Superior Companies v. Kaiser Cement Corp.

• Decision Date: 18 December 1986
• Docket Number: No. 1,CA-CIV,1
• Citation: 733 P.2d 1158,152 Ariz. 575
• Parties: SUPERIOR COMPANIES, Plaintiff-Appellee, v. KAISER CEMENT CORPORATION, Defendant-Appellant. 8797.
• Court: Arizona Court of Appeals

Page 1158

733 P.2d 1158

152 Ariz. 575

SUPERIOR COMPANIES, Plaintiff-Appellee, v. KAISER CEMENT CORPORATION, Defendant-Appellant.

No. 1 CA-CIV 8797.

Court of Appeals of Arizona Division 1, Department D.

Dec. 18, 1986.

Review Denied March 4, 1987.

[152 Ariz. 576] Gallagher & Kennedy, P.A. by Elliot Talenfeld and James Wm. Junker, Phoenix, for plaintiff-appellee.

Holloway & Thomas, P.C. by Paul W. Holloway and Thomas P. Burke, II, Phoenix, for defendant-appellant.

OPINION

HAIRE, Judge.

On this appeal we are asked to determine whether a lease agreement requires the lessee to indemnify the lessor for liability incurred by the lessor resulting from an injury occurring on the leased premises, and, if so, whether such contractual indemnification is precluded by Arizona's Workers' Compensation Act.

In 1974, the Atchison, Topeka & Santa Fe Railway Company ("the railroad") and Superior Companies (Superior) entered into a contract for industry track whereby the railroad agreed to maintain and operate a spur track on property owned by Superior. The contract also provided that Superior would indemnify and hold the railroad harmless against all claims resulting from the maintenance, use or presence of a loading/unloading device, whether caused or contributed to by the railroad's negligence.

In 1980, Superior leased the same property to Kaiser Cement Corporation (Kaiser) pursuant to a lease agreement requiring Kaiser "to indemnify and save [Superior] harmless on account of any and all claims or liability in any manner arising from [Kaiser's] use and occupancy of the leased premises."

In November 1980, an employee of Kaiser was injured while unloading railroad cars on the leased premises. For the purposes of this appeal it is assumed that the accident was caused, at least in part, by the active negligence of the railroad. The employee filed an action against several defendants, including the railroad, to recover damages for injuries suffered in that accident. The railroad tendered the defense of this action to Superior pursuant to the terms of the 1974 indemnity provision. Superior accepted the tender, and in turn tendered the defense against the employee's action to Kaiser. When Kaiser refused to accept the tender, Superior filed this action against Kaiser to require Kaiser to assume the defense of the railroad and to pay any liability which the railroad might incur arising out of the employee's action.

After both parties moved for summary judgment, the trial court entered judgment in favor of Superior.

On appeal to this court Kaiser contends that the trial court erred in ordering it to indemnify Superior because (1) the lease agreement does not require indemnification under the facts of this case and (2) Kaiser cannot be responsible for any further liability owed to its employee because it provided workers' compensation to him.

The extent of a contractual duty to indemnify must be determined from the contract itself. INA Ins. Co. of North America v. Valley Forge Ins. Co., 150 Ariz. 248, 252, 722 P.2d 975, 979 (App.1986); Skousen v. W.C. Olsen Inv. Co., 149 Ariz. 251, 253, 717 P.2d 930, 932 (App.1986); Estes Co. v. Aztec Constr., Inc., 139 Ariz. 166, 168, 677 P.2d 939, 941 (App.1983). As previously stated, the lease agreement between Kaiser and Superior requires Kaiser to indemnify Superior for "any and all claims or liability in any manner arising from [Kaiser's] use and occupancy of the leased premises."

Kaiser first argues that the claim for which Superior seeks indemnification did not arise out of Kaiser's use and occupancy of the property, but rather arose from the railroad's use and from the contractual liability assumed by Superior.

We find no merit to Kaiser's contention that because its employee was injured when a railroad car was being unloaded, the accident arose out of the railroad's, rather than Kaiser's, use of the premises. The lease does not limit Kaiser's liability to acts by Kaiser. Kaiser was conducting a cement transfer business on the property and utilized the rail facilities for deliveries. The railroad's use of the track when Kaiser's employee was injured was directly related to Kaiser's business activities.

It would make little sense to read the indemnity provision to mean that the parties intended that Superior would be indemnified against all claims arising from acts of Kaiser's employees using the premises, but not from acts of Kaiser's business invitees involved in Kaiser's use of the property. Although Kaiser's invitee, rather than Kaiser, was involved in the accident, we find that the employee's claim nevertheless arose out of Kaiser's use and occupancy of the premises for its business purposes.

Likewise, we find no merit in Kaiser's contention that because Superior's legal liability is based on the indemnity provision in Superior's 1974 contract with the railroad, the claim does not arise from Kaiser's use of the premises. The factual basis of the claim is clearly related to Kaiser's use of the rail facilities.

Contracts are construed to cover those losses or liabilities which reasonably appear to have been intended by the parties. Estes Co., 139 Ariz. at 168, 677 P.2d at 941; Shirley v. National Applicators of California, Inc., 115 Ariz. 521, 526, 566 P.2d 322, 327 (App.1977). We find that the plain meaning of the indemnity provision as well as its commercial context brings the claim within its ambit.

We next consider Kaiser's contention that its indemnification agreement with Superior does not require it to indemnify Superior because the liability involved arose out of the railroad's own negligence. Arizona follows the "express negligence doctrine," holding that unless an indemnity contract expresses in clear and unequivocal terms the intentions of the indemnitor to indemnify for losses caused by the indemnitee's own active negligence, there is no right of indemnity for such acts. Southern Pacific Co. v. Gila River Ranch, Inc. 105 Ariz. 107, 108, 460 P.2d 1, 2 (1969). Where an indemnity provision does not specifically address what effect the indemnitee's negligence will have on the indemnitor's obligation, it is regarded as a general indemnity agreement. Estes Co., 139 Ariz. at 168-69, 677 P.2d at 941-42. It is well settled that under a general indemnity agreement an indemnitee is not entitled to indemnification for a loss resulting from its own active negligence but is entitled to indemnification for its own passive negligence. Busy Bee Buffet v. Ferrell, 82 Ariz. 192, 198-99, 310 P.2d 817, 821 (1957); Estes Co., 139 Ariz. at 169, 677 P.2d at 942; Transcon Lines v. Barnes, 17 Ariz.App. 428, 429-31, 498 P.2d 502, 503-04 (1972).

The indemnity clause in Kaiser's lease is a general indemnity agreement which does not contain language that requires Kaiser to indemnify Superior for Superior's negligence. However, it is undisputed that Superior played no role in the operation of Kaiser's business or in the use or maintenance of the subject railroad facilities. The unloading device at which the underlying accident occurred was installed by Kaiser or its predecessor/assignor, Consolidated Concrete Supply, Ltd. Superior's connection to the spur track and the unloading device is simply that it owns the parcel occupied by Kaiser over which the spur line runs. The track has never been used or maintained by Superior.

Although conceding that Superior itself was not actively negligent, Kaiser argues that the railroad's active negligence should be imputed to Superior, and Kaiser should not have to indemnify Superior for liability arising from that negligence. In support of its contention, Kaiser cites various subrogation cases that involve derivative claims for indemnification.

Kaiser relies on St. Louis-San Francisco Ry. Co. v. Travis Insulation Co., 215 Ark. 868, 223 S.W.2d 765 (1949), which involved a railroad that had leased certain property on its right-of-way to a lessee. The lease contained a provision whereby the lessee agreed to indemnify the railroad from loss "whether any such damages shall be caused by negligence of lessor ... or otherwise." St. Louis-San Francisco Ry. Co., 223 S.W.2d at 766. The insurance carrier for the lessee paid the lessee's claim for losses arising from a fire at the premises allegedly caused by the railroad's negligence. The insurer then filed a subrogation action against the railroad. The Arkansas Supreme Court held that the insurer, standing in the shoes of the...