Sutton v. A.O. Smith Co.
| Decision Date | 14 January 1999 |
| Docket Number | Q-1,No. 98-2563,98-2563 |
| Citation | 165 F.3d 561 |
| Parties | Roy D. SUTTON and Charlene Sutton, Plaintiffs-Appellees, v. A.O. SMITH COMPANY, Defendant/Third-Party-Plaintiff-Appellee, v.Motor Express of Jeffersonville, Indiana, Third-Party-Defendant-Appellant. |
| Court | U.S. Court of Appeals — Seventh Circuit |
David G. Hatfield (submitted), Evansville, IN, Eric C. Young, Dunham, Boman & Leskera, Belleville, IL, for Plaintiffs-Appellees Roy D. Sutton and Charlene Sutton.
Kathy A. Wisniewski, Bryan Cave, St. Louis, MO, for Defendant/Third-Party-Plaintiff-Appellee A.O. Smith Company.
Jeffrey S. Hebrank, Burroughs, Hepler, Broom, MacDonald & Hebrank, Edwardsville, IL, for Third-Party-Defendant-Appellant Q-1 Motor Express of Jeffersonville, Indiana.
Before POSNER, Chief Judge, and COFFEY and DIANE P. WOOD, Circuit Judges.
A.O. Smith hired Q-1 Motor Express to transport goods for it to and from specified locations. Roy Sutton, a truck driver employed by Q-1, was injured by a forklift operated by an employee of A.O. Smith on property owned by A.O. Smith while Sutton was engaged in work called for by the contract between the two companies. Sutton and his wife (the latter seeking damages for loss of consortium) sued A.O. Smith, charging negligence, and A.O. Smith removed to federal district court under the diversity jurisdiction and impleaded Q-1, which it contends is obligated by their contract to indemnify it for all legal claims arising out of the performance of the contract, even claims based on A.O. Smith's own negligence. The Suttons settled with A.O. Smith for $17,000 and the judge then ordered Q-1 to indemnify A.O. Smith for this amount, precipitating this appeal by Q-1.
The contract specified that Wisconsin law would govern any disputes arising from the contract. Under that law, contractual indemnity provisions--unless, of course, they appear in an insurance contract, Harrah's Atlantic City, Inc. v. Harleysville Ins. Co., 288 N.J.Super. 152, 671 A.2d 1122, 1125 (N.J.Super.Ct.App.Div.1996); Pickhover v. Smith's Management Corp., 771 P.2d 664 668 (Utah App.1989); Ervin v. Sears, Roebuck & Co., 127 Ill.App.3d 982, 82 Ill.Dec. 709, 469 N.E.2d 243, 249 (Ill.App.1984); see, e.g., Just v. Land Reclamation, Ltd., 155 Wis.2d 737, 456 N.W.2d 570, 573 (Wis.1990)--are presumed not to cover claims arising from the negligence of the party seeking indemnity (A.O. Smith, in this case). The presumption can be overcome by "a specific and express statement" that the indemnity does extend to such claims. Dykstra v. Arthur G. McKee & Co., 100 Wis.2d 120, 301 N.W.2d 201, 204 (Wis.1981); Spivey v. Great Atlantic & Pacific Tea Co., 79 Wis.2d 58, 255 N.W.2d 469, 472 (Wis.1977); see also Mustas v. Inland Construction, Inc., 19 Wis.2d 194, 120 N.W.2d 95, 101-02 (Wis.1963). This rule of interpretation is general rather than some Wisconsin sport, see Estey v. MacKenzie Engineering Inc., 324 Or. 372, 927 P.2d 86, 88-89 (Ore.1996); Johnson v. Board of County Commissioners, 259 Kan. 305, 913 P.2d 119, 136 (Kan.1996); National Hydro Systems v. M.A. Mortenson Co., 529 N.W.2d 690, 694 (Minn.1995); Ruzzi v. Butler Petroleum Co., 527 Pa. 1, 588 A.2d 1, 4 (Pa.1991); Washington Elementary School District No. 6 v. Baglino Corp., 169 Ariz. 58, 817 P.2d 3, 6 (Ariz.1991); Thornton v. Guthrie County Rural Electric Cooperative Ass'n, 467 N.W.2d 574, 576 (Iowa 1991), although the severity of its application differs from state to state. Northwest Airlines v. Hughes Air Corp., 104 Wash.2d 152, 702 P.2d 1192, 1194 (Wash.1985); compare Ethyl Corp. v. Daniel Construction Co., 725 S.W.2d 705 (Tex.1987), with Margolin v. New York Life Ins. Co., 32 N.Y.2d 149, 344 N.Y.S.2d 336, 297 N.E.2d 80 (N.Y.1973), and Washington Elementary School District No. 6 v. Baglino Corp., supra, 817 P.2d at 6. The rule is based on a belief that a contracting party is unlikely either to have good information about the propensity of the other party to behave negligently, or to be in a position to prevent such behavior, and so is unlikely to have agreed to insure the other party against the consequences of that party's negligence. Soverign Ins. Co. v. Texas Pipe Line Co., 488 So.2d 982, 986 (La.1986). This presumption falls away if the party sought to be held as an insurer is an insurance company, whose business it is to insure people against liability based (usually) on their own negligence. Insurance companies are specialists in risk assessment and risk spreading; truck companies are not, though a diversified company, or even an undiversified company but one organized as a corporation and whose shareholders hold diversified portfolios, might be able to spread risk as well as an insurance company. And the truck company could shift any risk it agreed to shoulder by buying insurance. Still, courts consider it sufficiently unlikely that a firm would agree to insure its customer against the customer's own negligence that they require that the assumption of such a duty be clearly stated.
A.O. Smith argues, however, and the district judge found, that the contract with Q-1 contains just such a clear statement: "The Carrier [Q-1] is solely liable, and shall indemnify, hold harmless and defend shipper [A.O. Smith], from and against all claims involving bodily injury, property damage, and worker's compensation arising out of [or] in connection with its performance of the services under this Agreement, and shall maintain such liability, worker's compensation and other insurance coverage as may be reasonably acceptable to Shipper." Read literally, "all claims" would include claims based on the shipper's own negligence; but there is no mention of negligence, as there was in the Dykstra case, or of "liability arising in any manner," as in Spivey. See also Gunka v. Consolidated Papers, Inc., 179 Wis.2d 525, 508 N.W.2d 426, 428 (Wis.App.1993).
From what we have said so far, it may seem obvious that the district court was wrong to hold that Q-1 had agreed to indemnify A.O. Smith against the latter's own negligence. But it is not obvious, because of three Wisconsin decisions that are at least in superficial tension with the case law that we have been relying on. The first and least is Campion v. Montgomery Elevator Co., 172 Wis.2d 405, 493 N.W.2d 244, 249 (Wis.App.1992)...
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