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excising from an indemnification clause only the void provision which required contractcounterparty to indemnify the company for its own negligence and enforcing the remainder of the clause
Summary of this case from Suppi Constr. v. EC Devs. IOpinion
C.A. No. 05C-06-012 MMJ.
Decided: September 27, 2007.
Upon Cross Motions for Summary Judgment .
Louis J. Rizzo, Jr., Esquire, Reger Rizzo Kavulich Darnall, LLP, Wilmington, Delaware, Attorney for Plaintiffs.
Stephen P. Casarino, Esquire, Casarino, Christman Shalk, Wilmington, Delaware, Attorney for Defendants.
MEMORANDUM OPINION
PROCEDURAL CONTEXT
Leandro Tlapechco ("Tlapechco") filed a complaint on September 5, 2002 against Handler Development Inc. and Handler Corporation ("Handler") and other defendants. Tlapechco alleged injuries sustained in a fall at a residential construction project at the Legends of Frog Hollow in Middletown, Delaware ("Legends") on May 18, 2002. At the time of the fall, Tlapechco was employed by the painting contractor, Esperanza Painting ("Esperanza"). The two causes of action against Handler were for negligently hiring the construction supervisor, and for negligence in providing protective railings on the second floor from where Tlapechco fell. Defendant State Drywall Company, Inc. ("Drywall") was the drywalling subcontractor on the project. Drywall subcontracted the drywall hanging work to Vallejo Drywall ("Vallejo"). Drywall did not perform the drywall installation.
Tlapechco v. Handler, C.A. No. 02C-09-046 MMJ (Del.Super.)
On March 15, 2005, Handler filed a Motion for Summary Judgment on the grounds that Handler, as general contractor at Legends, did not maintain active control over or voluntarily assume safety responsibilities for Tlapechco's work. Handler's Motion for Summary Judgment was denied.
During trial, judgment was entered in favor of Drywall. The Court ruled that Tlapechco had no claim against Drywall for vicarious liability because Drywall and Vallejo were independent contractors. The only remaining claim against Drywall was Handler's contractual claim, which is the subject matter of this litigation. All contractual claims of Handler against Drywall were bifurcated from the Tlapechco trial by agreement of the parties and by order of the Court, to be decided as part of the instant Declaratory Judgment action.
The personal injury case proceeded to trial on August 22, 2005. Handler moved for directed verdict at the close of plaintiff's case, and again at the end of trial. The Court denied both motions. The jury found that Tlapechco was 40% negligent and that Handler was 60% negligent, and awarded Tlapechco $3,450,000. The total award of $5,750,000 was reduced by 40% comparative negligence. The jury found in favor of Handler on the direct claim of negligent hiring.
Handler appealed to the Delaware Supreme Court, seeking review of the Court's rulings on summary judgment and several motions in limine. Tlapechco filed a cross appeal on the Court's award of summary judgment on the issue of general contractor liability. The Delaware Supreme Court reversed the Superior Court's decision on summary judgment and the case was remanded for a new trial. Tlapechco and Handler were able to settle the lawsuit prior to the second trial.
Based on indemnity and insurance agreements with subcontractors, Handler filed a Complaint for Declaratory Judgment against Esperanza and Drywall on June 1, 2005. Esperanza has conceded that Handler was an additional insured under their insurance policies. Handler dismissed the claim against Esperanza after Esperanza tendered its full policy limits to Handler.
Plaintiffs have filed an Amended Complaint for Declaratory Judgment asking the Court to declare that they are entitled to insurance coverage under the policy of insurance written by Harleysville Mutual Insurance Company for Drywall. Plaintiffs seek a declaration that Handler Corporation is an additional insured under the Harleysville policy, and that Harleysville was primary and they are entitled to reimbursement of defense costs. This is defendants' motion for summary judgment claiming entitlement to judgment as a matter of law.
SUMMARY JUDGMENT STANDARD
This Court will grant summary judgment only when no material issues of fact exist. The moving party bears the burden of establishing the non-existence of material issues of fact. Once the moving party meets its burden, the burden shifts to the non-moving party to establish the existence of material issues of fact. Where the moving party produces an affidavit or other evidence sufficient under Superior Court Civil Rule 56 in support of its motion and the burden shifts, then the non-moving party may not rest on its own pleadings, but must provide evidence showing a genuine issue of material fact for trial. If, after discovery, the non-moving party cannot make a sufficient showing of the existence of an essential element of the case, summary judgment must be granted. A court deciding a summary judgment motion must identify disputed factual issues whose resolution is necessary to decide the case, but the court must not decide those issues. The Court must evaluate the facts in the light most favorable to the non-moving party. Summary judgment will not be granted under circumstances where the record reasonably indicates that a material fact is in dispute or if it seems desirable to inquire more thoroughly into the facts in order to clarify the application of law to the circumstances.
Moore v. Sizemore, 405 A.2d 679, 680 (Del. 1979).
Id. at 681.
Super. Ct. Civ. R. 56(e); Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986).
Celotex Corp., 477 U.S. at 322-23; Burkhart v. Davies, 602 A.2d 56, 59 (Del. 1991), cert. denied, 504 U.S. 912 (1992).
Merrill v. Crothall-American, Inc., 606 A.2d 96, 99 (Del. 1992).
Id.
Ebersole v. Lowengrub, 180 A.2d 467, 468-69 (Del. 1962).
DISCUSSION
The cross motions for summary judgment present two basic issues. First, does defendant Harleysville Insurance Company ("Harleysville") have a duty to provide a defense to plaintiff Handler Development, Inc. ("Handler") in connection with Tlapechco v. Handler, C.A. No. 02C-09-046 (Del.Super.)? Second, is Handler entitled to indemnification under the insurance policy issued by defendant Harleysville Insurance Company to defendant Drywall Company, Inc. ("Drywall")?Contractual Indemnification
The Subcontract Agreement between Handler and Drywall provides:
1. Subcontractor shall be considered an independent contractor and not an employee or agent of the Company. Subcontractor shall be solely liable for any loss or damage caused by Subcontractor, its subcontractors, or the agents or employees of either.
2. Subcontractor at all times shall fully indemnify, protect and hold harmless the Company, its agents and employees from and against all loss, damage or expense, including attorney's fees, as to all claims, damages or liabilities resulting from accident, negligence, including the Company's negligence, or any other cause whatever caused by Subcontractor or its subcontractors or any of them during the performance of this Agreement, and any contract for extra supplementary work. In any and all claims against the Company or any of its agents or employees by any employee of the Subcontractor or any of its subcontractors, the indemnification obligation under this Paragraph shall not be limited in any way by any limitation on the amount or type of damages, compensation or benefits payable by or for the Subcontractor under workers' or workmen's compensation acts, disability benefit acts or other employee benefit acts. The Company shall not in any manner be liable or responsible for any loss or damage to the Subcontract Work or any part thereof, or to any of the materials or other things supplied by Subcontractor or any of its subcontractor by reason of any casualty or by reason of any act, default or omission of the Company or any third party, except to the extent of the Company's recovery therefore under the Company's Builders' Risk Insurance Policy.
The second paragraph appears to contain a provision requiring indemnification for Handler's own negligence. This exculpatory clause is void. A construction contract cannot indemnify a party against that party's own conduct. Therefore, the language in the second paragraph of clause XIX, "including the Company's negligence," and "of the Company," must be invalidated.
However, there is no need to nullify the remainder of the Indemnification section. The Agreement contains a severability clause: "If any provision of this Agreement is, or shall at any time be, contrary to law, then such provision shall not be applicable. In such event, all other provisions of this Agreement shall continue in effect."
Chrysler v. Merrell, 796 A.2d 648, (Del. 2002).
Subcontract Agreement XXIV. Miscellaneous.
The Subcontract Agreement explicitly provides that Drywall is required to indemnify Handler for vicarious liability. Drywall has no duty to provide indemnification for Handler's own negligence.
Primary or Excess Coverage
The Penn National Insurance Company insurance policy ("Penn Policy") provides that the coverage is primary, with certain exceptions. The relevant exception provides that the insurance is excess over "[a]ny other primary insurance available to you covering liability for damages arising out of the premises or operations for which you have been added as an additional insured by attachment of an endorsement."
The Additional Insured Endorsement in the Harleysville Policy states: "Any coverage provided hereunder shall be excess over other valid and collectible insurance available to the additional insured whether that other insurance is primary, excess, contingent or provided on any other basis."
Arguably, these provisions are competing excess coverage clauses. The initial determination is whether Handler was added as an "additional insured," under the terms of the Penn Policy.
The Subcontract Agreement requires Drywall to purchase comprehensive general liability insurance coverage. In construing an insurance policy, the Court must consider the parties' intentions. The Agreement states that the insurance obtained by Drywall "fully covers and indemnifies" Handler. The indemnification clause contemplates that Drywall "shall be solely liable for any loss or damage caused by [Drywall], its subcontractors, or the agents of employees or either." The Court finds that the parties intended that Drywall purchase insurance to cover and indemnify Handler.
Subcontract Agreement XI. Insurance.
Continental Casualty Co. v. Alexis I Dupont School District, 317 A.2d 101, 105 (Del. 1974).
The Additional Insured Endorsement attached to the Harleysville Policy does not specifically name Handler as an additional insured. The Endorsement defines an "additional insured" as "any general contractor, subcontractor or owner whom [Drywall is] required to add as an additional insured on this policy under a written or oral construction contract or agreement where a certificate of insurance showing that person or organization as an additional insured has been issued and received by `us' prior to the date of loss."
The Court finds that the Subcontract Agreement is a written construction contract requiring Drywall to add Handler, the general contractor, as an additional insured. Drywall was contractually obligated to take whatever steps were necessary to insure Handler under the Harleysville Policy. Because the Subcontract Agreement requires that Drywall obtain insurance covering Handler; Drywall purchased the Harleysville policy; and the Additional Insured Endorsement specifically contemplates that the general contractor will be covered; Handler is an additional insured as intended by the parties and contemplated under the Additional Insured Endorsement attached to the Harleysville Policy.
See Daimler Chrysler Corp. v. Penn National Ins. Co., 2003 Del. Super LEXIS 128, *11.
The Penn Policy provides that its insurance is primary except when there is "[a]ny other primary insurance available to you covering liability for damages arising out of the premises or operations for which you have been added as an additional insured by attachment of an endorsement." (Emphasis added). The next question is whether the Harleysville Policy is primary or excess. If the Harleysville Policy is primary, the Penn Policy is excess. If Harleysville is an excess policy, the Penn Policy is primary coverage.
The Harleysville Policy Additional Insured Endorsement explicitly provides: "Any coverage provided hereunder shall be excess over other valid and collectible insurance available to the additional insured whether that other insurance is primary, excess, contingent or provided on any other basis." This language is unambiguous. Regardless of Drywall's contractual obligation to indemnify Handler, the Harleysville Policy simply does not provide primary coverage for additional insureds.
It appears that Drywall breached its contractual insurance and indemnification obligations to Handler in two ways. First, Drywall agreed to be "solely liable for any loss or damage" it caused. Because the Harleysville Policy is excess insurance for additional insureds, the Harleysville Policy does not provide full insurance coverage for Handler's vicarious liability. Second, Drywall failed to issue and transmit to Harleysville a certificate of insurance showing that Handler was an additional insured. However, in light of the finding that the Harleysville Policy is excess coverage, the Court need not resolve whether the procedural defect of Drywall's failure to send a certificate of insurance invalidates Handler's status as an additional insured.
Therefore, there are no circumstances in which the Harleysville Policy can be deemed primary. The Court finds that the Harleysville Policy is excess and the Penn Policy is primary, in the absence of any other primary insurance.
Duty to Defend
The Harleysville Policy states that "[w]hen this insurance is excess, we will have no duty under Business Liability Coverage to defend any claim or `suit' that any other insurer has a duty to defend. If no other insurer defends, we will undertake to do so; but we will be entitled to the insured's rights against all those other insurers." As the excess carrier, Harleysville had no duty to defend.
In light of this ruling, the Court need not determine when the duty to defend arose, or when the duty terminated.
CONCLUSION
Drywall is contractually required to indemnify Handler for vicarious liability. Drywall has no duty to provide indemnification for Handler's own negligence. The Court finds that Handler is an additional insured as intended by the parties and contemplated under the Additional Insured Endorsement attached to the Harleysville Policy. However, the Harleysville Policy does not provide primary coverage for additional insureds. As the excess carrier, Harleysville Insurance Company did not have a duty to provide a defense or to indemnify Handler.
THEREFORE, Plaintiffs' Motion for Summary Judgment is hereby denied as to entitlement to a defense under the Harleysville policies, and granted as to Drywall's contractual indemnification obligation. Defendants' Motion for Summary Judgment is hereby granted in that Harleysville has no duty to defend Handler, and denied in that Drywall has a contractual obligation to indemnify Handler.
IT IS SO ORDERED.