Opinion
Case No. CIV-02-1849-F
August 8, 2003
ORDER
Before the court are the parties' respective cross-motions for summary judgment: Defendant's Motion for Summary Judgment filed July 15, 2003 (docket entry no. 18), and Plaintiff's Motion for Summary Judgment filed July 15, 2003 (docket entry no. 15). Both motions have been fully briefed and are submitted to the court along with a Joint Submission of Stipulated Facts (stipulated facts).
Background
This lawsuit is a declaratory judgment action in which plaintiffs Velocity Express, Inc. (Velocity) and St. Paul Fire and Marine Insurance Company (St. Paul) "pray for judgment declaring the rights and other legal relations of the Plaintiffs and Defendant Roberts Truck Center, Inc. [Roberts] in relation to the Rental Agreement [between the predecessors in interest of Velocity and Roberts]; [and] declaring that Plaintiffs do not owe indemnity or defense to Defendant in the lawsuit filed in the District Court of Oklahoma County, State of Oklahoma styledRappe et al. v. Copeland et al., and consolidated as CJ-2000-2644-65 [the state court litigation]." (Complaint, prayer.)
The principal question presented by the parties' motions for summary judgment is one of contract construction. Specifically, the question concerns an indemnity clause contained in a truck rental agreement. The rental agreement was executed by Corporate Express-Expedited, a predecessor entity of plaintiff Velocity, and by certain Copeland entities, which are predecessor entities of defendant Roberts. The issue is whether the indemnity clause in the rental agreement requires the truck lessee Velocity (previously Corporate Express-Expedited) to indemnify the truck lessor Roberts (previously Copeland) for personal injury claims asserted against Roberts in other litigation, even when those claims allege that it was Roberts' own negligence which caused the injuries.
The issue arises because such personal injury claims have been asserted in state court litigation brought by Sharon Rappe, an employee of Corporate Express-Expedited, and her husband. In the state court litigation, Rappe alleges that she was injured when the grab bar on the truck which is the subject of the rental agreement came loose. She alleges that her injuries were caused by the negligent maintenance and repair of the truck by the truck's lessor Copeland (now Roberts). Roberts has demanded that plaintiffs Velocity and St. Paul defend and indemnify Roberts in the state court litigation. Plaintiffs have refused, and they bring this declaratory judgment action in order to obtain a declaration of the parties' indemnity rights and obligations under the rental agreement.
If the court determines that the indemnity clause operates as a matter of law because its language is all-inclusive and because it unambiguously indemnifies Roberts against all claims including those arising out of Copeland's (now Roberts's) own negligence, then Velocity owes Roberts indemnity in the state court litigation. In that event, Roberts is entitled to summary judgment and a declaration from the court to that effect. If, on the other hand, the court determines that the indemnity clause is not effective as a matter of law, either because it is not all-inclusive or because it does not unambiguously provide indemnity for Copeland's own negligence, or because such a provision is clear but void as against the public policy of Oklahoma, then plaintiff Velocity is entitled to summary judgment and to a declaration from the court to that effect.
Either of these determinations would conclude this litigation. The third possible outcome of the parties' motions is that the court could determine that the indemnity clause in the rental agreement is not void for public policy reasons but that the rental agreement is ambiguous so that the court would have to resort to extrinsic evidence to construe its meaning. Presumably disputed extrinsic evidence which is not included in the stipulated facts, for example, evidence pertaining to the parties' course of dealing, would be relevant and both parties' motions would be denied.
Standard
Under Federal Rule of Civil Procedure 56(c), summary judgment shall be granted if the record shows that "there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." The moving party has the burden of showing the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). A genuine issue of material fact exists when "there is sufficient evidence favoring the non-moving party for a jury to return a verdict for that party." Anderson v. Liberty Lobby. Inc., 477 U.S. 242, 249 (1986). In determining whether a genuine issue of a material fact exists, the evidence is to be taken in the light most favorable to the non-moving party. Adickes v. S.H. Kress Co., 398 U.S. 144, 157 (1970). All reasonable inferences to be drawn from the undisputed facts are to be determined in a light most favorable to the non-movant. United States v. Agri Services, Inc., 81 F.3d 1002, 1005 (10th Cir. 1996). Once the moving party has met its burden, the opposing party must come forward with specific evidence, not mere allegations or denials, demonstrating that there is a genuine issue formal. Posey v. Skyline Corp., 702 F.2d 102, 105 (7th Cir. 1983).Discussion
The parties agree regarding the generally applicable legal principles. They agree that Oklahoma law applies, and that Oklahoma law provides that agreements which would have the result of indemnifying one against his or her own negligence are strictly construed. Fretwell v. Protection Alarm Company, 764 P.2d 149, 152 (Okla. 1988). They also agree that for an agreement indemnifying a party against its own negligence to be enforceable under Oklahoma law, certain conditions must exist: (1) the contracting parties must express in the agreement their intent to exculpate in unequivocally clear language, (2) the agreement must result from an arm's length transaction between parties of equal bargaining power; and (3) the exculpation must not violate public policy. United States v. Hardage, 985 F.2d 1427, 1434 (10th Cir. 1993) (applying Oklahoma law and citing Transpower Constructors v. Grand River Dam Auth., 905 F.2d 1413, 1420 (10th Cir. 1990)). The parties agree that the second condition of the Oklahoma test is met, and that the issue before the court is whether the first and third conditions are also met. This order addresses those two conditions in turn.
Plaintiff's brief in support of its own motion for summary judgment, at p. 6, argues that only the first and third of the above-stated conditions are not met. From the tenor of the parties' briefs, the court also gathers that it is undisputed that the parties to the rental agreement are experienced and sophisticated commercial entities active in the trucking industry.
A. The Rental Agreement's Expression of the Parties' Intent to Exculpate in Unequivocally Clear Language.
Paragraph 10 of the terms and conditions portion of the rental agreement (stipulated facts, exhibit "A," p. 2) states as follows:
10. Renter [plaintiff Velocity's predecessor Corporate Express-Expedited] agrees to release, indemnify and hold Lessor [defendant Roberts's predecessor Copeland] . . . harmless from and against any and all claims, demands, suits, causes of action or judgments for death or injury to persons or loss or damage to property arising out of or caused by the ownership, maintenance, leasing, repair, possession, use or operation of any Vehicle covered by this Agreement, including but not limited to [certain enumerated types of claims]. (Emphasis added.)
In Hardage, the Tenth Circuit was presented with similar contract language. Id. at 1434. Attachment A to the Hardage contract stated:
USPCI shall furnish his own equipment and warrants that the material obtained by him pursuant to this contract shall be transported and disposed of in a manner which will not cause harm or damage to persons or property and agrees that he will hold MDC harmless from any claim of loss or damage resulting from the transporting or disposal of said materials. . . . USPCI hereby agrees to indemnify and save harmless MDC . . . against all liability, obligations, claims, loss and expense (1) caused or created by USPCI . . . arising out of work hereunder. . . . (Emphasis added.)
Although noting that Oklahoma had not addressed the effect of this precise language, the Tenth Circuit held that the term "resulting from" in Attachment A to the Hardage contract is the type of all-inclusive and unambiguous language which Oklahoma recognizes as sufficient to exculpate MDC for its strict generator liability. Id. at 1434-35. In reaching this conclusion, Hardage cites a number of decisions, two of which specifically apply Oklahoma law to uphold an exculpatory indemnification clause. Those two decisions are Colorado Milling Elevator Co. v. Chicago. Rock Island Pacific Railroad Co., 382 F.2d 834 (10th Cir. 1967) andTrumbower v. Sports Car Club of Am., Inc., 428 F. Supp. 1113, 1114-16 (W.D. Okla. 1976). In Colorado Milling, the court found that a lease contract which indemnified any loss "arising from or connected with . . . any act or omission on the part of the lessee . . . or . . . any condition whatsoever in the premises" was sufficient to provide indemnification. In Trumbower, the court found that the phrase "on account of was sufficient to trigger exculpatory indemnification.
The indemnity clause before the court is very similar to the language upheld in these decisions as providing indemnity for a contracting party's own negligence. The rental agreement states that the truck lessee Corporate Express-Expedited (now Velocity) agrees to indemnify against any and all claims . . . arising out of or caused by the maintenance, leasing, repair, possession, use or operation of the vehicle. The meaning of the phrase "arising out of or caused by" is virtually indistinguishable from the meaning of the phrases upheld in the above-described decisions, such as "resulting from," "arising from or connected with," and "on account of."
Plaintiffs argue that the indemnity clause should not be interpreted to provide indemnity for the lessee's own negligence because the disfavored indemnity language is part of a pre-printed form. (Plaintiffs' moving brief, p. 14.) However, the Oklahoma Court of Civil Appeals has upheld very similar exculpatory language printed on the back of a service order form. The contract language upheld in Kinkead v. Western Atlas International Inc., 894 P.2d 1123 (Okla.Civ.App. 1995), stated that:
Customer shall indemnify and hold Contractor, its employees, officers, directors and shareholders harmless from and against any and all liabilities, losses or damages, claims, demands, causes of action, suits and associated expenses . . . and awards arising in favor of Customer or any third party as a result of injury or death to persons, loss of, damage to or loss of use of property . . . and financial loss of any kind in any way occurring, incident to, arising out of or in connection with . . . equipment or services furnished by Contractor. . . . (Emphasis added.)
Plaintiffs also argue that because paragraph 5 of the rental agreement includes language addressing losses caused by either of the parties' negligence, the parties must not have intended paragraph 10, which does not include such a reference, to provide indemnification for claims resulting from the lessor's own negligence. Oklahoma contract law does not require a contract to mention the word negligence in order for an exculpation or indemnity clause to be sufficiently clear that it includes claims of a party's own negligence. See, Standard Ins. Co. of New York v. Ashland Oil Refining Co., 186 F.2d 44, 47-48 (10th Cir. 1950) (discussion of parties' position that specific reference to negligence is not necessary if the parties' intent is shown by clear language). Morever, paragraph 10 states the parties' understanding that not all types of claims which are indemnified by that paragraph are described with particularity there, as paragraph 10 provides that the indemnification is "including, but not limited to" certain types of claims. Therefore, the court is not persuaded that referring to claims arising from a party's own negligence in paragraph 5 of the rental agreement necessarily requires the parties to specifically refer to such claims in paragraph 10 of the rental agreement in order for the all-inclusive language of paragraph 10 to operate. For these reasons, the court finds and concludes that applying Oklahoma law, and construing the rental agreement as a whole, the language of the rental agreement's indemnity clause is all-inclusive and unambiguous. The rental agreement expresses the contracting parties' clear intention to provide indemnity for all claims including those arising from Copeland's (now Robert's) own negligence.
Paragraph 5 states, in part, that: "It is expressly understood and agreed that neither Lessor nor Owner shall, in any event or under any circumstances whatsoever, be liable for loss of or damage to any goods or property left in or upon the Vehicle at any time or place, including Lessor's garage, terminal or location; regardless of whether such loss is caused by the negligence of Lessor or Owner or any of their employees or agents."
As requested by defendant (response brief, p. 4), the court has reviewed the certificate of liability insurance attached to defendant's moving brief as Exhibit "B." In light of the court's determination that the parties' intent is unambiguously stated in the rental agreement, however, the court finds that the certificate is of no consequence with respect to the issues now before the court because it is unnecessary to consider extrinsic evidence to determine the parties' intent. Defendant also argues that the certificate is relevant to this action because, even if the court were to find (as it has not) that no written contract for indemnification exists per the rental agreement, plaintiff St. Paul would still owe indemnity to Roberts as provided in the certificate. However, the certificate states that it "is issued as a matter of information only and confers no rights upon the certificate holder" and that it "does not amend, extend or alter the coverage afforded by the policies below." (Certificate, Exhibit "B," defendant's moving brief.) Therefore, the certificate itself establishes no indemnity rights or obligations. Whether St. Paul is contractually bound to Corporate Express-Expedited (now Velocity) or to Copeland (now Roberts) pursuant to a separate insurance contract, is not the subject matter of this declaratory judgment action. (See prayer as quoted at the beginning of this order.) Furthermore, the court has no agreements or policies before it other than the rental agreement. In summary, the court has reviewed the certificate but finds it is of no moment in this action.
B. The Rental Agreement's Exculpation In Relation to Oklahoma Public Policy.
Plaintiffs next assert that interpreting the rental agreement as establishing Corporate Express-Expedited's obligation to indemnify Copeland would violate Oklahoma public policy as set forth in its workers' compensation statutes. The gist of plaintiffs' arguments, as stated in both their response brief and in their own moving brief, is as follows: because Corporate Express-Expedited, as Sharon Rappe's employer, has paid compensation as a result of a worker's compensation claim by Ms. Rappe, the provisions of 85 O.S. § 44[ 85-44] apply; that statute protects the employer by providing that Corporate Express-Expedited (the employer, now Velocity) has a right of subrogation against an alleged third-party tortfeasor such as Copeland (now Roberts); however, if the indemnity provision from the rental agreement indemnifies Copeland (now Roberts) from its own negligence, then Corporate Express-Expedited (now Velocity) will be placed in a position of conflicting rights and obligations, some created by contract and some created by statute; this result would be contrary to the public policy of Oklahoma, which is to protect employers by establishing the employer's right of subrogation per 85 O.S. § 44[ 85-44].The Oklahoma Supreme Court has observed that "[t]he great majority of case law in the United States upholds an express contract of indemnification between the employer and a third party in the face of workers' compensation statutes." Rucker Company v. M P Drilling Company, 653 P.2d 1239, 1242 (1982). In Rucker. the court held that an employer and an oil field equipment supplier had established a contractual relationship independent of Oklahoma's workers' compensation laws. The court upheld the contract, which provided for indemnification by the employer of the equipment supplier's own negligence. In doing so the court stated:
It is the clearly expressed intention of the parties to the contract that as between the contracting parties, [the supplier] shall not be liable for the kind of negligence alleged by [the employee] below. Therefore, there is a special relationship alleged in the petition which is in the form of a written contract that as between the employer of [the employee] and the supplier of the tools and equipment which were instrumental in producing [the employee's] injury, the Supplier is not liable for the negligence alleged by the plaintiff below, which special relationship is not precluded by 85 O.S. 1981, § 12[ 85-12]Id. at 1242.
Here, where the court has already found that it is the clearly expressed intention of the parties to the rental agreement that Copeland (now Roberts) shall not be liable for the kind of negligence alleged by Corporate Express-Expedited's (now Velocity's) employee Sharon Rappe, the court concludes, as the Oklahoma Supreme Court did in Rucker, that a special contractual relationship has been established by the rental agreement and that this contractual relationship is not precluded by Oklahoma's public policy as expressed in its workers' compensation statutes. This conclusion is consistent with the general principle recognized in Dayton Hudson Corp. v. Amer. Mutual Liab. Ins. Co., 621 P.2d 1155 (Okla. 1980). In that case the Oklahoma Supreme Court stated:
We must remain mindful that contracts should not be declared void on the ground of public policy except in those cases that are free from doubt. . . . One of the law's important functions is to uphold the binding obligation of a promise rather than to enable the parties to escape from it on the pretext of public policy.Id. at 1160(answers to certified questions sent back to the federal court for findings as to whether gross negligence was present, as gross negligence would prohibit the employer from shifting liability to the insurer).
Thus, there are competing public policy considerations presented by the contract language before the court. While the workers' compensation laws provide employers with subrogation rights in certain instances, the foremost purpose of the workers' compensation laws is to protect employees. More importantly, it is undisputed that here both parties to the contract are experienced commercial players in the trucking industry neither of whom asserts that the rental agreement was anything other than the result of an arm's-length transaction between parties of equal bargaining power. The function of the contractual language now before the court is to allocate risks as between two companies which were fully capable of dealing with each other at arms' length. No showing has been made which would suggest that this allocation of risks (one of the fundamental objectives of private contracts) should be disturbed by the court. The court has already found that the parties' agreement clearly and unequivocally provides that Corporate Express-Expedited (now Velocity) indemnifies the truck lessor Copeland (now Roberts) for any and all claims arising out of or caused by the maintenance or repair of the subject truck. In these circumstances, the court has no trouble concluding that the public policy of Oklahoma requires enforcing the parties' agreement, not re-writing that agreement to re-allocate the risk of negligence claims.
For these reasons, the court concludes that the indemnity clause in the rental agreement is not void for reasons of public policy.
Conclusion
Having carefully considered the parties' submissions, the stipulated facts, and the relevant arguments and authorities, the court determines as follows.
Defendant Roberts Truck Center, Inc.'s Motion for Summary Judgment is GRANTED
Plaintiffs' Velocity Express, Inc. and St. Paul Fire and Marine Insurance Company's Motion for Summary Judgment is DENIEDA.
The court hereby DECLARES that the rental agreement establishes that plaintiff Velocity Express, Inc. owes indemnity to defendant Roberts Truck Center, Inc. in the state court litigation now pending in the District Court of Oklahoma County as Rappe et al. v. Copeland et al. consolidated as CJ-2000-2644-65.