American Federal Sav. Bank v. County of Washoe

• Decision Date: 07 December 1990
• Docket Number: No. 20787,20787
• Parties: AMERICAN FEDERAL SAVINGS BANK, fka First Federal Savings and Loan Association of Nevada, Appellant, v. COUNTY OF WASHOE, a political subdivision of the State of Nevada, Respondent.
• Court: Nevada Supreme Court

Page 1270

802 P.2d 1270

106 Nev. 869

AMERICAN FEDERAL SAVINGS BANK, fka First Federal Savings and Loan Association of Nevada, Appellant, v. COUNTY OF WASHOE, a political subdivision of the State of

Nevada, Respondent.

No. 20787.

Supreme Court of Nevada.

Dec. 7, 1990.

A.D. Jensen and Allan D. Jensen, Reno, for appellant.

Erickson, Thorpe & Swainston, Ltd., Reno, for respondent.

OPINION

PER CURIAM:

THE FACTS

In this appeal, the court is asked to determine the effect of the Nevada Industrial Insurance Act ("NIIA") on an express contract that may require an employer to indemnify a third-party for compensation the third-party was required to pay the employer's employee for a work related accident. Appellant American Federal Savings Bank, formerly known as First Federal Savings & Loan Association of Nevada ("First Federal"), appeals from the district court's ruling that the NIIA voids such indemnity contracts because they increase the liability of an employer. For the following reasons, we reverse.

On May 24, 1983, respondent, Washoe County, contracted to lease the "Union Federal Building" from appellant, First Federal. Under the terms of the lease contract, Washoe County was required to pay for the maintenance of the leased building, and was also required to secure $1,000,000.00 in public liability insurance covering both itself and First Federal. Further, the lease agreement required Washoe County to indemnify First Federal for any loss, injury, death, or damage to persons allowed to use or occupy the premises.

Thereafter, on April 17, 1986, an employee of Washoe County named Rosslyn Fuller injured herself as she exited the leased building's elevator. On March 17, 1987, another employee of Washoe County, Robert M. Howell, injured himself when he fell down some stairs in the building. Since the County was a self-insured employer under the NIIA, Ms. Fuller and Mr. Howell were entitled to receive workman's compensation benefits, but were precluded from initiating personal injury lawsuits against Washoe County. See NRS 616.370(1). However, both employees filed separate actions for their personal injuries against First Federal as the owner of the building.

First Federal attempted to have Washoe County's attorney file a third-party complaint on behalf of First Federal for indemnification and breach of contract against Washoe County in Mr. Howell's lawsuit. First Federal's claims were based upon the After a trial, Howell was awarded $120,000.00 in damages against First Federal, who was also required to pay court costs and attorney's fees of $15,619.04. Rosslyn Fuller's action was still pending when the Howell judgment was entered.

indemnification provision of the lease agreement and First Federal's allegation that Washoe County had failed to maintain the building and had not obtained $1,000,000.00 in public liability insurance. The third-party complaint was never filed in the Howell case, but the parties stipulated to preserve any issues of liability between themselves for a later determination.

Washoe County commenced the instant action against First Federal on June 6, 1988, seeking a declaration of Washoe County's obligations under the lease agreement in the event Rosslyn Fuller recovered damages from First Federal. First Federal counterclaimed against Washoe County to recover the damages it paid in the Howell case. ¹

On October 19, 1989, Washoe County moved for summary judgment in the declaratory action. The district court judge granted the motion, reasoning that the indemnity, maintenance, and insurance provisions of the lease agreement enlarged Washoe County's liability for its employees' work related injuries and, therefore, were void as a matter of law. This appeal followed.

SUMMARY JUDGMENT

A grant of summary judgment is only appropriate where there are no genuine issues of fact to be resolved, and one party is entitled to judgment as a matter of law. NRCP 56(c); Leven v. Wheatherstone Condominium Corp., 106 Nev. 307, 791 P.2d 450, 451 (1990). First Federal asserts the County may have breached the insurance, maintenance and indemnification provisions of the lease agreement, and that the contract breach claims present viable issues of fact precluding a summary judgment. In response, Washoe County contends that the breach of contract allegations do not represent viable issues of fact because the lease agreement was void under the NIIA to the extent the lease required the County to indemnify First Federal for the compensation First Federal paid to Washoe County employees for work related injuries.

BACKGROUND OF THE NIIA EXCLUSIVE REMEDY

One of the basic operating principles of the NIIA is that an employee is entitled to receive benefits when he suffers a "personal [injury] by accident ... arising out of and in the course of ... employment." NRS 616.270. ² This operating principle provides an employee with the security of virtually guaranteed compensation for job-related accidents, even in cases where the accident may not have been the consequence of the employer's negligence; however, in exchange for this security, the NIIA covered employee relinquishes his right to any remedy not allowed by the exclusive remedy provision of NRS 616.370(1). This statute says:

1. The rights and remedies provided in this chapter for an employee on account of an injury by accident sustained arising out of and in the course of the employment shall be exclusive, except as otherwise provided in this chapter, of all other rights and remedies of the employee, his personal or legal representatives, dependents or next of kin, at common Since the NIIA imposes arbitrary maximum limits upon the benefits the employee receives from the employer for a work related injury, (see, e.g., NRS 616.580), it is possible that the employee may not be totally compensated for his loss by the employer because of the restrictions of the exclusive remedy rule in NRS 616.370(1). This makes a common law tort action against a third-party--who exists outside the employer-employee relationship--an appealing alternative to the injured employee, if that third-party is concurrently or exclusively responsible for the employee's injuries.

law or otherwise, on account of such injury.

Such third-party lawsuits are not proscribed by the exclusive remedy provisions of the NIIA. Leslie v. J.A. Tiberti Constr., 99 Nev. 494, 496, 664 P.2d 963, 965 (1983). However, where the third-party, in an effort to defend against an adverse monetary judgment seeks indemnity back from the employee's employer pursuant to an implied or express contract agreement, the employer may turn to the exclusive remedy provisions of the NIIA for a defense.

THE INDEPENDENT DUTY ANALYSIS

On first glance, it would appear the employer should be allowed such a defense under the exclusive remedy provision of the NIIA, where the exclusive remedy restriction of NRS 616.370(1) appears to limit the employer's overall liability to exactly the same degree that it limits the employee's rights against the employer. However, as Professor Larson points out in 2B A. LARSON, WORKMEN'S COMPENSATION LAW § 76.41 (1989), at pages 14-733 to 14-734:

A closer reading of the [statutes] ... makes this interpretation questionable, and the majority of courts have preferred a narrower construction. They reason as follows: the immunity conferred is only against actions for damages on account of the employee's injury; a third-party's action for indemnity is not exactly for "damages" but for reimbursement, and it is not "on account of" the employee's injury, but on account of breach of an independent duty owed by the employer to the third-party.

(Emphasis added.)

This court likewise has held that "[a]bsent an independent duty owed to a third-party, employers and co-employees are insulated by the provisions of the Nevada Industrial Insurance Act ..., not only from liability to employees, but also from liability by way of indemnity to a third-party." Kellen v. District Court, 98 Nev. 133, 134, 642 P.2d 600, 600-601 (1982). (Emphasis added). See also, Outboard Marine Corp. v. Schupbach, 93 Nev. 158, 561 P.2d 450 (1977). However, while this court has adopted an independent duty analysis in its prior rulings, our decisions have defined "independent duty" by exception, rather than by rule.

A. Implied Indemnity Contracts. ³

This court has rejected the contention that an implied indemnity contract--based upon an alleged independent duty of an employer to reimburse a third-party for compensation the third-party was required to pay to the employer's employee for a work related injury--arises out of an employer's purchase of a product from the third-party, or from the employer's negligent use of that product. See Outboard Marine, 93 Nev. at 164-165, 561 P.2d at 454; Kellen, 98 Nev. at 134-135, 642 P.2d at 600-601. In Outboard Marine, this court concluded that the manufacturer of an electric utility cart that set off an explosion injuring two employees could not recover The policy supporting this position was articulated in Santisteven v. Dow Chemical Company, 506 F.2d 1216 (1974), where the federal court, while interpreting Nevada law, considered Dow Chemical's claim that Kennecott Copper Corporation had an implied contract to indemnify Dow for damages Dow paid to a Kennecott employee. Dow's claim rested upon an allegation that Kennecott had allowed the employee to misuse a product Dow had sold to Kennecott. The federal court felt Dow's argument turned indemnity on its head, and reasoned:

the damage award paid to the employees by asserting an implied indemnity contract against the employer who purchased the cart.

Dow's liability arises because of a breach of a duty it owes to users of its products--in this instance, a worker. Assumably, Kennecott has also breached a duty owed to the same worker by negligence. Under Dow's theory, the whole burden of loss would be shifted whenever the employer was negligent in any...