Burlington Northern, Inc. v. Hughes Bros., Inc., 81-1229

• Decision Date: 16 February 1982
• Docket Number: No. 81-1229,81-1229
• Citation: 671 F.2d 279
• Parties: BURLINGTON NORTHERN, INC., Appellant, v. HUGHES BROS., INC., a corporation, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 279

671 F.2d 279

BURLINGTON NORTHERN, INC., Appellant, v. HUGHES BROS., INC., a corporation, Appellee.

No. 81-1229.

United States Court of Appeals Eighth Circuit.

Submitted Dec. 14, 1981.

Decided Feb. 16, 1982.

Rodney M. Confer, argued, Knudsen, Berkheimer, Beam, Richardson & Endacott, Lincoln, Neb., for Burlington Northern Inc., appellant.

Kevin, Colleran, argued, Cline, Williams, Wright, Johnson & Oldfather, Lincoln, Neb., for Hughes Brothers, Inc., appellee.

Before LAY, Chief Judge, and HENLEY and ARNOLD, Circuit Judges.

LAY, Chief Judge.

This case involves interpretation of an industrial or side track agreement providing for indemnification by the industry for any loss or damage paid by the railroad to any of its employees when the latter's injuries are caused by the act or omission of the industry. After settling with its injured employee, Burlington Northern (BN) sued Hughes Brothers (Hughes) claiming indemnity under its agreement; BN now appeals from a jury verdict denying indemnification.

Facts.

On October 29, 1953, Hughes and BN's predecessor, the Chicago, Burlington and Quincy Railroad, entered into an industrial or side track agreement. The railroad agreed to serve Hughes' plant in Seward, Nebraska under certain conditions. The relevant conditions are described in portions of paragraphs five, nine, and ten of the agreement:

5. Industry to Keep Siding Free from Obstructions:

The Industry shall, at its own expense, and in a manner satisfactory to the Railroad Company, keep said siding clear of snow, ice, weeds, or other obstructions. Upon failure so to do, the Railroad Company may perform said service and collect the entire expense thereof from the Industry.

9. Clearances, Use, and Safety Requirements:

The Industry agrees not to place or construct an elevator nearer than eight (8) feet from the nearest rail of any track of said siding or to construct, place, or permit any other building, excavation, or obstruction nearer than six (6) feet from the nearest rail.

10. Liability Provisions:

....

The Industry also agrees to indemnify and hold harmless the Railroad Company for loss, damage, or injury from any act or omission of the Industry, its employees, or agents, to the person or property of the parties hereto and their employees, and to the person or property of any other person or corporation, while on or about said track; and if any claim or liability other than from fire shall arise from the joint or concurring negligence of both parties hereto it shall be borne by them equally.

On February 2, 1976, Richard Coatman, a BN employee, was injured during switching operations at the plant. As the track enters the Seward facility, it descends to approximately three feet below ground level. On both sides of the track as it descends are brick retaining walls. The walls are less than six feet from the nearest rail. Before the walls begin, there is a sign stating, "WARNING STRUCTURES WILL NOT CLEAR MAN ON SIDE OF CAR." Witnesses testified that BN erected the sign and that its employees knew the walls were too close to the track to allow a person riding on the side of a car to pass safely.

Coatman was riding on the side of a box car which was being pushed into the plant by a locomotive. He knew that he could not pass between the car and the wall. But when he attempted to dismount, first onto the ground before the wall and then onto the wall itself, his feet slipped on accumulated snow and ice. Evidence revealed that Hughes' employees were aware that railroad employees often walked on the retaining walls. Coatman's calf was squeezed between the wall and car causing a compound fracture and soft tissue injury. He was unable to work for 14 months and thus lost $27,038 in wages. BN paid his medical bills of $8,533.

Coatman asserted a claim against BN under the Federal Employers Liability Act (FELA), 45 U.S.C. § 51 et seq. BN notified Hughes of the claim, asserting that Hughes was obligated to indemnify BN under the industrial track agreement and offering Hughes an opportunity to defend or negotiate the claim. Hughes denied any obligation. Hughes was notified on several other occasions and continued to deny responsibility. BN settled with Coatman for $55,726.

BN then sued Hughes for indemnification under the side track agreement. A jury trial was held. At the close of the evidence, BN moved for a directed verdict of full indemnity or, alternatively, of one-half the settlement amount. The trial court denied the motion. The trial court instructed the jury that BN had acquiesced in the placement of the wall and therefore if the jury found that its placement was a proximate cause of the injury, BN could only recover one-half the settlement amount. The jury thereafter found that Hughes had no obligation to indemnify BN. BN brings this appeal. We reverse and remand for a new trial.

BN urges: (1) it was reversible error for the trial court to instruct the jury that BN had to establish its liability for the injury; (2) it was reversible error for the court to instruct the jury that if BN was negligent, it had to prove Hughes' negligence under common law standards in order to recover; (3) the court should have directed a verdict in favor of BN for one-half its liability; (4) the court should not have granted Hughes' request for a partial directed verdict on the issue of BN's concurrent negligence; and (5) there was insufficient evidence to support the jury's verdict.

Reasonableness of Settlement.

The railroad argues that the trial judge erroneously required it to prove that it was liable for its employee's injury. The court instructed the jury that it should determine whether BN's settlement agreement with Coatman was "reasonable and in good faith." The court told the jury that if it found the settlement was unreasonable or entered into in bad faith, the jury should render a verdict for Hughes. The court instructed that the jury had to determine whether BN "reasonably thought it would be liable to Mr. Coatman" and then stated the standards of liability under the FELA as well as the rules governing reduction of an employee's damages based on his or her contributory negligence.

A party seeking indemnity after settling a claim upon notice to the indemnitor must show that its settlement was reasonable and made in good faith. The fact finder generally must evaluate the reasonableness of the settlement by comparing the nature of the injury and the damages incurred to the size of the settlement. The fact finder should also review the good faith of the settlor by evaluating the probability that it would have been held liable. See Chicago, R.I. & P.R. Co. v. Dobry Flour Mills, Inc., 211 F.2d 785, 788 (10th Cir.), cert. denied, 348 U.S. 832, 75 S.Ct. 55, 99 L.Ed. 656 (1954). When liability under an indemnity contract has been denied by the indemnitor, proof of actual legal liability to the injured party is not a requirement. As this court recently observed, "the indemnitee need not prove its legal liability to the injured party when its indemnitor denies liability under a contract and refuses to assume defense of the claim or to otherwise hold the indemnitee harmless for any loss." Missouri Pac. R.R. Co. v. International Paper Co., 618 F.2d 492, 497 (8th Cir. 1980) (quoting Missouri Pac. R.R. Co. v. Arkansas Oak Flooring Co., 434 F.2d 575, 580 (8th Cir. 1970)); see also Central Nat'l Ins. Co. v. Devonshire Coverage Co., 565 F.2d 490, 495-96 (8th Cir. 1977).

BN notified Hughes of the claim and requested that it assume responsibility. BN also kept Hughes informed about the settlement negotiations. Hughes refused to participate in any manner.

In the present case, BN's potential liability under the FELA was established as a matter of law. See International Paper, 618 F.2d at 497; Arkansas Oak Flooring Co., 434 F.2d at 580. Under the FELA, BN possessed a "nondelegable duty to provide its employees with a safe place to work." Shenker v. Baltimore & Ohio R.R. Co., 374 U.S. 1, 7, 83 S.Ct. 1667, 1671, 10 L.Ed.2d 709 (1963). Additionally, BN was liable for its employee's injury if its negligence "played any part, even the slightest, in producing the injury." Rogers v. Missouri Pac. R.R. Co., 352 U.S. 500, 506, 77 S.Ct. 443, 448, 1 L.Ed.2d 493 (1957). The placement of the wall and the failure to remove the snow and ice were undisputably contributory factors in Coatman's injury. Thus the likelihood that the railroad would be held liable was clearly established and the only issue which should have been submitted to the jury was the reasonableness of the amount of the settlement.

In determining whether BN's settlement was reasonable, the trial court also instructed the jury to consider whether the employee was guilty of contributory negligence which might have diminished the damages BN may have been required to pay. We find this erroneous. In the trial of an FELA case, the jury may diminish an employee's recovery "in proportion to the amount of negligence attributable to such employee." 45 U.S.C. § 53. Diminution requires comparing proof of the employer's and employee's negligence. Requiring a railroad in an indemnity suit to prove the exact nature and consequences of its negligence, to allow comparison with the employee's alleged negligence, undermines the policy in favor of settlement after due notice to the indemnitor. A showing of reasonableness in an indemnity suit should not involve a plenary trial of the underlying FELA issues. Nor does BN have an obligation to prove its employee's actual damages. To show the settlement was reasonable, the railroad need only prove its potential liability, a relatively simple showing under the strict FELA standards, and that the settlement amount was reasonably related to its employee's injuries. On remand, BN is required to show only that the size of the settlement was reasonably related to the damages which Coatman suffered. If the jury finds the amount paid was not...