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When Does Contractual Duty to Defend, Indemnify and Hold Harmless Really Kick In?

Introduction

Many attorneys assume they know what duty defend, indemnify and hold harmless means and many are mistaken. Many think they know when they apply and might be surprised. We recently had an opportunity to really dive into the law interpreting and applying these contractual terms and I wanted to share what we learned and argued in the process.

To set the stage, our case was about a lease agreement between our client, ABC, Inc. (lessee), and Business Park (lessor). The Smiths owned ABC. There was a spill of a contaminated liquid in an adjoining office space that leaked into ABC’s space. Mrs. Smith sustained chemical burns to her eyes as a consequence of contact with the spill. The Smiths sued Business Park for personal injuries caused by their negligence. Business Parks got creative and in response sued ABC under their lease for breach of contract in ABC’s failure to defend and indemnify Business Park for the injury caused to Mrs. Smith. We pursued a motion to dismiss Business Park’s claims based upon their allegations of contractual duty to defend and indemnify.

Issue

The Indemnification Clause at issue read as follows:

[ABC] shall indemnify and hold [Business Park] harmless from all damages arising out of any damage to any person or property occurring in, on or about the Premises or [ABC’s] use of the Premises or [ABC’s] breach of any term of this lease.

The questions we litigated on cross motions for summary judgment before Judge Sharon Armstrong in King County Superior Court were:

  1. Is there a duty to defend?
  2. Is there a duty to indemnify?

Definitions

Duty to defend is just that, a duty to accept responsibility for the fees and costs incurred in defending a lawsuit against the indemnitee.

Indemnification is the duty to reimburse losses sustained by the indemnitee as the result of a judgment being entered against the indemnitee.

An indemnitor’s duty to defend a lawsuit against its indemnitee is totally independent from the obligation to indemnify in the event judgment is rendered.Parks v. Western Washington Fair Assoc., 15 Wn.App. 852, 855 (1976).

A lot of attorneys get these mixed up. They will say you have a duty to indemnify us when no such duty has arisen since there is no judgment. And like in ABC’s case, they will demand a duty to defend where none exists. It is all based on the contract language.

What about that “hold harmless” language? Extraneous and duplicative. Hold harmless is synonymous for indemnification. At least according to Black’s. The only other interpretation of hold harmless that we could find was that it could be interpreted to mean “release from liability.” Scott v. Pacific West Mountain Resort, 119 Wn.2d 484 (1992). (“I hereby hold harmless the ski instructor from all claims arising out of the instruction of skiing.”).

When Do Duties Arise

Parks v. Western Washington Fair Assoc., 15 Wn.App. 852, 855 (1976).

The Parks court initially reviewed the “Strict Rule”: The law is clear…duty to defend arises when a complaint is filed…alleging facts which if proved, would render the insurer liable under its policy. However, the Parks court was dissatisfied with the Strict Rule in light of notice pleadings, and favored a more expansive test that the duty to defend arises and is determined by the facts known by the insurer/indemnitor at the time of tender. (“Broad Test”)

As a result, indemnification is only triggered once judgment has been rendered against an indemnitee. But the issue of sole and concurrent negligence is crucial and discussed more fully in the next section.

Contractual Language

Governing all of this is the specific contractual language between parties imposing the duties to defend, indemnify and hold harmless and has been the subject of a line of case authority culminating in the recent case of Snohomish County Public Trans. V. FirstGroup America, Inc., 173 Wn.2d 829 (Feb. 23, 2012)

Law on contract interpretation applies to indemnification provisions. Therefore, “[I]ndemnification agreements, such as the one involved in this case, are to be interpreted in the same way as other contracts.” Snohomish County Pub. Transp. v. FirstGroup America, Inc., 173 Wn.2d 829, 836, 271 P.3d 850 (2012) (citingJones v. Strom Contr. Co., 84 Wn.2d 518, 520, 527 P.2d 1115 (1974)).

Furthermore, “if the language of a contract is subject to interpretation because [it is] vague or ambiguous, it will be construed most strongly against the party who drafted it… .” Parks v. Western Washington Fair Assoc., 15 Wn.App. 852, 857 (1976).

Duty To Defend

Parks v. Western Washington Fair Assn., 15 Wn. App. 852 (1976). The indemnification agreement there required the concessionaire (the indemnitor) to "protect and indemnify and hold harmless the Association from any and all claims for damages ... resulting from the activities and business of the concessionaire in connection with this contract." A common definition of the word "protect" includes the word "defend." The indemnitor voluntarily accepted a tender of defense, with reservation of rights. While the court found no duty to defend under the facts of the case, it is important to note that the indemnification language in Parks included a duty to defend, by another name.

In Tri-M Erectors, Inc. v. Donald M Drake Company, 27 Wn. App. 529 (1980), the general contractor sued the sub-contractor for damages the general incurred as a result of being required to defend a personal injury action by the subcontractor's employee. The employee did not claim that the subcontractor was negligent, but the injury occurred while the employee was connected with the performance of the subcontract. The court held the sub-contractor responsible for the general's costs of defense. Significantly, the indemnity language specifically required the subcontractor to Indemnify and save contractor harmless from all claims, suits and actions (including costs, expenses and reasonable attorneys’ fees incurred by Contractor or others in defending the same) . . . brought on account of any injury . . . in any way connected with the performance of this Subcontract.

In Northwest Airlines v. Hughes Air Corp., 104 Wn.2d 1 52 (1985), the court enforced an indemnification clause that explicitly provided that lessee would indemnify lessor for injuries whether or not caused by lessor's negligence. The issue before the court was whether the lessee was required to indemnify if it was not negligent. The court found the parties expressed this intention in clear and unequivocal terms and the provision did not violate public policy. More importantly, for our purposes, the indemnity contract required payment of costs and fees:

INDEMNITY. Lessee shall indemnify the Lessor from and against any and all claims, demands, causes of action, suits or judgments (including costs and expenses incurred in connection therewith) for . . . injuries to persons . . . arising out of or in connection with the use and occupancy of the premises by Lessee . . . whether or not caused by Lessor's negligence.

In George Solitt Corp. v. Howard Chapman Plumbing, 67 Wn. App. 468 (1992), a declaratory judgment action, the court held that a subcontractor had a contractual obligation to defend the general contractor in a suit by the subcontractor's employee. The relevant language specifically required the subcontractor to defend:

Article 5. That the Sub-contractor shall indemnify, save harmless and defend, the Owner, General Contractor, Architect . . . against all claims, money damages . . . and/or expense arising under Article 2, 3, and 4 of this agreement.

In Nunez v. American Building Maintenance Company West, 144Wn. App. 345 (2008), the indemnification clause required the contractor, a building maintenance company, to "indemnify, defend, and hold harmless" the landlord for personal injury actions. It imposed the same duty on the landlord to the contractor. But the court held there was no duty on the landlord to indemnify the contractor against claims by a tenant's employee because the landlord did not control the premises, or the circumstances giving rise to the employee's injury.

In Snohomish County Public Transportation v. Firstgroup America, Inc., 173 Wn. 2d 829 (2012), plaintiff Community Transit had tendered injury claims to defendant, which refused to defend or indemnify. Community Transit settled the claims and sued for indemnification. The issue before the court was whether there was clear and unequivocal language evidencing the intent that the indemnitee (Community Transit) be indemnified against losses resulting from its concurrent negligence. The indemnity provision expressly required the contractor to "defend, indemnify and save harmless" Community Transit. Community Transit prevailed.

Given clear history of interpretation, Judge Armstrong agreed that the language of the indemnification clause in the ABC case was utterly silent as to any duty to defend and therefore there was no duty to defend imposed by the language of the lease agreement.

Indemnification

Focused on when and if a duty to indemnify arises in the face of sole or concurrent negligence on the part of the Indemnitee, Business Park asserted that indemnification is required regardless of whether the indemnitee is negligent.

However, an indemnitor is only required to indemnify the indemnitee for the indemnitee’s negligence—whether sole or partial— if the indemnification clause “speak[s] to the negligence of the indemnitee.” The indemnification clause’s language need not be “formulaic,” but it must at least evince a mutual intent to provide indemnification for the indemnitee’s sole or partial negligence. If an indemnification clause is silent on the indemnitee’s negligence, then indemnification is triggered only by a negligent act of the indemnitor.

Sole Negligence

Agreements that indemnify an indemnitee “from liability for losses flowing solely from his own acts or omissions are not favored and are to be clearly drawn and strictly construed." FirstGroup Amer., 173 Wn.2d at 836.

In Snohomish County Public Transportation v. FirstGroup America, Inc., our Supreme Court held that indemnification is not required for an indemnitee’s sole negligence “unless this intention is expressed in clear and unequivocal terms.” 173 Wn.2d 829, 836, 271 P.3d 850 (2012) (quoting Nw. Airlines v. Hughes Air Corp., 104 Wn.2d 152, 158, 702 P.2d 1192 (1985), recons. denied(1985)).

 “‘[A] contract of indemnity will not be construed to indemnify the indemnitee against losses resulting from [the indemnitee’s] own negligence unless this intention is expressed in clear and unequivocal terms.’” FirstGroup Amer., 173 Wn.2d at 836 (quoting Nw. Airlines, 104 Wn.2d at 158).

Courts “will not find clear and unequivocal intent in broad and all-encompassing contract language that does not include specific language showing clear and unequivocal intent to indemnify the indemnitee’s own negligence.” FirstGroup America, 173 Wn.2d at 836 (citing Nw. Airlines, 104 Wn.2d at 155):

[Indemnitor] shall indemnify the [indemnitee] from and against any and all claims, demands, causes of action, suits or judgments (including costs and expenses incurred in connection therewith) for deaths or injuries to persons or for loss of or damage to property arising out of or in connection with the use and occupancy of the premises by [indemnitor], its agents, servants, employees or invitees whether or not caused by [indemnitee’s] negligence.

 The Court concluded that the indemnity clause “clearly includes coverage for the indemnitee’s negligence” and, therefore, required the indemnitor to indemnify the indemnitee for the indemnitee’s negligent acts.

 Partial Negligence

What is less clear in the cases is when an indemnitor has a duty to indemnify an indemnitee for the indemnitee’s concurrent negligence.

The Washington Supreme Court has held that indemnification for an indemnitor’s negligence—sole or partial—is required only if the indemnity clause “speak[s] to the negligence of the indemnitee.” Id. at 839. The Indemnity Clause in the Osborne case lacked language similar to that in the Northwest Airlinesindemnity clause, and did not contain any other language “clearly spell[ing] out” that indemnification was required for PS Business Parks’ negligence, whether sole or partial.

In FirstGroup America, the Supreme Court reaffirmed the rule that “the important question is whether the agreement clearly provides for indemnification when losses result from the indemnitee’s negligence. The agreement must speak to the negligence of the indemnitee.” FirstGroup America, 173 Wn.2d at 839. The Court was referring not just to the indemnitee’s sole negligence, but to any degree of negligence by the indemnitee.

The FirstGroup America Court then scrutinized the following indemnity clause:

 The [indemnitor] shall defend, indemnify and save harmless [the indemnitee] . . . from any and every claim and risk, including, but not limited to, suits or proceedings for bodily injuries . . . and all losses, damages, demands, suits, judgments and attorney fees, and other expenses of any kind, on account of all personal bodily injuries . . . property damages of any kind . . . in connection with the work performed under this contract, or caused or occasioned in whole or in part by reason of the presence of the [indemnitor] or its subcontractors, or their property, employees or agents, upon or in proximity to the property of [the indemnitee] . . . except only for those losses resulting solely from the negligence of [the indemnitee], its officers, employees and agents.

The Court concluded that this clause “expressly and specifically refer[red] to losses resulting from the sole negligence of the indemnitee.” “The language shows, that the parties consciously and deliberately considered the question of indemnity in connection with the indemnitee’s negligence” and only excludedsole negligence thus leaving concurrent negligence in the clause by omission from the exclusion.

Whereas the FirstGroup America indemnity clause “show[ed] clear and unequivocal intent to indemnify for loss resulting from negligence of the indemnitee,” the Indemnity Clause in this case does not evince any such intent. The Indemnity Clause does not even address acts by PS Business Parks. Thus, it cannot be said that RCAW is required to indemnify PS Business Parks for losses flowing from PS Business Parks’ sole or partial negligence.

Indeed, the Indemnity Clause in this case more closely resembles the clause fromJones v. Strom Construction Company, 84 Wn.2d 518, 527 P.2d 1115 (1974), which was discussed in FirstGroup America. The Jones indemnity clause read: 

[The indemnitor agrees] [t]o indemnify and save harmless the [indemnitee] from and against any and all suits, claims, actions, losses, costs, penalties, and damages, of whatsoever kind or nature, including attorney’s fees, arising out of, in connection with, or incident to the [indemnitor’s] performance of this Subcontract.

 Jones, 84 Wn.2d at 521.

Examining Jones, the FirstGroup America court explained that “[t]here was no language in the indemnity agreement in Jones that clearly spelled out any intent to indemnify in the event of the [indemnitee’s] negligence. The [indemnitee’s] conduct was never even addressed in the indemnity provision.FirstGroup America, 173 Wn.2d at 838.

 Conclusion

Like the clause in Jones, the Indemnity Clause in the ABC case did not “even address” the conduct of Business Park. As such, there was no indication that the parties intended for ABC to indemnify Business Park for its negligence, whether sole or partial. Because the Indemnity Clause was silent as to Business Park’s negligence, indemnification was triggered as a matter of law but only to the extent that ABC was partially negligent.

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