DaimlerChrysler Corp. v. Pennsylvania National Mutual Casualty Insurance Co., et al.
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IN THE SUPERIOR COURT OF THE STATE OF DELAWARE IN AND FOR NEW CASTLE COUNTY DAIMLERCHRYSLER CORPORATION Plaintiff v. PENNSYLVANIA NATIONAL MUTUAL CASUALTY INSURANCE COMPANY and THE MARTIN CO. INS. A GEN CY, a/k/a SP MARTIN INSU RAN CE, IN C., a/k/a MARTIN CO., and MERRELL & GARAGUSO, INC. ) ) ) ) ) ) ) ) ) ) ) ) ) CIVIL ACTION NUMBER 95C-04-167 and 01C-04-036 Consolidated Cases Submitted: February 19, 2003 Argued: February 24, 2003 Decided: March 17, 2003 MEMORANDUM OPINION Upon Motion of Defendant M errell & Garaguso for Summa ry Judgmen t - DENIED Daniel F. Wolcott, Jr., Esq., Potter Anderson & Corroon, Wilmington, Delaware, attorney for plaintiff DaimlerChrysler Corporation Daniel P. Bennett, Esq., Heckler & Frabizzio, Wilmington, Delaware, attorney for defendant Merrell & Garaguso HERLIHY, Judge Under Delaware law, provisions in construction contracts requiring a party to be indemnified for its own negligence are void. Where the other party, however, has obtained insurance that covers such indemnification, Delaware law provides that the party seeking coverage can enfo rce that insurance protection . Provisions r equiring tha t other party to obtain insurance or coverage are often found in construction contracts. Such a provision existed in this case in the contract between DaimlerChrysler Corporation and Merrell & Garaguso. Chrysler required M & G to make it an additional insured. During its work at Chrysler s Newark assembly plant, a M & G employee was injured by the negligence of a Chrysler employee. Chrysler defended the action but now seeks reimbursement for the cost of the defense. But M & G did not add Chrysler as an additional ins ured to its po licy as contractua lly required. If it had, Ch rysler would have had an enforceable cause of action on that insurance. It seeks reimbursement, instead, on the basis that M & G breached its contractual obligation to add Chrysler. M & G moves for summary judgment arguing that such a cause of action is the same as the void requiremen t of indemnification for o ne s own negligence. The issue presented is one of first impression and it is whether there is an enforceable cause of action for breach of contract fo r failure of a party to fulfill its con tractual duty to ob tain insuranc e which w ould have provided coverage for the other party s own negligence. The Court holds that there is an enforceable cause of action as such a contract 1 requirement is an extension of the permissible cause of action for insurance coverage which is allowed in construction contracts. M & G s motion is DENIED. Factual Background Chrysler hired M & G to do some ref urbishing w ork at its Ne wark ass embly plant. In the contract, Chrysler required M & G to indem nify it against any losses, expenses, etc. due to Chrysler s own negligence. The contract also required M & G to obtain various insurance coverages, including general liability that would cover the contractual inde mnifica tion duty. Brian Keech was a M & G em ployee wor king at the p lant. A Ch rysler employee h it a fence or object next to a fence while driving a fork lift knocking the fence into Keech, injuring him. Keech sued C hrysler. In turn, Chrysler sued M & G seeking indemnification and/or defense through the insurance M & G w as obligated to get. Chrysler se ttled with Keech. It now seeks reimbursement since M & G has declined to cover Chrysler s costs of defense. App aren tly, M & G did not obtain insurance which would have covered C hrysler s claim or name C hrysler as an ad ditional insured as contractually required. Chrysler, therefore, brought a separate action against Penn National Insurance Company, which was M & G s insurer on th is job. It also sue d the M artin Insuran ce Agen cy for alleged f ailure to get Chrysler named as an a dditional insured. There may be factual disputes involving Penn National and Martin over what they did or did not do, but there is no factual disp ute 2 regarding M & G s failure to abide by its contractual obligation to obtain insurance. Chrysler s separate ac tion against P enn Na tional and M artin has been consolidated with its action a gainst M & G. Procedural History Chrysler s breach of contract action is not its first effort to obtain reimbursement from M & G for the costs of defending Keech s action. Originally it claimed that M & G had made it an additional insured. Chrysler and M & G filed cross motions for sum mary judgment on the issue whether there was an enforceable action on that insurance p olicy in the face of the statutory prohibition1 against indemnification provisions in construction contracts for one s own negligence. Relying upon that prohibition, and an earlier Supreme Court opinion voiding under Delaware la w an indemnification provision executed in and between Michigan based parties (valid under tha t state s law) for a project in Delaware,2 this Court held Chrysler had no enforceable action against M & G s insurance.3 In reaching this result, which was one of first impression under Delaware law, this Court reviewed cases from other states which interpreted statutes that void indemnification clauses, but also like Delaware s statute contain similar provisions not voiding insurance for 1 6 Del.C. § 2704(a). 2 J.S. Alberici Constr. Co., Inc. v. Mid-West Conveyor Co., Inc., 750 A.2d 518 (Del. 3 Keech v. Chrysler Corp., Del. Super., C.A. No. 95C-04-167, Herlihy, J. (December 21, 2000). 2000). 3 any causes whats oever. 4 That review showed a split of authority on the meaning of these insurance savings clauses, some finding invalid insurance coverage for indem nification in light of the statutory prohibitions against indemnification for one s own negligence. Others, however, found that such savings clauses preserve enforceable actions for insurance coverage despite the statutory prohibition. The Supreme Court reversed and held that there was an enforceable cause of action against the insurance coverage.5 Curiously, the Supreme Court did not examine the split in authority as this Court had, nor most of the cases this Court cited on both sides of the issue. In any event, it found there w as an enforceable c ause of action against the ins urer. Applicable Standard A mov ing p arty is entitled to summary judgment where there are no genuine issues of material fact and it is entitled to judgment as a matter of law.6 Chrysler and M & G indicate there is no factual issue germane to M & G s current motion. There may be other factual issues concerning Penn National and M artin, but such issues are no t germane to this motion. 4 6 Del.C. § 2704(b). 5 Chrysler Corp. v. Merrell & Garaguso, Inc., 796 A.2d 648 (Del. 2002). 6 Wilson v. Jome, Inc., 537 A.2d 187 (Del. 1988). 4 Discussion When this case went to the Supreme Court on the issue of whether there could be an enforceable action against the insurer or its policy, that Court said: While we agree that the requ irement to p urchase ins urance m ay, under certain circumstances be unenforceable, we reject the inference that such insurance, once secured, is unenforceable against the issuer of the insurance.7 That dicta and Chrysler s breach of contract action raising this novel issue prompted M & G s c urrent motion . This case falls between the ban on indemnification clauses, but preservation of enforc eable action s for it whe re there is insu rance cov erage for it. While a novel issu e to Delaware law, the Court is not without guidance from decisions in other states confronting the same issue. In Kinne y v. G.W . Lisk C o., Inc., 8 the New Y ork Court of Appeals faced a similar situation and reasoned: An agreement to procure insurance is not an agreement to indemnif y or hold harmless, and the distinction between the two is w ell recognized. Whereas the essence of an indemnification agreement is to relieve the prom isee of lia bility, an agreeme nt to procur e insurance specifically anticipates the promisee s continued responsibility for its own negligence for which the pro misor is obligated to furnish insurance. Moreover this particular distinction is what renders indemnification, but not insurance procurement, agreements violative of the public policies underlying [the New Y ork indem nity statute]. While an agreement purporting to hold an owner or general c ontractor free from liability for its own negligence undermines the strong public policy of placing and keeping responsibility for maintaining a safe workplace on those parties, the same cannot be said for an agreement which simply obligates one of the parties to a construction contract 7 Chrysler Corp. v. Merrell & Garaguso, Inc., 796 A.2d at 649. 8 556 N.E. 2d 1090 (N.Y. 1990). 5 to obtain a liability police insuring the other. 9 The Appellee Court of Illinois came to a similar conclusion in Zettel v. Paschen Contractors, Inc.. 10 That Court reasoned: Even more clearly, however, a promise to obtain insurance is not the same as a promise to indemnify. Under an indemnity agreement, the promisor agrees to assu me a ll responsibility and liabi lity fo r any injuries or damages. Under an agreement to obtain insurance the promisor merely agrees to procure the insurance and pay the premium on it. Once the insurance is obtained the promisor bears no responsibility in the event of injury or damage, even if the insurer should breach the insurance agreement through no fault of the promisor. While the joint venture in th is case suing to recover a ny monies it may have to pay to the injured parties plus all costs of defense, this is not because [the subcontractor] promised to indemnify the joint ventu re; it is because if a person breaches a contract to obtain insurance, he is liable for any damages caused by the breach. In this case this would be the amount of any judgmen ts up to the amount of the policy limits bargained for (or perhaps beyond if an insurer under the facts presented would have settled the cases rather than allowed them to go to judgmen t) plus the costs of defend ing the tort action.11 The Supreme Court s earlier opinion in this case holding that actions for insurance coverage for indemnification are enforceable, despite the unexplained dicta,12 provides policy support for sustaining Chrysler s breach of contract action. In that earlier holding, the court based its decision to enforce the already issued policy on a number of public policy concerns. 9 Id. At 1092 (citations omitted)(emphasis in the original). 10 427 N.E. 2d 189 (Ill. App. Ct. 1981). 11 Id. at 191 - 92 (citations omitted); Accord Holmes v. Watson-Fasberg Co., 488 N.W. 2d 473 (Minn. 1992). 12 Either on an appeal of this case or some other, an explanation will have to be provided. 6 First, the court reasoned that from the viewpoint of the insured worker, the greater the amount of insuran ce available to his or her c laim, the better th e prospec t for full compensation.13 Second, the purchase of insurance is supported by an additional premium, the cost of which, in the usual contractual setting, is included in the bid price.14 Third, if in fact an insurer issues an endorsement to cover the actions of a third party and charges a premium for that coverage, it should not be permitted to create an illusion that insurance exists.15 While there is not an insurance policy here which Chrysler can enforce, some of these same public po licy re ason s the Sup reme Co urt cited w here insu ranc e exi sts, apply to an unmet contract req uirement to obtain insurance. First, the enforceability of insurance coverage, despite the b an on inde mnification , is to provide protection for the worker. The requirement to obtain insurance or make a party an additional insured accomplishes the same goal. By sustaining a cause of action for a breach of that requirement and by allowing Chrysler to successfully sue for breach of contract makes the contract meaningful and not just words. It is irrelevant to th is overall polic y of protecting the injured w orker that, in th is particular case, these are large corporations. The priniciple of upholding such a cause of action cannot draw such a distinction. Nor can the principle of protecting the injured worker 13 Chrysler Corp. v. Merrell & Garaguso, Inc., 796 A.2d at 652. 14 Id. at 653. 15 Id. 7 be dependent upon the financial status of the contracting parties. Second, when M & G b id on the job , it knew it was to add Chrysler to its already existing general liability policy. As the prior decision noted, the cost of doing so is part of its bid price and is covered by the money received from Chrysler. Third, the illusion, as the Supreme Court said before, of M & G adding C hrysler as an ad ditional insure d should not be allowed to exist. It would be illusory to have a contractual requirement, such as here, and yet not provide a remedy for breach of contract when the requirement is not met. Without reflecting on anyone s intentions or good faith in this case, the easy opportunity for mischief and escape from such a contractual obligation is all too obvious. A party, such as M & G, co uld enter into a contract co ntaining a p rovision to a dd anothe r party as an additional insured, or to obtain new or additional insurance, and then simply not do it. Such evasion wou ld no t only make the contractual provision illusory, it would have the serious potential of not providing the protection for the injured w orker. To avoid that result, there must be an enforcea ble cause o f action fo r breach of contract. In short, Chrysler has an enforceable cause of action against M & G for breach of contract. There are, how ever, issues not resolvable in this motion involving damages and the other parties, Penn National and Martin. Conclusion 8 For the reasons stated herein, the summary judgment motion of Merrell & Garaguso, Inc., is DENIED. IT IS SO ORDERED. J. 9
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