Hamelin v. Simpson Paper (Vermont) Co.

Annotate this Case

Hamelin v. Simpson Paper (VT) Co. (96-028); 167 Vt. 17; 702 A.2d 86

[Filed 1-Aug-1997]

NOTICE: This opinion is subject to motions for reargument under
V.R.A.P. 40 as well as formal revision before publication in the Vermont
Reports. Readers are requested to notify the Reporter of Decisions,
Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801 of
any errors in order that corrections may be made before this opinion goes
to press.

No. 96-028

Robert E. Hamelin Supreme Court

On Appeal from
v. Essex Superior Court

Simpson Paper (Vermont) Co. & September Term, 1996
Simpson Paper Co.

Vescom Corp. & National Union
Fire Insurance Co.

Alan W. Cheever, J.

Barney L. Brannen of Plante, Hanley & Gerety, P.C., White River
Junction, for third-party plaintiff-appellant Simpson Paper Co.

Kaveh S. Shahi of David L. Cleary Associates, P.C., Rutland, for
third-party defendants-appellees

PRESENT: Allen, C.J., Gibson, Dooley, Morse and Johnson, JJ.

JOHNSON, J. Simpson Paper Company (Simpson) appeals an order of the
Essex Superior Court granting summary judgment in favor of Vescom Corp.
(Vescom) and National Union Fire Insurance Co. (National Union). Simpson
contends the court erred in ruling that Vescom is not required to indemnify
Simpson for damages paid to an injured Vescom security guard and that
National Union is not required to indemnify or defend Simpson under
Vescom's insurance policy. We conclude that the contract between Vescom
and Simpson requires Vescom to indemnify Simpson under these circumstances
and accordingly, reverse.

The events leading to the suit were stipulated to by the parties. In
January 1992, Vescom and Simpson entered a contract in which Vescom agreed
to provide security services at Simpson's plant in Gilman, Vermont. In
July 1992, Robert Hamelin, a Vescom security guard, was injured at the
Simpson facility. As Hamelin was making his rounds, he stepped on a

wooden stair that gave way. He received workers' compensation benefits
through Vescom, and then filed suit in Essex Superior Court against
Simpson. Hamelin claimed his injuries were caused by Simpson's negligent
failure to inspect, maintain, and repair the stairway.

Simpson, in turn, brought a third-party action against Vescom and
National Union. It claimed that Vescom was required to indemnify Simpson
under the contract, even if the damages were the result of Simpson's own
negligence. Simpson also alleged that National Union was obligated to
defend and indemnify Simpson, because Vescom's insurance policy with
National Union named Simpson as an additional insured.

The parties settled Hamelin's claim by stipulation, leaving the claims
between Simpson, Vescom, and National Union to be resolved by the court.
In return for a general release, Hamelin and the workers' compensation
carrier received $55,000, paid equally by National Union and Simpson's
insurance carrier. All parties agreed the settlement was not a concession
on the merits, and each insurance carrier agreed to compensate the other
depending on the outcome of the litigation. Simpson and Vescom/National
Union then filed cross-motions for summary judgment. In November 1995, the
trial court denied Simpson's summary judgment motion and granted Vescom's
and National Union's. This appeal followed.

When reviewing a grant of summary judgment, this Court examines the
record to determine independently whether it supports the conclusion that
there is no genuine issue as to any material fact and that the moving party
is entitled to judgment as a matter of law. V.R.C.P. 56(c)(3); see also
Security Pac. Nat'l Trust Co. v. Reid, 615 A.2d 241, 243 (Me. 1992). In
this dispute over parties' contractual obligations, the record consists
primarily of the contract itself. We interpret the indemnification
provisions of this document as we do all contract provisions -- to give
effect to the intent of the parties as that intent is expressed in their
writing. See Ejnes v. Carinthia Trailside Assocs., 153 Vt. 355, 359 n.3,
571 A.2d 49, 52 n.3 (1989). When the contract language is clear, the
intent of the parties is taken to be what the agreement declares. Karlen
Communications, Inc. v. Mt. Mansfield Television, Inc., 139 Vt. 615, 617,
433 A.2d 290, 292 (1981).

In support of its claim, Simpson relies on § 2(g) of the
contract.(FN1)

In that section, Vescom agreed to:

[a]ssume all risk of injury to persons, including himself, his
employees and agents, and or damage to property in any manner
resulting from or arising out of or in any manner connected with
[Vescom's] operations hereunder, and [Vescom] agrees to
indemnify and save Simpson harmless from any and all loss . . .
caused by or resulting from any such injury or damage.

Simpson argues that this broad language requires Vescom to defend and
indemnify Simpson against Hamelin's claims, even if Hamelin's injuries were
caused by Simpson's own negligence.

We agree. This provision explicitly contemplates claims by security
guards, who are employees of Vescom. Moreover, the parties used expansive
and unambiguous language to define Vescom's obligation under this
provision. Specifically, Vescom agreed to indemnify Simpson for losses
resulting from or caused by injuries "in any manner connected with" the
security services that Vescom provided for Simpson. An injury suffered by
a security guard while the guard is on duty and on Simpson's premises is
without question "connected with" Vescom's security operation.

Vescom presents two counterarguments, neither of which we find
persuasive. Vescom first argues that the meaning of § 2(g) is ambiguous,
because it appears to conflict with § 10 of the contract. In § 10, the
parties attempted to limit Simpson's potential liability by affording
Simpson the employer-immunity advantages of Vermont's workers' compensation
law. See Candido v. Polymers, Inc., ___ Vt. ___, ___, 687 A.2d 476, 478-79
(1996) (addressing issue of multiple employers in workers' compensation
context). The contract designated security guards as Simpson's "special
employees" and required Vescom employees to agree to this classification in
writing. According to Vescom, Simpson did not intend that any claim for

damages by an injured security guard would be brought outside the workers'
compensation system. Thus, the parties could not have intended Vescom to
indemnify Simpson for a claim such as Hamelin's. We do not accept
this reasoning. Although the parties attempted to take advantage of the
workers' compensation limited-liability provisions, they could not
guarantee that the courts would treat Simpson as an employer for purposes
of workers' compensation. At the time the contract was drafted, this Court
had not yet addressed the issue. Cf. Id. at ___, 687 A.2d at 478 (where
employee is hired and paid by employment agency, but works on premises of,
and is supervised by, manufacturing company, manufacturing company
qualifies as statutory employer under workers' compensation act). The
parties almost certainly would have considered the possibility that § 10
would not be effective in preventing claims such as this one, and allocated
liability accordingly.

Next, Vescom argues that requiring it to indemnify Simpson for
Simpson's own negligence offends the public policy underlying the law of
premises liability. See Dalury v. S-K-I, Ltd., 164 Vt. 329, 334-35, 670 A.2d 795, 799 (1995) (by placing responsibility for maintenance of land on
those who own or control it, law of premises liability supports ultimate
goal of reducing accidents). Citing such public policy concerns, a number
of jurisdictions have held that "an indemnification clause does not cover
liability for the indemnitee's own negligence unless it expressly so
states." Furlon v. Haystack Mountain Ski Area, Inc., 136 Vt. 266, 269, 388 A.2d 403, 405 (1978); see, e.g., Davis Constructors & Eng'rs, Inc. v.
Hartford Accident & Indem. Co., 308 F. Supp. 792, 794-95 (M.D. Ala. 1968);
Heat & Power Corp. v. Air Prods. & Chems., Inc., 578 A.2d 1202, 1206 (Md.
1990). In Furlon, however, we noted that "the question is an open one in
Vermont." Furlon, 136 Vt. at 269, 388 A.2d at 405. We declined to apply
the rule in that case, where the parties, a ski resort and a manufacturer
of ski lifts, were not marked by a disparity in bargaining power, and the
contract merely allocated the cost of liability insurance. Id. at 269-70,
388 A.2d at 405.

Our decision in Furlon controls this case. Here, as in Furlon, this
contract reflects an

arms-length business deal, in which corporate parties divided certain risks
and responsibilities. The indemnification clause at issue did nothing more
than allocate to Vescom the cost of purchasing insurance to cover the risk.
The language of the contract reflects this; the contract requires Vescom to
"procure and maintain, solely at [Vescom's] expense, insurance policies . .
. covering legal, contractual and assumed liability" and also mandates that
"[c]ertificates of such coverage . . . make specific reference to the
hold-harmless clause."

In short, Vescom's reliance on our decision in Dalury is misplaced.
The considerations of public policy that motivated us in Dalury, such as
unequal bargaining power, fairness, and the benefits of risk-spreading, are
not present here. See Dalury, 164 Vt. at 332-333, 335, 670 A.2d at 797-98.
Moreover, allocating liability for injuries suffered by security guards to
Vescom does not significantly undermine Simpson's incentives to keep its
premises reasonably safe. The contract with Vescom does not affect
Simpson's liability for injuries suffered by other individuals at the
plant, including Simpson's own employees and guests. Cf. Id. at 335, 670 A.2d at 799 (if ski areas were permitted to obtain broad waivers of their
liability from skiers, important incentive for ski areas to manage risk
would be removed).

Although Simpson is listed as an additional insured on Vescom's
insurance policy, National Union argues that it has no obligation to defend
or indemnify Simpson for this claim. As we hold that Vescom is obligated to
indemnify Simpson based on the terms of the contract, we need not address
National Union's independent obligation to Simpson, if any, under the
insurance policy. National Union does not dispute its obligation to defend
and indemnify Vescom in this matter; indeed, National Union and Vescom
appear here represented by the same counsel. We therefore reverse and
remand with instructions to enter judgment for Simpson.

Reversed and remanded; the superior court is directed to enter
judgment for defendant/third-party plaintiff Simpson Paper Co.

FOR THE COURT:

_______________________________________
Associate Justice

-------------------------------------------------------------------------------
Footnotes

FN1. Simpson also relies on § 2(c) of the contract. As we hold that
§ 2(g) of the contract requires Vescom to indemnify Simpson, we need not
address this argument.

-------------------------------------------------------------------------------
Dissenting

No. 96-028

Robert E. Hamelin Supreme Court

On Appeal from
v. Essex Superior Court

Simpson Paper (Vermont) Co. & September Term, 1996
Simpson Paper Co.

Vescom Corp. & National Union
Fire Insurance Co.

Alan W. Cheever, J.

Barney L. Brannen of Plante, Hanley & Gerety, P.C., White River
Junction, for third-party plaintiff-appellant Simpson Paper Co.

Kaveh S. Shahi of David L. Cleary Associates, P.C., Rutland, for
third-party defendants-appellees

PRESENT: Allen, C.J., Gibson, Dooley, Morse and Johnson, JJ.

GIBSON, J., dissenting. I respectfully dissent. Although I agree
that parties may contract to allocate liability and require indemnification
for loss, I believe the contract between Vescom Corporation and Simpson
Paper Company did not justify holding Vescom liable in this instance.

Two important principles underlying tort liability are: (1) a party
that causes loss should be held responsible for the damage therefrom, and
(2) holding the responsible party liable serves as an incentive to prevent
future occurrences of similar harm. See W. Keeton et al., Prosser and
Keeton on the Law of Torts § 4, at 22, 25 (5th ed. 1984). Any departure
from these fundamental principles by private parties should be expressly
agreed upon. Applying the common-law rule that parties to a contract are
not presumed to intend that one party indemnify

the other for the latter's own negligence unless the contract so states in
clear and unequivocal terms, I would affirm the trial court. See Davis
Constructors & Eng'rs, Inc. v. Hartford Accident & Indem. Co., 308 F. Supp. 792, 794-95 (M.D. Ala. 1968); General Accident Fire & Life Assurance Corp.
v. Smith & Oby Co., 148 F. Supp. 126, 128 (N.D. Ohio 1957); United States
Fidelity & Guar. Co. v. Mason & Dulion Co., 145 So. 2d 711, 713 (Ala.
1962); Fields v. Lawter Chems., Inc., 252 N.E.2d 120, 122 (Ill. App. Ct.
1969); Heat & Power Corp. v. Air Prods. & Chems., Inc., 578 A.2d 1202, 1206
(Md. 1990); Kansas City Power & Light Co. v. Federal Constr. Corp., 351 S.W.2d 741, 745 (Mo. 1961); see also Foucher v. First Vt. Bank & Trust Co.,
821 F. Supp. 916, 928 (D. Vt. 1993) (Vermont law generally bars indemnity
for both intentional and negligent tortfeasors unless there is express
agreement or circumstances are such that law implies right of
indemnification); Furlon v. Haystack Mountain Ski Area, Inc., 136 Vt. 266,
269, 388 A.2d 403, 405 (1978) (acknowledging generally accepted rule that
"an indemnification clause does not cover liability for the indemnitee's
own negligence unless it expressly so states").

An example of such language appears in Davis Constructors & Engineers.
There, the court held that a nonnegligent subcontractor was required to
indemnify the negligent contractor where the parties had agreed that the
subcontractor would indemnify the contractor for injuries and property
damage "arising out of the work undertaken by the sub-contractor . . . and
arising out of any . . . other operation no matter by whom performed for
and on behalf of the sub-contractor, whether or not due in whole or in
part to conditions, act [sic] or omissions done or permitted by the
contractor." 308 F. Supp. at 794.

Unlike the contract in Davis Constructors & Engineers, neither § 2(g)
nor § 2(c)(FN1) of the parties' contract contains language that expressly
requires Vescom to indemnify Simpson even

if the loss is caused solely by Simpson's act or omission. In § 2(g),
Vescom agreed to assume all risk "in any manner resulting from or arising
out of or in any manner connected with" its operations. I do not agree
that the language "in any manner connected with" is unambiguous, ante, at
3, and that it clearly reflects the parties' intent to cover the situation
here. The operations referred to in § 2(g) are presumably those that
Vescom agreed to provide in § 1: making tours; checking doors, windows, and
lights; reporting unusual incidents or hazardous conditions; and submitting
reports on such incidents or conditions. If Robert Hamelin's injury was
the result of negligence, that injury resulted from, arose out of, and was
connected with Simpson's duty to reasonably inspect and maintain its
facility, not the services Vescom agreed to provide under the contract.

At best, the language of § 2(g) is ambiguous. Ambiguous contract
language is construed against the party that drafted it. State v. Murray,
159 Vt. 198, 205, 617 A.2d 135, 139 (1992). An even "greater degree of
clarity is necessary to make [an] exculpatory clause effective than would
be required for other types of contract provisions," Colgan v. Agway, Inc.,
150 Vt. 373, 375, 553 A.2d 143, 145 (1988) (emphasis omitted), thereby
requiring strict interpretation against the drafter of the contract,
Szczotka v. Snowridge, Inc., 869 F. Supp. 247, 250 (D. Vt. 1994). As
drafter, Simpson was in the better position to outline clearly the scope of
Vescom's liability. Because it is not clear that the parties intended
Vescom to indemnify Simpson for damages caused by Simpson's own actions, I
would construe the provision in favor of Vescom and hold Simpson
responsible for its own negligence.

Section 2(c) likewise cannot be interpreted to require
indemnification. That provision pertains solely to liability "resulting .
. . from [Vescom's own] acts or omissions." Regardless of whether Simpson
was negligent in its duty to inspect, maintain, and repair its stairway,
Hamelin's injuries were not caused by any act or omission by Vescom.

I also disagree that Furlon, 136 Vt. at 266, 388 A.2d at 403,
controls. In Furlon, a contract between a ski lift manufacturer and the
purchasing resort required the resort to assume

all legal responsibility for any injury or property damage resulting from
the erection or operation of the lift. Id. at 268, 388 A.2d at 404. When
an injured resort employee sued the manufacturer for negligent manufacture
and design and received a default judgment, we held that under the contract
he could enforce the judgment against the resort. Id. at 270, 388 A.2d at
405. Although we went on to discuss public policy concerns such as
disparity of bargaining power, the opinion began with a key factual
distinction. The parties could not have intended that the provision
requiring the resort to "assume[] all legal responsibility" merely required
indemnification for the resort's negligence because the manufacturer had no
duty for a negligent act or omission committed by the resort. Id. at
268-69, 388 A.2d at 405. As we noted, interpreting the clause to require
the resort to indemnify only for its own negligence "would render that
clause a nullity." Id. at 268, 388 A.2d at 405.

The Vescom-Simpson contract presents an entirely different situation.
All duties performed by Vescom security guards occurred at Simpson's plant,
for which Simpson had a duty of reasonable care for construction,
inspection, and maintenance. As noted by the majority, Simpson declared
itself the special employer of Vescom's employees. Therefore, Simpson,
unlike the manufacturer in Furlon, ran the risk of being found to have a
duty for accidents involving Vescom employees.

Under this approach, National Union would have no duty to defend or
indemnify Simpson. Whether an insurer is required to indemnify a third
party for its own negligence under a policy depends on whether the insured
party is obligated to indemnify the negligent third party under the
associated agreement. See Fields, 252 N.E.2d at 122; Kansas City Power &
Light Co., 351 S.W.2d at 748-49; 7A J. Appleman & W. Berdal, Insurance Law
and Practice § 4497.02 (1979). Interpretation of an insurance policy
"cannot be decided upon any supposed `intent' evidenced merely by the
insurance requirement, when the full contract language is before [the
court] for construction, and when the policy of insurance (approved by [the
negligent party]) clearly expresses its coverage." Kansas City Power &
Light Co., 351 S.W.2d at 748. Because

the contract between Simpson and Vescom does not explicitly require Vescom
to indemnify Simpson for Simpson's own acts or omissions, I would hold that
National Union has no duty to defend or indemnify Simpson.

I point out that this interpretation is supported by the certificate
of insurance issued by National Union. This document, like the terms of
the insurance policy, demonstrates the insurer's and the insured's intent
when drafting the policy. Utica Mut. Ins. Co. v. Central Vt. Ry., 133 Vt.
292, 295, 336 A.2d 200, 203 (1975). Here, National Union specifically
noted that Simpson was added as an "additional insured only with respect[]
to the negligent acts, errors or omissions [of Vescom's] employees in the
performance of their agreed upon duties." (Emphasis added.) This language
is yet another indicator that none of the parties at the time of contract
formation and purchase of insurance intended Vescom to indemnify Simpson
for liability caused by Simpson's own acts or omissions.

I am authorized to say that Justice Morse joins in this dissent.

_______________________________________
Associate Justice

-----------------------------------------------------------------------------
Footnotes

FN1. Because it found § 2(g) to be controlling, the majority did not
address § 2(c), under which Vescom agreed to "[i]ndemnify and hold Simpson
harmless against all claims or liabilities asserted by third parties,
including governmental agencies, resulting directly or indirectly from
[Vescom's] acts or omissions hereunder whether negligent or otherwise."

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