Pickhover v. Smith's Management Corp.

• Decision Date: 10 February 1989
• Docket Number: No. 880193-CA,880193-CA
• Citation: Pickhover v. Smith's Management Corp., 771 P.2d 664 (Utah App. 1989)
• Parties: Toshiko PICKHOVER, an individual and personal representative of the Estate of John W. Pickhover; Catherine Pickhover, an individual; and Gloria Pickhover, an individual, Plaintiffs, v. SMITH'S MANAGEMENT CORPORATION, a Utah corporation; Smith's Food King Properties, a Utah corporation; Dee's, Inc., a Utah corporation; Young Electric Sign Company, a Utah corporation; and Image National, Inc., an Idaho corporation, Defendants and Appellant, v. MARVEON INC., a Utah corporation, Defendant and Respondent.
• Court: Utah Court of Appeals

Page 664

771 P.2d 664

Toshiko PICKHOVER, an individual and personal representative

of the Estate of John W. Pickhover; Catherine

Pickhover, an individual; and Gloria

Pickhover, an individual, Plaintiffs, v. SMITH'S MANAGEMENT CORPORATION, a Utah corporation; Smith's

Food King Properties, a Utah corporation; Dee's, Inc., a

Utah corporation; Young Electric Sign Company, a Utah

corporation; and Image National, Inc., an Idaho

corporation, Defendants and Appellant, v. MARVEON INC., a Utah corporation, Defendant and Respondent.

No. 880193-CA.

Court of Appeals of Utah.

Feb. 10, 1989.

Rehearing Denied May 1, 1989.

Gary D. Stott, Michael K. Mohrman (argued), Richards, Brandt, Miller & Nelson, Salt Lake City, for defendant/appellant, Young Elec. Sign Co.

Robert H. Henderson (argued) Snow, Christensen & Martineau, Salt Lake City, for defendant/respondent, Marveon, Inc.

Mark O. Van Wagoner, Lewis T. Stevens, Phyllis J. Walton, Van Wagoner & Stevens, Salt Lake City, for Pickhovers.

Roger H. Bullock, Strong & Hanni, Salt Lake City, for Smith's Management and Smith's Food King.

Paul H. Matthews, Hanson, Dunn, Epperson & Smith, Salt Lake City, for Image National.

Paul S. Felt, Ray, Quinney & Nebeker, Salt Lake City, for Dee's, Inc.

AMENDED OPINION

Before DAVIDSON, GREENWOOD and ORME, JJ.

ORME, Judge:

This appeal involves a dispute between two defendants in a wrongful death action, Young Electric Sign Company ("YESCO") and Marveon, Inc. YESCO appeals the trial court's order holding YESCO responsible for any judgment against Marveon in the wrongful death action. We affirm.

FACTS

YESCO and Marveon were competitors in the commercial sign business until YESCO purchased Marveon's assets in August of 1981. To effect this transaction, a written purchase agreement was entered into by the parties. Section 2(a) of the purchase agreement provides that "[YESCO] agrees ... to provide, at its expense, insurance coverage adequate to fully protect [Marveon] against property damage ... or personal injury or death claims arising out of the ownership, maintenance, use, service, transportations [sic], or installation of [signs] in a minimum amount of One Million Dollars ($1,000,000.00)." YESCO failed to provide such insurance coverage for Marveon.

On January 5, 1985, John Pickhover was killed when a sign at a Smith's Food King in Sandy, Utah, fell and struck him. The sign had been installed by Marveon in 1978. This wrongful death action was subsequently brought by Pickhover's widow against YESCO, Marveon, and a number of other defendants.

Marveon cross-claimed and immediately moved for summary judgment against YESCO. Citing section 2(a) of the purchase agreement, Marveon argued that YESCO was obligated to provide insurance coverage adequate to protect Marveon from any liability arising from the installation of the sign, at least to the extent of one million dollars. Marveon sought a determination that YESCO was liable, in the event that judgment be entered against Marveon, because YESCO failed to provide the insurance policy as required by the purchase agreement.

The trial court granted Marveon's motion on October 31, 1986, before any judgment had been rendered in the underlying wrongful death action. ¹ The trial court ruled that Marveon was entitled to indemnification by YESCO for up to one million dollars, the amount specified in the purchase agreement.

YESCO challenges the trial court's ruling and raises only one issue on appeal: Does section 2(a) of the purchase agreement require YESCO to provide an insurance policy covering the financial consequences of Marveon's own negligence? ² YESCO argues that, under Utah law, an indemnity contract purportedly requiring one party to assume responsibility for the financial consequences of another's negligence must be strictly construed against such coverage absent clear and unequivocal language. Furthermore, YESCO claims that an agreement to provide insurance for the benefit of another, such as the agreement contained in section 2(a) of the purchase agreement, is analogous to an indemnity agreement and, therefore, the same standard of strict interpretation is applicable. Accordingly, YESCO asserts that because the purchase agreement does not expressly provide that the insurance coverage to be furnished will cover Marveon's own negligence, YESCO is not liable to Marveon because any judgment against Marveon in the underlying wrongful death action would necessarily be based on Marveon's own negligence.

INDEMNITY AGREEMENTS

YESCO is correct in asserting that Utah courts apply the rule of strict construction when confronted with an indemnity agreement and the claim that, through such an agreement, one party has shifted financial responsibility for its own negligence onto the other party. See, e.g., Shell Oil Co. v. Brinkerhoff-Signal Drilling Co., 658 P.2d 1187, 1189 (Utah 1983); Union Pac. R.R. v. Intermountain Farmers Ass'n, 568 P.2d 724, 725-26 (Utah 1977); Howe Rents Corp. v. Worthen, 18 Utah 2d 263, 420 P.2d 848, 849 (1966); Union Pac. R.R. v. El Paso Natural Gas Co., 17 Utah 2d 255, 408 P.2d 910, 913-14 (1965). See also Barrus v. Wilkinson, 16 Utah 2d 204, 398 P.2d 207, 208 (1965). The strict construction rule seems to have arisen primarily to appease the concern that one who is not financially responsible for the consequences of his or her own negligence will be less careful in his or her behavior toward others. See, e.g., Union Pac. R.R. v. El Paso Natural Gas Co., 408 P.2d at 913. Under the strict construction rule, a party is contractually obligated to assume ultimate financial responsibility for the negligence of another "only when that intention is clearly and unequivocally expressed." Id. at 914. "But the presumption is against any such intention, and it is not achieved by inference or implication from general language...." Id.

RECENT FEDERAL CASES

YESCO is also correct in asserting that the federal courts, endeavoring to apply Utah law, have held that "[a] requirement to provide insurance is governed by the same rule of [strict] construction as an indemnification provision which seeks indemnification for the indemnitee's own negligence." Freund v. Utah Power & Light Co., 625 F.Supp. 272, 280 (D.Utah 1985) (citing Kennecott Copper Corp. v. General Motors Corp., 730 F.2d 1380 (10th Cir.1984)). Indeed, the Tenth Circuit addressed the precise issue in Kennecott Copper and held that:

[Defendant] has tried to distinguish the indemnification cases by arguing that there is a difference between an agreement to purchase insurance to cover [another's] own acts and an indemnification agreement. There is no support for that position in Utah cases. See Union Pacific Railroad, 568 P.2d at 725, and cases cited therein. It is clear from reading the Utah cases that Utah looks to the purpose of the agreement. If the purpose is to insure [another] against its own acts, that constitutes an indemnification agreement, and the presumptions against it prevail in the absence of a clearly expressed contrary intent.

730 F.2d at 1382. However, Kennecott Copper misconstrues Utah law.

The Utah cases referred to by the Tenth Circuit in Kennecott Copper do not support its conclusion that contracts to provide insurance are subject to the strict construction rule. Those cases involve classic indemnity provisions and make no attempt to analogize such provisions to an agreement to provide insurance. See, e.g., Union Pac. R.R. v. Intermountain Farmers Ass'n, 568 P.2d at 725; Howe Rents Corp., 420 P.2d at 849; Barrus, 398 P.2d at 208. We are not cited to any Utah case actually supporting the position endorsed in Kennecott Copper and Freund. Our own research has not revealed such a case. The issue appears to be one of first impression for the appellate courts of this state.

We are convinced that an agreement to provide insurance for another's benefit, while analogous in some respects to an agreement to indemnify another for the consequences of its own negligence, is not subject to the strict construction rule. Our conclusion is prompted by the emerging trend to limit application of the strict construction rule, analysis of the function served by an agreement to provide insurance, and well-reasoned cases from other jurisdictions.

TREND TO LIMIT RULE

It appears that the contemporary judicial trend is to limit the application of the strict construction rule. Especially given the judicial history of the rule in Utah, we believe the law of Utah should develop consistent with this trend.

Early on, the Utah Supreme Court stated "[i]t is very doubtful that defendant could relieve itself by contract from its own negligence. Ordinarily, such contracts are contrary to public policy." Jankele v. Texas Co., 88 Utah 325, 54 P.2d 425, 427 (1936). A generation later, the Court moderated its view and was able to hold that indemnity contracts, even where they are for the purpose of providing relief from one's own negligence, are valid if they pass muster under the strict construction rule. See, e.g., Walker Bank & Trust Co. v. First Sec. Corp., 9 Utah 2d 215, 341 P.2d 944, 947 (1959). This change in Utah judicial attitude may well have been prompted by the position adopted by the majority of jurisdictions upholding indemnity provisions, which was no doubt attributable to the ever-increasing use of liability insurance. See Manson-Osberg Co. v. State 552 P.2d 654, 659 (Alaska 1976). Courts recognized that many insurance contracts effectively shift the financial burden for the insured's own negligence onto the insurer. Accordingly, it would make little sense to altogether prohibit indemnity agreements intended to do the same, on public policy grounds, while embracing their insurance agreement cousins.

Now, coming full circle, courts are beginning to change their view of the strict construction rule. At least one jurisdiction has all but abandoned the rule. See C.J.M. Constr. Inc. v. Chandler Plumbing & Heating, Inc., 708...