National Hydro Systems v. M.A. Mortenson Co.

529 N.W.2d 690, 1995 Minn. LEXIS 284, 1995 WL 217681

• Court: Supreme Court of Minnesota
• Decided: April 14, 1995
• Docket: No. C1-93-752
• Status: Published

Opinions

OPINION

KEITH, Chief Justice.

Appellant, HDR Engineering, Inc. (“HDR”), seeks review of a court of appeals’ ■decision reversing the trial court’s summary judgment of a claim brought by Respondent, National Hydro Systems (“National Hydro”). The principal issue raised on this appeal is whether the general contractor, M.A. Mor-tensón Company (“Mortenson”), is obligated under the general construction contract to indemnify HDR for a claim arising out of HDR’s own negligence, thereby creating a circuity of obligation that defeats National Hydro’s claim as a matter of law. Because we conclude that HDR is not entitled to indemnity for a claim arising out of its own negligence, a circuity is not created in the present case. We therefore affirm the court of appeals.

In 1988, the Metropolitan Waste Control Commission (“MWCC”) undertook to expand and upgrade the Seneca Wastewater Treatment Plant (the “Project”). The MWCC entered into an engineering contract with HDR in January of 1988 under which HDR was to draft plans and specifications and to approve shop drawings for the Project. Subsequently, on July 12, 1989, the MWCC awarded Mortenson the general contract which contained an indemnity provision under Article 15:

15.1 OBLIGATION OF CONTRACTOR: The CONTRACTOR shall indemnify and hold harmless and defend the COMMISSION and the ENGINEER and their agents, consultants, and employees from and against all claims, legal actions, arbitration demands, extra costs, and losses and expenses of any nature or form whatsoever whether founded in breach of contract, negligence, or pursuant to Contract provisions or howsoever premised, including the payment of all attorney fees and costs related thereto howsoever and whensoever incurred in such matters which arise out of or result from performance of the WORK by CONTRACTOR and its employees, its Subcontractors, suppliers, material people, and other agents or consultants * * *.

In turn, Mortenson entered into an unwritten agreement with National Hydro to supply final clarifiers¹ for the Project. Pursuant to this agreement with Mortenson, National Hydro submitted shop drawings of the final clarifiers to HDR for review. HDR rejected these initial shop drawings. The parties dispute whether the drawings conformed to HDR’s plans and specifications or whether they constituted a deviation. The parties ultimately used an alternative design, but a several-month delay in the delivery of the clarifiers resulted, and Mortenson withheld $371,370 from its payment to National Hydro.

National Hydro commenced suit against Mortenson for nonpayment alleging breach of contract and unjust enrichment, and against HDR for the costs of additional design work allegedly arising from HDR’s professional negligence. Trial was scheduled to begin on January 11, 1993. On December 29, 1992, National Hydro settled its claim with Mortenson and entered into a Pierringer release² under which National Hydro agreed to defend, indemnify and hold Mor-tenson harmless if National Hydro succeeded in its claim against HDR and if HDR then sought indemnity from Mortenson. On January 8,1993, HDR moved for summary judgment on the grounds that the Pierringer release, in combination with the Article 15 indemnity provision, created a circuity of obligation defeating National Hydro’s claim against HDR as a matter of law.

On the day trial was to begin, the court orally granted summary judgment in favor of HDR. National Hydro moved to reconsider the matter, and the court heard additional arguments pursuant to the motion on January 26, 1993. In its amended findings and conclusions filed February 1, 1993, the court reaffirmed summary judgment and dismissed National Hydro’s claim. The court found that Article 15 required Mortenson to indemnify HDR for National Hydro’s negligence claim that arose in the context of the performance of work on the Project including Mor-tenson’s and National Hydro’s work.

The court of appeals reversed the trial court’s summary judgment, holding that the indemnity provisions did not create a circuitous obligation and therefore National Hydro’s claim was not defeated as a matter of law. National Hydro Sys., a Div. of McNish Corp. v. M.A. Mortenson Co., 507 N.W.2d 27 (Minn.App.1993).

I.

As a preliminary issue, we first recognize that a finding of circuity of obligation will defeat a plaintiffs claim as a matter of law. A circuity of obligation is created when, by virtue of pre-existing indemnity agreements or obligations, the plaintiff is in effect obligated to indemnify the defendant for claims including the plaintiffs own claim. See Hoffmann v. Wiltscheck, 411 N.W.2d 923, 926 (Minn.App.), pet. for rev. denied (Minn., Nov. 13, 1987); Bogatzki v. Hoffman, 430 N.W.2d 841 (MinmApp.), pet. for rev. denied (Minn., Dec. 21, 1988). In such a situation, the plaintiffs right to recover damages from the defendant is offset by the plaintiffs obligation to repay the same damages to the defendant. Hoffmann, 411 N.W.2d at 926. In the present case, circuity of obligation exists only if the Article 15 indemnity provision is enforceable as to National Hydro’s claim.

As an additional preliminary matter, National Hydro urges this court to hold that public policy prohibits indemnity of an engineer for claims arising out of the engineer’s own negligence. While public policy may favor the competent practice of engineers, statutory and case law appear to support rather than oppose as a matter of public policy the use of risk allocation agreements in the construction setting. We are, therefore, not prepared to hold at this time that agreements which indemnify an engineer for its own negligence are void as against public policy.

II.

Turning to the primary issues, we must first determine whether National Hydro’s claim against HDR “arise[s] out of or result[s] from performance of the WORK by CONTRACTOR and its employees, its Subcontractors, suppliers, material people, and other agents or consultants” as required by the Article 15 indemnity provision. Interpreting a similar provision, this court in An-stine v. Lake Darling Ranch held that such a clause requires a “temporal, geographical, or causal nexus between the [indemnitor’s] work and the injury which gives rise to liability.” 305 Minn. 243, 249, 233 N.W.2d 723, 727 (1975).³

HDR asserts that Anstine’s causal requirement should be interpreted as a “but-for” test and that National Hydro’s claim falls within the Article 15 language because it would not exist, but for the work of supplying the clarifiers for the Project. It is not enough, however, that the causal connection exist between the injury and any work on the Project; rather, a “but-for” causal connection exists between the injury and the indemnitor’s work. See Anstine, 305 Minn. at 249, 233 N.W.2d at 727; Johnson v. McGough Constr. Co., Inc., 294 N.W.2d 286, 288 (Minn.1980); Oster v. Medtronic, Inc., 428 N.W.2d 116, 121 (Minn.App.1988); Fossum v. Kraus-Anderson Constr. Co., 372 N.W.2d 415, 418 (Minn.App.1985). National Hydro’s claim against HDR is based on HDR’s alleged negligence in drafting the original plans and specifications and in'rejecting National Hydro’s initial shop drawings. This claim is distinct from National Hydro’s claim against Mortenson. Although Mortenson was required to review the shop drawings, the specific actions upon which National Hydro’s claim is based were the responsibilities of HDR under the engineering contract and therefore constituted HDR’s work, not Mor-tenson’s work. Because National Hydro’s claim against HDR arises out of HDR’s conduct in regard to its own portion of the work and not Mortenson’s portion of the work, we find that the Article 15 indemnity provision does not apply to National Hydro’s claim.

III.

Even if we assume, arguendo, that National Hydro’s claim does arise out of the work by Mortenson, a second issue is whether Article 15 is enforceable as to claims alleging negligence of the indemnitee (HDR) itself.

This court has adopted the majority rule of strict' construction: “Indemnity agreements are to be strictly construed when the indemnitee * * * seeks to be indemnified for its own negligence. There must be an express provision in the contract to indemnify the indemnitee for liability occasioned by its own negligence; such an obligation will not be found by implication.” Farmington Plumbing, 281 N.W.2d at 842 (citing Webster v. Klug & Smith, 81 Wis.2d 334, 260 N.W.2d 686, 690 (1978)). Agreements seeking to indemnify the indemnitee for losses occasioned by its own negligence are not favored by the law and are not construed in favor of indemnification “unless such intention is expressed in clear and unequivocal terms, or unless no other meaning can be ascribed to it.” Braegelmann v. Horizon Dev. Co., 371 N.W.2d 644, 646 (Minn.App.), pet. for rev. denied (Minn., Oct. 11, 1985). Moreover, additional limiting language may render an otherwise clear and unequivocal provision equivocal, thus precluding indemnity. See Ford v. Chicago, Milw., St. P. and Pac. R.R., 294 N.W.2d 844, 846 (Minn.1980); Braegelmann, 371 N.W.2d at 646.

The key question, then, is whether the Article 15 provision is clear and unequivocal or whether it is not. This determination turns on the unique language of Article 15, which is not found in prior cases addressed by. this court. It is evident, however, that we have been reluctant to impose indemnity unless we are able to identify some specific language expressing an intent to indemnify the indemnitee for claims arising out of its own negligence. See, e.g., Johnson, 294 N.W.2d at 287; Oster, 428 N.W.2d at 118-19; Bogatzki 430 N.W.2d at 845.

In light of these cases, it is not immediately apparent that Article 15 clearly and unequivocally expresses an intent to indemnify HDR for claims based on HDR’s own negligence. Although the first clause of Article 15 may indeed be broad enough to ineorpo-rate claims of negligence, the provision contains an additional clause limiting the breadth of the obligation: “which arise out of or result from performance of the WORK by CONTRACTOR * * ⁴ This additional clause puts the scope of indemnity in question, rendering the provision equivocal.

We reiterate today the continuing validity of the Farmington Plumbing requirement that the language of an indemnity provision will be strictly construed if it is to provide indemnity for claims based on the indemni-tee’s own negligence. We will continue to require the parties to such an indemnity agreement to express this intent in a clear and unequivocal manner. Because Article 15 is equivocal as to whether it applies to claims occasioned by the indemnitee’s own negligence, HDR is not entitled to indemnity for its own negligence. National Hydro’s claim, therefore, is not defeated as a matter of law.

IV.

Having concluded that no circuity of obligation exists in the present case defeating National Hydro’s case as a matter of law, it is not necessary to reach the issue of whether National Hydro was afforded sufficient notice of summary judgment.

Affirmed.

1 . Clarifiers are structures that clarify water by allowing heavier material to settle and clean water to rise to the top.

2 . The Pierringer release is a settlement device named after the Wisconsin Supreme Court decision in Pierringer v. Hoger, 21 Wis.2d 182, 124 N.W.2d 106 (Wis.1963).

3 . Anstine has been expressly overruled by Farmington Plumbing & Heating Co. v. Fischer Sand and Aggregate, Inc. to the extent that it rejected the strict construction rule for indemnity agreements. 281 N.W.2d 838, 840 n. 4 (Minn.1979).

4 . It is important to note that in using the language "performance of the WORK by CONTRACTOR,” Article 15 departs from the standard American Institute of Architects or Associated General Contractors indemnity provision language.