Continental Steel Co. v. H.A. Lott, Inc.

772 S.W.2d 513, 1989 Tex. App. LEXIS 1834, 1989 WL 73896

• Court: Court of Appeals of Texas
• Decided: May 22, 1989
• Docket: 05-87-01072-CV
• Status: Published

Opinions

ON MOTION FOR REHEARING

STEWART, Justice.

We grant appellee’s motion for rehearing, withdraw our prior opinion, and substitute this opinion as the opinion of the Court.

This appeal concerns the construction of an indemnity agreement between appellant Continental Steel Company (Continental) and appellee H.A. Lott, Inc., (Lott). The sole contested issue is whether the agreement obligates Continental to indemnify Lott for Lott’s costs and expenses incurred in its successful defense of a claim based solely on Lott’s alleged negligence. We hold that the agreement does create such an obligation; therefore, we affirm the trial court’s judgment on the indemnity claim.

Continental was a subcontractor for Lott, the general contractor, at a construction site in Dallas, Texas. The parties’ subcontract agreement contained provisions whereby Continental agreed to indemnify Lott for certain claims arising from work under the subcontract. When Gregory Williams was injured at the construction site, Union Standard Insurance Company paid Williams workers’ compensation. As Williams’ subrogee, the company then filed this suit against Lott and several subcontractors to recoup its payments pursuant to article 8307, section 6a of the Texas Revised Civil Statutes. Williams intervened as a plaintiff on his own behalf. Williams’ petition alleged that, through various negligent acts and omissions, Lott had proximately caused his injuries. Prior to trial, the claims against all the other defendants were either severed or dismissed.

Lott joined Continental on a claim of indemnity. The parties agreed that the indemnity issue would be reserved until after the trial on the claims against Lott. After a two-week trial, the jury found that Lott was not negligent. The trial court entered judgment that Williams and Union Standard Insurance take nothing and taxed all costs against them.

The trial court also rendered judgment in Lott’s favor on its indemnity claim against Continental under its subcontract with Continental. The court awarded Lott its attorneys’ fees and costs incurred in successfully defending the lawsuit. Continental argues that this award of attorneys’ fees was improper because no indemnity provision in the subcontract covers this loss.

THE AGREEMENT

In its third-party petition and on appeal, Lott has based its claim for indemnity on several paragraphs in the contract between Lott and Continental. However, we conclude that we need only consider the provisions of paragraph 10(a) to dispose of this appeal. Paragraph 10(a) provides as follows:

10.(a) Subcontractor [Continental] hereby agrees to indemnify and save harmless Contractor [Lott] from and against all claims, demands, damages, losses, expenses, costs, liabilities, injuries, and causes of action arising from injury to persons or damage to property arising out of, connected with, or incident to the performance of the work hereunder, except in cases of sole negligence on the part of the Contractor, and Subcontractor will defend any and all such actions brought against Contractor and will pay any judgment rendered in such suits and will reimburse and indemnify Contractor for all expenditures or expenses including court costs and counsel fees, made or incurred by Contractor by reason of such suits.

DISCUSSION

Continental argues that the provisions of paragraph 10(a) do not specifically speak to indemnity for the consequences of the in-demnitee’s own negligence; therefore, this paragraph violates the express negligence doctrine pronounced in Ethyl Corp. v. Daniel Construction Co., 725 S.W.2d 705, 708 (Tex.1987). It argues that the adoption of the express negligence doctrine was simply one expression of the court’s concern with ingeniously broad and vague indemnity contracts which could be, and were, construed to cover matters not within the contemplation of the parties; that the Ethyl court enunciated a policy disapproving all ambiguous indemnity provisions, not just those related to the indemnitee’s own negligence; and that, because there is no specific provision for indemnifying Lott for its attorney fees in defending this action, whether successful or not, Continental should not be held liable for Lott’s defense costs.

Lott, on the other hand, contends that the Ethyl court was concerned only that liability for an indemnitee’s own negligence be expressly stated and the requirements of the express negligence doctrine do not apply to the other separate and distinct obligations contained in the indemnity provision; that the jury found Lott was not negligent; that the defense costs were, thus, not incurred due to its negligence but due to plaintiffs’ filing invalid claims which arose out of the performance of work under the subcontract; and that, therefore, the express negligence rule is inapplicable to the issue before this court.

We agree with Lott that the Ethyl court addressed only liability for the indemnitee’s own negligence, whether sole, joint or concurrent. Ethyl, 725 S.W.2d at 708. There, the indemnitee had been found negligent by a jury. The Supreme Court recently repeated that its purpose in adopting the express negligence rule is “to require scriveners to make it clear when the intent of the parties is to exculpate an indemnitee for the indemnitee’s own negligence.” Atlantic Richfield Co. v. Petroleum Personnel, Inc., 768 S.W.2d 724, 725 (Tex.1989). The Supreme Court has not addressed the question of whether the express negligence rule applies when the indemnitee has been found not negligent. For the following reasons, we decline to extend this rule to indemnity provisions covering losses which do not result from the indemnitee’s negligence.

Cases arising under the clear and unequivocal rule, which applied prior to the Ethyl court’s adoption of the express negligence doctrine, did not apply that rule to all indemnity provisions. To the contrary, if an indemnitee could prove he was not negligent as a matter of law, he was entitled to a summary judgment on a claim for which indemnity was provided. Sira & Payne v. Wallace & Riddle, 484 S.W.2d 559, 561 (Tex.1972). Moreover, it was the indemnitor’s burden to establish the indem-nitee’s negligence to avoid the duty to indemnify. Delta Eng’g Corp. v. Warren Petroleum, 668 S.W.2d 770, 772 (Tex.App.—Houston [1st Dist.] 1984, writ ref’d n.r.e.); Copeland Well Serv., Inc. v. Shell Oil Co., 528 S.W.2d 317, 320 (Tex.Civ.App—Tyler, 1975, writ dism’d w.o.j.).

The Copeland case is closely analogous on its facts to the case at bar. Shell, the indemnitee, sought to recover from Copeland, the indemnitor, the expenses it incurred in defending and ultimately reasonably settling a negligence action against it. Copeland contended that the indemnity agreement was unenforceable under the clear and unequivocal rule. The trial court found that Shell was not negligent and awarded it both the settlement amount and its attorney fees and other expenses incurred in defending plaintiff’s suit. The Court of Civil Appeals affirmed; it noted that an indemnitor’s defense could not be based on the clear and unequivocal rule unless the indemnitee’s negligence caused the casualty made the basis of indemnitee’s suit on the contract. Id. at 320. Because Copeland failed to obtain a finding or to conclusively establish that Shell was negligent, the validity of the indemnity agreement never came into play, and the Court did not reach the question of whether the indemnity agreement was sufficient to protect Shell against its own negligence. Id. Accord Delta Drilling Co. v. Cruz, 707 S.W.2d 660, 668-69 (Tex.App.—Corpus Christi 1986, writ ref'd n.r.e.); M.M. Sundt Constr. Co. v. Contractors Equip. Co., 656 S.W.2d 643, 645 (Tex.App.—El Paso 1983, no writ). We can discern no indication that the Ethyl court intended to change the law espoused in these cases; consequently, we conclude that they have continued validity under the express negligence doctrine. Accordingly, we hold that the express negligence doctrine has no application to the determination of an indemnitor’s duty to indemnify when an indemnitee is found not negligent and, thus, is seeking reimbursement for losses that do not arise from consequences of its own negligence. To the contrary, we do not reach the enforceability issue under the express negligence doctrine unless the indemnitee is seeking reimbursement for the consequences of its own negligence.

Continental also argues that its duty to indemnify is not dependent on the outcome of the underlying suit but on the nature of the claims that plaintiff asserts against the indemnitee. See Gulf Coast Masonry v. Owens-Illinois, Inc., 739 S.W.2d 239, 239 (Tex.1987); Atlantic Richfield Co. v. Petroleum Personnel, Inc., 758 S.W.2d 843, 844-45 (Tex.App.—Corpus Christi 1988), rev’d on other grounds, 768 S.W.2d 724 (Tex.1989); Adams v. Spring Valley Constr. Co., 728 S.W.2d 412, 414 (Tex.App.—Dallas 1987, writ ref’d n.r.e.). Otherwise, it contends, the courts in these summary judgment cases would not have ruled the indemnity provisions at issue unenforceable under the express negligence doctrine before the negligence of the respective indemnitees had been determined. Therefore, it maintains that, because this underlying suit is based on Lott’s own negligence, the express negligence doctrine renders the indemnity provision unenforceable, and the fact that Lott was found not negligent has no bearing on its duty to indemnify.

Continental further asserts that if Lott’s theory is correct, that the duty to indemnify in this case did not arise until Lott was found not negligent, then the courts in Gulf Coast Masonry, Atlantic Richfield, and Adams committed jurisdictional error of constitutional proportions because they issued advisory opinions; that is, a subsequent finding of negligence would mean that the indemnity provision was unenforceable, but a finding of no negligence would result in an enforceable indemnity provision. We disagree with Continental’s contentions.

Continental erroneously assumes that the express negligence doctrine applies regardless of the nature of an indemnitee’s claim for indemnity. Lott’s claim is for costs incurred in the successful defense of a negligence claim. In the cited cases, the only issue was whether the indemnitor would be liable for any judgment rendered against the indemnitee in the underlying suit. This issue could be determined by examining the nature of the claims asserted by the plaintiff and by construing the indemnity agreement. In all three cases, plaintiff’s suit was grounded on the indem-nitee’s negligence. In each of these cases, the court determined that the duty to indemnify for the consequences of the indem-nitee’s own negligence would never arise because the indemnity provision allegedly covering this type of loss did not meet the requirements of the express negligence doctrine. Because none of these suits addressed the indemnitor’s liability when the indemnitee is found not negligent, we conclude they are inapplicable to the issue before this court.

Continental next argues that, because the underlying suit was based on Lott’s negligence, a claim allegedly excluded from the indemnification clause under the express negligence test, Lott is not entitled to recover its costs in defending against this noncovered claim. It maintains that the duty to indemnify is closely analogous to the duty to defend in an insurance context, where the duty to defend depends on whether the plaintiff’s pleaded allegations are within or outside the scope of coverage under the policy, and if the allegations are outside the scope of coverage, there is no duty to defend, regardless of the outcome of the suit. Argonaut Southwest Ins. Co. v. Maupin, 500 S.W.2d 633, 635 (Tex.1973).

We agree that the duty to defend is not dependent on the outcome of the suit but upon the nature of the claim asserted by plaintiff; however, we disagree that plaintiffs allegations determine the duty to indemnify. Instead, the duty to indemnify is determined from the terms of the indemnity agreement. Ideal Lease Serv. v. Amoco Prod. Co., 662 S.W.2d 951, 953 (Tex.1983). In construing indemnity contracts, the applicable guidelines are well established. The primary concern of courts is to ascertain and to give effect to the intentions of the parties as expressed in the instrument. Id. Those intentions are determined by applying the same rules of construction as are applied to other contracts. Id.; Fisher Constr. Co. v. Riggs, 320 S.W.2d 200, 209 (Tex.Civ.App.—Houston), rev’d on other grounds, 160 Tex. 23, 325 S.W.2d 126 (1959). However, the intent to indemnify the indemnitee for the consequences of its own negligence must also meet the requirements of the express negligence rule. Ethyl, 725 S.W.2d at 708. Having found the express negligence doctrine inapplicable to our facts, we apply general contract principles to ascertain whether Lott has a right to indemnity for its defense costs.

Under the relevant terms of paragraph 10(a), Continental agreed to indemnify Lott against all claims, demands, losses, expenses, and costs arising from injuries to persons arising out of, connected with, or incident to the performance of the work under the subcontract. Our record does not reveal the facts surrounding Williams’ injury, but Continental does not contend that Williams’ cause of action did not arise out of or was not connected with or incident to the performance of the work under Continental’s subcontract with Lott. In addition, Lott affirmatively asserts, without contradiction from Continental, that plaintiff’s claim arose under this contract. Therefore, we conclude that Williams’ injury arose from or was connected with the performance of work under the subcontract. Based on this conclusion, we hold that Williams’ claim was covered by the indemnity agreement. Because Lott was found not negligent, we need not address the effect that a defense based on the express negligence doctrine would have on Lott’s right to recover its litigation costs.

Nevertheless, Continental contends that it is not liable for Lott’s litigation expense because these costs are not specifically covered by the agreement. However, Texas law dictates otherwise. The litigation costs for defending an indemnified claim may be recovered either upon a right of indemnity implied by law or arising under the contract, because otherwise an in-demnitee would not be fully protected and saved harmless against claims covered by the indemnity agreement. Fisher, 320 S.W.2d at 211. There is no requirement that the agreement expressly stipulate that these costs are to be indemnified; they are expenses or costs arising from a personal injury connected with or incident to the performance of the work from which Lott is to be saved harmless. Patch v. Amoco Oil Co., 845 F.2d 571, 572 (5th Cir.1988) (interpreting Texas law). Further, we agree with the court in Patch that “nothing in the reasoning or holding of Ethyl ... bears on this issue or indicates that the holding in Fisher is not good Texas law.” Id. at 573. We reject Continental’s contention that it has no liability because Lott’s defense costs are not specifically covered by the agreement.

Based on the foregoing authority, we hold that Lott’s defense costs, incurred in the successful defense of a claim for which indemnity was provided, are recoverable from Continental under the indemnity agreement at issue. Accordingly, we overrule Continental’s sole point of error.

The judgment is affirmed.

LAGARDE, J., dissents.