Opinion
Case No. 2:04-CV-00271TC.
October 25, 2004
ORDER
On January 1, 2000, Union Pacific Railroad Company ("UP") and Loram Maintenance of Way, Inc. ("Loram") entered into a "Contract for Rail Grinding Services" (the "Contract"). UP brought this suit on March 25, 2004, claiming that Loram violated the Contract. The matter is currently before the court on the parties' cross motions for summary judgment, and UP's motion for discovery under Federal Rule of Civil Procedure 56(f).
Background
With its present summary judgment motion, UP argues that Loram violated the Contract in the following ways: (1) by not indemnifying and defending UP when UP tendered to Loram the defense of a lawsuit filed by Mr. Robert Helmick, who was injured while Loram was grinding UP rails (restoring the "crown" or crest on the rails after they have become flat due to repeated usage); and (2) by not compensating UP after UP settled Mr. Helmick's suit. With its own summary judgment motion, Loram contends that the Contract does not obligate it to indemnify, defend, or insure UP for damages caused by UP's own negligence. Through its Rule 56(f) motion, UP argues that discovery is necessary to determine the circumstances leading to Mr. Helmick's injury. The facts of the dispute are set forth below as necessary.
Analysis
I. Legal Standard.
Under Federal Rule of Civil Procedure 56, a court may enter summary judgment "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.'" Fed.R.Civ.P. 56(c); see Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670 (10th Cir. 1998).
II. The Contract's Indemnity and Insurance Provisions.
UP claims that Loram violated the indemnity provision of the Contract by not defending UP and reimbursing it for Mr. Helmick's settlement. Loram argues that the Contract and Nebraska law do not permit recovery for agreements whereby one party (Loram) indemnifies a second party (UP) for the second party's negligence.
The Contract has a choice-of-law provision selecting Nebraska law as the law to be applied to the Contract. (Loram's Mem. in Opp. and Reply, Ex. A at 3, § 6.) Federal courts have generally upheld choice-of-law provisions and applied the law selected by the parties. Snyder v. Celsius Energy Co., 866 F.Supp. 1349, 1352-53 (D. Utah 1994). Here, neither party has objected to applying Nebraska law, and the reasons for ignoring a choice-of-law provision, such as the chosen state having no relation to the parties or the case, do not appear to be present here.
The indemnity provision of the Contract reads:
The Contractor [Loram] shall indemnify and hold harmless [UP] . . . against and from any and all liability, loss, damages, claims, demands, costs and expenses, fines and penalties of whatsoever nature, including court costs and attorney's fees, arising from or growing out of any injury to or death of persons whomsoever . . . or loss of or damage to property whatsoever. . . . The right to indemnity shall accrue when such injury, death, loss or damage occurs from any cause and is associated in whole or in part with the work performed under this agreement or any activity or omission arising out of performance or nonperformance of this agreement. However, the contractor shall not indemnify [UP] when the loss is caused by the negligence of [UP].
(Loram's Mem. in Opp. and Reply, Ex. A at 6, § 18) (emphasis added). Therefore, looking at the express language of the Contract, Loram is correct that it need not indemnify UP for UP's own negligence.
Furthermore, under Nebraska law, agreements to indemnify a party for its own negligence are contrary to public policy and are unenforceable. Neb. Rev. Stat. § 25-21, 187 ("contract . . . to indemnify or hold harmless another person from such person's own negligence . . . shall be void as against public policy and wholly unenforceable").
UP also argues that Loram violated the insurance provision of the contract by not reimbursing UP for Mr. Helmick's settlement. Almost identical to its argument on the indemnity provision, Loram counters that Mr. Helmick's injury resulted from UP's own negligence. Under Nebraska law, to be valid, insurance agreements must either expressly or clearly and unequivocally provide the insured coverage for its own negligence. Anderson v. Nashua Corp., 560 N.W.2d 446, 449 (Neb. 1997). Loram contends that the Contract does not require it to insure UP for UP's own negligence.
UP also argues that Loram violated the contract by self insuring for the first $1,000,000 of coverage required by the Contract. This is not relevant to the present dispute, however, because Loram has admitted that if Mr. Helmick's $250,000 settlement falls under the Contract, then Loram must pay the $250,000 to UP. Additionally, although there is a provision in the Contract that requires the insurer be a "reputable insurance company(ies) acceptable to" UP, nothing in the contract language expressly prevents self insurance.
The insurance provision of the Contract reads:
The Contractor [Loram] shall, at its sole cost and expense, procure and maintain during the life of this Agreement the following insurance coverage naming UNION PACIFIC RAILROAD COMPANY as additional insured (on all of the following policies except Worker's Compensation) with respect to all liabilities arising out of Insured's, as Contractor, performance of the work on behalf of the Railroad [UP]. . . . General Liability insurance[,] . . . Automobile Liability insurance[,] . . . [and] Worker's Compensation insurance. . . .
(Loram's Mem. in Opp. and Reply, Ex. A at 2, § 3) (emphasis added). Because UP admits the Contract has no express requirement that Loram insure UP for UP's own negligence, the first issue is whether the Contract is clear and unequivocal that the parties had that intention.
In Anderson v. Nashua Corp., 560 N.W.2d 446 (Neb. 1997), the court was faced with a similar decision — whether a broad insurance provision, which did not expressly cover negligence by the party seeking coverage, revealed the intent to provide for such coverage. The coverage clause in Anderson read: "Seller shall carry . . . insurances . . . as will protect Seller . . . and Buyer from all risks and from any claims." Anderson, 560 N.W.2d at 448 (emphasis added).
To analyze the language, the Anderson court contrasted the "all risks and from any claims" language at issue there with language at issue in Oddo v. Speedway Scaffold Co., 443 N.W.2d 596 (Neb. 1989). In Oddo, the Nebraska Supreme Court held the "clear and equivocal" test was met because the contract stated that the party seeking coverage "shall only be liable or responsible for actions of wilful misconduct." Oddo, 443 N.W.2d at 602. The Oddo court found that this language meant that only claims involving willful misconduct were excluded. Id.
The Anderson court found the differences between the sole, narrow exception from Oddo and the broader language at issue inAnderson compelling. The Anderson court concluded that the "all risks and from any claims" language at issue in that case did clearly and equivocally show that parties intent to cover the buyer's negligence. Anderson, 560 N.W.2d at 450-51.
Here, the "all liabilities" language is much closer to the "all risks and from any claims" language from Anderson, than the sole exception for "wilful misconduct" from Oddo. The language from this case and Anderson is inclusive; it attempts to establish a broad range of coverage by including "all" risks, claims, or liabilities. In contrast, the language from Oddo is exclusive; it attempts to establish a broad range of coverage by excluding only a very small subset of claims involving "wilful misconduct."
UP argues that the use of the term "liabilities" in this case is broader than the term "risks and claims" used in Anderson. But UP cites no authority for this proposition. Also, reading the word "liabilities" in context does not support' UP's argument. "[L]iabilities" is synonymous with "claims" — both have a legal connotation. "[R]isks," on the other hand, is a broader term, encompassing more than legal consequences, such as business consequences. Accordingly, the Contract does not demonstrate the "clear and unequivocal" intent to require Loram to insure UP against UP's own negligence.
Consequently, whether Loram violated either the indemnity provision or the insurance provision of the Contract turns on whether Mr. Helmick's injury was a result of UP's negligence.
III. Negligence.
In arguing that UP's negligence has been established, Loram argues that Mr. Helmick's complaint asserts only negligence causes of action, and UP settled the case with Mr. Helmick for $250,000 without contesting or defending the negligence claims in the complaint.
Loram also argues, based on an Iowa case applying Iowa law,McNally Nimergood v. Neumann-Kiewit Constructors, Inc., 648 N.W.2d 564 (Iowa 2002), that because Mr. Helmick only brought negligence-type claims in his complaint, UP's negligence has been established.
Loram also appears to argue that UP cannot prevail because UP settled Mr. Helmick's claims without notifying, or receiving input from, Loram. Loram's argument on this point is not persuasive. It is undisputed that well before the Helmick settlement, UP notified Loram of Mr. Helmick's suit and requested that Loram defend and indemnify UP under the Contract. Loram declined to do so. As a result, Loram lacks any basis to now claim that it should have been notified of, or somehow been allowed to participate in, the Helmick settlement.
In response, UP argues that it did not admit to any negligence or any liability in the Helmick matter, but merely settled the case. UP has also made a Rule 56 motion. UP does not argue for more discovery on negligence, but rather since discovery has not begun, UP argues that no decision should be made until the facts surrounding Mr. Helmick's accident are revealed.
Because the issue of negligence was never explored in the Helmick suit, and the facts surrounding the accident have not been totally presented to this court, a material issue of fact remains as to whether Mr. Helmick's injury was the result of UP's negligence. Contrary to Loram's argument, the fact that UP settled the Helmick suit is not de facto proof of negligence; many parties settle for reasons that have little or nothing to do with the substance of the dispute.
Further, Loram's citation of McNally does not advance its argument. The McNally court did hold that when a complaint makes only allegations of negligence, and the alleged negligent party settles the case, there can be no indemnification under an indemnity contract because the settlement resulted from negligence. McNally, 648 N.W.2d at 578. McNally, however, is a case from Iowa, applying Iowa law, and Loram has provided no suggestion as to why Nebraska courts would follow it. Even more compelling is that McNally itself recognized that settlement of the underlying action does not always prohibit a party from seeking indemnification. McNally, 648 N.W.2d at 578. Rather, the key inquiry involves examining the circumstances of the underlying claim to determine if they are covered under the indemnification agreement. Id. This process that has not been completed here because there has been no discovery on the negligence issue, and UP admitted no liability in the Helmick settlement.
UP submitted an expert report by Max. A. Ferguson, a Professional Engineer, in which Mr. Ferguson concludes that UP was not negligent in the construction or maintenance of its ballast or track. Mr. Ferguson also concluded that the accident most likely occurred because Mr. Helmick did not follow UP safety procedures when he was injured. (UP's Mem. in Opp. and Supp., Ex. G at 3-4.) According to UP, Mr. Ferguson's conclusions prevent the court from granting summary judgment for Loram. Apparently, Loram also has the opinion of an expert, Mr. Alan J. Blackwell. Mr. Blackwell has opined that UP was negligent in the construction and maintenance of its ballast. Mr. Blackwell's report, however, is not in evidence; it is merely referenced by UP in UP's arguments. Although not totally before the court, these contradictory statements concerning UP's negligence appear to present a genuine issue of material fact on negligence.
Likewise, although the Contract's insurance provision does not have the "clear and unequivocal" intent to require Loram to insure UP against UP's own negligence, the Contract may still obligate Loram to compensate UP. If discovery reveals that UP was not negligent concerning Mr. Helmick's injury, then the insurance provision may obligate Loram to compensate UP for the Helmick settlement.
Accordingly, UP's Rule 56(f) motion is GRANTED, and the parties's summary judgment motions are DENIED. Additionally, as noted at the hearing, the Court GRANTS (1) Loram's motion to strike the affidavit of Wendy S. Whalen and certain undisputed facts in UP's summary judgment brief; and (2) UP's motion to strike the affidavit of Dale Crawford.
ORDER
SO ORDERED.