Employers Mut. Liability Ins. Co. of Wis. v. Griffin Const. Co.

Decision Date03 June 1955
Citation53 A.L.R.2d 967,280 S.W.2d 179
PartiesEMPLOYERS MUTUAL LIABILITY INSURANCE COMPANY OF WISCONSIN, a corporation, individually, Appellant, v. GRIFFIN CONSTRUCTION COMPANY, a corporation, Appellee (two cases).
CourtUnited States State Supreme Court — District of Kentucky

Robert M. Odear and Stoll, Keenon & Park, Lexington, Henry G. Boldrick, Lebanon, for appellant.

Allen, Duncan, Duncan & Arnold, Lexington, for appellee.

CLAY, Commissioner.

This controversy involves two separate lawsuits arising out of the same set of facts. On our own motion we have consolidated these appeals and will dispose of both cases in one opinion.

The plaintiff asserted claims against the defendant based on: (1) indemnity under a contract, and (2) contribution under KRS 412.030. On the pleadings judgment was rendered for the defendant in both cases.

Defendant and Inter-County Rural Electric Cooperative Corporation entered into a contract for the construction of an electric distribution system by the defendant. James Peek, an employee of defendant, while at work on the construction job was killed when he came in contact with an energized wire. The employee and defendant were at that time operating under the Workmen's Compensation Act, KRS 342.001 et seq., and the defendant became liable for compensation payments to the employee's widow and child in the amount of $8,800.

Thereafter the employee's widow as administratrix sued Inter-County to recover damages for Peek's death. In that suit an agreed judgment was entered by virtue of which plaintiff, Inter-County's insurance carrier, paid $14,000 damages. The defendant's insurance carrier intervened in that suit and recouped the $8,800 the defendant was required to pay the employee's dependents under the workmen's compensation award.

The plaintiff now seeks to recover of the defendant the $14,000 paid in satisfaction of the judgment on the ground of indemnity, or in the alternative it seeks to recover half of that amount by way of contribution. The cases were practiced under the Civil Code of Practice.

1. We will first consider the cause of action based upon the indemnity features of the contract between defendant and Inter-County. The petition alleged that while the defendant had charge and control of the construction project, the employee Peek was killed by coming in contact with an energized wire or line in the electric distribution system. It was further alleged that thereafter Peek's representative filed suit against Inter-County seeking damages 'for the wrongful death of the said James Peek'.

It is further alleged that plaintiff had issued to Inter-County a policy of insurance whereby it undertook to pay on behalf of Inter-County claims for damage 'arising out of or connected with injuries or damages received by any person resulting from the negligence' of Inter-County; that in accordance with the insurance contract and in discharge of its obligations thereunder, the plaintiff settled the claim of Peek's administratrix for $14,000 plus court costs; and that such settlement and the payments made thereunder 'were bona fide and proper and were reasonable payments'. It is then alleged that by virtue of the contract existing between Inter-County and the defendant the latter is obligated to reimburse the plaintiff, as subrogee, for its loss.

Before taking up the provisions of the contract it is necessary for us to consider the first ground upon which defendant contends the petition fails to state a cause of action. That ground is that the plaintiff, who is Inter-County's insurance carrier, has no right to sue upon the construction contract. The contentions are made that the plaintiff is not the real party in interest, that it was not a party to the contract, and that it was a 'volunteer' in making the payment to the employee's representative under the agreed judgment.

Defendant's first argument is that there was no privity of contract between the plaintiff and defendant because the plaintiff was not a party to the contract and was not a third party beneficiary. This argument overlooks the doctrine of subrogation. We can dispose of it by saying that if the plaintiff was subrogated to the rights of Inter-County and Inter-County had any rights against the defendant, then the plaintiff has a cause of action.

The next argument made by defendant is that the plaintiff could not have been subrogated to Inter-County's rights because it is not alleged there was a subrogation agreement in the plaintiff's insurance contract, and there was no formal assignment of the claim. The doctrine of subrogation is not necessarily limited to contract terms or assignments. As stated in 29 Am.Jur., Insurance, Sections 1335 and 1336:

'The general rule is that upon payment of a loss, the insurer, or insurers in the case of coinsurance, is entitled to be subrogated pro tanto to any right of action which the insured may have against a third person whose negligence or wrongful act caused the loss. Although many policies, including policies in the standard form, now provide for subrogation, and thus determine the rights of the insurer in this respect, the equitable right of subrogation is the legal effect of payment, and inures to the insurer without any formal assignment or any express stipulation to that effect in the policy.

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'The insurer's right of subrogation against third persons causing the loss paid by the insurer to the insured does not rest upon any relation of contract or privity between the insurer and such third person, but arises out of the contract of insurance and is derived from the insured alone.'

The equitable doctrine of subrogation is simply one of substitution and may be invoked whenever a party, not a volunteer, satisfies the obligation of another for which a third party is responsible. It is not dependent upon a particular contract but has its roots in the principles of equity. See Federal Deposit Ins. Corporation v. Wilhoit, 297 Ky. 339, 180 S.W.2d 72; Travelers Indemnity Co. v. Moore, 304 Ky. 456, 201 S.W.2d 7; Grubbs v. Slater, Ky. 1953, 266 S.W.2d 85.

While defendant finds fault with this principle of law, its main argument seems to be that the allegations of the petition fail to show the plaintiff, in settling the claim against Inter-County, was under any obligation to do so and it was therefore a volunteer. The objection is that the petition does not show the basis of the claim asserted by Peek's representative against Inter-County, and if Inter-County's liability was not one which would give it a claim against defendant, then of course such claim cannot be asserted by plaintiff. See 42 C.J.S., Indemnity, Sec. 12d; Cincinnati, N. O. & T. P. R. Co. v. Louisville & N. R. Co., 97 Ky. 128, 30 S.W. 408; Bonnie v. Maryland Casualty Co., 280 Ky. 568, 133 S.W.2d 904.

The petition alleges plaintiff insured Inter-County against loss resulting from the negligence of Inter-County. It alleges Peek was killed by coming into contact with an energized line and that suit was brought against Inter-County for 'the wrongful death'. In discharge of its obligation under its policy, plaintiff allegedly assumed the defense of that action and paid out the $14,000 in satisfaction of that claim. While the petition states conclusions, the effect of the allegations is that Inter-County negligently caused the death of Peek and under its insurance contract plaintiff was obligated to protect Inter-County. Only by pleading negligence of Inter-County could the plaintiff avoid the defense that it was a volunteer, but in avoiding that defense, as will be hereafter noted, it has put itself in a position where it cannot recover on the indemnity features of the contract between Inter-County and the defendant.

Since to sustain the plaintiff's right of subrogation it is necessary for us to say the petition alleges that Inter-County was negligent in causing the death of Peek, the next question is whether or not the contract between Inter-County and defendant may be construed to indemnify Inter-County from the results of its own negligence. The doctrine of equitable subrogation is based upon substantial justice and the balancing of equities, and as an original proposition the plaintiff should not be relieved of liability arising from the negligence of its insured unless under the contract between the insured and the defendant it is clear that the defendant assumed such a risk. It is the general rule that an indemnity contract will be construed to cover only such losses, damages or liability as reasonably appear intended by the parties. 42 C.J.S., Indemnity, Sec. 12. A contract of indemnity will not be construed to indemnify the indemnitee against losses resulting from the latter's negligence unless such intention is expressed in unequivocal terms. 27 Am.Jur., Indemnity, Section 15; 42 C.J.S., Indemnity, Sec. 12. Such interpretation will not be given a contract unless no other meaning can be ascribed to it and every presumption is against such an interpretation. Mitchell v. Southern Ry. Co., 124 Ky. 146, 74 S.W. 216, 24 Ky.Law Rep. 2388.

Plaintiff bases its cause of action on two provisions of the contract between the defendant and Inter-County. They are:

'(a) The Contractor (defendant) shall at no time and under no circumstances cause or permit any employee of the contractor to perform any work upon energized lines, or upon poles carrying energized lines, unless otherwise specified in the notice and instructions to Bidders.

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'(f) The project, from the commencement of work to completion, or to such earlier date or dates when the Owner (Inter-County) may take possession and control in whole or in part as...

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