Court Opinion

ID: 9703217
Source: CourtListenerOpinion
Date Created: 2023-08-25 23:46:00.499226+00
Date Added: 2024-06-11T15:13:24.673169
License: Public Domain

ELDRIDGE, Judge,
concurring in part and dissenting in part, in which COLE, J., concurs.
The majority does not address whether the Owner could enforce a contractual provision requiring the Contractor to obtain an insurance policy that would indemnify the Owner for the Owner’s sole negligence. The majority opinion does *598take the position that where such a new insurance policy or new endorsement is in fact procured, the Owner can reap the benefits of that insurance policy despite the prohibition embodied in Maryland Code (1974, 1989 Repl.Vol.), § 5-305 of the Courts and Judicial Proceedings Article. I disagree with this holding.
I.
The holding in this case makes it unnecessary for the majority to address whether the Owner could enforce a provision in a contract, under which the Contractor promises to obtain an insurance policy that indemnifies the Owner for the Owner’s sole negligence. It will, however, be necessary for me to address this issue. I have little doubt that § 5-305 of the Courts and Judicial Proceedings Article would void such a provision.
As the majority observes, the Contractor can not, under § 5-305, be required to indemnify the Owner against the Owner’s sole negligence. It follows that the Owner can not accomplish indirectly what it is forbidden to do directly. Whether the Contractor agrees to purchase a new insurance policy or endorsement to protect the Owner against its sole negligence, or promises to provide the indemnity directly, the Owner has achieved the same result. At no cost to itself, the Owner has used its bargaining leverage to force the Contractor to agree to a clause in a construction contract providing for indemnity against the results of the Owner’s sole negligence. In either case, the public policy underlying § 5-305 would be frustrated.
This Court held in Bethlehem Steel v. G. C. Zarnas & Co., 304 Md. 183, 498 A.2d 605 (1985), that the public policy embodied in § 5-305 is so strong that a Maryland Court will not enforce a contrary provision in a contract, executed in a state where such provisions are lawful, despite the general principle of lex loci contractus. The Court stated (304 Md. at 190, 498 A.2d at 608):
*599“This is not a situation where Maryland law is simply different from the law of another jurisdiction. Here, the General Assembly of Maryland has specifically addressed clauses in construction contracts providing for indemnity against the results of one’s sole negligence, and has unequivocally told the Maryland judiciary that such a clause ‘is void and unenforceable.’ § 5-305 of the Courts and Judicial Proceedings Article. Moreover, in the same sentence of the statute, the General Assembly expressly stated that such indemnity provision ‘is against public policy.’ ”
A promise by the Contractor to insure the Owner against the Owner’s sole negligence clearly falls into the category of “clauses in construction contracts providing for indemnity against the results of one’s sole negligence.”
This is illustrated by a New Mexico case, Amoco Production v. Action Well Service, 107 N.M. 208, 755 P.2d 52 (1988). In that case, the Supreme Court of New Mexico affirmed the dismissal of an action in which an oil well owner had sought to enforce an indemnification agreement against a lessee. One of the lessee’s employees had died, allegedly because of the owner’s negligence, and the owner had settled with the decedent’s estate. The owner asserted that the lessee was obligated to indemnify up to the amount of liability insurance which the lessee was required to purchase under the agreement. The Court disagreed, rejecting the owner’s contention that a New Mexico statute similar to § 5-305 (although dealing specifically with oil and gas well construction) “was not intended to prevent a company from ultimately obtaining indemnity by insurance and insurance alone.” 755 P.2d at 54.
In Peeples v. City of Detroit, 99 Mich.App. 285, 297 N.W.2d 839 (1980), the Court of Appeals of Michigan reversed a lower court order granting summary judgment in favor of a general contractor against a subcontractor, premised on the subcontractor’s failure to provide “requisite” liability insurance on behalf of the general contractor. This insurance purportedly would have covered the general con*600tractor for damages it incurred by settling with a person who was injured because of the general contractor’s sole negligence. In interpreting a Michigan statute similar to § 5-305, the Court reasoned (99 Mich.App. at 302-303, 297 N.W.2d at 846):
“We have previously noted that the legislature has declared it to be contrary to public policy in Michigan for anyone in the construction industry to make any agreement which would absolve him from liability for his sole negligence, declaring that any such agreement is void and unenforceable, M.C.L. § 691.991; M.S.A. § 26.1146(1). Any agreement whereby a subcontractor must procure insurance which includes coverage for the general contractor’s sole negligence would contravene Michigan public policy as expressed by the statute and would be unenforceable.”
But cf. Sentry Insurance Co. v. National Steel Corp., 147 Mich.App. 214, 382 N.W.2d 753 (1985).
There are a few states where intermediate appellate courts, interpreting statutes like § 5-305, have reached a contrary conclusion. In some of those states, however, the courts have viewed the public policy underlying the statutes differently from the position taken by this Court. Two states where a contrary result was reached are Florida and Ohio. See Cone Bros. Contracting v. Ashland-Warren, 458 So.2d 851 (Fla.App.1984), review denied, 464 So.2d 554 (Fla.1985); Brzeczek v. Standard Oil Co, 4 Ohio App.3d 209, 212-213, 447 N.E.2d 760, 764 (1982). Nevertheless, courts in Florida and Ohio, unlike this Court in Zarnas, have been willing to apply another forum’s law and enforce provisions in construction contracts requiring one party to indemnify another party for the other party’s sole negligence. See Jemco, Inc. v. United Parcel Service, Inc., 400 So.2d 499, 502 (Fla.App.1981), review denied, 412 So.2d 466 (Fla.1982); Jarvis v. Ashland Oil, Inc., 17 Ohio St.3d 189,
*601478 N.E.2d 786 (1985).1
As this Court emphasized in Bethlehem Steel v. G. C. Zarnas & Co., supra, 304 Md. at 190, 498 A.2d at 608, the General Assembly in § 5-305 of the Courts and Judicial Proceedings Article unequivocally instructed the courts that clauses in construction contracts providing for indemnity against the results of one’s sole negligence are “unenforceable.” The General Assembly went on to declare expressly that these provisions are “against public policy.” When it enacted § 5-305, the General Assembly was undoubtedly aware that parties to construction contracts, who promised to indemnify others for the others’ sole negligence, usually purchased insurance to cover this risk. I can not imagine that the General Assembly would so emphatically enunciate a public policy, while at the same time intend that the public policy could be circumvented in the usual case by requiring the purchase of liability insurance.
In his dissenting opinion in Zarnas, Judge Rodowsky opined that one purpose of § 5-305 was “ ‘to prevent the practice of requiring contractors or subcontractors to assume liability for the negligence of others, thereby increasing their insurance costs and thus the costs of construction ____’” Zarnas, supra, 304 Md. at 213, 498 A.2d at 620 (Rodowsky, J., dissenting) (quoting Quevedo v. City of New York, 56 N.Y.2d 150, 155-156, 451 N.Y.S.2d 651, 653, 436 *602N.E.2d 1253, 1255 (1982)). If a purpose of § 5-305 is to limit insurance costs, and thus construction costs, then the section must be read to prohibit agreements whereby contractors or subcontractors agree to purchase insurance to provide indemnity for the sole negligence of others.
For these reasons, I believe it is clear that the Owner could not enforce a contractual provision requiring the Contractor to procure an insurance policy that would indemnify the Owner for the results of its solely negligent acts. I will now address the issue that the majority did decide.
n.
The majority holds that § 5-305 does not prevent a solely negligent party from collecting on a new liability insurance policy or new endorsement which the other party was forced to obtain. The majority reasons that “who contractually must pay the insurance premiums may raise a public policy issue, but an insurance policy once issued and paid for is valid even if the wrong party paid the premiums.” I maintain that in order to effectuate the strong public policy underlying § 5-305, that section must be read to bar an owner from reaping the benefits of a contractor’s promise to insure the owner for the owner’s sole negligence. Otherwise, an owner could simply demand that the insurance policy be procured or the owner would not enter the contract.
The majority’s reliance on the final sentence in § 5-305 is misplaced. That sentence provides: “This section does not affect the validity of any insurance contract____” In interpreting this language, which has never been addressed previously by this Court, we should read it “in a way that will carry out the goal or objective the legislature was seeking to accomplish.” Baltimore City Police v. Andrew, 318 Md. 3,12, 566 A.2d 755, 759 (1989). See Kaczorowski v. City of Baltimore, 309 Md. 505, 513-516, 525 A.2d 628, 632-633 (1987).
*603In § 5-305, the General Assembly forbade, on public policy grounds, enforcement of contractual agreements whereby parties, such as the Owner in this case, “would be indemnified for damages resulting from [their] sole negligence.” Bethlehem Steel v. G. C. Zarnas & Co., supra, 304 Md. at 193, 498 A.2d at 610. It would not be consistent with this legislative objective to interpret the final sentence of § 5-305 as meaning that an owner can collect on insurance obtained under a provision requiring a contractor to procure insurance covering the owner’s sole negligence. If it can, the public policy underlying the statute will be frustrated.
In my view, the final sentence in § 5-305 means that an insurance policy already in existence at the time negotiations commence is not invalidated and is fully effective, even if a solely negligent party gains the benefit. But any insurance policy that is a product of construction contract negotiations, whereby one party agrees to pay for indemnification of another for the other’s sole negligence, should not be enforced to benefit the solely negligent party.
Other courts, interpreting similar statutory provisions, have construed them in ways consistent with state public policy objectives. In Amoco Production v. Action Well Service, supra, 755 P.2d at 55, the Supreme Court of New Mexico concluded that the phrase “[t]his provision shall not affect the validity of any insurance contract ...” only “applies to insurance purchased by the indemnitor to protect its interests, and not the interests of the indemnitee.”
In Quevedo v. City of New York, supra, 56 N.Y.2d at 156 n. 3, 451 N.Y.S.2d at 653 n. 3, 436 N.E.2d at 1255 n. 3, the Court of Appeals of New York noted that a proviso that the state statute “ ‘shall not affect the validity of any insurance contract ... ’” “merely ensures that the contractor will not lose insurance coverage simply because the coverage may extend to liability sought to be imposed under an unenforceable agreement.” The Court emphasized that “the existence of insurance would not save an indemnification clause otherwise unenforceable under [the statute].”
*604In Babineaux v. McBroom Rig Bldg. Service, Inc., 806 F.2d 1282, 1284, mandate issued, 817 F.2d 1126 (5th Cir. 1987), the United States Court of Appeals for the Fifth Circuit interpreted a Louisiana statute similar to § 5-305 (but specifically governing certain well and mineral drilling projects). The statute expressly invalidated contractual provisions “requir[ing] ... ‘additional named insured endorsements, or any other form of insurance protection which would frustrate or circumvent the prohibitions of this Section____’” The statute also provided, however, that it did “not affect the validity of any insurance contract, except as otherwise provided in this Section____” La.Rev.Stat.Ann. § 9:2780 (1965, 1990 Cum.Supp.). The contractor in Babineaux, like the one in today’s case, actually procured an insurance policy naming the owner as an additional insured. The court rejected the owner’s contention that the statute “has no effect on its rights in the insurance contract with [the insurer],” holding (806 F.2d at 1284):
“We are persuaded that it would frustrate the purposes of the Act to allow [the owner] to obtain from [the insurer] the indemnification it cannot obtain from [the contractor].”
The endorsement in the present case, to the extent that it indemnifies the Owner for the results of the Owner’s sole negligence, was not an existing insurance provision. It was procured by the Contractor to fulfill a requirement of the present construction contract. Section 5-305 should be construed as preventing the Owner from enjoying the benefits of that endorsement. Under the majority’s holding, however, owners will be able to frustrate the policy underlying § 5-305 by requiring contractors to procure insurance policies, even if that requirement is unenforceable. Once the insurance is procured, owners need not worry how it was obtained, and the courts will not inquire.
I would reverse the entire judgment of the Court of Special Appeals, and instruct that court to affirm the summary judgments entered by the Circuit Court for Baltimore City.

. An intermediate appellate court in Illinois, like the cases in Florida and Ohio, has also reached a contrary result. See Bosio v. Branigar Organization, Inc., 154 Ill.App.3d 611, 107 Ill.Dec. 105, 107-08, 506 N.E.2d 996, 998-999 (1987). But cases in the Illinois intermediate appellate courts are in conflict as to the strength of the Illinois public policy underlying the statute. Compare Champagnie v. W. E. O’Neil Const. Co., 77 Ill.App.3d 136, 143, 32 Ill.Dec. 609, 614, 395 N.E.2d 990, 995 (1979) (contrary to the position taken by this Court in Zarnas) with Lyons v. Turner Const. Co., 195 Ill.App.3d 36, 141 Ill.Dec. 719, 551 N.E.2d 1062, 1065-1066 (1990) (acknowledging the conflict of authority in Illinois and choosing to follow this Court’s resolution in Zarnas ).
Finally, the intermediate appellate court in Arizona, without any analysis, simply concluded that the Arizona statute had "no application to an agreement as to which an insurer will be liable for the negligence of a party.” U.S. Fid. & Guar. v. Farrar’s Plumbing, 158 Ariz. 354, 355, 762 P.2d 641, 642 (Ariz.App.1988).