Fabco Equip., Inc. v. Kreilkamp Trucking, Inc.

• Decision Date: 13 November 2013
• Docket Number: No. 2012AP1864.,2012AP1864.
• Citation: 352 Wis.2d 106,2013 WI App 141,841 N.W.2d 542
• Parties: FABCO EQUIPMENT, INC. and Twin City Fire Insurance Company, Plaintiffs–Appellants, v. KREILKAMP TRUCKING, INC., Defendant–Respondent.
• Court: Wisconsin Court of Appeals

352 Wis.2d 106

841 N.W.2d 542

2013 WI App 141

FABCO EQUIPMENT, INC. and Twin City Fire Insurance Company, Plaintiffs–Appellants,

v.KREILKAMP TRUCKING, INC., Defendant–Respondent.^†

No. 2012AP1864.

Court of Appeals of Wisconsin.

Submitted on Briefs June 26, 2013.

Opinion Filed Nov. 13, 2013.

On behalf of the plaintiffs-appellants, the cause was submitted on the briefs of Jeffrey P. Clark, James P. Denis III and Rebecca Frihart Kennedy of Reinhart Boerner VanDeuren S.C., Milwaukee.

On behalf of the defendant-respondent, the cause was submitted on the brief of Paul J. Pytlik and Katherine C.T. Steffe of Hills Legal Group, Ltd., Waukesha.

Before BROWN, C.J., REILLY and GUNDRUM, JJ.

GUNDRUM, J.

¶ 1 FABCO Equipment, Inc. and its insurer, Twin City Fire Insurance Company,¹ appeal the circuit court's denial of their summary judgment motion and grant of summary judgment to Kreilkamp Trucking, Inc., which resulted in the dismissal of FABCO's breach of contract claims related to FABCO and Kreilkamp's Agreement for Transportation Services. Specifically, FABCO claims Kreilkamp breached its duty under the agreement to defend and indemnify FABCO related to a lawsuit brought against it by the estate and widow of one of Kreilkamp's employees who was killed in the course of unloading equipment for FABCO. FABCO further alleges that Kreilkamp breached its contractual duty to add FABCO as an “additional insured” on Kreilkamp's insurance policies. Finally, FABCO appeals the court's denial of its motion for discovery sanctions against Kreilkamp. Based upon our review, we conclude that Kreilkamp breached its duty to defend FABCO in the lawsuit brought by the estate and widow, but did not breach its duty to add FABCO as an “additional insured.” We further conclude that the circuit court erred in denying FABCO's motion for sanctions in the manner it did. We reverse in part, affirm in part, and remand for further proceedings.

BACKGROUND

¶ 2 The following facts are undisputed. Kreilkamp is a transportation company that provides transport, loading and unloading, and related services for the shipment of goods and equipment. FABCO leases construction equipment to customers. FABCO and Kreilkamp entered into an Agreement for Transportation Services whereby Kreilkamp would deliver FABCO equipment to and from FABCO customers. In 2008, a Kreilkamp employee died when a large piece of FABCO rental equipment he was attempting to unload with a forklift fell on him. The employee's estate and widow, individually and as representative of the estate, ² filed suit against FABCO and Terex Corporation, the purported manufacturer of the equipment which fell on the employee, alleging that negligence by each caused the employee's death. Pursuant to an indemnification provision in the agreement, FABCO tendered its defense to Kreilkamp, which tender was refused by Kreilkamp and its insurer. FABCO then filed this lawsuit, asserting, as relevant to this appeal, that Kreilkamp had breached the agreement by failing to fulfill its obligations therein to: (1) defend and indemnify FABCO with regard to the estate's lawsuit and (2) add FABCO as an additional insured on Kreilkamp's insurance policies. During the pendency of this lawsuit, FABCO settled the lawsuit by the estate.

¶ 3 The parties filed cross-motions for summary judgment. The circuit court granted Kreilkamp's motion and denied FABCO's, concluding that FABCO was not entitled to a defense or indemnification because a clause in the indemnification provision “excludes claims relating to Fabco's negligence” and the estate's lawsuit claimed FABCO was negligent, and further concluding that FABCO in fact was added as an “additional insured” under Kreilkamp's insurance policy.

¶ 4 While the case was pending in circuit court, FABCO also filed numerous motions to compel discovery, as well as a motion for discovery sanctions, asserting that it incurred substantial costs and attorneys' fees because Kreilkamp had delayed acknowledging the existence of the fully executed agreement for nearly three years, had engaged in “dilatory and abusive discovery practices,” and had failed to comply with statutory and court-ordered discovery deadlines. FABCO further alleged that Kreilkamp had “spoliated evidence by deleting and destroying 36 relevant email communications.” The circuit court granted FABCO's motion for sanctions. Following court-ordered briefing related to the amount of the sanctions, however, the court sua sponte reversed itself, concluding that FABCO had not met its burden of proving that “exceptional circumstances” existed under Wis. Stat. § 804.12(4m) (2011–12) ³ to permit the court to order sanctions for Kreilkamp's conduct relating to its electronic communications. FABCO appeals. Additional facts are set forth below.

DISCUSSION

Summary Judgment—Breach of Contract

¶ 5 We review de novo a grant of summary judgment, applying the same methodology as the circuit court. Paskiewicz v. American Family Mut. Ins. Co., 2013 WI App 92, ¶ 4, 349 Wis.2d 515, 834 N.W.2d 866. Summary judgment is proper when the relevant facts are undisputed and only a question of law remains. Id. This case involves interpretation of the parties' contract. We review de novo the circuit court's contract interpretation. Ehlinger v. Hauser, 2010 WI 54, ¶ 47, 325 Wis.2d 287, 785 N.W.2d 328.

¶ 6 “Interpretation of an indemnification agreement, like any other written contract, begins with the language of the agreement.” Mathy Constr. Co. v. West Bend Mut. Ins. Co., No. 2008AP1326, unpublished slip op., ¶ 12, 324 Wis.2d 305, 2010 WL 653100, (WI App. Feb. 25, 2010); see Estate of Kriefall v. Sizzler USA Franchise, Inc., 2012 WI 70, ¶¶ 14, 48, 342 Wis.2d 29, 816 N.W.2d 853. “Where the terms of a contract are clear and unambiguous, we construe the contract according to its literal terms,” and consistent with “what a reasonable person would understand the words to mean under the circumstances.” Tufail v. Midwest Hospitality, LLC, 2013 WI 62, ¶¶ 26, 28, 348 Wis.2d 631, 833 N.W.2d 586 (citation omitted).

Indemnification Provision

¶ 7 In its primary issue on appeal, FABCO claims Kreilkamp breached the agreement because it failed to honor the indemnification provision therein. We agree. That provision states:

Indemnity. [Kreilkamp] agrees that it will defend, indemnify, and hold harmless [FABCO] from and against all claims, lawsuits, demands, liability, costs and expenses, including reasonable attorney's fees and other costs of defense, caused by, arising out of, or connected with the performance of [Kreilkamp] hereunder and which result in any injury to, or the death of any persons, damage to or loss of property, including cargo, and any disputes involving the performance of services hereunder by third parties; provided, however, that [Kreilkamp] shall not be required to defend, indemnify or hold harmless [FABCO] to the extent any claims, lawsuits, demands, liability, cost or expenses are the result of [FABCO's] negligence.

As pertinent to this case, the provision is triggered when there is a “claim[ ], lawsuit[ ], demand[ ], [or] liability” against FABCO which “[is] caused by, aris[es] out of, or [is] connected with the performance of [Kreilkamp] ... which result[s] in ... the death of any person[ ].” Of note, the agreement does not say that Kreilkamp's “performance” need be negligent, reckless or intentional—only that its performance result in the death. As our supreme court recently pointed out in a case similar to the one here, an indemnitor is “obligated to honor its duty to defend upon [an indemnitee's] tender of a claim against it for acts or omissions that were arguably within the purview of the [agreement].” Kriefall, 342 Wis.2d 29, ¶ 60, 816 N.W.2d 853. Here, FABCO tendered just such a claim to Kreilkamp and Kreilkamp rejected the tender.

¶ 8 The estate's complaint against FABCO alleged that the Kreilkamp employee died while he “was working within the scope of his employment with Kreilkamp, under contract with FABCO to deliver and unload heavy equipment from a trailer on a FABCO site.” It alleged that the employee was at the FABCO site “unloading [the] ... machine ... from a flatbed trailer as a part of his job duties.” As the employee “attempted to maneuver the [machine]” on the trailer, the complaint continued, “the machine ... moved too far, pushing [the employee] over the edge, onto the ground and falling forcefully on top of him, crushing and killing him on impact.”

¶ 9 Consistent with the terms of the indemnification provision, the estate's lawsuit was a “claim[ ], lawsuit[ ]” against FABCO which “ar[ose] out of, or [was] connected with the performance of [Kreilkamp],” here through the performance of the employee himself. And, while the complaint was against FABCO and Terex, not Kreilkamp,⁴ and directly alleged that negligence by FABCO (and Terex) was a cause of the employee's death, looking within the four-corners of the complaint, the complaint also alleged facts which arguably showed that the employee's death was at least in part the result of Kreilkamp's performance. Based on the above, we conclude that Kreilkamp, by rejecting FABCO's tender of defense related to the estate's lawsuit, breached its duty to defendFABCO, and thereby breached the indemnity provision and the agreement.

¶ 10 Kreilkamp contends the indemnity provision in the agreement is “ineffective” and “unenforceable under Wisconsin law.” It argues that FABCO is seeking recovery for its own negligence and asserts that the indemnity provision only requires Kreilkamp to defend and indemnify FABCO “where liability does not arise out of FABCO's negligence.” Kreilkamp contends that because the estate's allegations allege negligence by FABCO, the indemnification provision clause stating that Kreilkamp “shall not be required” to defend or indemnify FABCO “to the extent any claims, lawsuits ... are the result of [FABCO's] negligence” negates any obligation on its part to...