Bethlehem Steel Corp. v. Sercon Corp.

• Decision Date: 28 August 1995
• Docket Number: No. 37A03-9406-CV-239,37A03-9406-CV-239
• Citation: 654 N.E.2d 1163
• Parties: BETHLEHEM STEEL CORPORATION, Appellant-Plaintiff, v. SERCON CORPORATION, Appellee-Defendant.
• Court: Indiana Appellate Court

Page 1163

654 N.E.2d 1163

BETHLEHEM STEEL CORPORATION, Appellant-Plaintiff, v. SERCON CORPORATION, Appellee-Defendant.

No. 37A03-9406-CV-239.

Court of Appeals of Indiana.

Aug. 28, 1995.

Rehearing Denied Oct. 27, 1995.

George W. Gessler, William P. Jones, Michael P. Simkus, Gessler, Flynn, Fleischmann, Hughes & Socol, Ltd., Chicago, IL, James E. McHie, McHie, Myers, McHie & Enslen, Hammond, for appellant.

Duane W. Hartman, Blachly, Tabor, Bozik & Hartman, Valparaiso, for appellee.

OPINION

HOFFMAN, Judge.

Appellant-plaintiff Bethlehem Steel Corporation appeals the judgment entered after a trial by jury on its claim for indemnity against appellee-defendant Sercon Corporation. The evidence relevant to the appeal is recited below.

Bethlehem's Burns Harbor Plant located in Porter County, Indiana, processes steel and iron through the use of extreme temperatures often causing the metals to become molten. Consequently the furnaces, ladles, molds and other metal handling equipment must be lined with refractory brick.

The high temperatures necessitate continual repairs to the refractory brick linings. Bethlehem retained specialized refractory maintenance firms to perform the repair and maintenance work. In July 1985, Bethlehem entered into an agreement with Serstel Corporation, Sercon's predecessor, whereby Serstel agreed to perform the refractory maintenance work at Bethlehem's Burns Harbor Plant. Sercon was substituted for Serstel and the contract remained in effect through 1987. Included within the maintenance contract was a provision by which Sercon agreed to indemnify and hold harmless Bethlehem for actions brought by employees of Sercon against Bethlehem.

On January 19, 1987, a Sercon employee, George Bottorff, fell from a work platform at the Burns Harbor Plant while performing maintenance duties under Sercon's contract. Bottorff sustained fatal injuries. Suit was instituted against Bethlehem by Bottorff's estate.

Sercon refused to defend, indemnify, or reimburse Bethlehem for the expenses it incurred attributable to the lawsuit. Bethlehem's motion for summary judgment in the Bottorff case was denied. After the first trial in the action ended in a mistrial, Bethlehem settled the suit for $140,000.00.

Bethlehem then brought this action against Sercon for indemnification and breach of contract. Sercon filed a counterclaim. Both parties moved for summary judgment. Sercon's motion was denied, and judgment was entered against Sercon on its counterclaim. The trial court granted partial summary judgment for Bethlehem finding the indemnity provision valid and that Sercon was liable to Bethlehem for indemnification. The court denied summary judgment as to the amount of damages and their "reasonableness." The cause was set for trial as to damages, including attorney's fees.

At the deposition of a Sercon witness, Harry Jennings, it was revealed that Jennings' law firm represented Bethlehem in an ongoing action. Jennings acknowledged that he had not checked for a conflict of interest but would "retire" from the case. Sercon requested that Bethlehem waive the conflict of interest to enable Jennings to testify on its behalf against Bethlehem. Bethlehem refused.

Sercon then filed a motion to compel Bethlehem to waive the conflict of interest to enable Jennings to testify on its behalf. The trial court granted the motion to compel. The court also granted Sercon's motion to quash subpoenas Bethlehem directed to a Sercon witness and to Sercon's insurer.

Prior to trial, Sercon requested sanctions against Bethlehem for its refusal to waive the conflict of interest. The court determined that absent the waiver, Bethlehem's claim for reimbursement for defense costs and attorney's fees would be removed from the jury. Accordingly, no evidence of reasonableness of attorney's fees was presented at trial.

At trial, Bethlehem presented evidence as to the reasonableness of the settlement it entered into in the Bottorff case. Sercon argued that the settlement was voluntary and that Bethlehem would have prevailed on retrial. The jury returned a verdict of $70,000.00 for Bethlehem. This appeal ensued.

As restated, Bethlehem raises three issues for review:

(1) whether the $70,000.00 jury verdict was inadequate and against the manifest weight of the evidence;

(2) whether the trial court erred in granting the motion to compel Bethlehem to provide a waiver to the conflict of interest by a Sercon witness and for imposing sanctions absent the waiver; and

(3) whether the trial court erred in quashing Bethlehem's subpoenas.

Sercon raises one issue on cross-appeal. As restated, the issue is:

(1) whether the trial court erred in granting Bethlehem summary judgment as to the validity of the indemnity clause of the contract.

The validity of the indemnity clause is the threshold issue. Sercon contends that the indemnity clause could not be enforced based upon IND.CODE § 26-2-5-1 (1982 Ed.). The statute provides:

"Indemnity agreements against public policy as void and unenforceable; exception

Sec. 1. All provisions, clauses, covenants, or agreements contained in, collateral to, or affecting any construction or design contract except those pertaining to highway contracts, which purport to indemnify the promisee against liability for:

(1) death or bodily injury to persons;

(2) injury to property;

(3) design defects; or

(4) any other loss, damage or expense arising under either (1), (2) or (3);

from the sole negligence or willful misconduct of the promisee or the promisee's agents, servants or independent contractors who are directly responsible to the promisee, are against public policy and are void and unenforceable."

IND.CODE § 26-2-5-1. Sercon contends that the indemnification clause contained within the contract is void because the contract is essentially one for construction rather than maintenance.

This Court has analyzed the purpose of the statute and defined "construction" as used in the statute. See Ogilvie v. Steele by Steele (1983), Ind.App., 452 N.E.2d 167, 169-170. The statute which voids agreements to indemnify against one's own negligence in construction contracts, other than those for highway construction, was enacted "to protect employees in the construction industry and the public from irresponsible contractors who have shifted their own liability onto a subcontractor whose insurance does not cover contract liability." Id. at 169. "Construction work means to build, erect, or create." Id. at 170.

The agreement of the parties included a description of the contract as one for performance of "general refractory maintenance for the balance of 1985, 1986 [and] 1987." Sercon does not argue that it was actually creating, building, or erecting anything that was not previously in place at Bethlehem. Instead, Sercon contends that the maintenance of the previously created, built, or erected items constitutes construction.

The line which Sercon intends to blur was specifically drawn in the definition of "construction." Black's Law Dictionary, Sixth Edition, defines construction as "[t]he creation of something new, as distinguished from the repair or improvement of something already existing." Here, the trial court did not err in determining as a matter of law that the contract is not governed by IND.CODE § 26-2-5-1 inasmuch as, the contract is one for maintenance entirely distinct from construction.

Next, Bethlehem contends that the jury verdict awarding it $70,000.00 was inadequate and against the manifest weight of the evidence. As noted above, Bethlehem moved for summary judgment. The trial court granted summary judgment as to the validity of the indemnification clause but denied summary judgment as to the amount of the damages.

The indemnification clause, in pertinent part, provides:

"SEVENTH. RESPONSIBILITY AND INSURANCE: ...

The Contractor shall indemnify and save harmless each of the Bethlehem Companies from and against all loss or liability for or on account of any injury (including death) or damages received or sustained by the Contractor or any of its subcontractors or any employee, agent or invitee of the Contractor or any of its subcontractors by reason of any act or omission, whether negligent or otherwise, on the part of any of the Bethlehem Companies or any employee, agent or invitee thereof or the condition of the Site or other property of any of the Bethlehem Companies or otherwise. The Contractor shall further indemnify and save harmless each of the Bethlehem Companies from and against all loss or liability for or on account of any injury (including death) or damages received or sustained by any person or persons by reason of any act or neglect on the part of the Contractor or any of its subcontractors or any employee, agent or invitee of the Contractor or any of its subcontractors, including any breach or alleged breach of any statutory duty which is to be performed by the Contractor hereunder but which is or may be the duty of any of the Bethlehem Companies under applicable provision of law...."

Although courts look upon indemnification clauses with disfavor, a party may contract to indemnify itself against its own negligence if the other party "knowingly and willingly" agrees to indemnification. Id.; see also Fresh Cut, Inc., v. Fazli (1994), Ind.App., 630 N.E.2d 575, 578. In the present case, no suggestion of disparity in bargaining exists or other factors which would support a finding that the parties did not enter into the contract "knowingly."

Proceedings on indemnity agreements are governed by contract law, and general rules of evidence regarding contract law are applicable. Zebrowski & Assoc. v. City of Indianapolis (1983), Ind.App., 457 N.E.2d 259, 261. The indemnitee must prove all material elements of its cause of action by a preponderance of the evidence. The indemnitor must prove any affirmative defenses. A contract which includes indemnification should be construed to cover all losses and...