Bethlehem Steel Corp. v. G.C. Zarnas and Co., Inc.

• Decision Date: 01 September 1984
• Docket Number: No. 103,103
• Citation: 304 Md. 183,498 A.2d 605
• Parties: BETHLEHEM STEEL CORPORATION v. G.C. ZARNAS AND CO., INC. ,
• Court: Maryland Court of Appeals

Page 183

304 Md. 183

498 A.2d 605

BETHLEHEM STEEL CORPORATION v. G.C. ZARNAS AND CO., INC.

No. 103, Sept. Term, 1984.

Court of Appeals of Maryland.

Oct. 7, 1985.

Thomas M. Trezise, Baltimore (Benjamin R. Goertemiller and Semmes, Bowen & Semmes, Baltimore, on brief), for appellant cross-appellee.

Donald K. Krohn, Baltimore (Donald L. Merriman and Merriman & Mann, P.A., Baltimore, on brief), for appellee cross-appellant.

Argued before MURPHY, C.J., SMITH, ELDRIDGE, COLE, RODOWSKY and COUCH, JJ., and JAMES C. MORTON, Jr., Associate Judge of the Court of Special Appeals (retired), specially assigned.

ELDRIDGE, Judge.

This case presents a conflict of laws question, namely whether a provision of a construction contract executed in Pennsylvania, whereby the promisor agreed to indemnify the promisee against liability for damages resulting from the sole negligence of the promisee, is so contrary to Maryland public policy that it is unenforceable in a Maryland Court.

On February 14, 1977, G.C. Zarnas and Co., Inc. and Bethlehem Steel Corporation entered into a contract in Bethlehem, Pennsylvania. Zarnas is a Maryland corporation with its principal place of business in Pennsylvania. Bethlehem is a Delaware corporation also having its principal place of business in Pennsylvania. Under the contract, Zarnas was to perform painting services at Bethlehem's Sparrows Point, Maryland, plant during 1977, 1978 and 1979. The seventh paragraph of the contract, headed "RESPONSIBILITY AND INSURANCE," provided in part as follows:

"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 on 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 provisions of law. For the purpose of this Agreement, the term 'Bethlehem Companies' shall include Bethlehem Steel Corporation, a Delaware corporation, its successors and assigns, and any and all companies and corporations directly or indirectly subsidiary to said Bethlehem Steel Corporation and the successors and assigns of any of them."

On November 5, 1978, George Karavas, a Zarnas employee, was performing services under the contract at the Sparrows Point plant. He was injured when he came in contact with high voltage electricity at the plant. Karavas subsequently filed a negligence action against Bethlehem in the United States District Court for the District of Maryland. While this suit was pending, Bethlehem instituted the present declaratory judgment action against Zarnas in the Circuit Court for Baltimore County. ¹ Bethlehem sought a declaration of rights under the indemnity provision of the contract, contending that under Maryland choice of law rules the validity of the terms of the contract should be determined by Pennsylvania law. Bethlehem further argued that the indemnity provision was valid under the law of Pennsylvania. In response, Zarnas contended that the indemnity provision in the contract was unenforceable because it provided for indemnification for Bethlehem's sole negligence. Zarnas argued that this State's public policy required the application of Maryland law, making the provision void and unenforceable.

The circuit court concluded that the agreement, insofar as it required Zarnas to indemnify Bethlehem for Bethlehem's sole negligence, is against Maryland's "strong public policy" and, therefore, is not enforceable. The court relied upon Maryland Code (1974, 1984 Repl.Vol.), § 5-305 of the Courts and Judicial Proceedings Article, which provides as follows:

"A covenant, promise, agreement or understanding in, or in connection with or collateral to, a contract or agreement relating to the construction, alteration, repair, or maintenance of a building, structure, appurtenance or appliance, including moving, demolition and excavating connected with it, purporting to indemnify the promisee against liability for damages arising out of bodily injury to any person or damage to property caused by or resulting from the sole negligence of the promisee or indemnity, his agents or employees, is against public policy and is void and unenforceable. This section does not affect the validity of any insurance contract, workmen's compensation, or any other agreement issued by an insurer." (Emphasis added.)

The circuit court determined, however, that Maryland public policy did not prohibit agreements providing for indemnification for a claim arising out of the concurrent negligence of Bethlehem and Zarnas or the sole negligence of Zarnas. Furthermore, the court held that the indemnification clause covered the concurrent negligence of the parties as well as the sole negligence of either party. Thus, according to the court, if Bethlehem established that Zarnas was either concurrently or solely negligent in connection with the injury to Karavas, Bethlehem could recover from Zarnas under the indemnification provision of the contract.

Both parties appealed to the Court of Special Appeals. Prior to argument in the intermediate appellate court, the parties filed in this Court a joint petition for a writ of certiorari which we granted. In its appeal, Bethlehem challenges the trial court's decision that Maryland public policy renders unenforceable the provision indemnifying Bethlehem against its sole negligence. Zarnas, in its cross-appeal, disagrees with the trial court's decision that Bethlehem would be entitled to indemnification if Bethlehem and Zarnas were concurrently negligent.

(1)

In deciding questions of the validity and construction of contracts, a Maryland court ordinarily looks to the law of the place of making of the contract (lex loci contractus ). Traylor v. Grafton, 273 Md. 649, 660, 332 A.2d 651 (1975), and cases there cited. The contract before us was made in Pennsylvania, and, under Pennsylvania case law, the indemnification clause in question is valid and enforceable. See Westinghouse Electric Co. v. Murphy, Inc., 425 Pa. 166, 173 note 5, 228 A.2d 656 (1967).

The lex loci contractus principle will not be applied, however, in some circumstances. Long ago, in Trasher v. Everhart, 3 G. & J. 234, 244 (1831), our predecessors stated:

"It is a universal principle, governing the judicial tribunals of all civilized nations, ... that the lex loci contractus controls the nature, construction, and validity of the contract. Courts will always look to the lex loci, to give construction to an instrument, and will impart to it validity, according to those laws, unless it would be dangerous, against public policy, or of immoral tendency to enforce it here." (Emphasis added.)

The conflict of laws rule, that lex loci contractus does not apply to a contract provision which is against Maryland public policy, has been consistently recognized by this Court. See, e.g., Traylor v. Grafton, supra, 273 Md. at 660, 332 A.2d 651; Henderson v. Henderson, 199 Md. 449, 458-459, 87 A.2d 403 (1952); Credit Co. v. Marks, 164 Md. 130, 141-146, 163 A. 810 (1933); Pleasanton v. Johnson, 91 Md. 673, 675, 47 A. 1025 (1900); Moore v. Title and Trust Co., 82 Md. 288, 290, 33 A. 641 (1896); Baltimore and Ohio Rail Road Company, et al. v. Glenn, et al., 28 Md. 287, 321-322 (1868); De Sobry v. De Laistre, 2 H. & J. 191, 228-230 (1806).

Bethlehem argues, however, that the lex loci contractus rule should be deemed inapplicable on public policy grounds "only when the application of that [foreign] law violates a strong public policy of this State." (Brief, p. 8.) Bethlehem points out "that a mere difference between the policies of the jurisdictions involved would not justify a refusal to follow the [foreign] ... law," as otherwise "[t]he public policy exception to choice of law principles would thus swallow the choice of law analysis...." (Id. at pp. 13, 17.) This Court's opinions which Bethlehem relies upon are Texaco v. Vanden Bosche, 242 Md. 334, 340, 219 A.2d 80 (1966), and Harford Mutual v. Bruchey, 248 Md. 669, 674, 238 A.2d 115 (1968).

We fully agree that merely because Maryland law is dissimilar to the law of another jurisdiction does not render the latter contrary to Maryland public policy and thus unenforceable in our courts. Rather, for another state's law to be unenforceable, there must be "a strong public policy against its enforcement in Maryland," Texaco v. Vanden Bosche, supra, 242 Md. at 340-341, 219 A.2d 80, or "a public policy sufficient to require the application of law other than the law of the place of the [contract]," Harford Mutual v. Bruchey, supra, 248 Md. at 676, 238 A.2d 115. In our view, however, the circuit court correctly held that Maryland public policy is sufficiently strong to preclude an application of Pennsylvania law under the circumstances of this case.

This is not a situation where Maryland law is simply different from the law of another jurisdiction. Here, the General Assembly of Maryland has specifically addressed clauses in construction contracts providing for indemnity against the results of one's sole...