Shell Oil Co. v. Brinkerhoff-Signal Drilling Co.

• Citation: 658 P.2d 1187
• Decision Date: 02 February 1983
• Docket Number: No. 18084,BRINKERHOFF-SIGNAL,18084
• Parties: SHELL OIL COMPANY, a Delaware corporation, Third-Party Plaintiff and Appellant, v.DRILLING COMPANY, Third-Party Defendant and Respondent.
• Court: Supreme Court of Utah

Page 1187

658 P.2d 1187

SHELL OIL COMPANY, a Delaware corporation, Third-Party Plaintiff and Appellant, v. BRINKERHOFF-SIGNAL DRILLING COMPANY, Third-Party Defendant and Respondent.

No. 18084.

Supreme Court of Utah.

Feb. 2, 1983.

Chris Wangsgard, Salt Lake City, for third-party plaintiff and appellant.

Robert F. Orton, Salt Lake City, for third-party defendant and respondent.

OAKS, Justice:

This interlocutory appeal in a tort case involves a controversy between a third-party plaintiff and a third-party defendant over the validity of an indemnity agreement. Plaintiff Billie Thomas Back is employed by Brinkerhoff-Signal Drilling Company (hereinafter Brinkerhoff), an independent contractor engaged in drilling oil wells for Shell Oil Co. Plaintiff sued Shell, alleging that through its negligence in attaching a unit to the drilling rig the coupling had failed and high-pressure drilling mud had struck and injured him.

Shell filed a third-party complaint against Brinkerhoff, alleging that Brinkerhoff's negligence in connection with the equipment that failed created a hazard to its drillers that was the proximate cause or a concurring proximate cause of plaintiff's injury. As a result, Shell contended, Brinkerhoff was required to indemnify Shell for the amount of any judgment plaintiff took against Shell. Brinkerhoff's alleged liability was based on common law indemnity principles and on a provision of a written contract in which Brinkerhoff had expressly agreed to indemnify Shell against all claims arising out of injuries to Brinkerhoff's employees except where the injury resulted from the sole negligence of Shell.

Before trial of plaintiff's case, Brinkerhoff moved for summary judgment on Shell's third-party complaint against Brinkerhoff, arguing that its agreement to indemnify Shell was unenforceable as a matter of law for three reasons: (1) such indemnification contracts violate public policy; (2) the exclusive remedy provision of Utah's Workmen's Compensation Act, U.C.A., 1953, § 35-1-60, gives an employer immunity from actions by third parties seeking indemnity for amounts paid to its employees; and (3) Utah's Comparative Negligence Act prohibits contracts for indemnity. Without identifying the specific basis for its ruling, the district court granted summary judgment and dismissed Shell's third-party complaint with prejudice.

To succeed in its appeal, Shell must establish that all three of the cited reasons for the invalidity of the indemnity agreement are erroneous. We conclude that it has done so, and reverse the summary judgment.

I. THE INDEMNITY CONTRACT

Shell's claim for indemnification is based upon a provision of its drilling contract with Brinkerhoff, quoted below. ¹ While not denying that it freely and knowingly entered into this contract, Brinkerhoff contends that such indemnity provisions are contrary to public policy in that they "induce a want of care" by the indemnitee. Jankele v. Texas Co., 88 Utah 325, 329, 54 P.2d 425, 427 (1936).

Agreements by which one person obtains another person's agreement to indemnify him from the results of his own negligence are not favorites of the law, Howe Rents Corp. v. Worthen, 18 Utah 2d 263, 265, 420 P.2d 848, 849 (1966); Union Pacific Railroad v. El Paso Natural Gas Co., 17 Utah 2d 255, 259, 408 P.2d 910, 913-14 (1965), and are strictly construed against the indemnitee. Union Pacific Railroad v. Intermountain Farmers Association, Utah, 568 P.2d 724, 725 (1977); Walker Bank & Trust Co. v. First Security Corp., 9 Utah 2d 215, 220, 341 P.2d 944, 947 (1959).

Nevertheless, we have frequently adhered to the majority rule that where the intention to indemnify a person from losses attributable to his own negligence is "clearly and unequivocally expressed" in the contract language, an indemnity agreement will be upheld. Howe Rents Corp. v. Worthen, 18 Utah 2d at 265, 420 P.2d at 849; Union Pacific Railroad v. El Paso Natural Gas Co., 17 Utah 2d at 251, 408 P.2d at 913-14; Barrus v. Wilkinson, 16 Utah 2d 204, 398 P.2d 207 (1965). See also United States v. Seckinger, 397 U.S. 203, 211, 90 S.Ct. 880, 885, 25 L.Ed.2d 224 (1970). The indemnity provision challenged here meets that requirement, and is upheld under those authorities. As to its possible effect on the indemnitee's standard of care, this result is indistinguishable from a liability insurance policy. 41 Am.Jur.2d Indemnity § 3 (1968). Indeed, the contention that contracts of indemnity violate public policy by inducing negligence has been rejected by more than one court as "fanciful" or "untenable" in view of the many automobile liability insurance policies in existence. Id. § 9 at 694 & n. 5, citing Northern Pacific Railway v. Thornton Brothers Co., 206 Minn. 193, 288 N.W. 226 (1939). See also Cooper v. H.B. Owsley & Son, Inc., 43 N.C.App. 261, 266-67, 258 S.E.2d 842, 846 (1979).

An indemnity agreement may be invalidated as violative of public policy where shown to have resulted from duress, deception, a disparity of bargaining power, or negotiations conducted at less than arm's length. Titan Steel Corp. v. Walton, 365 F.2d 542, 548 (10th Cir.1966) (applying Utah law); Southern Pacific Transportation Co v. Nielsen, 448 F.2d 121, 123 (10th Cir.1971) (applying Utah law); Cooper v. H.B. Owsley & Son, Inc., 43 N.C.App. at 267, 258 S.E.2d at 846; Annot., 68 A.L.R.3d 7, § 3(a) (1976). ² Brinkerhoff makes no such claim in this case.

II. EXCLUSIVE REMEDY PROVISION IN WORKMEN'S COMPENSATION ACT

Brinkerhoff also contends that enforcement of the indemnity provision in the contract is precluded by the exclusive remedy provision of the Workmen's Compensation Act, U.C.A., 1953, § 35-1-60. That section provides:

The right to recover compensation pursuant to the provisions of this title for injuries sustained by an employee, whether resulting in death or not, shall be the exclusive remedy against the employer and shall be the exclusive remedy against any officer, agent or employee of the employer and the liabilities of the employer imposed by this act shall be in place of any and all other civil liability whatsoever, at common law or otherwise, to such employee or to his spouse, widow, children, parents, dependents, next of kin, heirs, personal representatives, guardian, or any other person whomsoever, on account of any accident or injury or death, in any way contracted, sustained, aggravated or incurred by such employee in the course of or because of or arising out of his employment, and no action at law may be maintained against an employer or against any officer, agent or employee of the employer based upon any accident, injury or death of an employee.

There is no dispute that Brinkerhoff has compensated its employee, plaintiff, in accordance with the Workmen's Compensation Act. But Brinkerhoff contends that its payment of benefits under the Act is its exclusive exposure for its employee's injuries. According to Brinkerhoff, § 35-1-60 makes an employer immune from all civil liability arising out of its employees' injuries, including a third-party's action for indemnity under a contract signed by the employer. This is apparently an issue of first impression in this state.

Under the new system of rights and obligations established in the Workmen's Compensation Act, injured employees can obtain compensation without proving the employer's negligence or enduring the expense and delay of court litigation. In return, the employee relinquishes all common law causes of action against his employer. Hence, as we have often stated, the recovery of benefits under the Act is an injured employee's exclusive remedy against his employer. Masich v. United States Smelting, Refining & Mining Co., 113 Utah 101, 108-09, 191 P.2d 612, 616 (1948); Murray v. Wasatch Grading Co., 73 Utah 430, 435-36, 274 P. 940, 942 (1929). That is what the Act means when it grants the employer immunity from "any and all other civil liability whatsoever, at common law or otherwise ... on account of" an employee's injury or death, and further provides that, aside from a claim for compensation under the Act, "no action at law may be maintained against an employer ... based upon" the employee's injury or death.

A third-party action for contract indemnity from the employer is not "on account of" an employee's injury, nor is it an action "based upon" an employee's injury. Rather, it is an action for reimbursement based upon an express contractual obligation between the employer and the third-party plaintiff. That contractual obligation is independent of any statutory duty the employer may owe his employee. Manson-Osberg Co. v. State, Alaska, 552 P.2d 654, 658-59 (1976); Kamali v. Hawaiian Electric Co., 54 Haw. 153, 504 P.2d 861, 865-66 (1972); Redford v. City of Seattle, 94 Wash.2d 198, 203-06, 615 P.2d 1285, 1287-89 (1980); Pan American Petroleum Corp. v. Maddux Well Service, Wyo., 586 P.2d 1220, 1222-24 (1978); A. Larson, The Law of Workmen's Compensation §§ 76.40-.42 (1982); Annot., 100 A.L.R.3d 350 (1980).

The exclusive remedy provision in the Workmen's Compensation Act does not govern all relationships between a third party and either the employer or the employee. Thus, it does not preclude the employee injured in the course of his employment from suing a negligent third party for damages. The statute expressly preserves that right for the employee, subject only to the compensating employer's or insurance carrier's right of subrogation. U.C.A., 1953, § 35-1-62; Oliveras v. Caribou-Four Corners, Inc., Utah, 598 P.2d 1320 (1979). Similarly, the...