Click to Chat

Supreme Court Addresses Duty to Indemnify and Defend Provision

Posted by: on Wed, Jan 23, 2013

Share this post

128 Nev. Advance Opinion 59

IN THE SUPREME COURT OF THE STATE OF NEVADA

UNITED RENTALS HIGHWAY TECHNOLOGIES, INC., A DELAWARE CORPORATION,

Appellant,

vs.

WELLS CARGO, INC., A NEVADA CORPORATION,

Respondent.

UNITED RENTALS HIGHWAY TECHNOLOGIES, A DELAWARE CORPORATION,

Appellant,

vs.

WELLS CARGO, INC., A NEVADA CORPORATION,

Respondent.

UNITED RENTALS HIGHWAY TECHNOLOGIES, A DELAWARE CORPORATION, Appellant,

vs.

WELLS CARGO, INC., A NEVADA CORPORATION,

Respondent.

Consolidated appeals from district court orders and a judgment in a negligence and indemnity action.

Eighth Judicial District Court, Clark County; Susan Johnson, Judge.

Reversed.

BEFORE SAITTA, PICKERING and HARDESTY, JJ.

In these appeals, the Nevada Supreme Court considered what effect specific contract language has on an indemnitor’s duty to indemnify and defend an indemnitee in a personal injury action, where that language provides that indemnification will occur “to the extent” that any injury or damage is”caused” by the indemnitor.

Appellant United Rentals Highway Technologies, Inc.,contracted to provide traffic control on a road improvement project coordinated and facilitated by respondent Wells Cargo, Inc. The parties’contract required United Rentals to indemnify, defend, and hold harmless Wells Cargo to the extent that United Rentals caused any injury or damage. A woman was injured in connection with the road improvement project and sued United Rentals, Wells Cargo, and other defendants for negligence. Wells Cargo sought indemnification and defense from United Rentals, but United Rentals consistently denied that it was obligated to provide indemnification and defense.

The Nevada Supreme Court concluded that a plain reading of the contractual indemnity language imposed a causal limitation on United Rentals’ duty to indemnify and defend Wells Cargo. Because the jury found that United Rentals did not proximately cause the underlying accident, the court concluded that United Rentals did not have a duty to indemnify or defend Wells Cargo, and the Court reversed the judgment of the district court.

FACTS AND PROCEDURAL HISTORY

In 2004, Wells Cargo entered into a contract with project owner Howard Hughes Corporation to perform work as a general contractor on a road improvement project. Shortly after , Wells Cargo and United Rentals executed a contract whereby United Rentals would act as a subcontractor on the project to assist with traffic control. The contract,which was drafted by Wells Cargo, contained the following indemnification provision relevant to this appeal:

The Subcontractor … shall indemnify, defend and hold the General Contractor [and]Owner … harmless from and against all claims,losses, costs and damages, including but not limited to attorneys’ fees, pertaining or allegedly pertaining to the performance of the Subcontract and involving personal injury … or damage to tangible property … , including loss of use of property resulting therefrom, economic loss, or other claims or damages, to the extent caused in whole or in part by the negligent acts or omissions or other fault of the Subcontractor …. This indemnification agreement is binding on the Subcontractor … to the fullest extent permitted by law, regardless of whether any or all of the persons and entities indemnified hereunder are responsible in part for the claims, damages, losses or expenses for which the Subcontractor … is obligated to provide indemnification.(Emphasis added.)

Further, the contract required that Wells Cargo be named as an additional insured on certain liability insurance policies procured by United Rentals.

During construction of the road project, Antonette Kodera was driving her motorcycle when she allegedly hit an unmarked bump in the road, lost control of the motorcycle, and sustained serious injuries. Kodera filed a complaint against multiple defendants, including Wells Cargo and Howard Hughes Corporation, alleging negligence. Wells Cargo and Howard Hughes Corporation each filed an answer denying liability.Kodera later amended her complaint to name additional defendants,including United Rentals. She alleged that Howard Hughes Corporation,Wells Cargo, United Rentals, and other defendants were negligent because the unmarked bump was dangerous, the defendants failed to provide appropriate warning of the bump’s presence, and/or the defendants failed to remove the dangerous or hazardous condition that caused her injuries.Soon after Kodera added United Rentals as a defendant, Wells Cargo tendered its defense to United Rentals and an insurance carrier for United Rentals. Both tenders allegedly went unanswered. As a result,Wells Cargo filed an answer to Kodera’s first amended complaint and cross-claimed against United Rentals for contribution, equitable indemnity, express or contractual indemnity, and breach of contract.United Rentals, who had already answered Kodera’s complaint, answered the cross-claim denying liability.

Wells Cargo moved for partial summary judgment on its cross-claim for contractual indemnification. It argued that because Kodera’s claims were at least in part based on United Rentals’ negligent acts,United Rentals had a contractual duty to defend, indemnify, and hold harmless Wells Cargo and Howard Hughes Corporation. Relying on the contract’s indemnification provision and the provision adding Wells Cargo to United Rentals’ insurance policies, Wells Cargo argued that United Rentals was required to indemnify Wells Cargo and Howard Hughes Corporation even if Wells Cargo itself was found partially liable. United Rentals opposed the motion, arguing that the bump signage was not contemplated in the original indemnification contract, that Wells Cargo failed to demonstrate that United Rentals’ conduct caused Kodera’s accident, that insurance principles of indemnification did not apply, and that the indemnification provision did not clearly permit Wells Cargo to be indemnified for its own negligence. Wells Cargo replied, arguing that the contract applied to all traffic control, that there was sufficient evidence that United Rentals caused the accident, and that any alleged concurrent negligence by Wells Cargo and Howard Hughes Corporation was immaterial to United Rentals’ duties.

The district court ordered United Rentals to indemnify Wells Cargo and Howard Hughes Corporation unless Wells Cargo or Howard Hughes Corporation was determined to be solely negligent. Further,it concluded that United Rentals was “obligated to defend Wells Cargo and Howard Hughes Corporation [from the date of the first tender] … irrespective of any ultimate determination of liability, because the obligation to defend is not outcome driven.” Thus, it ordered United Rentals to defend Wells Cargo and Howard Hughes Corporation throughout the entire lawsuit. It also ordered United Rentals to hold harmless Wells Cargo and Howard Hughes Corporation.On the same day the district court entered its order, Wells Cargo, Howard Hughes Corporation, and codefendant the Nevada Department of Transportation (NDOT) again tendered their defenses to United Rentals. These defendants asked United Rentals to indemnify them “for any damages owed [to Kodera], irrespective of allocations of fault and potential findings of sole negligence,” to assume all of the current and the previous defense costs, and to waive its appellate rights against the tendering defendants. After allegedly not receiving a response from United Rentals, these defendants sought district court approval of a$1,000,000 settlement with Kodera, which was the policy limit of Wells Cargo’s primary insurer. United Rentals opposed this motion, arguing that the settlement amount was not made in good faith and that it was grossly disproportionate to the settling defendants’ share of damages.After a hearing, the district court granted the motion and permitted Wells Cargo, Howard Hughes Corporation, and NOT to settle for $1,000,000.Kodera and United Rentals went to trial, and the jury returned a verdict in favor of United Rentals. Specifically, the jury found United Rentals was negligent, but that its negligence was not the proximate cause of the accident. The district court entered judgment on the jury verdict and awarded United Rentals its associated attorney fees and costs.

Notwithstanding the jury verdict, Wells Cargo filed a motion to enforce indemnification on behalf of the settling defendants, seeking reimbursement of the $1,000,000. It argued that the jury’s finding of negligence on the part of United Rentals necessarily meant neither Wells Cargo nor Howard Hughes Corporation could be solely negligent, and thus, United Rentals was required to indemnify Wells Cargo and Howard Hughes Corporation. It also argued that United Rentals was bound by the settlement because it breached its duty to defend. United Rentals opposed the motion and filed another motion for summary judgment on Wells Cargo’s cross-claim for indemnification, arguing again that its duties to indemnify and defend were contingent on a finding that the company itself caused Kodera’s damages, which contingency was expressly negated by the jury when it found United Rentals’ negligence was not the proximate cause of Kodera’s injuries.

The district court concluded that because United Rentals knew about the $1,000,000 settlement and had an opportunity to defend against it, Wells Cargo only needed to show that United Rentals was potentially liable, and not actually liable, when Wells Cargo tendered its defense. Further, the district court reiterated its prior holding that because the settling defendants “demonstrated potential liability existed,their defense was seasonably tendered, and [United Rentals] was notified in reasonable fashion of the possibility of settlement and the negotiations,”United Rentals had a duty to indemnify regardless of the ultimate outcome of the case. The district court’s analysis of Wells Cargo’s sole liability was limited to an interpretation that proof of same might be evidence to thwart a showing of potential liability, but would not act to relieve United Rentals of indemnification. The district court concluded that United Rentals “presented no evidence to suggest a lack of [its]potential liability under the contract,” and thus, the court granted Wells Cargo’s motion to enforce indemnification and denied United Rentals’ countermotion for summary judgment.Wells Cargo then filed a motion seeking attorney fees. After the parties briefed the issue and the district court held a hearing on the matter, the district court entered an order awarding Wells Cargo$424,782.87 in attorney fees. The district court subsequently entered an amended judgment in favor of Wells Cargo for $1,000,000 plus interest.United Rentals appealed from the orders and judgment in favor of Wells Cargo.

DISCUSSION

In these appeals, we interpret a contractual indemnification clause limiting the indemnitor’s duty to indemnify and defend “to the extent” that any injury or damage is “caused” by the indemnitor.The indemnification clause specifically provides that United Rentals shall indemnify Wells Cargo for claims, losses, and damages relating to personal injury or other claims or damages “to the extent caused in whole or in part by the negligent acts or omissions or other fault of [United Rentals].” The Court concluded that the strict construction of this indemnification language prohibits an interpretation that includes indemnity for Wells Cargo without a finding of United Rentals’ causation.

The Court further concluded that the district court’s error in determining that United Rentals was required to indemnify Wells Cargo resulted in an unfair burden being cast onto a party that the jury found was not at fault.See Brown Ins. v. Star Ins. Co., 126 Nev. _, _, 237 P.3d 92, 97 (2010).

The court explained that a provision in a contract purporting to indemnify the indemnitee for the indemnitee’s own negligence must be strictly construed. See id. at _, 255 P.3d at 275 (stating this court “must strictly construe the indemnity clause’s language”).United Rentals’ duty to indemnify Wells Cargo is limited to the extent United Rentals caused the damages As noted, the indemnification clause within the parties’contract provided that United Rentals shall indemnify Wells Cargo for claims, losses, and damages relating to personal injury or other claims or damages “to the extent caused in whole or in part by the negligent acts or omissions or other fault of [United Rentals].” United Rentals argues that under a plain reading of this contract language, United Rentals only has an obligation to indemnify Wells Cargo to the extent that it caused the underlying accident and related damages. The Supreme Court agreed.

The effect of a “to the extent caused” contractual limitation appears to be an issue of first impression in Nevada. However, while the indemnity provision at issue in Reyburn was not identically worded to the provision at issue here, the holding in that case strongly suggests that,here, United Rentals’ duty to indemnify Wells Cargo is limited to the extent that United Rentals actually caused the injury. 127 Nev. at _,255 P.3d 268 at 275. Specifically, in Reyburn, the court concluded that because the indemnity provision did not explicitly indemnify the indemnitee against its own negligence, and because this court strictly construed the indemnity clause, “there must be a showing of negligence on[the indemnitor’s] part prior to triggering [the indemnitor’s] duty to indemnify [the indemnitee],” id., and the indemnitee “may be indemnified only for damages associated with [the indemnitor’s] negligence.” Id. at_, 255 P.3d at 279. Limiting United Rentals’ duty to indemnify “to the extent” that it “caused” the accident or injury is also consistent with this court’s refusal to “‘attempt to increase the legal obligations of the parties where the parties intentionally limited such obligations.'” Griffin v. Old Republic Ins. Co., 122 Nev. 479, 483, 133 P.3d 251, 254 (2006) (quoting Senteney v. Fire Ins. Exchange, 101 Nev. 654, 656, 707 P.2d 1149, 1150-51(1985).

Other courts examining contract language virtually identical to the provision at issue here have concluded that limiting a duty to indemnify “to the extent” that an injury is “caused” by the indemnitor requires a determination of the indemnitor’s degree of fault and invokes the duty only to the extent that the indemnitor is negligent. In Greer v.City of Philadelphia, the Supreme Court of Pennsylvania interpreted aprovision which provided for “indemnity from claims for damages ‘only tothe extent caused in whole or in part by negligent acts or omissions of the[indemnitor],’ and ‘regardless of whether or not such claim … [was]caused in part by a party indemnified hereunder.'” 795 A.2d 376, 379 (Pa.2002). The court explained that “the ‘to the extent’ language … [was] in the plain text of the contract and clearly must be given effect.” Id. at 380.Based on that language, that court concluded that the intent of the parties was to limit any indemnification to that portion of damages attributed to the negligence of the indemnitor and held that the indemnitor was not required to provide indemnification due to the negligence of an indemnitee. Id. at 379. Further, the court interpreted the provision “that the indemnity clause [would] apply ‘regardless of whether or not such claim … [was] caused in part by a party indemnified hereunder'” as simply a clarification “that any contributory negligence by [the indemnitees would] not bar their indemnification for damages due to [the indemnitor’s] negligence.” Id. at 380. Thus, in construing the entire provision, the Pennsylvania court held that the “language … easily read to only indemnify [the indemnitees] for that portion of damages caused by the negligence of [the indemnitor].” Id. at 381.

The Court of Appeals of Arizona has also interpreted an indemnification provision containing an almost identical “to the extent caused” limitation. MT Builders v. Fisher Roofing, 197 P.3d 758, 764(Ariz. Ct. App. 2008). The court there explained that the limiting”language create[d] what is known as a ‘narrow form’ of indemnification the indemnitor’s obligation only covers the indemnitee’s losses to the extent caused by the indemnitor …. ” Id. at 765. As such, the court concluded that “to obtain indemnity, [the indemnitee] was required to prove the extent of [the indemnitor’s] fault.” Id.

Similarly, the Court of Appeals of Minnesota has examined an indemnification provision with a similar limitation. Braegelmann v.Horizon Development Co., 371 N.W.2d 644, 645-46 (Minn. Ct. App. 1985).There, the court explained that the “to the extent caused” language”suggest [ed] a ‘comparative negligence’ construction under which each party [was] accountable ‘to the extent’ their negligence contribute[d] to the injury.” Id. at 646. That court also examined the contract language:”‘regardless of whether it is caused in part by a party indemnified here under,'” and held the equivocal nature of the wording “fail[ed] under the strict construction standard.” Id. Finally, the court concluded that”[u]nder the terms of this indemnification clause, the [indemnitee was] not contractually entitled to indemnification from the [indemnitor] to the extent damages were caused by the [indemnitee]’s own negligence.” Id. at 646-47.

The Nevada Supreme Court agreed with the rationale of these other courts, and held that the “to the extent caused” language in an indemnification clause must be strictly construed as limiting an indemnitor’s liability to cover the indemnitee’s losses only to the extent the injuries were caused by the indemnitor. As such, the court concluded that this contract’s indemnification provision limits United Rentals’ duty to indemnify only to the extent that United Rentals caused Kodera’s accident. Since the jury found that United Rentals’ negligence was not the proximate cause of Kodera’s accident, and thus it was zero percent liable for negligence, the court concluded that Wells Cargo was entitled to zero indemnification. Thus, the district court erred in determining that United Rentals was required to indemnify Wells Cargo for any portion of the$1,000,000 settlement.