Ray & Sons Masonry v. U.S. Fidelity & Guar.

• Decision Date: 15 May 2003
• Docket Number: No. 02-697.,02-697.
• Citation: 114 S.W.3d 189,353 Ark. 201
• Parties: RAY & SONS MASONRY CONTRACTORS, INC., Franklin & Son, Inc. and Fireman's Fund Insurance Company v. UNITED STATES FIDELITY & GUARANTY COMPANY and Crane Construction Company.
• Court: Arkansas Supreme Court

114 S.W.3d 189

353 Ark. 201

RAY & SONS MASONRY CONTRACTORS, INC., Franklin & Son, Inc. and Fireman's Fund Insurance Company v. UNITED STATES FIDELITY & GUARANTY COMPANY and Crane Construction Company.

No. 02-697.

Supreme Court of Arkansas.

May 15, 2003.

Laser Law Firm, by: Sam Laser and Brian A. Brown, Little Rock, for appellant.

Hardin & Grace, P.A., by: David A. Grace, Little Rock; and Faegre & Benson, LLP, by: Patrick J. O'Connor, Jr., James J. Hartnett, IV, and Michael B. Lapicola, Minneapolis, MN, for appellees.

JIM HANNAH, Justice.

Ray & Sons Masonry, Inc. ("Ray"), appeals the denial of a motion for judgment notwithstanding the verdict. Ray alleged in its motion that the issue of Ray's liability in contractual indemnity should not have been submitted to the jury because the cause of action was barred by the statute of limitations, by the statute of repose, by laches, and by estoppel. This case raises the issue of whether general contractor Crane Construction Co. ("Crane") and its subrogee surety United States Fidelity & Guaranty Co. ("USF&G"), had a viable cause of action against Ray under the indemnity provision of the subcontract between Ray and Crane regarding work done on the McKinney, Texas, Wal-Mart store. Crane asserts that Ray breached the indemnity provision in the construction subcontract by refusing to defend and indemnify Crane in the federal litigation. We affirm the trial court holding that the action in contractual indemnification was not barred by either the statute of limitations or the statute of repose. Ray waived the argument on laches and estoppel.

Facts

This case involves the alleged breach of an indemnity agreement in which Ray agreed to indemnify Crane from claims and causes of action arising from work performed by Ray for Crane on a Wal-Mart store in McKinney, Texas, that Crane was building for Wal-Mart. Wal-Mart contracted with Crane to build eleven Wal-Mart and Sam's Club stores in several different states.

Ray carried out its masonry work on the McKinney, Texas, Wal-Mart store in late 1992. According to Wal-Mart's experts, construction of the McKinney, Texas, store was completed June 1, 1993. On September 23, 1993, Crane sued Wal-Mart in federal court for nonpayment of amounts due under its contracts with Wal-Mart for construction of the eleven stores. On November, 13, 1993, Wal-Mart counterclaimed, alleging defective construction on all eleven stores. Crane attempted unsuccessfully to sue Ray and a number of other subcontractors in the federal litigation.

In October 1994, Wal-Mart was provided with an expert report on alleged construction defects in the masonry work at the McKinney, Texas, store. On November 7, 1994, Crane sent Ray a letter stating that Wal-Mart had counterclaimed for defective construction and Crane listed all eleven Wal-Mart and Sam's Club stores, including the McKinney, Texas, store. The letter demanded indemnification under the subcontract alleging defective work by Ray on the "relevant project(s)." On December 22, 1995, Crane sent a letter to 278 subcontractors, including Ray, informing them that a list of deficiencies and defects, and over 2000 pages of documents, was available for inspection and copying. The letter stated, "We anticipate that the majority of all subcontractors will have some defective or deficient work identified in these lists."

On February 22, 1996, Crane filed a complaint with causes of action in indemnification, breach of contract, and negligence, in Pulaski County Circuit Court against eighteen of the 278 subcontractors on the projects, including Ray. In paragraph 2, Crane alleges:

The defendants referenced in the caption above who are subcontractors, their predecessors and/or successors, contracted with Plaintiff to perform certain work and services to Wal-Mart construction projects. Pertinent information regarding these subcontractors is as follows: ....

Paragraph 2 then sets out a list of the eighteen subcontractors sued, identifying them by the project at issue in the case. Ray is listed as having performed work on the West Helena store. The McKinney store is on the list, but only in reference to Roy Solis Steel Co. Although eighteen subcontractors were sued, thirty-one subcontracts are attached to the complaint. This is because where paragraph 2 in the complaint identifies defective work on more than one store for a subcontractor, a copy of the subcontract for each alleged site of defective construction is provided. Ray's subcontract for the West Helena store is attached to the complaint consistent with the allegations in paragraph 2. No subcontract for Ray's work on the McKinney, Texas, store is attached to the complaint. In paragraph 12 of the complaint, Crane alleges it was sued for defective construction by Wal-Mart on the projects identified in paragraph 5, which is a list of all eleven stores. In paragraph 22, Crane alleges it is due indemnification in defense of the Memphis litigation. Paragraph 18 states:

Upon information and belief, Wal-Mart alleges that there is faulty and defective work and construction within the projects generally and specifically and particularly within the scope of the subcontracts and on the projects identified in paragraph 2 above.

Paragraph 2 identifies Ray's work on the West Helena store and makes no reference to Ray's work on the McKinney, Texas, store.

In the amended complaint filed January 2, 1997, the number of subcontractors sued was reduced to fourteen from the eighteen sued in the original complaint. Similar to the original complaint, the amended complaint in paragraph 8 states:

[t]he defendants referenced in the caption are subcontractors having contracted with Crane to perform certain work and services with respect to certain of the projects. The pertinent information regarding these subcontractors is as follows:....

As in the original complaint, Ray is listed as having performed work on the West Helena store, and the only mention of the McKinney, Texas, store is again regarding Roy Solis Steel Co. Again, as with the original complaint, Ray's subcontract for work on the McKinney, Texas, store is not attached to the complaint.

On August 19, 1996, USF&G wire transferred funds to Wal-Mart in settlement of the federal litigation between Wal-Mart and Crane. On July 12, 2001, in the second amended complaint, USF&G first makes assertions that Ray performed defective work on the McKinney, Texas, store and attached a copy of Ray's McKinney subcontract. For the first time in the second amended complaint, USF&G and Crane included allegations of damages, and attributed to Ray liability for damages of $16,756.00, with respect to the West Helena store, and $2,614,431.00, with respect to the McKinney store.

This case was submitted to the jury with respect to Ray solely on the issue of whether there was a breach of contractual indemnity on both the West Helena and the McKinney stores. The jury returned an award against Ray in the amount of $1.5 million.

Standard of Review

In reviewing the denial of a motion for judgment notwithstanding the verdict, we will reverse only if there is no substantial evidence to support the jury's verdict and the moving party is entitled to judgment as a matter of law. Ethyl Corp. v. Johnson, 345 Ark. 476, 49 S.W.3d 644 (2001); Conagra, Inc. v. Strother, 340 Ark. 672, 13 S.W.3d 150 (2000). Substantial evidence is that which goes beyond suspicion or conjecture and is sufficient to compel a conclusion one way or the other. Ethyl Corp., supra.

Indemnification

The sole cause of action submitted to the jury was whether Ray and Franklin & Sons, Inc., breached the indemnity provisions in the subcontracts. Indemnification agreements are contracts. Stilley v. James, 345 Ark. 362, 48 S.W.3d 521 (2001). A contract of indemnity is to be construed in accordance with the general rules of construction of contracts. Nabholz Constr. Corp. v. Graham, 319 Ark. 396, 892 S.W.2d 456 (1995); Ark. Kraft Corp. v. Boyed Sanders Constr. Co., 298 Ark. 36, 764 S.W.2d 452 (1989); Pickens-Bond Constr. Co. v. N.L.R. Elec. Co., 249 Ark. 389, 459 S.W.2d 549 (1970). If there is no ambiguity in the language of the indemnification provision, then there is no need to resort to rules of construction. Nabholz Constr., supra.

The indemnification provisions in the subcontracts of Ray both provided:

The subcontractor agrees to protect, indemnify and hold Crane free and harmless from and against any and all claims, demands and causes of action of every kind and character (including the amounts of judgments, penalties, interest, court costs and legal fees incurred by Crane in defense of same arising in favor of Governmental Agencies or third parties (including employees of either party)) on account of taxes, claims, fines, debts, personal injuries, death or damages to property, and without limitation by enumeration all other claims or demands of every character occurring or in anywise incident to, in connection with or rising out of the WORK to be performed by SUBCONTRACTOR.

As evidenced by the emphasis provided in the indemnification provision in the subcontract, Crane was to be indemnified for liability arising from work performed by Ray. Ray was accused of providing defective work at the West Helena and the McKinney, Texas, stores. Proof in the trial of this case was proof of alleged defective workmanship and resulting damages, as well as proof of payment of money by USF&G and Crane in settlement of claims on defective work. The jury was instructed that to find liability, USF&G and Crane had to prove that they were potentially liable to Wal-Mart for defective work performed by Ray and that the sum paid by USF&G and Crane in settlement of the claims of defective construction was reasonable. The evidence of defective construction was offered to prove that Ray had a duty to indemnify under the contract.

Allegations Regarding the McKinney Store

No allegations were made against...