U.S. Fidelity & Guaranty Co. v. Kaiser Gypsum Co., Inc.

• Decision Date: 18 September 1975
• Citation: 539 P.2d 1065,273 Or. 162
• Parties: UNITED STATES FIDELITY & GUARANTY COMPANY, Appellant, v. KAISER GYPSUM COMPANY, INC., Respondent. . *
• Court: Oregon Supreme Court

Page 1065

539 P.2d 1065

273 Or. 162

UNITED STATES FIDELITY & GUARANTY COMPANY, Appellant, v. KAISER GYPSUM COMPANY, INC., Respondent.

Supreme Court of Oregon, In Banc. ^*

Argued and Submitted July 9, 1975.

Decided Sept. 18, 1975.

James H. Gidley, Cosgrave & Kester, Portland, argued the cause and filed a brief for appellant.

J. Terrence Bittner, Jones, Lang, Klein, Wolf & Smith, Portland, argued the cause and filed a brief for respondent.

McALLISTER, Justice.

This is an action for common law indemnity brought by plaintiff, United States Fidelity & Guaranty Company, against defendant, Kaiser Gypsum Co., Inc. The court found for defendant, and plaintiff appeals. The issues on appeal are:

(1) Whether ORS 656.018(1) bars plaintiff's action for indemnity; and

(2) Whether the amended complaint states facts sufficient to constitute a cause of action against Kaiser.

The facts were stipulated. Kaiser operates a plant in St. Helens. In early 1971, the A. J. Zinda Company completed the installation of a fiberboard machine in that plant. On February 13, 1971, while Milton Gene Russell, a Kaiser employee, was using the machine, his right hand was caught in the machine and severed above the wrist.

The chain and sprocket which injured Russell were designed to be equipped with a guard. At the request of Kaiser, Zinda left the guard off the machine during initial testing. It was during this period of testing, while the chain and sprocket were unguarded, that Russell received his injury.

As a result of the injury, Russell received full Workmen's Compensation Law benefits and also filed a third-party lawsuit against Zinda in Multnomah County, as authorized by ORS 656.154 and ORS 656.578--595. Zinda tendered the defense of that action to Kaiser, but the tender was rejected.

In his complaint, Russell alleged that Zinda was negligent in failing to install a proper guard, in permitting the machine to be used without a guard, and in failing to warn Russell of the danger of using the machine without a guard. The case was settled during trial for the sum of $25,000 paid in behalf of Zinda by U.S.F. & G., its insurance carrier. In addition, U.S.F. & G. incurred the sum of $3,108.76 in investigating and settling the third-party lawsuit.

U.S.F. & G. is subrogated to the rights of its insured, Zinda, and brought this action against Kaiser for indemnity. U.S.F. & G. alleged that Kaiser had been negligent:

'(1) In ordering and directing plaintiff (Zinda) not to guard the chain and sprocket;

'(2) In commencing operation of the machine before placing an adequate guard on the machine;

'(3) In allowing Milton Gene Russell to use the machine prior to installation of a guard.'

As an affirmative defense, Kaiser alleged that it and its employee, Russell, were subject to the Workmen's Compensation Law, that Russell had received the benefits provided by that law, and that these facts barred U.S.F. & G.'s claim against Kaiser. U.S.F. & G. filed a general denial, but on trial stipulated and amended its reply to admit the facts alleged in the affirmative defense.

After the amendment and stipulation, defendant moved for judgment on the pleadings on the ground that since the existence of and compliance with the Workmen's Compensation Law had been admitted plaintiff was barred as a matter of law. The motion was allowed by the court and a judgment entered for the defendant.

We come to the question of the right of a third-party plaintiff to recover indemnity from an employer who has satisfied the duty required by ORS 656.016(1). ¹ ORS 656.018(1) provides:

'Every employer who satisfies the duty required by subsection (1) of ORS 656.016 is relieved of all other liability for compensable injuries to his subject workmen, the workmen's beneficiaries and anyone otherwise entitled to recover damages from the employer on account of such injuries, except as specifically provided otherwise in ORS 656.001 to 656.794.'

Since this is a question of first impression in Oregon, it is appropriate to preface our opinion with the oft quoted statement from Larson's Workmen's Compensation Law 76.10, as follows:

'Perhaps the most evenly-balanced controversy in all of compensation law is the question whether a third party in an action by the employee can get contribution or indemnity from the employer, when the employer's negligence has caused or contributed to the injury.' p. 14--287.

Our research convinces us that when the third-party plaintiff's liability to the injured workman has resulted from the breach of an independent duty, express or implied, owed by the employer to the third-party plaintiff, an action for indemnity is not barred by ORS 656.018(1).

In this case, the plaintiff (Zinda--U.S.F. & G.) has alleged that its liability ot the employee Russell resulted from the negligence of the defendant employer, Kaiser, in testing the fiberboard machine sold to the employer without the safety guard affixed, in directing Zinda not to install the safety guard, and in failing to warn its workman Russell of the hazards of using the machine without the guard.

Plaintiff's right to indemnity from the employer, then, is based on this alleged breach of an independent duty to the plaintiff Zinda to use reasonable care in the testing of the fiberboard machine. Since the liability is not 'on account of' the employee's injury, but is based on an independent duty, the exclusive liability provision of the Workmen's Compensation Law, ORS 656.018(1) will not bar indemnity. This is in accord with a majority of decisions in the country interpreting substantially similar exclusive liability provisions. ² Burris v. American Chicle Co., 120 F.2d 218 (2nd Cir. 1941), was a case where an employee was injured while washing windows pursuant to a contract between the building owner and his employer. The injury resulted from defective scaffolding, and New York law (where the incident occurred) made maintaining proper scaffolding a nondelegable duty of the building owner. The employee sued the owner, and the owner sought indemnity from the employer, alleging its negligence had caused the scaffolding to break. The court allowed indemnity, finding that the employer's method of performance of the contract constituted a breach of a duty established by statute and owed to the building owner. Burris, supra, at 222.

In Baugh v. Rogers, 24 Cal.2d 200, 148 P.2d 633 (1944), an employee was injured during the course of her employment when struck by an automobile driven by her employer but which was owned by another person. The employee sued the automobile owner under the state's owner-liability statute. ³ A contract of bailment was created, the court held, when the owner gave permission to the employer to drive owner's vehicle. The court found that benefits paid under California's Workmen's Compensation Law would not bar the owner from being indemnified by the negligent employer when the owner's liability to the employee arose from a breach of an independent duty of care owed by the employer as bailee to the owner of the automobile as bailor. Baugh, supra, at 640--42. Justice Traynor dissented, arguing that to allow indemnity was contrary to public policy and the intent of workmen's compensation. Baugh, supra, at 643. ⁴

The much cited American District Telegraph Co. v. Kittleson, 179 F.2d 946 (8th Cir. 1950), involved an employee of Armour's packing plant suing American District Telegraph Co. for injuries incurred when an employee of American fell employee was working on the roof of the packing plant repairing a signal system for Armour under a contract between American and Armour. Armour's employee received full compensation benefits and then sued American as a negligent third party. American sought indemnity from Armour on the ground that it was Armour's negligence in causing dirt to accumulate on the skylight, rendering it indistinguishable from the rest of the roof, which proximately caused Armour's employee's injury. The court found that Armour owed American a duty to furnish American's employees a safe place to work. A breach of that duty would constitute a basis for common law indemnity and would not be barred by the exclusive liability provision of the Workmen's Compensation Act. Kittleson, supra, at 954.

In Lunderberg v. Bierman, 241 Minn. 349, 63 N.W.2d 355 (1954), the plaintiff took an automobile to defendant's garage for servicing. Defendant's employee took the auto for a road test and injured a fellow employee who was a passenger during the testing. The injured employee, after collecting full compensation benefits, brought an action against the plaintiff under the owner liability statute. Plaintiff sought indemnity from the employer, and the court found that the breach of an independent duty of the bailee to use care would be a basis for indemnity not barred by the exclusivity of workmen's compensation. ⁵ Lunderberg, supra, at 365.

A similar fact situation arose in Farm Bureau Mutual Auto. Ins. Co. v. Kohn Bros. Tobacco Co., 141 Conn. 539, 107 A.2d 406 (1954). A truck was leased to the employer and the employee was injured while riding in it through the negligence of the driver, a fellow employee. The employee sued the lessor under a state statute which held lessors of vehicles strictly liable for injuries arising from the use of the vehicle by another. The lessor sought indemnity from the employer, and the court held that the employer-lessee owed an independent duty to use care to the lessor. Breach of this duty could entitle the lessor to indemnity, and the exclusivity provision of the workmen's compensation statutes would be no defense. Farm Bureau, supra, at 408.

An employer contracted to erect a roof on a building in Whitmarsh v. Durastone Co., 122 F.Supp. 806 (D.R.I.1964). The employee was fatally injured by the alleged negligence of the employer during the construction. The administrator of employee's estate sought damages from the general contractor. The court...