indemnitor, even though he has not been compelled by judgment to pay the loss. In order to recover, the indemnitee settling the claim must show that the indemnitor was legally liable, and that the settlement was reasonable. In the event that an indemnitor is not afforded the alternative of participating in a settlement or conducting the defense against the original claim, an indemnitee settling the claim will have the burden of establishing actual liability to the original plaintiff rather than the lesser burden of showing potential liability. However, when the indemnitor has notice of the claim and refuses to defend, the indemnitor is bound by any good faith reasonable settlement, and the indemnitee need only show potential liability. Practice guide: A practical device by which an indemnitee can protect against the awkward possibility of having to prove the original plaintiff's case against himself, the original defendant, is to offer the indemnitor before any settlement is concluded the choice of (1) approving the settlement or (2) taking over the defense of the case and agreeing to hold the indemnitee harmless in any event for damages which may be assessed against him in excess of the amount of the proposed settlement. If the indemnitor approves the settlement or defends unsuccessfully against the original claim, the indemnitor cannot later question the indemnitee's liability to the original claimant. If the indemnitor declines to take either course, then the indemnitee will only be required to show potential liability to the original plaintiff in order to support his claim over against the indemnitor.  41 Am.Jur.2d Indemnity § 46 (1995) (footnotes omitted). Star next argues that Stone did not afford Star an opportunity to participate in the settlement negotiations with Cline. The record contains substantial evidence to the contrary. First, Star learned of Cline's claims when Cline sued Star in 1993. Second, Star is charged with knowledge of its obligation to indemnify Stone as provided by the 1990 subcontract between Star and Stone. Third, Star learned of Stone's intent to seek indemnification when Stone cross-claimed against Star in 1997. Fourth, Star itself had participated in mediation with the Clines. Fifth, Stone had, by its March 13, 1998 letter, demanded that Star settle the Clines' claims and indemnify, hold harmless, and otherwise exonerate Stone.... Star had rebuffed this demand by Stone. Sixth, Stone had, by its July 23, 1998 letter, supplied Star the details of the Clines' settlement demand and had demanded again that Star settle the Clines' claims and indemnify, exonerate, and hold harmless Stone pursuant to the subcontract. Star had ignored this second pre-settlement demand letter. Thus, the record contains substantial evidence that Stone provided Star notice and opportunity to participate in the negotiations which culminated in Stone's August 1998 settlement with the Clines. Finally, Star argues that Stone was too tardy in notifying Star of the Clines' suit and of Stone's demand for indemnification under the contract. On the one hand, Stone was tardy in notifying Star. In fact, by the time Stone notified Star by cross-claiming against Star, Star itself had already been sued by the Clines. On the other hand, Star has not pleaded or argued, much less demonstrated, that it was prejudiced in any way by Stone's tardiness. Indeed, Star's motion to dismiss Stone's cross-claims, denied by the trial court on January 30, 1998, asserted that Stone's cross-claim for indemnification was premature, not tardy. There Star asserted that Stone's claim for indemnification would not even accrue unless and until the Clines won their claim for damages against Stone. Neither this motion to dismiss nor any other motion or pleading filed by Star challenged Stone's delay in notifying Star of the Clines' suit or Stone's delay in demanding indemnification from Star; and no motion or pleading filed by Star mentioned or suggested any prejudice to Star from Stone's delay. The absence of any claim or proof by Star that it suffered any prejudice from Stone's tardiness is the distinguishing feature between the case now before us and the similar case of Cochrane Roofing & Metal Co. v. Callahan, 472 So.2d 1005 (Ala.1985), cited by Star. In Cochrane, unlike in the case before us, the indemnitor, a roofing subcontractor, pleaded and proved without contradiction that, because of the delay of the indemnitee, the general contractor, in notifying the indemnitor of the suit for defective roofing, the roof, the subject of the suit, had been recovered by another contractor, preventing the subcontractor [the indemnitor] from investigating the problem. 472 So.2d at 1007. See Restatement (Second) of Judgments § 57, cmt. e (The notice must be timely in that it must not come so late that the indemnitor is prejudiced in preparing the defense....). Conversely, tardiness without prejudice provides no defense. In summary, Star has demonstrated neither the absence of genuine issues of material fact nor a right to judgment as a matter of law on Stone's claim for indemnification for the $495,000 in settlement money paid by Stone to the Clines. Accordingly, summary judgment on this claim is not authorized by Rule 56, Ala. R. Civ. P.