Dillingham Shipyard v. Associated Insulation Co., Ltd.

• Decision Date: 06 July 1981
• Docket Number: Nos. 78-1708,78-1805 and 78-2229,s. 78-1708
• Citation: 649 F.2d 1322
• Parties: DILLINGHAM SHIPYARD, an affiliate of Dillingham Corporation, and Continental Insurance Company, Plaintiffs-Appellees and Cross-Appellants, v. ASSOCIATED INSULATION CO., LTD., Defendant and Third-Party Plaintiff-Appellant and Cross-Appellee, v. UNITED STATES of America, Third-Party Defendant-Appellee and Cross-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1322

649 F.2d 1322

DILLINGHAM SHIPYARD, an affiliate of Dillingham Corporation, and Continental Insurance Company, Plaintiffs-Appellees and Cross-Appellants, v. ASSOCIATED INSULATION CO., LTD., Defendant and Third-Party Plaintiff-Appellant and Cross-Appellee, v. UNITED STATES of America, Third-Party Defendant-Appellee and Cross-Appellant.

Nos. 78-1708, 78-1805 and 78-2229.

United States Court of Appeals Ninth Circuit.

Argued and Submitted June 9, 1980.

Decided July 6, 1981.

Garry P. McMurry, Rankin, McMurry, Osburn, Vavrosky & Doherty, Portland, Or., argued for Dillingham; Patrick J. Jones, Portland, Or., on brief.

Edmund Burke, Hamilton, Gibson, Nickelson, Rush & Moore, Honolulu, Hawaii, for Associated Insulation Co.

Norman J. Ronneberg, Jr., Admiralty & Shipping Sec., San Francisco, Cal., for United States.

Appeal from the United States District Court for the District of Hawaii.

Before KENNEDY, HUG and SCHROEDER, Circuit Judges.

HUG, Circuit Judge:

This is an action under an indemnity agreement for damages resulting from an explosion that occurred aboard the United States Coast Guard Cutter Mellon (MELLON), while a sonar system was being installed at the Dillingham Shipyard. Associated Insulation Co. was employed by Dillingham as a subcontractor to install dampening asbestos tile in the lower ammunition handling room of the ship in order to improve the sonar performance. The explosion occurred as a result of a leak in a propane gas tank used by Associated and left over a weekend in the the ammunition handling room. Dillingham made the repairs to the ship on the basis of a provision in its contract with the Coast Guard wherein Dillingham had agreed to "be responsible for and make good at its own cost and expense any and all loss of or damage of whatsoever nature to the vessel arising out of the performance of the work." ¹

Plaintiffs, Dillingham Shipyard and Continental Insurance Company (Dillingham), brought suit against defendant Associated Insulation Company (Associated) for damages arising from the explosion aboard the ship. Dillingham's principal theory of recovery was founded on an indemnity provision in its contract with Associated, wherein Associated agreed to indemnify and hold harmless Dillingham from any damages, costs and expenses that Dillingham might incur as a result of Associated's negligence. ² Associated impleaded the United States of America (Coast Guard) as a third-party defendant, alleging that it had caused or contributed to the damages through its negligence. After a non-jury trial, the district court held that Associated was solely responsible for the explosion and entered judgment in favor of Dillingham and the Coast Guard.

Associated appeals, contending that:

1. Dillingham was not legally obligated to make the repairs for the Coast Guard and that Dillingham and its insurance carrier were thus volunteers not entitled to recover from Associated under the indemnity provision.

2. The Coast Guard was contributorily negligent and therefore responsible for the portion of the damages caused by its negligence.

3. The damages awarded to Dillingham for overhead expenses and prejudgment interest were improper.

Dillingham cross-appeals, contending that the district court was in error in failing to allow recovery for lost profits and for overhead expenses attributed to the corporate headquarters, and in failing to award attorneys' fees.

The Coast Guard also cross-appeals, contending the district court erred in failing to award costs for certain travel expenses and copying costs.

We affirm the judgment in part, reverse in part and remand the case to the district court.

I Liability under the Indemnity Provision

The district court made a factual finding after hearing all of the evidence pertaining to the explosion. The court found that the explosion was caused solely by the negligence of Associated. The evidence revealed that employees of Associated had been working in the lower ammunition handling room of the ship for three days before the Labor Day weekend with a large propane tank and torch used in the process of installing the asbestos tile. On Tuesday, after the Labor Day weekend, the Associated employees came to work one-half hour before the Dillingham employees. One employee entered the lower ammunition handling room and five minutes later the explosion occurred. A fireman later discovered that a valve on the propane tank had been left open. There is no doubt that this was the cause of the explosion. Associated argues that the Coast Guard was responsible, in whole or in part, contending that it had a continuing duty to inspect the compartment of the vessel. The district court found that the Coast Guard performed its duty under these circumstances when it inspected the compartment and turned it over to Associated in a gas-free condition, and from then on it was Associated's responsibility not to pollute the space.

The district court found no negligence on the part of Dillingham or the Coast Guard and that the explosion was caused solely by the negligence of Associated. The district court's findings regarding negligence and proximate cause are to be reviewed under the clearly erroneous standard. See McCune v. F. Alioto Fish Company, 597 F.2d 1244, 1252 (9th Cir. 1979); Hanson v. United States, 475 F.2d 771 (9th Cir. 1973). Under the clearly erroneous standard the appellate court is bound to accept the district court's finding unless the appellate court, after considering all of the evidence, is "left with the definite and firm conviction that a mistake has been committed." McCune 597 F.2d at 1252, quoting United States v. Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 542, 92 L.Ed. 746 (1948). In this case, the finding of the district court is amply supported by the evidence.

Having thus concluded that the explosion was caused by the sole negligence of Associated, it is clear that Dillingham was liable to the Coast Guard for the damage to the ship as a result of the negligence of Associated, its subcontractor. ³ Therefore, Dillingham proceeded quite properly to repair the ship in accordance with Section 10(b) of the Coast Guard-Dillingham contract. Because Dillingham performed the repairs pursuant to its contractual obligation with the Coast Guard, it follows that Dillingham did not act as a volunteer in making the repairs. See American Commercial Lines, Inc. v. The Valley Line Company, 529 F.2d 921, 924 (8th Cir. 1976). See also 92 C.J.S. Volunteer, pp. 1032-33 (1955). Associated, in turn, was required to indemnify Dillingham under Paragraph 13 of the Dillingham-Associated contract. ⁴

Associated complains that it was not afforded an opportunity to defend the Coast Guard claim before Dillingham made the repairs. The evidence reveals that Associated was notified by letter that Dillingham intended to proceed with the repairs, the cost of which would be recovered from Associated at a later date. Associated did not reply or take other action to assert the invalidity of the Coast Guard's claim. In any event, Associated has had a full opportunity, in this action, to litigate all defenses that may have existed to the Coast Guard's claim.

II Elements of the Indemnity Award

Associated contends that Dillingham should not be allowed to recover for its local overhead expenses in making the repairs. Dillingham contends that the district court erred first, in failing to include in the indemnity award the allocated overhead expenses of the corporate headquarters attributable to the repair job; second, in failing to include a reasonable profit figure on the job; and third, in failing to allow attorneys' fees. The questions before us are a matter of contract interpretation; we must decide whether these costs and expenses fall within the scope of the indemnity agreement.

The parties did not present, and the district court did not consider, extrinsic evidence of the circumstances surrounding the making of the contract. Therefore, the dispute concerns the proper interpretation of language on the face of the contract, which is a matter of law fully reviewable by this court. See Energy Oils, Inc. v. Montana Power Co., 626 F.2d 731, 734 (9th Cir. 1980); Kittitas Reclamation District v. Sunnyside Valley Irrigation District, 626 F.2d 95, 98 (9th Cir. 1980). Our ultimate task is to determine the intent of the contracting parties. In this opinion we refer to decisions involving the costs and expenses allowed in damage awards in negligence actions where no indemnity agreement exists. These decisions concerning costs and expenses generally allowed as a part of damage awards in negligence actions do not constitute precedent that is directly applicable, but they are relevant to the question of the parties' reasonable expectations in this indemnity agreement.

1. Local Overhead Expenses

Associated argues that the district court erred in ordering indemnification for the overhead expenses of Dillingham Shipyard and Dillingham's Pacific Division, which totalled $54,018.00. Associated does not contest the finding of the district court that the overhead expenses were accurately calculated and properly apportioned. Associated, in its indemnity agreement, agreed to "indemnify and save harmless (Dillingham) from and against all damages costs and expenses of whatsoever kind or nature caused (by the) negligence of (Associated)." Overhead is a recognized element of the cost to a contractor in performing a job. Had Dillingham utilized its work force and capital assets on another contract, the overhead would have been apportioned to that job as a part of the contract price. If Dillingham had hired an independent contractor to repair the damages caused by the explosion, the cost of such repair work undoubtedly would have reflected the independent contractor's overhead expenses. We see no reason why Dillingham should not be reimbursed for its overhead expenses because it decided to undertake the repair work...