Unpublished Disposition, 894 F.2d 410 (9th Cir. 1985)

MEMORANDUM^* 

This is a diversity action for indemnity and breach of contract arising out of an electrical accident to Donald Vaughn ("Vaughn") at a Shell Oil Company ("Shell") petroleum refinery in Anacortes, Washington. Vaughn was a senior mechanical designer employed by CGI Systems, Inc. ("CGI"), a subcontractor of the general contractor SIP Engineering, Inc. ("SIP") on a project at the refinery. Vaughn sued Shell and SIP over personal injuries incurred as he photographed and measured metal cabinets in an electrical bus which continued to be energized after he was informed by a Shell employee that it was safely de-energized.

The matter in issue before us is the cross-claim Shell filed against SIP for contractual indemnity, breach of contract, and attorney's fees. Shell appeals the directed verdict for SIP and the denial of its motion for directed verdict. We affirm.

Review of a directed verdict is de novo. Donoghue v. County of Orange, 848 F.2d 926, 932 (9th Cir. 1988). The appellate court assumes the same role as the district court, determining whether the evidence permits only one reasonable conclusion. Id. The evidence is viewed in the light most favorable to the nonmoving party, with all possible inferences drawn in that party's favor. Id.

As a general rule, Washington courts enforce the terms of an indemnity agreement, permitting the parties to decide how they want to allocate costs in the event of loss. See, e.g., Stocker v. Shell Oil Co., 105 Wash. 2d 546, 716 P.2d 306, 309 (Wash.1986); McDowell v. Canron Corp., 105 Wash. 2d 48, 710 P.2d 192, 195-96 (Wash.1985).

The indemnity issues flow out of a September 7, 1985 "Minimum Shell Involvement" agreement ("Contract") between Shell and SIP, under which SIP served as Shell's electrical and mechanical general contractor providing procurement and construction management services at Shell's refinery. In an October 23, 1985 purchase order, SIP engaged the services of CGI to design and manufacture electrical switchgear and metal cabinets enclosing switchgear for installation in the refinery substation.

Shell drafted the contract in issue, which contained a broad provision for indemnity of Shell by SIP. The indemnity section provided, in pertinent part, that SIP would indemnify Shell for enumerated costs and damages:

arising out of injury, disease or death of any persons or damage to or loss of any property (including, but not limited to, Shell's existing facilities) resulting from or in connection with performance of this Contract by Contractor or its subcontractors even though caused concurrently by the negligence (of any kind or description) or fault of [Shell], but excepting when the injury, disease, death, loss or damage is caused by the sole negligence of [Shell].

Contract, p 6.2(a) (emphasis added).

Under the contract language before us, we must determine whether Shell was solely negligent. It was an admitted fact at trial that Shell was negligent and "Shell's negligence was a proximate cause of the electrical flash burn injuries sustained by Vaughn...." Also admitted was that Shell's internal investigation concluded that the technical cause for the continued energization of the equipment "was the failure to open a specific circuit breaker." Thus, our inquiry is whether there was negligence of any other person or party that contributed to cause the accident. Shell argues that there was evidence of negligence by SIP, CGI, and Vaughn. Therefore, we must examine the evidence to determine whether the evidence permits only one reasonable conclusion--that the cause of the accident was due solely to the negligence of Shell and was not caused in part by the negligence of SIP, CGI, or Vaughn.

Resolution of whether SIP was negligent concerns the duty of a general contractor, SIP, at a multi-employer worksite to exercise care for employees of the subcontractor, CGI. The Washington Supreme Court has noted that the general rule at common law is that the person engaging an independent contractor is not liable for the injuries to employees of the independent contractor or its subcontractors. Kelley v. Howard S. Wright Const. Co., 90 Wash. 2d 323, 582 P.2d 500, 505 (Wash.1978). However, the court stated:

A common law exception to the general rule of nonliability exists where the employer of ... the general contractor ... retains control over some part of the work. The general [contractor] then has a duty, within the scope of that control, to provide a safe place of work. The test of control is not the actual interference with the work of the subcontractor, but the right to exercise control.

Id. (emphasis added). The test of control is not the actual interference with the work of the independent contractor, but the right to exercise such control. Id. (citing Fardig v. Reynolds, 55 Wash. 2d 540, 348 P.2d 661, 663 (Wash.1960)); Cassidy v. Peters, 50 Wash. 2d 115, 309 P.2d 767, 770 (Wash.1957); Swan v. Aetna Life Insurance Co., 155 Wash. 402, 284 P. 792, 795 (Wash.1930).

Shell argues that SIP had a "right to control" the activities of Vaughn's employer, CGI, because the "Minimum Shell Involvement" agreement assigned SIP, as a general matter, broad supervisory control over the subcontractor CGI. However, the evidence permits only one reasonable conclusion that Shell, not SIP, had the exclusive right to control the part of the premises on which the accident occurred. Shell had the exclusive control of the substation, which was fenced, surrounded by barbed wire and locked. SIP never had a key. On the day of the accident, Shell employees opened the gate and accompanied Vaughn and SIP employees into the substation.

Shell has not identified specific provisions in the contract conferring "a right to control" over the de-energizing process. CGI and SPI asked Shell to perform the de-energizing so that Vaughn could make his measurements. After considering the request, Shell agreed to do the switching, which it had successfully performed on several prior occasions without the aid of any other third parties. The switching process was complicated, involving eighteen steps which had to be performed in proper sequence. Further, as a significant indication of Shell's "right to control," Warren Anderson, a Shell electrical engineer, testified that Shell retained the right to call off the de-energization process for bad weather or any other reason. Shell retained the right of supervision and control over the substation and the de-energizing process was entirely in the hands of Shell. Thus, based on the evidence, under Washington law SIP could not have been negligent because it did not have a "right to control" either the substation or the de-energization process.

Shell also contends that it is entitled to indemnification because SIP was negligent per se in violating certain Occupational Safety and Health Act ("OSHA") and Washington Industrial Safety and Health Act ("WISHA") regulations. The district court found, as a matter of law, that neither SIP nor CGI violated any federal or state regulations. We agree. Shell maintained sole control of the premises of the substation. It solely undertook the responsibility for de-energizing the circuit. The regulatory provisions cited by Shell are inapplicable to this situation.

Shell contends that CGI was negligent. Vaughn was CGI's only employee present at the refinery on the date of the accident. The record does not reasonably support a finding that CGI had a "right to control" the substation or the de-energization process. There is no basis for a finding of negligence that was a proximate cause of the accident.

Shell also contends that Vaughn's "negligence contributed to cause his injuries." The record does not reasonably support a finding of negligence on the part of Vaughn. The evidence shows that Vaughn was a senior mechanical designer and had no formal background in electricity or the operation of electrical switchgears. Vaughn was rarely in the field, as approximately ninety-eight percent of the time Vaughn worked in an office. Vaughn's purpose at the electrical bus was to take photographs and make measurements for the design of sheet metal cabinets to enclose the switchgear. Vaughn reasonably relied on Shell in safely performing the de-energizing process. The Shell employees had properly de-energized Unit 4-A, of which Vaughn successfully took measurements and photographs. Subsequently, Shell attempted to de-energize Unit 4-B and erroneously advised Vaughn that de-energization had been accomplished. In reliance on this advice of Shell employees, Vaughn entered the electrical cabinet of Unit 4-B. While performing his work, he sustained serious burn injuries. The evidence does not reasonably support a conclusion that any of Vaughn's conduct was negligent.

Alternatively, Shell argues it is entitled to indemnification if any breach of contract by SIP proximately caused Vaughn's harm. Shell avers that four provisions were breached by SIP. Under the Contract, SIP agreed:

(1) That its employees and CGI employees "shall be appropriately skilled to perform the work to which assigned." Contract, p 10.5(a).

(2) That its employees and CGI employees "shall be appropriately supervised by qualified persons in [SIP's] employment." Contract, p 10.5(a).

(3) To be "fully responsible for all acts and omissions of [CGI]." Contract. p 10.12(d).

(4) To "use its best efforts to fully comply and to cause [CGI] to fully comply with" federal and state laws and regulations. Contract, p 10.32.

In essence, Shell contends that the contract placed a duty on SIP, the breach of which contributed to the cause of the accident.¹  In the context of this occurrence, where Shell assumed full control of the substation and the de-energizing process, we find no evidence of a breach of duty that contributed to the accident.

Shell also contends there was error in allowing certain examination and cross-examination of expert witnesses. We find no abuse of discretion in permitting this examination.

AFFIRMED.

REINHARDT, Circuit Judge, dissenting:

I dissent. I believe that a number of genuine issues of material fact exist with respect to the negligence of persons other than Shell, and that a jury should have been permitted to decide them.