Golden Valley Electric Ass'n v. City Electric Service, Inc.

518 P.2d 65, 1974 Alas. LEXIS 372

• Court: Alaska Supreme Court
• Decided: January 21, 1974
• Docket: 1580
• Status: Published

Opinions

OPINION

BOOCHEVER, Justice.

In October of 1967, City Electric contracted to supply to Golden Valley all labor and equipment necessary to convert Golden Valley’s electric transmission system from single phase to three phase. Robert A. Smith, an employee of City Electric, was injured when he fell from a power pole owned by Golden Valley. Smith recovered workmen’s compensation benefits from City Electric and brought suit against Golden Valley alleging that Golden Valley was negligent in installing the pole and that the negligence proximately caused his injuries. Golden Valley brought a third-party complaint against City Electric alleging that City Electric’s negligence was the proximate cause of Smith’s injuries, that City Electric thereby breached its duty to perform its contract with Golden Valley in a workmanlike manner, and that Golden Valley was entitled to be indemnified by City Electric ifor any liability it owed Smith.

City Electric moved for judgment on the pleadings. The superior court judge dismissed the third-party complaint and granted judgment for City Electric because he concluded that the payment of workmen’s compensation benefits to Smith marked the outer limit of City Electric’s

liability. This appeal followed. City Electric has made no appearance before this court.

We are asked to decide if AS 23.30.055,¹ which on its face limits the employer’s liability to that imposed through workmen’s compensation, precludes a third party, found liable in tort to an injured workman, from recovering indemnity from the workman’s employer.²

Golden Valley concedes that the exclusive remedy provision precludes the employee or persons claiming through him from recovering damages other than workmen’s compensation benefits from the employer. However, it argues that the provision does not bar a third party, found liable in tort to the employee, from recovering indemnity from the employer where the employer’s fault also contributed to the accident. The opposing argument raised by City Electric at the trial level was that “the allowance of such recovery over accomplishes indirectly what cannot be done directly and, therefore, evades the spirit of the legislation.” ³

We need not decide here whether the exclusive remedy provision bars all actions by third parties against employers where the third party has been held liable to the employee for injuries resulting from a work-related incident for which compensation has been paid.⁴ Because the claim of Golden Valley cannot be predicated upon any express covenant, nor upon any statute authorizing indemnity or contribution, recovery may be had only by implying a covenant of indemnity in the contract between the parties. We hold that the judgment of the superior court was correct because as a matter of the common law of contracts, no covenant of indemnity should be implied in the agreement between these parties. We base our holding upon the policy underlying the exclusive remedy statute, the ability of the parties who have entered into a written contract to allocate risk expressly where they are on notice of the exclusive remedy provision of the Workmen’s Compensation Act, and the dismal experience of the federal courts with a rule similar to that suggested by Golden Valley where the Longshoremen’s and Harbor Workers’ Compensation Act and admiralty law provided simultaneous recoveries.

It should be noted at the outset that each Alaskan employer may, as a matter of law, be presumed to have sufficient knowledge of the provisions of the Alaska Workmen’s Compensation Act to be aware that the Act contains a provision whereby the employer’s liability prescribed by the Act “is exclusive and in place of all other liability of the employer and any fellow employee to the employee . . . and anyone otherwise entitled to recover damages from the employer ... on account of [the employee’s] injury or death.” ⁵ We take judicial notice of the fact that Golden Valley owns extensive property interests, employs numerous employees and engages in frequent and substantial contracts. If such an enterprise wishes to alter the exclusive remedy provision of the Alaska Workmen’s Compensation Act so as to require an employer contracting with it to indemnify Golden Valley against the tort claims of the employer’s servants, it is not onerous to require that Golden Valley expressly so provide in the contract.

Courts will imply a contract term in order to conform an agreement to the evident intent of the parties.⁶ Since the parties here were chargeable with knowledge of the exclusive remedy provision of the Alaska Workmen’s Compensation Act, it is illogical to conclude that indemnification of Golden Valley by City Electric was in the contemplation 'of the parties all along. Furthermore, such an interpretation of contracts between employers and third parties effectively nullifies one intended effect of the statute — the establishment of an acceptable, ascertainable and reliable limit to liability. To that extent, Golden Valley asks us to ignore the intention of the legislature.

While there is some prior state authority for implying a contract of indemnity under these circumstances,⁷ the great impetus toward forging a remedy for a third party by means of an implied contract of indemnity arose out of federal admiralty law. Initially the United States Supreme Court, anchoring its opinion on maritime principles, authorized recovery by a longshoreman from a ship owner under the doctrine of unseaworthiness, a strict liability theory not dependent upon negligence.⁸ In the leading case, Ryan Stevedoring Co. v. Pan-Atlantic Steamship Corp., 350 U.S. 124, 76 S.Ct. 232, 100 L.Ed. 133 (1956), a longshoreman injured when . improperly-stored cargo collapsed on him recovered from the ship owner on the grounds that the vessel was unseaworthy and the owner was negligent in failing to discover the negligent storage. The ship owner sought indemnity from the longshoreman’s employer, the stevedoring company which had negligently loaded the ship. The court found two implied-in-fact terms in the contract between the stevedoring company and thfe ship owner. The first was an implied warranty that service would be performed in a safe and workmanlike manner. The second was an implied agreement by the stevedore to indemnify the ship owner for any damages sustained by the latter because of the stevedore’s breach of his duty to perform the work safely.

In the maritime' context, where a ship owner could be held liable without fault for an irijury attributable solely to the negligence of a contracting stevedoring company, implying indemnification of the ship owner perhaps leads to a justifiable result. Yet even in admiralty cases this strained application of contract principles to avoid tort liability on the part of the ship owner resulted in a proliferation of litigation involving abstruse reasoning and fine distinctions dependent upon slight variations in the particular facts of each case. This situation culminated in a 1972 amendment to the Longshoremen’s and Harbor Workers’ Compensation Act whereby the liability of a ship owner to a longshoreman for unseaworthiness was abolished by Congress, as was a ship owner’s liability for injuries caused by the negligence of persons engaged in stevedoring service on the vessel.⁹ In explaining the reason for the amendment, the House Report¹⁰ indicated that the extensive litigation generated by Sieracki and Ryan and their progeny had occasioned substantial expenditures “which could better be utilized to pay improved compensation benefits [rather than] to defray litigation costs.”¹¹ The impact of repetitive and protracted litigation upon the courts was also considered. Congress determined that it would be fairer to all concerned, and fully consistent with the objective of protecting the health and safety of employees who work on board vessels, to predicate the liability of vessel owners upon negligence principles, thereby placing ship owners in the same position with respect to third-party liability as land-based third parties in non-maritime pursuits. The Report concluded that:

the doctrine of the Ryan case, which permits the vessel to recover the damages for which it is liable to an injured worker where it can show that the stevedore breaches an express or implied warranty of workmanlike performance is no longer appropriate if the vessel’s liability is no longer to be absolute, as it essentially is under the seaworthiness doctrine. Since the vessel’s liability is to be based on its own negligence, and the vessel will no longer be liable under the seaworthiness doctrine for injuries which are really the fault of the stevedore, there is no longer any necessity for permitting the vessel to recover the damages for which it is liable to the injured worker from the stevedore or other employer of the worker.¹²

By analogy, Golden Valley may be held liable only upon establishment of its negligence, and there is no need for a judicially implied contract of indemnity. There is thus no reason for this court to become lost in the labyrinth created by contorting contract law to imply an indemnity agreement when the parties are perfectly free to express their own intentions.

We are further influenced by the complexities that would be involved in attempting to instruct juries under the rule suggested by Golden Valley and the Justices dissenting from this opinion. The courts could well find it necessary to instruct as to the relative ability of the parties to prevent the injury, distinguishing between the company creating the dangerous condition and the one failing to discover it.¹³ Federal courts have found it necessary to instruct on such niceties as whether the third party created a dangerous condition and the employer merely failed to discover it, whether the third party created a dangerous condition and the employer discovered it but continued work, or whether the third party created a dangerous condition which was latent and the employer activated it-by his own affirmative conduct.¹⁴ Even with these further guidelines, our dissenting Justices recognize that under certain circumstances, cases may arise which call for instructions distinguishing between different degrees of relative negligence.¹⁵

Where parties chargeable with knowledge of the exclusive remedy provision of the Alaska Workmen’s Compensation Act have entered into a service contract, they should be required to set forth expressly any agreement by which they intend to increase an employer’s liability beyond the limits dictated by the workmen’s compensation statute. There does not appear to be any valid reason for this court to author contractual terms for the parties when, in the absence of an express agreement to the contrary, they may be presumed to have relied on the statutory exclusive remedy provision. Where an employee is injured through the negligence of a third party who is not in a contractual relationship with his employer, the vast majority of cases hold that the third party cannot recover indemnity from the employer.¹⁶ When the parties have entered into a contract and thus had the opportunity to provide for the manner in which losses are to be distributed, there is less reason for the courts to allocate liability.

Because we hold that the policies underlying AS 23.30.05S and the application of ordinary rules of the law of contracts cannot justify the implication of an indemnity covenant, we affirm the judgment of the superior court.

Affirmed.

1 . AS 23.30.055 provides in pertinent part:

The liability of an employer prescribed in § 45 of this chapter is exclusive and in place of all other liability of the employer and any fellow employee to the employee, his legal representative, husband or wife, parents, dependents, next of kin, and anyone otherwise entitled to recover damages from the employer or fellow employee at law or in admiralty on account of the injury or death.

2 . See 2 A. Larson, Workmen’s Compensation § 76.10, at 227 (1970) :

Perhaps the most evenly-balanced controversy in all of compensation law is the question whether a third party in an action by the employee can get contribution or indemnity from the employer, when the employer’s negligence has caused or contributed to the injury, (footnote omitted).

3 . Larson, Workmen’s Compensation: Third Party’s Action Over Against Employer, 65 Nw.U.L.Rev. 351, 419 (1970).

4 . See, e. g., 2 A. Larson, Workmen’s Compensation § 76.41 at 250.12 ff. (1970). Compare American Dist. Tel. Co. v. Kittleson, 179 F.2d 946, 953-955 (8th Cir. 1950) (interpreting Iowa law) with 2 A. Larson, Workmen’s Compensation § 76.44 at 250.78 ff. (1970), and cases there cited. See also Northwest Airlines, Inc. v. Alaska Airlines, Inc., 343 F.Supp. 826, 828-829 (D.Alaska 1972).

5 . AS 23.30.055.

6 . Stern v. Dunlap Co., 228 F.2d 939 (10th Cir. 1955) ; Brooker Engineering Co. v. Grand River Dam Authority, 144 F.2d 708 (10th Cir. 1944) ; Stern & Co. v. State Loan & Finance Corp., 238 F.Supp. 901 (D.Del. 1965).

7 . Westchester Lighting Co. v. Westchester County Small Estates Corp., 278 N.Y. 175, 15 N.E.2d 567 (1938).

8 . Seas Shipping Co. v. Sieracki, 328 U.S. 85. 66 S.Ct. 58, 90 L.Ed. 1099 (1946).

9 . Act of Oct. 27, 1972, Pub.L.No.92-576, § 18(a), 86 Stat. 1251, 1263, amending 33 U.S.C. § 905 (1970).

10 . H.R.JEtep.No.92-1441, 92nd Cong., 2nd Sess., 1972 U.S.Code Cong. & Admin.News p. 4698.

11 . Id. at 4702, n. dd.

12 . Id. at 4704.

13 . See Italia Societa v. Oregon Stevedoring Co., 376 U.S. 315, 321-324, 84 S.Ct. 748, 11 L.Ed.2d 732, 739-740 (1964), where the United States Supreme Court acknowledges that simple tort analysis — comparative negligence — cannot properly be employed to determine the allocation of payments; Weyerhaeuser Steam Ship Co. v. Nacirema Operating Co., 355 U.S. 563, 569, 78 S.Ct. 438, 2 L.Ed.2d 491, 495 (1958).

14 .See 2 A. Larson, Workmen’s Compensation § 76.43(a) at 250.44-250.49 (1970).

15 . See Id. at 250.56.

16 . Id. § 76.44 at 250.78. We, of course, are not required in this case to pass upon the question of whether there may be recovery by a third party from an employer in the absence of a contractual relationship.