Opinion
No. C9-99-639.
Filed September 28, 1999.
Appeal from the District Court, Hennepin County, File No. 9712857.
Gay B. Urness, Joslin Urness, (for respondent Dean R. Johnson Construction, Inc.)
Lawrence M. Rocheford, Jardine, Logan O'Brien, P.L.L.P., (for respondent Mitchel Anderson)
Dale M. Wagner, Bassford, Lockhart, Truesdell Briggs, P.A., (for appellant)
Considered and decided by Klaphake, Presiding Judge, Anderson, Judge, and Halbrooks, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (1998).
UNPUBLISHED OPINION
Appellant subcontractor Saxton Associates, Inc. challenges the district court's grant of summary judgment in favor of respondent contractor Dean R. Johnson Construction, Inc., requiring Saxton to indemnify Johnson for damages arising from Johnson's negligence. Saxton argues: (1) the district court erred in construing the subcontract agreement to require indemnification; (2) in the alternative, the district court erred in not passing the indemnification responsibility through to the sub-subcontractor Voson Plumbing, Inc.; and (3) the district court erred in determining Johnson's pretrial settlement with plaintiff was reasonable and prudent. We affirm.
FACTS
On November 13, 1996, plaintiff Darrick Mytty was seriously injured while working on the construction of a hotel in Chaska, Minnesota. Mytty was employed by third-party defendant Voson Plumbing, Inc. and received workers' compensation benefits from intervenor Federated Mutual Insurance Company. The general contractor for the project was respondent Dean R. Johnson Construction, Inc. Johnson had hired respondent Mitchel Anderson as the on-site superintendent and defendant Amcon CM, LLC, as the project manager. Johnson also subcontracted with appellant Saxton Associates, Inc. for mechanical work on the project and Saxton subcontracted plumbing work to Voson.
Johnson and Saxton entered into a "Standard Subcontract Agreement." Paragraph 7 of that agreement set out the insurance/indemnification agreement:
To obtain, maintain and pay for such insurance as may be required by the General Contract, the rider attached hereto, or by law, and to furnish the Contractor satisfactory evidence that it has complied with this paragraph; and to obtain and furnish to the Contractor an undertaking by the insurance company issuing each such policy that such policy will not be canceled except after fifteen (15) days notice to the Contractor of its intention to so do.
The Subcontractor agrees to assume entire responsibility and liability, to the fullest extent permitted by law, for all damages or injury to all persons, whether employees or otherwise, and to all property, arising out of it, resulting from or in any manner connected with, the execution of the work provided for in this Subcontract or occurring or resulting from the use by the Subcontractor, his agents or employees, of materials, equipment, instrumentalities or other property, whether the same be owned by the Contractor, the Subcontractor or third parties, and the Subcontractor, to the fullest extent permitted by law, agrees to indemnify and save harmless the Contractor, his agents and employees from all such claims including, without limiting the generality of the foregoing, claims for which the Contractor may be or may be claimed to be, liable and legal fees and disbursements paid or incurred to enforce the provisions of this paragraph and the Subcontractor further agrees to obtain, maintain and pay for such general liability insurance coverage and endorsements as will insure the provisions of this paragraph.
Exhibit D was attached to the subcontract. Paragraph 2 of exhibit D lists the insurance Saxton was required to purchase. Included on the list is $1,000,000 of commercial general liability insurance. Saxton purchased the required liability insurance from West Bend Mutual Insurance Company.
Saxton also entered into a subcontract agreement with Voson. Paragraph 4.6.1 of that agreement dealt with indemnification and provided:
To the fullest extent permitted by law, the Subcontractor shall indemnify and hold harmless the Owner, Contractor, Architect, Architect's consultants, and agents and employees of any of them from and against claims, damages, losses and expenses, including but not limited to attorney's fees, arising out of or resulting from performance of the Subcontractor's Work under this Subcontract, provided that such claim, damage, loss or expense is attributable to bodily injury, sickness, disease or death, or to injury to or destruction of tangible property (other than the Work itself) including loss of use resulting therefrom, but only to the extent caused in whole or in part by negligent acts or omissions of the Subcontractor, the Subcontractor's Sub-subcontractors, anyone directly or indirectly employed by them or anyone for whose acts they may be liable, regardless of whether or not such claim, damage, loss or expense is caused in part by a party indemnified hereunder. Such obligation shall not be construed to negate, abridge, or otherwise reduce other rights or obligations of indemnity which would otherwise exist as to a party or person described in this Paragraph 4.6.
During the initial construction of the three-story hotel, the framing subcontractor had a pettibone lift and a metal lift box on the job site. The lift and metal box were used to lift materials for Voson and the other subcontractors. When the framing subcontractor left the construction site, Johnson leased a replacement pettibone lift. Johnson also directed Anderson to build a wooden box to replace the metal lift box.
Johnson was aware that wooden boxes tend to fall apart. But because all of his metal boxes were in use at other job sites, he decided to have Anderson build a wooden box for this site. Anderson had never built a wooden box before. He built the box by using a wooden pallet he found on the site and constructing the box on top of that pallet using plywood, two-by-fours, and eight and sixteen penny nails.
The wooden box was not intended to carry people. Johnson was concerned that people would use the box as a man lift, so he told Anderson to instruct all workers not to get into the box. There was a dispute between Anderson and Ruben Mytty (Darrick Mytty's father, who was also working at the site) over whether Anderson told Ruben Mytty that people were not to get into the box. Anderson acknowledged he had not told Darrick Mytty he was not to get into the box.
Ruben and Darrick Mytty had used the pettibone lift and wooden box to move materials four or five times before the accident. On those occasions, Anderson or Darrick Mytty operated the pettibone lift. On the day of the accident, Darrick Mytty obtained permission from Anderson to use the lift to move some water closets to the third floor. After lifting the water closets, Darrick Mytty went up to unload them with Ruben Mytty's assistance.
As they were finishing the task, Ruben Mytty saw that Darrick Mytty had climbed into the box in order to unload water closets from the far corners of the box. Darrick Mytty set a water closet on the sill, and Ruben Mytty piled it on the floor. Darrick Mytty picked up another water closet and moved toward the window. Ruben Mytty heard a sound, saw Darrick Mytty freeze and then saw the box flip. Darrick Mytty fell approximately three stories to the ground with the box and the remaining water closets.
Darrick Mytty sustained serious injuries as the result of the accident. He is permanently wheelchair-bound, must be fed intravenously, and cannot verbally communicate. His communication is limited to augmentative communications devices.
An uncontradicted economic analysis report estimated that Darrick Mytty suffered the following economic losses as a result of the accident: (1) past wage loss of $49,890; (2) future income loss at a present value of $1,249,562; (3) future medical care service expenses at a present value of between $4,448,995 and $9,395,514; and (4) future medical care commodity expenses at a present value of between $757,858 and $1,066,162. In addition, Federated, the workers' compensation carrier, paid medical expenses of $837,168.99.
Darrick Mytty's guardian brought a negligence action against Johnson, Anderson, and Amcon, seeking damages resulting from the accident. Federated intervened to assert its claim for the recovery of workers' compensation benefits paid and payable to Mytty. After Saxton's insurer rejected Johnson's tender of defense, Johnson asserted a third-party claim against Saxton, seeking defense and indemnity. Johnson also asserted a third-party claim against Voson. Anderson and Amcon also brought third-party claims against Saxton and Voson.
Johnson, Anderson, and Amcon moved for partial summary judgment on Saxton's duty to indemnify and pay defense costs. Before resolution of the summary judgment motion, the case was mediated. As a result of the mediation, all claims of Mytty and Federated were settled for $2,200,000; Amcon paid $300,000, Anderson paid $900,000, and Johnson paid $1,000,000. All remaining claims were waived or dismissed except Johnson's and Anderson's indemnity claims against Saxton and Saxton's indemnity claim against Voson.
Saxton later moved for summary judgment on its claim for indemnification from Voson, and Johnson and Anderson moved for summary judgment seeking the district court's determination that the settlement was reasonable and Johnson and Anderson were entitled to reimbursement from Saxton for their settlement payments. The district court: (1) granted Johnson's claim for indemnity and defense costs from Saxton; (2) denied Saxton's claim for indemnity from Voson; (3) determined that Johnson's $1,000,000 settlement with Mytty was reasonable; (4) ordered Saxton to reimburse Johnson's insurer for the $1,000,000 it had paid to settle Mytty's case, plus interest, costs, and attorney fees; and (5) denied all other claims. Judgment was entered accordingly, and this appeal followed.
DECISION
On appeal from summary judgment, a reviewing court determines whether any genuine issues of material fact exist and whether the district court properly applied the law. Wartnick v. Moss Barnett, 490 N.W.2d 108, 112 (Minn. 1992). "The construction and effect of a contract are questions of law for the court * * * ." Turner v. Alpha Phi Sorority House, 276 N.W.2d 63, 66 (Minn. 1979) (citations omitted). No deference need be given to the district court's application of the law. Frost-Benco Elec. Ass'n v. Minnesota Pub. Utils. Comm'n, 358 N.W.2d 639, 642 (Minn. 1984).
1. Johnson-Saxton Subcontract Agreement
Saxton argues that it was not obligated to procure insurance to indemnify Johnson under the subcontract agreement because paragraph 7 and exhibit D did not clearly and unequivocally require Saxton to indemnify Johnson for Johnson's own negligence. Prior to 1984, contractors were able to contract with a subcontractor for indemnification from all claims, even those claims arising from the contractor's own negligence. Johnson v. McGough Constr. Co., 294 N.W.2d 286, 287-88 (Minn. 1980). Such agreements were, however, subject to strict construction, requiring a clear and unequivocal expression imposing indemnity for losses caused by the negligence of the indemnitee. Farmington Plumbing Heating Co. v. Fischer Sand Aggregate, Inc., 281 N.W.2d 838, 842 (Minn. 1979).
But since its enactment in 1983, Minn. Stat. § 337.02 has restricted building contractors' ability to shift liability to subcontractors. See 1983 Minn. Laws ch. 333, § 2. Minn. Stat. § 337.02 (1998) provides:
An indemnification agreement contained in, or executed in connection with, a building and construction contract is unenforceable except to the extent that the underlying injury or damage is attributable to the negligent or otherwise wrongful act or omission, including breach of a specific contractual duty, of the promisor or the promisor's independent contractors, agents, employees or delegatees.
This provision furthers the legislative goal of providing that each party will remain responsible for the consequences of its own negligence. Katzner v. Kelleher Constr., 545 N.W.2d 378, 381 (Minn. 1996).
The legislature also created an exception to the general prohibition contained in section 337.02. Holmes v. Watson-Forsberg Co., 488 N.W.2d 473, 475 (Minn. 1992). Minn. Stat. § 337.05, subd. 1 (1998), provides:
Sections 337.01 to 337.05 do not affect the validity of agreements whereby a promisor agrees to provide specific insurance coverage for the benefit of others.
The supreme court has interpreted this provision as demonstrating the legislature's approval of the
long-standing practice in the construction industry by which the parties to a subcontract could agree that one party would purchase insurance that would protect "others" involved in the performance of the construction project.
Holmes, 488 N.W.2d at 475. The Holmes court went on to conclude that
[s]uch a risk allocation method is a practical response to problems inherent in the performance of a subcontract and, in instances where the risk of loss is one directly related to and arising out of the work performed under the subcontract, the parties are free to place the risk of loss upon an insurer by requiring one of the parties to insure against that risk.
Id. (citation omitted) Paragraph 7 of the subcontract agreement signed by Saxton and Johnson is identical to the provision 7 interpreted as enforceable in Holmes. See id. at 474 (quoting provision 7 of the standard subcontract agreement).
Saxton relies on Hurlburt v. Northern States Power Co., 549 N.W.2d 919 (Minn. 1996), for its alternative arguments that (1) paragraph 7 "runs afoul" of Minn. Stat. § 337.02 and (2) exhibit D does not clearly and unequivocally express an intention that Saxton was required to purchase insurance to protect Johnson from its own negligence. But Saxton's reliance on Hurlburt is misplaced.
Notwithstanding Saxton's assertion, Hurlburt did not overrule Holmes. In Hurlburt, the parties entered a standard subcontract agreement including the same paragraph 7 as interpreted in Holmes, but also including two riders. Hurlburt, 549 N.W.2d at 921. Attachment A set forth the types of coverage the subcontractor was required to procure and the liability limits of those coverages. Id. Those terms of attachment A were not interpreted as modifying paragraph 7. Id. at 922. Attachment B to the Hurlburt subcontract stated in relevant part:
Notwithstanding the provisions of Paragraph 7 of this Subcontract Agreement, the indemnity set forth therein shall apply only to the extent that the underlying injury or damage is attributable to the negligence or otherwise wrongful act or omission, including breach of a specific contractual duty, of Subcontractor or Subcontractor's independent contractors, agents, employees or delegatees.
Id. at 921 (emphasis added). The supreme court held that attachment B modified the paragraph 7 indemnification provision and " that modified indemnity agreement define[d] the scope of the general liability insurance with which [the subcontractor was] to insure its indemnity agreement." Id. at 924. Thus, Hurlburt did not disturb the Holmes holding — it distinguished the Holmes decision on its facts.
Furthermore, unlike "attachment B" in Hurlburt, exhibit D here did not purport to limit the scope of the insurance/indemnity agreement in paragraph 7. Instead, exhibit D listed the types and amounts of insurance coverage the parties were required to procure.
Although exhibit D was inartfully drafted, it does not stand alone as Saxton's argument implies. The contract must be construed as a whole. Chergosky v. Crosstown Bell, Inc., 463 N.W.2d 522, 525 (Minn. 1990). Paragraph 7 clearly and unequivocally required Saxton to purchase insurance to indemnify Johnson for claims arising from Johnson's own negligence. See Holmes, 488 N.W.2d at 475. No reading of exhibit D could interpret it to modify the language of paragraph 7. Nowhere in exhibit D does it purport to limit Saxton's liability to that resulting from its own negligence.
The other cases Saxton relies on are not persuasive on the issue. Katzner involved a different general indemnity provision from that involved in Holmes, Hurlburt, and the instant case. Katzner, 545 N.W.2d at 382. The Katzner court distinguished the two, stating:
[t]he phrase "regardless of whether or not [the claim] is caused in part by a party indemnified hereunder" contained in paragraph 2.17 is not equivalent to the indemnity provisions at issue in Holmes which clearly protected the indemnitee from "all such claims including * * * claims for which the Contractor may be or may be claimed to be, liable."
Id. (quoting Holmes, 488 N.W.2d at 474 (quoting paragraph 7 of the standard subcontract agreement)).
In Seward Hous. Corp. v. Conway Bros. Co., 573 N.W.2d 364 (Minn. 1998), the only issue before the court was whether the subcontractor was required to procure "completed operations coverage" as part of its obligation to procure "general liability insurance coverage." Id. at 367. The court distinguished the two types of coverage and determined the subcontract did not require the subcontractor to procure completed operations insurance. Id. at 367-68.
Paragraph 7 of the parties' subcontract agreement was sufficient to require Saxton to maintain insurance for the purpose of indemnifying Johnson for Johnson's own negligence. See Holmes, 488 N.W.2d at 475. Exhibit D does not modify the language of paragraph 7. We therefore conclude the district court properly construed the Johnson-Saxton subcontract agreement to require Saxton to maintain insurance for the purpose of indemnifying Johnson.
2. Saxton-Voson Subcontract Agreement
Saxton argues, in the alternative, that if it is required to provide insurance to indemnify Johnson, its obligation should pass through to Voson, Saxton's subcontractor, under their subcontract agreement. But Saxton ignores that under the clear and unambiguous terms of its subcontract agreement with Voson, Voson's liability was limited to losses
caused in whole or in part by negligent acts or omissions of the Subcontractor, the Subcontractor's Sub-subcontractors, anyone directly or indirectly employed by them or anyone for whose acts they may be liable, regardless of whether or not such claim, damage, loss or expense is caused in part by a party indemnified hereunder.
This language is very similar to that contained in attachment B in Hurlburt, limiting the subcontractor's indemnification liability to that which resulted from its own negligence. See Hurlburt, 549 N.W.2d at 921. Johnson's claim against Saxton did not arise from Voson's negligence. Therefore, the district court properly concluded Voson was under no duty to indemnify Saxton for Johnson's claim.
3. Reasonableness of the Johnson-Mytty Settlement
Saxton further argues that the district court erred in determining the settlement between Johnson and Mytty was reasonable and prudent. As an initial matter, the parties disagree regarding the proper standard of review. Johnson argues that the determination of reasonableness is a fact question reviewed under a clearly erroneous standard.
While it is accurate that the question of the reasonableness of a pretrial settlement is a fact question triable to the court without a jury, Alton M. Johnson Co. v. M.A.I. Co., 463 N.W.2d 277, 279 (Minn. 1990), this appeal is brought from the district court's summary judgment.
The district court's function on a motion for summary judgment is not to decide issues of fact, but solely to determine whether genuine factual issues exist.
DLH, Inc. v. Russ, 566 N.W.2d 60, 70 (Minn. 1997). The question for a reviewing court is "whether the record shows, as a matter of law, that the [settlement] * * * was reasonable and prudent." Osgood v. Medical, Inc., 415 N.W.2d 896, 903 (Minn.App. 1987) (quoting Miller v. Shugart, 316 N.W.2d 729, 736 (Minn. 1982)), review denied (Minn. Feb. 12, 1988).
Saxton concedes that the total settlement was reasonable, but argues that the allocation of $1,000,000 of the total settlement to Johnson was collusive. Saxton fails, however, to cite any authority for its proposition that a court should compare one defendant's settlement with that of another for the purpose of determining reasonableness.
A pretrial settlement is reasonable and prudent if it was clear at the time of the settlement that a jury could have found the settling defendant liable and damages could have been in excess of the amount of settlement. Osgood, 415 N.W.2d at 903. Having settled before trial, Johnson carried the burden of demonstrating the settlement was reasonable and prudent. Miller, 316 N.W.2d at 735.
The undisputed facts presented to the district court on summary judgment show that Johnson knew that wooden boxes tend to fall apart and that workers may climb into such boxes. Johnson nevertheless instructed Anderson to construct the box and use it with the lift on the site. The extent of Mytty's injuries was also undisputed, as were the damages. The only evidence submitted estimated Mytty's special damages at between $7,343,474 and $12,598,297. Saxton failed to present any evidence to create a fact issue as to the reasonableness of the settlement. Under these circumstances, the district court did not err in determining as a matter of law that Johnson met its burden of demonstrating the $1,000,000 settlement was reasonable and prudent.
Affirmed.