Bainville v. Hess Oil V.I. Corp.

• Decision Date: 15 January 1988
• Docket Number: 87-3161,Nos. 87-3062,s. 87-3062
• Citation: 837 F.2d 128
• Parties: Robert J. BAINVILLE v. HESS OIL V.I. CORP. v. STANDBY POWER SUPPLIES, INC., Third Party Defendant, Appellant.
• Court: U.S. Court of Appeals — Third Circuit

Page 128

837 F.2d 128

Robert J. BAINVILLE v. HESS OIL V.I. CORP. v. STANDBY POWER SUPPLIES, INC., Third Party Defendant, Appellant.

Nos. 87-3062, 87-3161.

United States Court of Appeals, Third Circuit.

Argued Dec. 7, 1987.

Decided Jan. 15, 1988.

Diane Trace Warlick, R. Eric Moore (argued), Law Offices of R. Eric Moore, Christiansted, St. Croix, U.S.V.I., for third party defendant, appellant, Standby Power Supplies, Inc.

Law Offices of Britain H. Bryant and Associates, P.C., Nancy V. Young (argued), St. Croix, U.S.V.I., for appellee, Hess Oil Virgin Islands Corp.

Before GIBBONS, Chief Judge, and STAPLETON and MANSMANN, Circuit Judges.

OPINION OF THE COURT

GIBBONS, Chief Judge:

Standby Power Supplies, Inc. (Standby) appeals from summary judgment in a third party indemnity action, enforcing its contractual duty to indemnify Hess Oil Virgin Islands Corporation (Hess), and from a supplemental judgment awarding attorney's fees to Hess. Since we review a summary judgment our review is plenary, 649 F.Supp. 804.

At issue is an indemnity clause contained in a contract for manpower between a company "contracting-out" for labor and services (here, Hess) and a general contractor/labor supplier (here, Standby). We read the contract to express the intent that the duty to indemnify extends to stipulated judgments. We further conclude that the duty to pay attorney's fees follows the duty to indemnify. Therefore, we will affirm the summary judgment, enforcing Standby's duty to indemnify, and the supplemental judgment awarding Hess attorney's fees.

I. The Facts

In 1981, Hess and Standby entered into a contract whereby Standby agreed to provide millwright manpower to Hess at its oil refinery on St. Croix. The parties expressed their agreement in a standard form contract drafted by Hess which contained the following clause requiring Standby to:

indemnify, exonerate, and hold harmless [Hess] against loss, damage, liability or expense by reason of any suits, claims, demands, judgments or causes of action for personal injury (including death) or property damage (including property of the parties) arising out of or in any way in consequence of the performance hereunder by [Standby] except that in no instance shall [Standby] be held responsible for any liability, claim, demand or cause of action attributable solely to the negligence of [Hess].

The contract further required Standby to procure worker's compensation insurance and insurance for certain risks.

In 1982 Robert Bainville, one of the millwrights hired by Standby and provided by Standby to work at Hess's plant pursuant to the agreement, was injured on the job. Bainville subsequently filed a personal injury suit against Hess for failure to provide proper supervision and failure to warn. Bainville brought the suit against Hess on the assumption that Hess did not assume the status of Bainville's employer but rather stood in relation to Bainville as the owner of the premises and, therefore, was not protected from liability to suit in negligence by the Worker's Compensation Act.

Upon notice of the personal injury action against it, Hess tendered the defense to Standby, relying on their hold harmless-indemnity agreement. Standby refused to accept the tender of defense, although it did proceed to assist in Hess's preparation of its own defense. Following Standby's refusal to take over the defense, Hess filed a third-party indemnity action against Standby on the theory of an express contractual duty to indemnify. The third-party indemnity action was severed prior to the trial of the primary lawsuit. Before and during the course of the trial, counsel for Bainville and Hess maintained settlement negotiations, during which Bainville made settlement demands, first for $300,000, then for $200,000. Hess offered Standby the opportunity to approve the lower demand for $200,000, but Standby stated that it refused to contribute more than $25,000 to a settlement. Subsequent to Standby's refusal, during jury deliberations, Hess reached a conditional settlement with Bainville for $175,000--payment of that amount being conditioned on allowing the jury to reach a verdict on the allocation of negligence for the sole purpose, approved by the district court, of determining whether or not the sole negligence exception to the duty to indemnify would apply in the context of the third-party indemnity action. The jury returned its verdict finding that Bainville was 50 percent negligent and that Hess was 50 percent negligent, and that Bainville was the borrowed employee of Hess.

II.

The Intent of the Contract Was to Indemnify Against

Judgments Stipulated by Settlement

Hess's claim is based on an express contractual duty to indemnify. Such contractual indemnity clauses are typically drafted to cover the circumstances created by agreements between the companies which contract out jobs and general contractors which perform them, under which workers can bring personal injury actions against the contracting-out company that they could not bring against their employer, the labor contractor, under the Worker's Compensation Act. Through contractual indemnity provisions, the labor contractor undertakes to indemnify the company for such personal injury liability that escapes the limitations of worker's compensation (insurance for which it also typically provides) by virtue of its agreement. As such, the duty's scope, in particular its applicability to stipulated judgments, is determined by the parties' mutual intent, expressed in the contract, rather than by general principles of equity. See Parfait v. Jahncke Service, Inc., 484 F.2d 296, 304 (5th Cir.1973), cert. denied, 415 U.S. 957, 94 S.Ct. 1485, 39 L.Ed.2d 572 (1974); Whisenant v. Brewster-Bartle Offshore Co., 446 F.2d 394, 401-02 (5th Cir.1971); Tankrederiet Gefion A/S v. Hyman-Michaels Co., 406 F.2d 1039, 1043 (6th Cir.1969) (all stating that equitable considerations governing the applicability of a duty to indemnify where actual liability has not been proven do not apply to a duty to indemnify founded on a written contract). It is well-settled that parties can allocate the financial responsibility for the consequences of negligence as they see fit. See United States v. Seckinger, 397 U.S. 203, 211, 90 S.Ct. 880, 885, 25 L.Ed.2d 224 (1970); Eastern Airlines v. Insurance Company of North America, 758 F.2d 132 (3d Cir.1985); Beloit Power Systems, Inc. v. Hess Oil V.I. Corp., 757 F.2d 1427 (3d Cir.1985). This capacity to shift financial responsibility by contract naturally includes the capacity to contractually allocate financial responsibility for stipulated judgments where cases are settled without the benefit of an adjudication of actual liability. Thus, in contract indemnity cases, as distinguished from cases where liability arises as a matter of law, the question of whether actual liability is a prerequisite to the duty to indemnify is answered by reference to what the parties, by virtue of their contractual capacity, intended, as reflected in the language of the indemnity clause. United States v. Seckinger, 397 U.S. 203, 90 S.Ct. 880, 25 L.Ed.2d 224 (1970).

This method of determining if the duty encompasses payments based on potential, as opposed to only actual, liability, contractual interpretation, is entirely different from the approach propounded by Chief Judge Seitz in Frederick v. Hess Oil V.I. Corp., 642 F.2d 53, 56 (3d Cir.1981) (Seitz, C.J., dissenting). In Chief Judge Seitz's approach an actual liability requirement is assumed to be the general rule, from which a "potential liability exception" is made on the basis of weighing the policy interests in encouraging settlements (where ordinarily an actual liability requirement cannot be met) against considerations of fairness to the putative indemnitor. Id. Other courts have further elaborated the circumstances in which such a potential liability exception should apply, specifically, when the indemnitor has had the opportunity either to take over the defense of the original action or approve the terms of the settlement, see, e.g., Burlington Northern, Inc. v. Hughes Bros., Inc., 671 F.2d 279 (8th Cir.1982); Missouri Pac. R.R. Co. v. International Paper Co., 618 F.2d 492, 497 (8th Cir.1980); Central Nat'l Ins. Co. v. Devonshire Coverage Co., 565 F.2d 490, 495-96 (8th Cir.1977); Parfait v. Jahncke Service, Inc., 484 F.2d 296 (5th Cir.1973), cert. denied, 415 U.S. 957, 94 S.Ct. 1485, 39 L.Ed.2d 572 (1974); Whisenant v. Brewster-Bartle Offshore Co., 446 F.2d 394 (5th Cir.1971); Missouri Pac. R.R. Co. v. Arkansas Oak Flooring Co., 434 F.2d 575, 580 (8th Cir.1970); Tankrederiet Gefion A/S v. Hyman-Michaels Company, 406 F.2d 1039 (6th Cir.1969); Hess Oil V.I. Corp. v. Firemen's Fund Ins. Co., 626 F.Supp. 882 (D.V.I.1986); Dominic v. Hess Oil V.I. Corp., 624 F.Supp. 117 (D.V.I.1985); Terra Resources, Inc. v. Lake Charles Dredging and Towing, Inc., 555 F.Supp. 406 (W.La.1981), aff'd, 695 F.2d 828 (5th Cir.1983), or, more broadly, when the indemnitor has been substantially protected against the awkward possibility of having to prove the original plaintiff's case against himself, Burke v. Ripp, 619 F.2d 354 (1980). This court, while not having committed itself, has signaled some inclination toward adopting this balancing-of-the-equities formula as a guide to when to recognize exceptions to the general rule of an actual liability requirement. See Frederick at 56 (Seitz, C.J., dissenting), and M & O Marine, Inc. v. Marquette Co., 730 F.2d 133 (3d Cir.1984).

It must be emphasized, however, that the balancing-the-equities approach applies only to cases where the duty to indemnify arises as a matter of law. Balancing the interest in promoting settlements against considerations of fairness to the indemnitor is simply irrelevant to the determination of whether a contractual duty to indemnify requires a demonstration of actual liability as a precondition or whether, alternatively, an assertion of...