[Cite as Lexington Ins. Co. v. DunnWell, L.L.C., 2016-Ohio-5311.]
STATE OF OHIO ) IN THE COURT OF APPEALS )ss: NINTH JUDICIAL DISTRICT COUNTY OF SUMMIT )
LEXINGTON INSURANCE COMPANY C.A. No. 27476
Plaintiff
v. APPEAL FROM JUDGMENT ENTERED IN THE DUNNWELL, LLC, et al. COURT OF COMMON PLEAS COUNTY OF SUMMIT, OHIO Defendant/Appellee/Cross-Appellant CASE No. CV 2012 03 1741
v.
WEST BEND MUTUAL INSURANCE COMPANY, et al.
Defendants/Appellees/ Cross-Appellants
DECISION AND JOURNAL ENTRY
Dated: August 10, 2016
CARR, Judge.
{¶1} Appellants, West Bend Mutual Insurance Co. and ABCO Fire Protection, Inc.,
and cross-appellants, DunnWell, LLC. and Travelers Casualty Indemnity Co., appeal the
judgment of the Summit County Court of Common Pleas. This Court affirms in part, reverses in
part, and remands.
I.
{¶2} MAC Acquisition, LLC, dba Macaroni Grill, contracted with DunnWell to
provide cleaning and inspection services to MAC’s restaurant’s kitchen exhaust systems.
DunnWell subcontracted with ABCO to provide those services to MAC. ABCO agreed to add 2
DunnWell as an additional insured on its commercial liability insurance policy relevant to its
work as a subcontractor for DunnWell. West Bend as ABCO’s insurance company, therefore,
insured ABCO as its insured and DunnWell as an additional insured. Although DunnWell also
maintained insurance coverage through its carrier Travelers, any applicable coverage through
West Bend was designated as primary. Shortly after one of ABCO’s scheduled maintenance
and inspections at Macaroni Grill, a fire broke out at the restaurant, causing significant property
damage. Lexington Insurance Co., which insured MAC, paid the restaurant’s damages claim.
Lexington then filed a complaint in case number 2012-03-1741 against DunnWell and Travelers,
and ABCO and West Bend, alleging various negligence and breach claims, and seeking
compensatory and consequential damages, as well as declaratory judgment. In addition to
denying the allegations in Lexington’s complaint, DunnWell and ABCO each filed cross-claims
against the other, alleging, among other things, claims for indemnification and contribution. In
addition, DunnWell prayed for a judgment that ABCO defend it against all of MAC’s claims.
{¶3} Subsequently, in case number 2013-03-1400, ABCO and West Bend filed a
complaint against DunnWell and Travelers, seeking declaratory judgment. Specifically,
ABCO/West Bend sought declarations that DunnWell was not entitled to a defense,
indemnification, or contribution under the subcontractor indemnification provision; or that in the
case of ABCO’s partial negligence, DunnWell was entitled to only partial defense,
indemnification, or contribution; and that DunnWell was not entitled to coverage as an additional
insured under the West Bend policy to the extent that Macaroni Grill put the oven exhaust
systems to their intended use or because DunnWell’s acts or omissions in connection with its
general supervision of ABCO was the sole proximate cause of the fire. DunnWell answered and
counterclaimed for declaratory judgment, seeking declarations that (1) ABCO owes DunnWell 3
defense and indemnity pursuant to the parties’ subcontractor agreement, and (2) West Bend owes
DunnWell defense and indemnity pursuant to the insurance policy issued by West Bend to
ABCO describing DunnWell as an additional insured. Travelers filed a separate answer to the
ABCO/West Bend complaint but did not raise any counterclaims.
{¶4} The parties moved to consolidate case number 2013-03-1400 into case number
2012-03-1741, and the court granted the consolidation. Subsequently, DunnWell/Travelers and
ABCO/West Bend filed competing motions for summary judgment solely on the issues of
whether ABCO and West Bend owed DunnWell a defense and indemnity. The parties opposed
each other’s motions. The trial court issued a judgment in which it declared that the parties’
March 3, 2009 subcontractor agreement was operative at the time of the fire; that the
indemnification provision contained therein did not violate North Carolina’s anti-indemnification
statute; and that ABCO, therefore, was required to indemnify and defend DunnWell in the
underlying litigation. The trial court declined to issue any declaration, however, regarding
whether DunnWell was entitled to coverage (and presumably indemnity and defense) as an
additional insured under the West Bend insurance policy. In declining to declare the parties’
rights and obligations under the insurance policy, the trial court concluded that there were
genuine issues of material fact as to whether ABCO’s work caused the fire and whether one of
the policy’s exceptions to coverage applied to bar West Bend’s duty to indemnify and defend
DunnWell. The court certified the judgment pursuant to Civ.R. 54(B) as a final, appealable
order.
{¶5} ABCO appealed, raising three assignments of error for review. DunnWell and
Travelers filed a cross-appeal, raising one assignment of error for review.
Jurisdiction 4
{¶6} As a preliminary matter, this Court is obligated to raise sua sponte questions
related to our jurisdiction. Whitaker-Merrell Co. v. Geupel Constr. Co., Inc., 29 Ohio St.2d 184,
186 (1972). This Court has jurisdiction to hear appeals only from final judgments. Article IV,
Section 3(B)(2), Ohio Constitution; R.C. 2501.02. “For a judgment to be final and appealable,
the requirements of R.C. 2505.02 and Civ.R. 54(B), if applicable, must be satisfied.” LEH
Properties, Inc. v. Pheasant Run Assn., 9th Dist. Lorain No. 07CA009275, 2008-Ohio-4500, ¶
10, citing Chef Italiano Corp. v. Kent State Univ., 44 Ohio St.3d 86, 88 (1989). R.C.
2505.02(B)(2) states that “[a]n order that affects a substantial right made in a special proceeding”
is a “final order that may be reviewed, affirmed, modified, or reversed[.]” Where a case involves
multiple claims or multiple parties, Civ.R. 54(B) allows a trial court to issue a final judgment
that can immediately be appealed “only upon an express determination that there is no just
reason for delay.” In the absence of a final, appealable order, this Court must dismiss the appeal
for lack of subject matter jurisdiction. Lava Landscaping, Inc. v. Rayco Mfg., Inc., 9th Dist. No.
2930-M, 2000 WL 109108 (Jan. 26, 2000).
{¶7} The parties in this case sought declarations regarding their respective rights and
obligations relating to the duty to indemnify and defend. The Ohio Supreme Court has held that
“[t]he duty to defend involves a substantial right to both the insured and the insurer.” Gen. Acc.
Ins. Co. v. Ins. Co. of N. Am., 44 Ohio St.3d 17 (1989), paragraph one of the syllabus. The high
court reasoned that the risk of adverse economic and other consequences arising from situations
both (1) where the indemnitor wrongfully refuses to defend so that the indemnitee is forced to
settle to mitigate costs or later pursue additional litigation to recoup its costs of pursuing its own
defense, and (2) where the insurance company expends costs to defend an action later
determined not to be within the terms of the insurance policy. Id. at 21-22. Further, the high 5
court held that “a declaratory judgment action is a special proceeding pursuant to R.C. 2505.02
and, therefore, an order entered therein which affects a substantial right is a final appealable
order.” Id. at paragraph two of the syllabus.
{¶8} In this case, the trial court declared that ABCO must indemnify and assume the
defense of DunnWell pursuant to the parties’ subcontractor agreement, and it certified the
judgment pursuant to Civ.R. 54(B). Accordingly, ABCO has appealed from a final, appealable
order; and this Court has jurisdiction to consider ABCO’s appeal.
{¶9} The trial court did not issue an express declaration as to whether West Bend has
the duty to defend DunnWell pursuant to the additional insured provision of the insurance policy;
instead, the trial court denied the competing motions for summary judgment on this issue upon
finding that genuine issues of material fact existed. This Court concludes that this too constitutes
a final, appealable order from which DunnWell can appeal.
{¶10} Normally, the denial of a motion for summary judgment is not a final, appealable
order. Hunt v. Alderman, 9th Dist. Summit No. 27416, 2015-Ohio-4667, ¶ 9. Moreover, this
Court has held that an order entering judgment in a declaratory judgment action which fails to
declare the parties’ rights and obligations is not final and appealable. Bowers v. Craven, 9th
Dist. Summit No. 25717, 2012-Ohio-332, ¶ 11. Where the denial of a motion for summary
judgment in the context of declaratory judgment gives rise, however, to the reasonable and
logical inference that one party has in fact prevailed, the requirements of finality are satisfied.
See Indiana Ins. Co. v. Alloyd Insulation Co., 2d Dist. Montgomery No. 18979, 2002-Ohio-3916,
¶ 4 (assuming jurisdiction to review the trial court’s order denying summary judgment that “in
the process suggested that its negative ruling supported a positive inference that [the insurance
company] had a duty of coverage.”). 6
{¶11} In this case, DunnWell/Travelers and ABCO/West Bend had competing motions
for summary judgment, both seeking a declaration regarding whether West Bend had a duty
under the terms of its insurance policy to defend and indemnify DunnWell. Although the trial
court denied both motions on this issue, the court’s ruling gives rise to the reasonable, positive
inference that West Bend need not defend DunnWell in the underlying negligence suit.
DunnWell has no legal recourse to compel West Bend to provide a defense, even under a
reservation of rights, leaving it in a position where it must either absorb the full cost of its own
defense and expend additional costs to continue to pursue reimbursement after the negligence
action is fully disposed, or be induced to settle the underlying suit to avoid the costs of a defense.
Either scenario impacts the substantial rights recognized by the Ohio Supreme Court in Gen.
Acc. Ins., supra, when it recognized the finality of declarations regarding an insurance
company’s duty to defend an insured. Finally, because the trial court in this case certified its
judgment pursuant to Civ.R. 54(B), this Court recognizes our jurisdiction to address the merits of
the cross-appeal. See Indiana Ins. Co. at ¶ 4.
Summary Judgment Standard of Review
{¶12} This Court reviews an award of summary judgment de novo. Grafton v. Ohio
Edison Co., 77 Ohio St.3d 102, 105 (1996). This Court applies the same standard as the trial
court, viewing the facts in the case in the light most favorable to the non-moving party and
resolving any doubt in favor of the non-moving party. Viock v. Stowe-Woodward Co., 13 Ohio
App.3d 7, 12 (6th Dist.1983).
{¶13} Pursuant to Civ.R. 56(C), summary judgment is proper if:
(1) No genuine issue as to any material fact remains to be litigated; (2) the moving party is entitled to judgment as a matter of law; and (3) it appears from the evidence that reasonable minds can come to but one conclusion, and viewing 7
such evidence most strongly in favor of the party against whom the motion for summary judgment is made, that conclusion is adverse to that party.
Temple v. Wean United, Inc., 50 Ohio St.2d 317, 327 (1977).
{¶14} To prevail on a motion for summary judgment, the party moving for summary
judgment must be able to point to evidentiary materials that 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.
Dresher v. Burt, 75 Ohio St.3d 280, 293 (1996). Once a moving party satisfies its burden of
supporting its motion for summary judgment with sufficient and acceptable evidence pursuant to
Civ.R. 56(C), Civ.R. 56(E) provides that the non-moving party may not rest upon the mere
allegations or denials of the moving party’s pleadings. Rather, the non-moving party has a
reciprocal burden of responding by setting forth specific facts, demonstrating that a “genuine
triable issue” exists to be litigated for trial. State ex rel. Zimmerman v. Tompkins, 75 Ohio St.3d
447, 449 (1996).
{¶15} The non-moving party’s reciprocal burden does not arise until after the moving
party has met its initial evidentiary burden. To do so, the moving party must set forth evidence
of the limited types enumerated in Civ.R. 56(C), specifically, “the pleadings, depositions,
answers to interrogatories, written admissions, affidavits, transcripts of evidence, and written
stipulations of fact[.]” Civ.R. 56(C) further provides that “[n]o evidence or stipulation may be
considered except as stated in this rule.”
II.
ABCO’S ASSIGNMENT OF ERROR I
THE TRIAL COURT ERRED IN GRANTING DUNNWELL, LLC SUMMARY JUDGMENT ON THE ISSUE OF WHICH SUBCONTRACT AGREEMENT BETWEEN ABCO AND DUNNWELL WAS IN FORCE AT THE TIME OF THE NOVEMBER 14, 2010 FIRE. 8
{¶16} ABCO argues that the trial court erred by concluding that the March 3, 2009
subcontractor agreement was in effect at the time of the November 14, 2010 fire. This Court
disagrees.
{¶17} DunnWell (the contractor) and ABCO (the subcontractor) executed a
subcontractor agreement on March 3, 2009, whereby ABCO would perform certain work as
delineated in Schedule A, which was attached to the contract. Schedule A, related to the 2009
contract, contained the primary heading “Work” and the subheading “Kitchen Exhaust
Cleaning.” On September 7, 2010, DunnWell and ABCO executed another subcontractor
agreement, whereby ABCO would perform certain work as delineated in Schedule A, which was
attached to that contract. Schedule A related to the 2010 contract contained the primary heading
“Scope of Work & Pricing” and the subheading “Fire Protection Service.” Except for the
content of the various schedules, the two contracts contained identical provisions, including an
integration/merger clause which stated that the contracts embodied the parties’ entire agreement
and “supersede[d] all prior negotiations, agreements and understandings relating to the subject
matter hereof.” The contracts also each contained a choice of law provision requiring that “[a]ll
matters relating to the validity, performance or interpretation of this Agreement shall be
governed by the laws of the State of North Carolina[.]” The parties do not dispute the propriety
of the application of North Carolina law to the interpretation of these contracts. This Court,
therefore, will consider this issue within the context of North Carolina law.
{¶18} ABCO argues that a genuine issue of material facts exists regarding whether the
2010 contract superseded the 2009 contract based on the deposition testimony of one of its
representatives who testified that ABCO and DunnWell only maintained one active contract at a
time. ABCO further argues that, because the 2010 contract does not delineate the work required 9
relating to kitchen exhaust cleaning, then all kitchen exhaust cleaning performed by ABCO on
behalf of DunnWell was done on a case-by-case basis and not subject to any written contract
provisions. This Court is not persuaded by ABCO’s argument given the plain language of the
contracts which negates the need to consider extrinsic evidence such as the ABCO
representative’s testimony regarding the meaning of the contracts.
{¶19} The Supreme Court of North Carolina recognizes that a reviewing court considers
a lower court’s interpretation of a contract de novo. State v. Philip Morris USA Inc., 363 N.C.
623, 631 (2009). That court set out the principles of contract interpretation as follows:
Interpreting a contract requires the court to examine the language of the contract itself for indications of the parties’ intent at the moment of execution. If the plain language of a contract is clear, the intention of the parties is inferred from the words of the contract. Intent is derived not from a particular contractual term but from the contract as a whole. However, we are also mindful that in reviewing the entire agreement, our task is not to find discord in differing clauses, but to harmonize all clauses if possible. Furthermore, when the terms of a contract are plain and unambiguous, there is no room for construction. The contract is to be interpreted as written, and enforce[d] * * * as the parties have made it.
(Internal quotations and citations omitted.) Philip Morris at 631-632.
{¶20} In this case, DunnWell and ABCO entered into a subcontractor agreement on
March 3, 2009, for the express work purpose of “kitchen exhaust cleaning.” Schedule A of the
2009 agreement clearly details the type of duties entailed in kitchen exhaust cleaning. On
September 7, 2010, the parties executed another subcontractor agreement for the express work
purpose of “fire protection services.” Schedule A of the 2010 agreement clearly details the type
of duties entailed in fire protection services, and those duties are separate and distinct from the
duties enumerated in the 2009 agreement. Except for the work identified in Schedule A of each
contract, the agreements are identical. Although both agreements contain integration/merger
clauses as set out above, the “subject matter” of each contract differed in terms of the work each 10
governed. The underlying negligence complaint against DunnWell and ABCO alleges breaches
in the parties’ duties arising out of kitchen exhaust cleaning at the Macaroni Grill.
{¶21} Based on the plain language of the 2009 subcontractor agreement, it is clear that
the parties intended that contract to govern work performed by ABCO on behalf of DunnWell as
it related to kitchen exhaust cleaning. By contrast, the plain language of the 2010 agreement
indicates the parties’ intent that that contract governs a separate and distinct type of work,
specifically fire prevention services. As the two agreements governed different “subject
matter[s],” by its plain and unambiguous language, the 2010 agreement did not supersede the
2009. As a review of the plain language of the agreements resolves this matter, this Court shall
not engage in further construction or consideration of any extrinsic evidence. Accordingly, the
trial court did not err by concluding that the 2009 subcontractor agreement was in effect at the
time of the fire and that the 2010 agreement had not superseded it. ABCO’s first assignment of
error is overruled.
ABCO’S ASSIGNMENT OF ERROR II
THE TRIAL COURT ERRED IN GRANTING DUNNWELL, LLC SUMMARY JUDGMENT ON THE ISSUE OF INDEMNIFICATION PURSUANT TO THE SUBCONTRACT.
ABCO’S ASSIGNMENT OF ERROR III
THE TRIAL COURT ERRED IN FINDING THAT THE DUNNWELL, LLC CONTRACTUAL INDEMNIFICATION AGREEMENT DOES NOT VIOLATE NORTH CAROLINA’S ANTI-INDEMNITY STATUTE.
{¶22} ABCO consolidates its discussion relating to the second and third assignments of
error and argues that the trial court erred by concluding that the indemnity provision of the 2009
subcontractor agreement does not violate North Carolina’s anti-indemnity statute and that ABCO 11
was, therefore, required to indemnify and defend DunnWell in the underlying action. This Court
agrees in part, and disagrees in part.
{¶23} These assignments of error implicate a two-part analysis. First, this Court must
determine whether the indemnity provision in the parties’ subcontractor agreement is void
because it violates the North Carolina anti-indemnity statute. Second, assuming that the
indemnity provision is not void, this Court must determine whether it applies in this case to
require ABCO to indemnify DunnWell.
Anti-indemnity statute
{¶24} North Carolina’s anti-indemnity statute is codified at N.C.G.S.A. § 22B-1 and
states, in pertinent part:
Any promise or agreement in, or in connection with, a contract or agreement relative to the * * * repair or maintenance of a building, structure, * * * or appliance, * * * purporting to indemnify or hold harmless the promisee * * * against liability for damages arising out of bodily injury to persons or damage to property proximately caused by or resulting from the negligence, in whole or in part, of the promisee * * * is against public policy and is void and unenforceable. Nothing contained in this section shall prevent or prohibit a contract, promise or agreement whereby a promisor shall indemnify or hold harmless any promisee * * * against liability for damages resulting from the sole negligence of the promisor * * *. This section shall not affect an insurance contract, workers’ compensation, or any other agreement issued by an insurer * * *.
{¶25} In Bridgestone/Firestone, Inc. v. Ogden Plaint Maintenance Co. of N.C., 144
N.C.App. 503 (2001), the North Carolina appellate court reviewed the language in two
indemnity clauses and concluded that, based on the plain language of the provisions, they did not
violate the state’s anti-indemnity statute. 144 N.C.App. at 507-508. In both indemnity clauses in
Bridgestone, the promisor agreed to indemnify and hold harmless the promisee for claims,
judgments, and the like due to injuries arising out of the promisor’s conduct or negligence. Id.
Moreover, the first clause was held not to violate N.C.G.S.A. § 22B-1 even though it required the 12
promisor to indemnify the promisee “regardless of whether such claims are alleged to be caused
by negligence, or otherwise, on the part of [the promisee].” Id. at 507. The appellate court
implicitly recognized that the mere allegation of negligence by the promisee did not impute
agreement by the promisor to indemnify the promisee for the promisee’s own negligence.
Accordingly, that clause did not render the indemnity provision void. Moreover, the North
Carolina courts recognize that an illegal clause or provision in a clause in a contract may be
severed to cure the defect. Intl. Paper Co. v. Corporex Constructors, Inc., 96 N.C.App. 312, 315
(1989).
{¶26} The indemnity provision in the subcontractor agreement in this case states:
9. INDEMNITY. To the fullest extent permitted by law, Subcontractor agrees to defend, indemnify and save harmless DunnWell and its customers and their respective agents, servants, officers, directors, managers, members and employees (the “Indemnified Parties”), from and against any and all claims, costs, expenses or liabilities (including attorney’s fees and expenses) (“Liabilities”), attributable to bodily injury, sickness, disease or death, or damage to or destruction of property (including loss of use thereof), caused by, arising out of, resulting from, or occurring in connection with the performance of the Work by Subcontractor, its subcontractors and suppliers, or their agents, servants or employees. Subcontractor further agrees to defend, indemnify and save harmless the Indemnified Parties from and against any all Liabilities arising out of, resulting from or occurring in connection with a breach or non-fulfillment by Subcontractor of any representation, covenant, warranty or agreement contained herein.
Should a customer or any other person or entity assert a claim or institute a suit, action or proceedings against DunnWell involving the manner or sufficiency of the performance of the Work, Subcontractor shall upon request of DunnWell promptly assume the defense of such claim, suit, action or proceeding at Subcontractor’s expense, and Subcontractor shall indemnify and save harmless DunnWell as well as anyone else to be defended, indemnified and held harmless by DunnWell and its or their agents, servants and employees, from and against any liability, loss, damage, or expense arising out of or related to such claim, suit, action, or proceeding.
{¶27} The subcontractor agreement defines “Work” as the work that ABCO was
obligated to perform and complete according to Schedule A appended to the agreement. 13
{¶28} Upon review of the indemnity provision, the plain language indicates that
DunnWell seeks indemnity and defense solely for matters arising out of ABCO’s negligence and
acts, not its own negligence. As the provision does not require ABCO to indemnify DunnWell
for DunnWell’s negligence, it is not void as against public policy and does not violate North
Carolina’s anti-indemnity statute.
{¶29} This does not end the inquiry, however. This Court must further determine
whether the indemnity provision in the parties’ subcontractor agreement is applicable under these
circumstances to require ABCO to indemnify DunnWell and assume its defense.
Defense
{¶30} The Supreme Court of North Carolina has held:
[T]he insurer’s duty to defend the insured is broader than its obligation to pay damages incurred by events covered by a particular [agreement]. An insurer’s duty to defend is ordinarily measured by the facts as alleged in the pleadings; its duty to pay is measured by the facts ultimately determined at trial. When the pleadings state facts demonstrating that the alleged injury is covered by the [agreement], then the insurer has a duty to defend, whether or not the insured is ultimately liable. Conversely, when the pleadings allege facts indicating that the event in question is not covered, and the insurer has no knowledge that the facts are otherwise, then it is not bound to defend. Where the insurer knows or could reasonably ascertain facts that, if proven, would be covered by its [agreement], the duty to defend is not dismissed because the facts alleged in a third-party complaint appear to be outside coverage, or within a policy exception to coverage.
Waste Mgt. of Carolinas, Inc. v. Peerless Ins. Co., 315 N.C. 688, 691 (1986). The North
Carolina courts use the “comparison test,” whereby the allegations in the complaint are taken as
true and compared to the language in the agreement regarding coverage to determine whether the
allegations arguably implicate coverage and, therefore, the duty to defend. Kubit v. MAG Mut.
Ins. Co., 210 N.C.App. 273, 278 (2011), citing Harleysville Mut. Ins. Co. v. Buzz Off Insect
Shield, L.L.C., 364 N.C. 1, 6-7 (2010). In addition, North Carolina subscribes to a “hybrid”
approach, whereby “if the ‘pleadings allege multiple claims, some of which may be covered by 14
the insurer and some of which may not, the mere possibility the insured is liable, and that the
potential liability is covered, may suffice to impose a duty to defend.’” Kubit, 210 N.C.App. at
278, quoting Bruce – Terminix Co. v. Zurich Ins. Co., 130 N.C.App. 729, 735 (1998) (emphasis
added).
{¶31} In this case, the plain language of the indemnity provision requires ABCO to
defend DunnWell against all claims attributable to damage arising out of ABCO’s work or its
breach of any warranty under the subcontractor agreement. Lexington/MAC alleged claims
against DunnWell premised on negligence going to the underlying performance of the kitchen
exhaust cleaning, i.e., the on-site work, as well as breaches of various warranties going to the
performance of the work. Although Lexington/MAC alleged a direct claim of negligent
misrepresentation against DunnWell, alleging that it provided reports that misrepresented the
efficacy of the cleaning and inspections performed at the restaurant, the other four counts
constitute derivative claims. Those counts include negligent hiring/supervision, breach of the
warranty to perform (kitchen exhaust cleaning) in a workmanlike manner, breach of contract by
failing to use reasonable care in the performance of the work or in overseeing the subcontractor’s
work, and breach of the express and implied warranties of performing the work in a workmanlike
manner. These four counts allege damage arising out of ABCO’s negligence or breaches
associated with its performance of the underlying work. In other words, because ABCO
performed all on-site work (including cleaning and inspection pursuant to Schedule A appended
to the 2009 subcontractor agreement), DunnWell’s liability for damages as a result of the fire can
only arise out of its oversight of the work. See Thomas v. Weddle, 167 N.C.App. 283, 290
(2004) (recognizing claims of negligent supervision and respondeat superior as derivative
claims). 15
{¶32} As Lexington/MAC alleged claims against DunnWell attributable to damage
arising out of ABCO’s performance, ABCO is obligated to defend DunnWell pursuant to the
plain language of the indemnity provision in the parties’ subcontractor agreement. Moreover,
although the underlying complaint alleges a direct claim of negligence (negligent
misrepresentation) against DunnWell, ABCO is nevertheless obligated to provide a full defense
to DunnWell pursuant to North Carolina’s adherence to the “hybrid” approach to defense. See
Kubit, 210 N.C.App. at 278. Accordingly, the trial court did not err when it concluded that no
genuine issues of material fact existed with regard to ABCO’s duty to defend DunnWell in the
underlying action.
Indemnification
{¶33} “The difference in scope between the duty to defend and the duty to indemnify is
based on the source of the factual narrative.” Harleysville Mut. Ins. Co., 364 N.C. at 7, citing
Waste Mgt., 315 N.C. at 691. While the duty to defend arises out of the facts as alleged and
taken as true, “in determining whether an insurer has a duty to indemnify, the facts as determined
at trial are compared to the language of the [agreement]. If the [agreement] provides coverage
for the facts as found by the trier of fact, then the insurer has a duty to indemnify.” Harleysville
Mut. Ins. Co., 364 N.C. at 7.
{¶34} Here, absent proof of ABCO’s liability which might give rise to DunnWell’s
derivative liability, it is premature to determine whether ABCO has a duty to indemnify
DunnWell pursuant to the indemnity provision of the parties’ subcontractor agreement.
Accordingly, the trial court erred to the extent that it concluded at this time that ABCO is
required to indemnify DunnWell.
Conclusion 16
{¶35} As ABCO will be obligated to indemnify DunnWell only if the evidence adduced
at trial proves that ABCO’s work caused the fire and property damage and that DunnWell is
derivatively liable, ABCO’s second and third assignments of error as they relate to
indemnification are sustained. As they relate to the validity of the indemnification provision
pursuant to N.C.G.S.A. § 22B-1 and the issue of ABCO’s duty to defend DunnWell, ABCO’s
second and third assignments of error are overruled.
DUNNWELL/TRAVELERS CROSS-ASSIGNMENT OF ERROR
THE TRIAL COURT ERRED IN FAILING TO FIND THAT, AS A MATTER OF LAW, WEST BEND OWES DUNNWELL DEFENSE IN THE PROPERTY DAMAGE SUIT PURSUANT TO THE ADDITIONAL INSURED ENDORSEMENT IN THE WEST BEND POLICY ISSUED ABCO.
{¶36} DunnWell and Travelers argue that the trial court erred by denying its motion for
summary judgment on the issues of defense and indemnity under the West Bend insurance
policy, and by failing to declare that West Bend has a duty to defend and indemnify DunnWell in
the underlying negligence action. This Court agrees in part, and disagrees in part.
{¶37} The 2009 subcontractor agreement, which this Court previously determined was
in effect at the time of the fire, contains the following provision:
8. INSURANCE. Before commencing the Work and until completion and final acceptance thereof, Subcontractor shall obtain and maintain, at its expense, at least the insurance coverage specified in Schedule B attached hereto, all from companies and in form and substance acceptable to DunnWell. Subcontractor agrees to name DunnWell as an additional insured on all liability insurance coverages and that such insurance shall be primary to any coverages of DunnWell. As a condition to any payment for the Work, Subcontractor shall furnish a certificate, satisfactory to DunnWell, from each insurance company showing the required insurance to be in force and stating that the insurance will not be canceled or changed except upon at least thirty (30) days’ prior written notice thereof to DunnWell. If Subcontractor fails at any time to secure or maintain at least the insurance coverages specified in Schedule B attached hereto, DunnWell may (but shall have no obligation to) obtain such insurance on behalf of Subcontractor, and DunnWell may either (a) receive a refund from Subcontractor for the full amount paid by DunnWell for such insurance or (b) 17
withhold the full amount paid by DunnWell for such insurance from any future payments due to Subcontractor. The foregoing remedies shall be in addition to any and all other remedies available to DunnWell at law or in equity.
{¶38} West Bend’s insurance policy covering ABCO contains an additional insured –
contractor’s blanket endorsement including “as an additional insured any person or organization
whom you [ABCO] are required to add as an additional insured on this policy under a written
contract or written agreement.” The additional insured endorsement contains certain limitations
on and exceptions to coverage in pertinent part as follows:
B. The insurance provided to the additional insured is limited as follows:
1. That person or organization is only an additional insured with respect to liability arising out of:
***
b. “Your work” for that additional insured; or
c. Acts or omissions of the additional insured in connection with the general supervision of “your work.”
3. Except when required by written contract or written agreement, the coverage provided to the additional insured by this endorsement does not apply to:
a. “Bodily injury” or “property damage” occurring after:
(1) All work on the project (other than service, maintenance or repairs) to be performed by or on behalf of the additional insured at the site of the covered operations has been completed; or
(2) That portion of “your work” out of which the injury or damage arises has been put to its intended use by any person or organization other than another contractor or subcontractor engaged in performing operations for a principal as part of the same project.
b. “Bodily injury” or “property damage” arising out of acts or omissions of the additional insured other than in connection with the general supervision of “your work.” 18
{¶39} Section I, Coverage A[:] Bodily Injury and Property Damage Liability, of the
West Bend Commercial General Liability Coverage Form sets out the scope of certain coverage
under the policy. The parties refer to the relevant coverage provisions under subsection 1 by the
subheading “Insuring Agreement.” Unless some limitation or exception applies, West Bend
promised pursuant to the Insuring Agreement in the policy that
We will pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage” to which this insurance applies. We will have the right and duty to defend the insured against any “suit” seeking those damages.
{¶40} As this insurance policy was issued to an Ohio company (ABCO) who performed
the cleaning services in Ohio, which work gave rise to the subject matter of the contract (i.e.,
liability coverage for damages sustained in the fire), this Court applies Ohio law to the issues
raised in the cross-appeal. See Nationwide Mut. Ins. Co. v. Ferrin, 21 Ohio St.3d 43, 44-45
(1986).
{¶41} The Ohio Supreme Court applies the following propositions of law when
interpreting the meaning of insurance policies:
An insurance policy is a contract whose interpretation is a matter of law. Sharonville v. Am. Emp. Ins. Co., 109 Ohio St.3d 186, 2006-Ohio-2180, ¶ 6. The fundamental goal when interpreting an insurance policy is to ascertain the intent of the parties from a reading of the policy in its entirety and to settle upon a reasonable interpretation of any disputed terms in a manner designed to give the contract its intended effect. Burris v. Grange Mut. Cos., 46 Ohio St.3d 84, 89 (1989). Words and phrases must be given their plain and ordinary meaning unless manifest absurdity results, or unless some other meaning is clearly evidenced from the face or overall contents of the instrument. Alexander v. Buckeye Pipe Line Co., 53 Ohio St.2d 241 (1978), paragraph two of the syllabus.
We have held that provisions in an insurance contract that are reasonably susceptible of more than one interpretation will be construed liberally in favor of the insured. King v. Nationwide Ins. Co., 35 Ohio St.3d 208 (1988), syllabus. See also Westfield Ins. Co. v. Galatis, 100 Ohio St.3d 216, 2003-Ohio-5849, ¶ 13. This rule, however, will not be applied so as to provide an unreasonable interpretation of the words of the policy. Cincinnati Ins. Co. v. CPS Holdings, 19
Inc., 115 Ohio St.3d 306, 2007-Ohio-4917, ¶ 8, citing Morfoot v. Stake, 174 Ohio St. 506 (1963), paragraph one of the syllabus.
(Internal quotations omitted.) Laboy v. Grange Indemn. Ins. Co., 144 Ohio St.3d 234, 2015-
Ohio-3308, ¶ 8-9.
{¶42} An additional insured endorsement in a policy is construed as part of the policy
and interpreted according to the “plain and ordinary meaning of the words used to ascertain the
intent of the parties to the contract.” Ward v. United Foundries, Inc., 129 Ohio St.3d 292, 2011-
Ohio-3176, ¶ 19, citing Penn Traffic Co. v. AIU Ins. Co., 99 Ohio St.3d 227, 2003-Ohio-3373, ¶
9. “An exclusion in an insurance policy will be interpreted as applying only to that which is
clearly intended to be excluded.” (Internal citations and quotations omitted) Westfield Ins. Co.
v. Hunter, 128 Ohio St.3d 540, 2011-Ohio-1818, ¶ 11. Moreover, “a defense based on an
exception or exclusion in an insurance policy is an affirmative one, and the burden is cast on the
insurer to establish it.” Continental Ins. Co. v. Louis Marx Co., Inc., 64 Ohio St.2d 399, 401
(1980).
{¶43} The trial court ruled that there were genuine issues of material fact regarding
“whether or not DunnWell is entitled to insurance coverage under the West Bend insurance
policy.” As the insurance coverage in this case included both the duty to defend and the duty to
indemnify, the trial court effectively denied that West Bend had a duty to defend, while deferring
the issue of the insurance company’s duty to indemnify for trial.
{¶44} It is well established that “the duty to defend is broader than and distinct from the
duty to indemnify.” Ward, 2011-Ohio-3176, at ¶ 19, citing Ohio Govt. Risk Mgt. Plan v.
Harrison, 115 Ohio St.3d 241, 2007-Ohio-4948, ¶ 19. “‘The test of the duty of an insurance
company, under a policy of liability insurance, to defend an action against an insured, is the 20
scope of the allegations of the complaint in the action against the insured, and where the
complaint brings the action within the coverage of the policy the insurer is required to make a
defense, regardless of the ultimate outcome of the action or its liability to the insured.’”
Willoughby Hills v. Cincinnati Ins. Co., 9 Ohio St.3d 177, 178-179 (1984), quoting Motorists
Mut. v. Trainor, 33 Ohio St.2d 41 (1973), paragraph two of the syllabus. The inherent duty to
defend clearly arises “where the pleadings unequivocally bring the action within the coverage
afforded by the policy,” and it may otherwise arise where the allegations “state a claim which is
potentially or arguably within the policy coverage, or [where] there is some doubt as to whether
a theory of recovery within the policy coverage had been pleaded[.]” Willoughby Hills, 9 Ohio
St.3d at 180. Therefore, the insurance company has a duty to defend its insured whenever the
allegations in the complaint state a claim that “arguably” falls within the coverage. Harrison at ¶
19. However, the insurer has no duty to defend against any claim that is “clearly and
indisputably outside the contracted policy language.” CPS Holdings at ¶ 6, citing Preferred Risk
Ins. Co. v. Gill, 30 Ohio St.3d 108, 113 (1987); see also Harrison, 2007-Ohio-4948, at ¶ 19;
Maxum Indemn. Co. v. Selective Ins. Co. of South Carolina, 9th Dist. No. 11CA0015, 2012-
Ohio-2115, ¶ 17 (holding that “once the insurer is able to establish that there is no set of facts
that would bring the allegations of the complaint within coverage of its policy, its duty to defend
is extinguished.”).
{¶45} Moreover, where a complaint alleges multiple claims against an insured, the
insurance company has a duty to defend against all claims based on the same occurrence, even if
it is contractually obligated to the insured for fewer than all the claims. Am. Chem. Soc. v.
Leadscope, Inc., 10th Dist. Franklin No. 04AP-305, 2005-Ohio-2557, ¶ 8, citing Preferred Mut.
Ins. Co. v. Thompson, 23 Ohio St.3d 78, 80 (1986) (referring to the “one claim-all claims” 21
principle). “Only if there is no possibility of coverage under the policy based on the allegations
in the complaint will the insurer not have a duty to defend the action.” Am. Chem. Soc. at ¶ 8,
citing Wedge Prods., Inc. v. Hartford Equity Sales Co., 31 Ohio St.3d 65 (1987).
{¶46} The Insuring Agreement provision is applicable to the additional insured
endorsement, as the endorsement constitutes a part of the policy. The plain language of the
Insuring Agreement provision imposes on West Bend a duty to defend an insured against suits
“seeking” damages covered by the policy. By virtue of the additional insured endorsement,
DunnWell is an insured under the policy.
{¶47} Four of the five claims alleged by Lexington/MAC against DunnWell are based
on property damage arising out of negligence that allegedly occurred during the kitchen exhaust
cleaning process for which ABCO was under subcontract with DunnWell to perform. The first
four claims against DunnWell allege claims of general negligence (including negligent hiring,
training, and supervision), breach of warranty to perform in a workmanlike manner, breach of
contract for failure to use reasonable care in performing the kitchen exhaust cleaning and/or
overseeing the work, and breach of express and implied warranties to ensure that all work was
done in a workmanlike manner. All four of these claims are premised on the quality of the work
performed on site at the Macaroni Grill. Only ABCO’s agents performed kitchen exhaust
cleaning on site. Accordingly, DunnWell’s liability for these claims can only be derivative,
rather than direct. Moreover, the property damage alleged in the complaint arose out of the same
occurrence, i.e., negligent performance of kitchen exhaust cleaning on site. The insurance policy
expressly covers DunnWell for ABCO’s work and matters related to DunnWell’s acts or
omissions in connection with supervision of ABCO’s work. As these claims arguably fall within
the policy coverage, West Bend has a duty to defend DunnWell against all claims alleged against 22
it by Lexington/MAC. Accordingly, the trial court erred when it concluded that genuine issues
of material fact existed with regard to West Bend’s duty to defend DunnWell in the underlying
action.
Indemnity
{¶48} There is a significant distinction between the duty to defend and the duty to
indemnify.1 While the duty to defend arises when the allegations in the complaint arguably fall
within the policy’s coverage, “the duty to indemnify, on the other hand, arises only if liability in
fact exists under the policy.” Elevators Mut. Ins. Co. v. Scassa, 9th Dist. Wayne No. 03CA0045,
2004-Ohio-3428, ¶ 12, quoting Chemstress Consultant Co., Inc. v. Cincinnati Ins. Co., 128 Ohio
App.3d 396, 402 (9th Dist.1998). Before the trial court can determine whether an insurance
company has the duty to indemnify an insured, it must have proof of the facts underlying the
complaint. Id.
{¶49} The duty to indemnify in this case implicates two issues implicitly recognized by
the trial court. The trial court recognized that West Bend would only have a duty to indemnify
DunnWell if (1) no exclusion from coverage provision was applicable, and (2) ABCO’s
negligence caused the fire. With regard to the first issue, it concluded that genuine issues of
material fact existed as to whether “the pizza oven was put to its intended use by MAC for
several weeks before the fire occurred[,]” i.e., whether the coverage exclusion in section 3.a.(2)
of the additional insured endorsement applied. DunnWell argues that the trial court improperly
relied on this exclusionary provision because it is inapplicable.
1 DunnWell is not seeking indemnification for its direct negligence, if any. Without conceding liability, DunnWell properly recognizes that it would not be entitled to indemnification for any of its own negligence. 23
{¶50} As previously stated, this Court looks to the plain language of the endorsement to
determine whether this exclusion is clearly intended to apply in these circumstances. See
Hunter, 2011-Ohio-1818, at ¶ 11. In this case, the trial court disregarded the introductory
language of the endorsement in section B.3., which gives rise to certain exclusions “[e]xcept
when required by written contract or written agreement * * *.”
{¶51} Here, ABCO was required by the terms of the parties’ subcontractor agreement to
add DunnWell as an additional insured and provide coverage in the types and amounts
enumerated in Schedule B of the subcontractor agreement. As there was a contractual obligation
to provide insurance coverage for DunnWell, the exceptions to the endorsement coverage are not
applicable. Accordingly, the trial court erred by concluding that it could not determine whether
DunnWell was excluded from coverage in the absence of a determination as to whether or not
Macaroni Grill had put its pizza ovens to their intended use after ABCO cleaned them and prior
to the fire. Based on the plain language of the endorsement, the exclusion noted by the trial court
is not applicable as a matter of law because the ABCO/DunnWell subcontractor agreement
obviated the exclusions in the insurance endorsement and obligated West Bend to provide
coverage to DunnWell. This does not end the inquiry, however.
{¶52} The second issue germane to the cross-assignment of error is whether ABCO’s
negligence caused the property damage. In this case, absent proof of ABCO’s liability which
might give rise to DunnWell’s derivative liability, it is premature to determine whether West
Bend is obligated to indemnify DunnWell under the terms of the insurance policy. Accordingly,
the trial court did not err by concluding that genuine issues of material fact exist precluding a
declaration that West Bend owes DunnWell indemnity at this time. As West Bend will be
obligated to indemnify DunnWell if the evidence at trial proves that ABCO’s work caused the 24
fire and property damage and that DunnWell is derivatively liable, DunnWell’s cross-assignment
of error is sustained in part and overruled in part.
III.
{¶53} ABCO’s first assignment of error is overruled. ABCO’s second and third
assignments of error are overruled as they relate to the validity of the indemnification provision
in the parties’ subcontractor agreement and the issue of the duty to defend. ABCO’s second and
third assignments of error are sustained as they relate to the duty to indemnify DunnWell.
DunnWell’s cross-assignment of error is sustained as it relates to West Bend’s duty to defend,
but overruled as it relates to the issue of indemnification. The judgment of the Summit County
Court of Common Pleas is affirmed in part, reversed in part, and the cause remanded for further
proceedings consistent with this opinion.
Judgment affirmed, in part, reversed, in part, and cause remanded.
There were reasonable grounds for this appeal.
We order that a special mandate issue out of this Court, directing the Court of Common
Pleas, County of Summit, State of Ohio, to carry this judgment into execution. A certified copy
of this journal entry shall constitute the mandate, pursuant to App.R. 27.
Immediately upon the filing hereof, this document shall constitute the journal entry of
judgment, and it shall be file stamped by the Clerk of the Court of Appeals at which time the
period for review shall begin to run. App.R. 22(C). The Clerk of the Court of Appeals is 25
instructed to mail a notice of entry of this judgment to the parties and to make a notation of the
mailing in the docket, pursuant to App.R. 30.
Costs taxed equally to both parties.
DONNA J. CARR FOR THE COURT
WHITMORE, J. SCHAFER, J. CONCUR.
APPEARANCES:
THOMAS J. CONNICK, Attorney at Law, for Appellant/Cross-Appellee.
D. JOHN TRAVIS, GARY L. NICHOLSON, and RICHARD C.O. REZIE, Attorneys at Law, for Appellees/Cross-Appellants.
ROBERT P. LYNCH, Attorney at Law, for Appellee/Cross-Appellant.
MICHAEL R. HENRY and MATTHEW R. PLANEY, Attorneys at Law, for Plaintiff/Cross- Appellee.