Frear v. P.T.A. Industries, Inc., 1999-SC-0642-DG.

Decision Date24 April 2003
Docket NumberNo. 1999-SC-0642-DG.,1999-SC-0642-DG.
Citation103 S.W.3d 99
PartiesWalter FREAR, Cathy Frear, and Blake Frear, by and through his natural parents, Walter and Cathy Frear Appellants v. P.T.A. INDUSTRIES, INC., d/b/a Louisville Exterminating Company and Northwestern National Insurance Company Appellees
CourtSupreme Court of Kentucky

Robert E. Reeves, Lexington, for Appellants.

Garry R. Kaplan, Patrick J. Murphy, Law Office of Garry R. Kaplan, Lexington, for Appellees.

KELLER, Justice.

I. ISSUE

This Court granted discretionary review to address one issue. As part of the parties' oral agreement to settle their pending lawsuit, Appellants agreed to release Appellee P.T.A. Industries, Inc., d/b/a Louisville Exterminating Company ("PTA") from liability. When a "Release and Indemnity Agreement" was subsequently tendered for Appellants' signature, however, Appellants refused to sign the document because, in addition to releasing P.T.A. from liability, it required Appellants to indemnify P.T.A. against any future claims by third parties. Did Appellants breach the settlement agreement by refusing to sign the tendered release and indemnity agreement? Because an agreement to release a party from liability does not include an agreement to indemnify the released party unless the parties specifically agree to indemnification, we hold that Appellants did not breach the settlement agreement by refusing to sign the tendered document.

II. FACTUAL BACKGROUND

In 1983, Appellants sued Appellee P.T.A. and Cre-O-Tox Chemical Company ("Cre-O-Tox")1 in the United States District Court for the Eastern District of Kentucky. In their lawsuit, Appellants claimed injury from their exposure to chlordane, a chemical contained in pesticide sprays distributed by Cre-O-Tox that P.T.A. had applied to Appellants' home. Appellants' primary claim against P.T.A. and Cre-O-Tox (collectively, "Defendants") concerned Cathy Frears's exposure to chlordane while she was pregnant with Blake.

In August 1986, the parties orally agreed to a settlement of the lawsuit. A few days later, the agreement was memorialized in a letter from Appellants' attorney to Defendants' attorneys that provided in pertinent part:

This letter is to confirm our settlement of the above captioned matter wherein P.T.A. Industries has agreed to settle for $40,000 and Cre-O-Tox has agreed to settle for $12,000 as regards the claims for Blake Frear. Because Walter and Cathy Frear do not want to continue on their behalf or Blake's behalf, their claims are being dismissed without payment.

Please forward to this office, as soon as possible, releases which you desire our clients to sign along with your respective checks made payable to Blake Frear, by and through his guardians Walter and Cathy Frear .

In October 1986, while Appellants Walter and Cathy Frear were in the process of seeking both appointment of a guardian for Blake Frear and court approval of the settlement agreement — i.e., before any party had satisfied his or her obligations under the settlement agreement — the federal court entered an agreed order dismissing the lawsuit with prejudice.2 Later, in July 1987, after the appointment of Blake Frear's guardians, Defendants3 presented the following document to Appellants for their signatures:

RELEASE AND INDEMNITY AGREEMENT KNOW ALL MEN BY THESE PRESENTS:

That we, Walter Frear, as Parent and Guardian ad litem4 for Blake Houston Frear and Cathy Frear, as Parent of Blake Houston Frear, and Walter Frear and Cathy Frear in their individual capacities, for the sole consideration of Forty-Thousand Dollars ($40,000.00) to us in hand paid by P.T.A. Industries, Inc., d/b/a Louisville Exterminating Company, and Twelve-Thousand Dollars ($12,000.00) in hand paid by Cre-O-Tox Chemical Company, Jack Walton, individually, Bill Walton, Individually, Jack Walton and Bill Walton, d/b/a Cre-O-Tox Chemical Company, (hereinafter referred to collectively and individually as Payors), the receipt of which is hereby acknowledged, have released and discharged said Payors and all other persons, firms, and corporations, both known and unknown, of and from any all claims, demands, damages, actions, causes of actions, or suits at law or in equity of whatsoever kind or nature, for or because of any matter of thing done, omitted or suffered to be done by anyone prior to and including the date hereof on the account of the injuries, disease, condition of said Walter Grear [sic], Cathy Frear and Blake Frear, which occurred as a result of pesticide treatment of the home owned and occupied [sic] by Walter Frear, Cathy Frear and Blake Frear, on or about March 8, 1979, in Lexington, Fayette County, Kentucky. Including but not limited to the intended "Release", are all claims asserted by or on behalf of these parties and all parties in the civil action no. 83-220 brought in the United States District Court, Eastern District of Kentucky, at Lexington, by Walter Frear, Cathy Frear and on behalf of Blake Houston Frear.

We understand said Payors, by reason of their agreeing to this compromise payment, neither admit nor deny liability of any sort, and said Payors have made no agreement or promise to do or omit to do any act or thing not herein set forth and we further understand that this "Release" is made as a compromise to avoid expense and to terminate all controversy and/or claims for the injuries of Walter Frear, Cathy Frear and Blake Frear, or any and all claims in any way growing out of or connected with the aforesaid accident.

We admit that no representation of fact or opinion has been made by the said Payors or anyone on their behalf to induce this compromise and that said compromise was made by us with the benefit and upon advice of counsel and it [is] specifically agreed that this "Release" shall be a complete bar to all claims or suits for injuries or damages of whatsoever nature resulting or to result from said accident.

That Walter Frear and Cathy Frear do hereby agree, as a part of the COMPROMISE SETTLEMENT, RELEASE AND INDEMNITY AGREEMENT, do hereby agree to indemnify said Payors listed above from any and all future claims growing out of or related to the alleged incident of March 8, 1979 in Lexington, Fayette County, Kentucky, or the general allegations as set forth and contained in said civil action no. 83-220 as set forth above. As part of this indemnity agreement, Walter Frear and Cathy Frear do hereby agree to indemnify said Payors for any judgments, any claims, any expense, legal expense or cost otherwise incurred by said Payors as a result of any and all future claims by or on behalf of Walter Frear, Cathy Frear or Blake Houston Frear against said Payors, their successors or representatives.5

Shortly thereafter, in a letter to Cre-O-Tox's attorney that was copied to P.T.A.'s attorney, Appellants notified Defendants that they would not sign the tendered release because of its indemnification provision:

I have talked to my client and we are not going to sign the release and indemnity agreement you proposed. As far as I'm concerned, that would make the Frears indemnify any third party who might have been injured or be injured in the future as a result of chlordane in that home and that is something that they will not do.

I will advise them to sign a standard release, but I will not advise them to sign one indemnifying you as I think that, clearly, is not required by the settlement.

And, in subsequent communications between the parties and in pleadings filed in the trial court, Appellants articulated additional objections to the release language indicated above in italics. Specifically, Appellants objected that this language: (1) released not only the named defendants, but also "all other persons, firms, and corporations, both known and unknown"; and (2) not only prohibited future claims against the named defendants, but also would "be a complete bar to all claims or suits for injuries or damages of whatsoever nature resulting or to result from said accident." In other words, Appellants objected to what they characterized as the overbreadth of the release language.

As to the indemnity provision (underlined in the language quoted above), Appellants' primary objection was that it purports to require them to indemnify Defendants if, in a subsequent action, a third party's liability for an injury to Blake Frear is assigned, in whole or in part, to one or both Defendants. Appellants posited that Blake Frear may wish to pursue a product liability claim against the chlordane manufacturer, and Appellants feared that the third-party indemnity provision may "have the effect of cutting off those claims under Crime Fighters Patrol v. Hiles, Ky., 740 S.W.2d 936 (1987)."

Appellants substantially redrafted the tendered document and then signed and submitted to Defendants a "Compromise Settlement, Release, and Indemnity Agreement," which released only the Defendants and which indemnified Defendants only "for any judgments [sic], any claims, any expense, legal expense or cost otherwise incurred by said Payors as a result of any and all future claims by or on behalf of Walter Frear, Cathy Frear or Blake Houston Frear " Subsequent correspondence and drafts circulated between the parties demonstrate that, although Defendants were willing to modify the scope of the release language to accommodate Appellants, Defendants continued to insist that, to perform their obligations under the settlement agreement, Appellants must agree to indemnify Defendants against any third party claims.

As a result of the impasse, Appellants filed a lawsuit in Fayette Circuit Court alleging a variety of claims — ranging from an alleged bad faith breach of contract to an alleged violation of the Unfair Claims Settlement Practices Act — and seeking compensatory and punitive damages from Defendants and their insurers. Defendants countered by claiming that Appellants could not obtain relief for any failure by Defendants...

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