Opinion
Civil Action Number 95C-04-167-JOH.
Argued: April 14, 2000. Submitted: October 3, 2000.
Decided: December 21, 2000.
Upon Motion of Defendant and Third-Party Plaintiff Chrysler Corporation for Summary Judgment DENIED Upon Motion of Third-Party Defendant Merrell Garaguso, Inc., for Summary Judgment GRANTED.
Daniel F. Wolcott, Jr., Esq., of Potter, Anderson Corroon LLP, attorney and third-party plaintiff Chrysler Corporation for defendant.
Ralph K. Durstein, III, Esq., of Heckler, Frabizzio Durstein, attorney for third-party defendant Merrell Garaguso, Inc..
MEMORANDUM OPINION
Defendant Chrysler Corporation has moved for summary judgment against third-party defendant Merrell Garaguso, Inc. [M G] seeking reimbursement for costs it incurred in defending the personal injury action brought by plaintiff Brian W. Keech. M G has filed a cross-motion for summary judgment contending it is not liable for such costs.
The basis for Chrysler's claims is two provisions in the contract it had with M G for some refurbishing work at its Newark assembly plant. One provision was that M G would indemnify Chrysler even for Chrysler's own negligence. The other provision required M G to make Chrysler an additional insured on M G's liability policy.
The disputed liability for defense costs results from a Delaware statute which declares void any provision in a construction contract where the promisor is obligated to indemnify a promisee from the promisee's own negligence. But, that same statute indicates certain insurance contracts involving indemnification are not void.
The statute and the contract in this case present two distinct but overlapping issues of first impression. This arises from the duty to indemnify. Generally, the duty to defend is broader than the duty to indemnify. But, where the duty to defend rests on a duty to indemnify which is void, is there a duty to defend? The second issue is whether the statutory provision protecting insurance coverage allows Chrysler to obtain reimbursement as an additional insured on M G's policy.
This Court holds that where the duty to defend arises from a void obligation, it cannot be enforced. The Court also holds that the statute at issue does not validate or make enforceable insurance coverage for a void and unenforceable duty to indemnify. Chrysler, therefore, cannot be reimbursed for its defense costs. Its motion for summary judgment is DENIED and M G's cross-motion is GRANTED.
APPLICABLE STANDARD
The Court may award summary judgment if there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Cross motions for summary judgment imply that there are no genuine issues of material fact. Where there are no genuine issues of material fact, the matter is appropriate for summary judgment.The factual background essential to the resolution of the legal issues is undisputed. Chrysler has indicated to the Court, however, that there could be a factual issue of whether M G made Chrysler an additional insured and/or obtained insurance as the contract required. Other than that issue, there are no genuine issues of material fact preventing consideration of the parties' cross-motions for summary judgment. In addition, for reasons stated below, the Court does not view the issue of whether insurance was procured as a factual dispute precluding consideration of the cross-motions for summary judgment.
DISCUSSION A
Chrysler contracted with M G to do refurbishing work on a portion of its Newark assembly plant. Keech was one of M G's employees working on the job. While performing his part of the refurbishing work, Keech backed into a fence which separated his work area from another part of the plant which was still in normal operation. Apparently, around this time, a Chrysler employee on the other side of the fence, while operating a fork lift, either hit the fence or objects stored near it, which caused the fence to fall on Keech injuring him.
Keech sued Chrysler as a result, alleging that Chrysler was solely negligent for his injuries. In turn, Chrysler sued M G involving the indemnification clause in their contract. That clause mirrored, and incorporated by reference, a Michigan statute governing indemnification clauses in construction contracts. That statute, as interpreted by Michigan courts, voids indemnification where the tortfeasor is the only one negligent. Where, however, there is concurrent negligence of two or more tortfeasors, the indemnification clause in a construction contract is not void and is enforceable. Unlike that Michigan law, Delaware's anti-indemnification statute draws no such distinction, such as sole versus concurrent negligence. It voids any clause in a construction contract seeking to have the tortfeasor indemnified by another for the tortfeasor's own negligence:
[M G] shall assume all risk of damage to property or of bodily injury, sickness, or disease of persons (including death resulting at any time therefrom) used or employed on or in connection with the work, and of all damage to property or of bodily injury, sickness, or disease of persons (including death resulting at any time therefrom) wherever located, resulting from or arising out of any action, omission or operation under the contract or in connection with the work.
Seller, and all suppliers to whom the portions of the work under the contract are subcontracted (herein after [sic] called "subcontractors"), shall protect, defend, hold harmless, and indemnify Chrysler from and against any and all loss, cost, damage, expense, claims or legal actions, whether groundless or not, arising out of the bodily injury, sickness, or disease (including death resulting at any time therefrom) which may be sustained or claimed by any person or persons, and the damage or destruction of any property, including the loss of use thereof, arising out of or related to the performance of any work in connection with this contract, including any extra work assigned to [M G] in connection therewith, based upon any act or omission, negligent or otherwise, of (a) [M G] or any of its employees, agents, or servants, (b) any subcontractor of [M G] or any employees, agents, or servants of such a subcontractor, and/or (c) any other person or persons, including Chrysler, or any employees, agents, or servants of Chrysler.
This indemnification shall include, but shall not be limited to, the obligation by [M G] to protect, defend, hold harmless, and indemnify Chrysler from and against any and all claims for bodily injury, sickness, or disease (including death resulting at any time therefrom) and damage to property, based upon or alleged to have arisen out of (1) the sole active or passive negligence of Chrysler (except as prohibited by Michigan compiled laws annotated Sec. 691.991); (2) the joint and/or concurrent active or passive negligence of Chrysler and [M G]; (3) the joint and/or concurrent active or passive negligence of Chrysler and any subcontractor of [M G]; (4) the joint and/or concurrent active or passive negligence of Chrysler and any other person or persons; (5) the joint and/or concurrent active or passive negligence of [M G] and any other person or persons; (6) the joint and/or concurrent active or passive negligence of any subcontractor of [M G] and any other person or persons; (7) Chrysler's failure to provide a safe place to work; and/or (8) Chrysler's failure to take proper or reasonable safety precautions or exercise proper control with respect to the conduct of an inherently dangerous activity on or off its premises; and [M G] shall, at its own cost and expense, defend any such claims and any suit, action, or proceeding which may be commenced thereunder, and [M G] shall pay any and all judgments which may be recovered in any such suit, action, or proceeding, and any and all expense, including but not limited to, costs, attorneys' fees and settlement expenses which may be incurred therein.
(a) A covenant, promise, agreement or understanding in, or in connection with or collateral to, a contract or agreement (including but not limited to a contract or agreement with the State, any county, municipality or political subdivision of the State, or with any agency, commission, department, body, or board of any of them, as well as any contract or agreement with a private party or entity) relative to the construction, alteration, repair or maintenance of a road, highway, driveway, street, bridge or entrance or walkway of any type constructed thereon, and building, structure, appurtenance or appliance, including without limiting the generality of the foregoing, the moving, demolition and excavating connected therewith, purporting to indemnify or hold harmless the promisee or indemnitee or others, or their agents, servants and employees, for damages arising from liability for bodily injury or death to persons or damage to property caused partially or solely by, or resulting partially or solely from, or arising partially or solely out of the negligence of such promisee or indemnitee or others than the promisor or indemnitor or its subcontractors, agents, servants or employees, is against public policy and is void and unenforceable, even where such covenant, promise, agreement or understanding is crystal clear and unambiguous in obligating the promisor or indemnitor to indemnify or hold harmless the promisee or indemnitee from liability resulting from such promisee's or indemnitee's own negligence. This section shall apply to all phases of the preconstruction, construction, repairs and maintenance described in this subsection, and nothing in this section shall be construed to limit its application to preconstruction professionals such as designers, planners and architects; provided, however, that this section shall not apply to any obligation owed to the Department of Transportation pursuant to a contract awarded under title 17 or Chapter 69 of Title 29.
Del. C. § 2704.
Del. C. § 2704.
This Court, in Al-Uqdah v. Mid-West Conveyor Co., Inc., held that despite § 2704(a), an indemnification provision, virtually identical to the one in this case and which also incorporated Michigan law, was enforceable. That case involved a construction contract and a personal injury claim, totally unrelated to this case, at the same Chrysler assembly plant. This Court's decision on the Michigan contract was not appealed. There were other parties involved in the same construction project; however, their contract contained an indemnification clause, too. But, that clause, however, was phrased to comply with Kansas law governing indemnification clauses in construction contracts. In a separate opinion addressing that indemnification provision, this Court held that, while invalid under Delaware law, the contract was enforceable under Kansas law. That decision was appealed and this Court's decision was reversed. The Supreme Court determined that the indemnification provision at issue was "repugnant" to Delaware public policy, as embodied in § 2704(a), void and unenforceable.
Del.Super., C.A. No. 96C-07-090, Herlihy, J. (April 16, 1999).
A1-Uqdah v. Mid-West Conveyor Co., Inc., Del.Super., C.A. No. 96C-07-090, Herlihy, J. (April 20, 1999).
J. S. Alberici Const. Co., Inc. v. Mid-West Conveyor Co., Inc., Del.Supr., 750 A.2d 518 (2000).
Id. at 520.
The initial question, therefore, is whether the Alberici holding relating to a clause valid under Kansas law applies to a clause valid under Michigan law. The basis for the Supreme Court's invalidation of the Kansas-based clause is so strongly worded that it would be folly, if not illogical, to say Alberici did not also invalidate the Michigan-based clause in this case. Words like repugnant and contrary to "a clear statement of legislative policy [in § 2704(a)]" leave no doubt.
Id. at 521.
The initial question is, therefore, resolved. Even though mirroring and incorporating Michigan law on indemnification in construction contracts, it is, nevertheless, void under Delaware law. Accordingly, it is void and unenforceable.
B
Since the indemnification clause in the Chrysler/M G contract is unenforceable, the first issue is whether M G has a duty to defend. Chrysler and M G are not in the traditional insured/insurer relationship in the sense of one being an insurance company. Despite that, there are basic legal principles applicable to insurance coverage cases which are relevant here. One is that the duty to defend is broader than the duty to indemnify. Another is that an insurer has a duty to defend when a complaint alleges claims even potentially within policy coverage. But, an insurer has no duty to defend if the claims made are clearly outside the coverage.
Charles E. Brohawn Bros., Inc. v. Employers Commercial Union Ins. Co., Del.Supr., 409 A.2d 1055, 1058 (1979).
Hollingsworth v. Chrysler Corp., Del.Super., 208 A.2d 61, 66 (1965).
Continental Casualty Co. v. Alexis I. duPont School District, Del.Supr. 317 A.2d 101, 105 (1974).
A corollary to this last principle is that the duty to defend is discharged, if the duty to indemnify is void because it violates public policy. That more generalized principle has been applied specifically to void indemnification provisions in construction contracts. Since the duty to indemnify is contrary to public policy, there is no duty to defend.
St. Paul Ins. Co. v. Talladega Nursing Home, Inc., 5th Cir., 606 F.2d 631 (1979); Grumman Sys. Support Corp. v. Travelers Indem. Co., E.D.N.Y., 828 F. Supp. 11 (1993); State Farm Fire and Cas. Co. v. Doe, Ariz.Ct.App., 797 P.2d 718 (1990); Perreault v. Maine Bonding Cas. Co., Me.Supr., 568 A.2d 1100 (1990); Eberdt v. St. Paul Fire and Marine Ins Co., Or.Ct.App., 585 P.2d 711 (1978); Groshong v. Mutual of Enumclaw Ins. Co., Or.Ct.App., 923 P.2d 1280 (1996).
Motor Vehicle Cas. Co. v. GSF Energy, Inc., Ill.App.Ct., 549 N.E.2d 885 (1989); Best v. Energized Substation Service, Ohio Ct.App. 1994 WL 440471, Reece, P.J. (August 17, 1994); see Bethlehem Steel Corp., Md.Ct.App., 498 A.2d 605 (1985); Frazier v. Columbia Gas Development Corp., D.C.W.D.La., 605 F. Supp. 200 (1985) (interpreting Louisiana law).
The Delaware Supreme Court in Alberici did not expressly address the issue of whether the duty to defend is discharged, if it is based on an unenforceable indemnification clause. It went only so far as to hold the indemnification clause was void, unenforceable and against Delaware public policy. But, simple logic dictates the same result as to the duty to defend as those courts in other states reached. Accordingly, this Court holds M G's duty to defend was and is discharged, since it arose from an indemnification clause which is void under Delaware law.
C
Chrysler, however, seeks to impose on M G a duty to defend through another provision in its contract and another subsection in the Delaware anti-indemnification statute. Apparently, the contract required M G to get Chrysler named as an additional insured. This would presumably provide coverage to Chrysler for its own negligence. Chrysler has informed the Court that there is some doubt whether M G did get Chrysler added.
Under other circumstances, this potential factual issue would prevent an award of summary judgment. But, this potential factual issue need not be resolved. The Court will assume M G did have Chrysler made an additional insured. This means, in effect, that there is no genuine issue of material fact preventing summary judgment. This would mean that M G has coverage for Chrysler's own negligence. That being so, Chrysler points to a separate provision in the anti-indemnification statute regarding insurance:
Merrill v. Crothall-American, Inc., Del.Supr., 606 A.2d 96, 99-100 (1992).
(b) Nothing in subsection (a) of this section shall be construed to void or render unenforceable policies of insurance issued by duly authorized insurance companies and insuring against losses or damages from any causes whatsoever.
Chrysler contends that this subsection means that, even though the indemnification clause itself is void, insurance coverage for such indemnification is not.
No Delaware court has interpreted this subsection. Insurance provisions similar, but not identical, to this one exist in anti-indemnification statutes which exist in other states. None are worded as ours. Even though the insurance savings provisions are similar enough, the courts are split on their meaning and effect. For instance, in Miller Brewing Co. v. Morgan Mechanical Contractors, Inc., the court held void a provision in a construction contract requiring the contractor to obtain insurance. The insurance was to cover the contractor's duty to indemnify the owner from the owner's own negligence. North Carolina, like Delaware, prohibits such indemnification. The court said to validate the contractual requirement to obtain insurance would mean the ban on indemnification clauses would be meaningless. In reaching that result, the court stated:
N.C. Ct.App., 368 S.E.2d 438 (1988).
Id. at 442.
In our view, the Legislature intended, by exempting insurance contracts or other agreements issued by an insurer, to prevent insurance policies which name the buyer of construction services as an insured from being invalidated.
Id.
Id.
In Michigan, where only indemnification for one's sole negligence contravenes its statute, any obligation to obtain coverage for that type of negligence is void and unenforceable. On the other hand, some courts, which have addressed the effect of such insurance statutory provisions, have reached the opposite result. Several have said those "savings" clauses in their states, akin to § 2704(b), validate and make enforceable obligations on a contractor to obtain coverage.
Peoples v. City of Detroit, Mich.Ct.App., 297 N.W.2d 839, 846 (1980). Accord Amoco Production v. Action Well Service, N.M.Supr., 755 P.2d 52 (. 1988); Buckeye Union Ins. Co. v. Zavarella Bros. Const. Co., Ohio Ct.App., 699 N.E.2d 127 (1997), cert. denied Ohio Supr., 686 N.E.2d 276 (1997); Waddell v. LTV Steel Co., Inc., Ohio Ct.App., 706 N.E.2d 363 (1997).
Heat Power Corp. v. Air Products Chemicals, Inc., Md.Ct.App., 578 A.2d 1202 (1990); Jokich v. Union Oil Co. of Calif, Ill.App.Ct. 574 N.E.2d 214 (1991); USX Corp. v. Liberty Mut. Ins. Co., Ill.App.Ct., 645 N.E.2d 396 (1994).
Even with the split of case law, this Court does not start from whole cloth to determine which view to adopt for Delaware. In interpreting a statute, a court's purpose is to determine and give effect to the legislature's intent. The Supreme Court in Alberici said about the anti-indemnification statute:
Richardson v. Wile, Del.Supr., 535 A.2d 1346, 1348 (1988).
Section 2704(a) is clear on its face: a contractual provision requiring one party to indemnify another party for the second party's own negligence, whether sole or partial, "is against public policy and is void and enforceable." Courts are not free to disregard that declaration of policy. Accordingly, we find this statutory language compels the conclusion that enforcing Kansas law on this issue would be clearly repugnant to the public policy of Delaware.
Alberici, 750 A.2d at 521.
Alberici, 750 A.2d at 521.
Courts should interpret statutes to achieve a common sense result and to avoid unreasonable or absurd results. To enforce M G's obligation to obtain coverage to reimburse Chrysler for its own negligence is inconsistent with the void requirement to indemnify. With the ringing policy pronouncement in Alberici, any other result would be absurd. This Court concurs with the North Carolina court in Miller Brewing that the purpose of statutory provisions, such as § 2704 (b), is to maintain the validity of insurance coverage obtained by the insureds consistent with valid obligations. It is not a valid obligation under Delaware law for a construction contract to obligate a promisor to indemnify a promisee for the promisee's own negligence.
Snell v. Engineered Systems Designs, Inc., Del.Supr., 669 A.2d 13, 20 (1995).
Assuming, therefore, that M G had met its contractual obligation to obtain insurance coverage for Chrysler for its own negligence, that obligation is void and unenforceable as a matter of law. Since the obligation to indemnify is unenforceable, the duty to defend is discharged. To seek reimbursement through an obligation to make one an additional insured is to do indirectly what cannot be done directly. M G is not liable for Chrysler's defense costs.
CONCLUSION
For the reascns stated herein, the summary judgment motion of Chrysler Corporation is DENIED and the summary judgment motion of Merrell Garaguso, Inc., is GRANTED.