Modern Steel Treating Co. v. Liquid Carbonic Industrial/ Medical Corp. modified September 2

THIRD DIVISION
September 02, 1998

No. 1-96-1422

MODERN STEEL TREATING COMPANY,

Plaintiff-Appellant,

v.

LIQUID CARBONIC INDUSTRIAL/MEDICAL
CORPORATION,

Defendant-Appellee.)
)
)
)
)
)
)
)
)
)Appeal from the
Circuit Court of
Cook County

90 L 3745

Honorable
Arthur A. Sullivan,
Judge Presiding.

OPINION MODIFIED ON DENIAL OF REHEARING

JUSTICE CAHILL delivered the modified opinion of the court:
A refurbished steel treatment furnace owned and operated by
plaintiff, Modern Steel Treating Company, exploded on September
11, 1989. The furnace was destroyed and the building that housed
it was damaged by fire. Modern Steel sued defendant, Liquid
Carbonic, which leased the control panel for the furnace to
Modern Steel and supplied the fuel.
Count I of the complaint alleged several acts of negligence
by Liquid Carbonic in the design and installation of a fuel
injection system, including the control panel for the furnace.
Counts II and III alleged breach of oral and written warranties.
Defendant moved for summary judgment. The trial court first
granted summary judgment on the warranty counts, finding that the
warranty language of the contract between the parties excluded
recovery for damages arising out of the explosion.
Subsequently, a motion for summary judgment on the
negligence count was granted. The court first ruled that the
Illinois Contract Indemnification for Negligence Act (740 ILCS
3511 et seq. (West 1996)) did not void an indemnity clause in the
contract. The court found that a clause in the contract limiting
defendant's liability to its "sole negligence" was enforceable.
The court interpreted "sole negligence" as absolving Liquid
Carbonic of liability if Modern Steel was shown to be even partly
at fault. The court then concluded that the deposition testimony
of plaintiff's expert, that plaintiff may have been as much as
10% negligent, precluded recovery in light of the "sole
negligence" clause.
Modern Steel treated and processed steel at a plant in
Chicago, Illinois. The heat-treating process hardens the surface
of steel parts, such as railcar couplings, while allowing them to
retain their interior toughness. At a certain degree of heat,
the furnace is injected with a special atmosphere that provides
the treatment.
The furnace was located in a separate building at the rear
of Modern Steel's plant. In 1988, Modern Steel made the decision
to rebuild the furnace, a project that took about one year to
complete. As part of this project, Liquid Carbonic leased to
Modern Steel an electrical control panel to supply a nitrogen and
methanol atmosphere for the furnace. The control panel was used
to regulate the atmosphere in the furnace and control the flow of
fuel.
Installation of the control panel followed a letter dated
August 1, 1988, from Richard McMahon of Liquid Carbonic to Modern
Steel. The August 1, 1988, letter said that a "standard Bulk Gas
Agreement" (BGA) would apply to Liquid Carbonic's installation of
the system. At his deposition, the president of Modern Steel
admitted that the BGA governed installation of the system.
Paragraph 14 of the BGA reads in part:
"INDEMNIFICATION: LIQUID shall be liable for any
injury, death, or damage caused by it sole negligence
***. Except for the above, BUYER shall indemnify,
defend, and save harmless LIQUID, its employees and
agents, from and against all loss, liability, damage,
claims, actions and proceedings, including all costs
and expenses connected therewith arising directly or
indirectly out of or in connection with this Agreement
including, but not limited to, any loss, liability,
damages, claims, actions, and proceedings caused or
alleged to have been caused by the joint or concurrent
negligence of LIQUID, its employees or agents. This
entire provision shall survive the term of this
Agreement."
In paragraph 22 of the agreement, Modern Steel and Liquid
Carbonic agreed to terminate earlier agreements relating to the
system. It reads in part:
"This writing constitutes the entire agreement between
the parties hereto, and no change or modification may
be made herein unless the same shall be in writing duly
executed by BUYER and by a Vice President of LIQUID
***. This agreement terminates any prior agreements
between the parties related to equipment, products, or
services covered herein except for the settlement of
rights already accrued under those Agreements."
After installation, Liquid Carbonic continued to "fine tune"
the system through 1988 and 1989. On the date of the explosion
the system was still being tested.
Modern Steel raises the following issues:
(1) whether the Illinois Construction Contract
Indemnification for Negligence Act (740 ILCS 35/1 et seq. (West
1996)) (Indemnification Act or Act) voids paragraph 14 of the
contract;
(2) whether paragraph 14, if not void, fails to exculpate
Liquid Carbonic for its own negligence because (a) the control
panel was not subject to the contract, (b) the reference to "sole
negligence" is inclusory rather than exculpatory, or (c) the
contract is ambiguous and must be interpreted against its
drafter, Liquid Carbonic;
(3) whether the trial court erred in granting summary
judgment on Modern Steel's breach of warranty counts; and
(4) whether the deposition testimony of Modern Steel's
expert precludes the need for a jury to determine if the conduct
of Modern Steel was a proximate cause of the explosion.
We first address the issue of whether the BGA is a
construction contract that triggers the Indemnification Act. The
Indemnification Act provides:
"With respect to contracts or agreements, either
public or private, for the construction, alteration,
repair or maintenance of a building, structure, highway
bridge, viaducts or other work dealing with
construction, or for any moving, demolition or
excavation connected therewith, every covenant, promise
or agreement to indemnify or hold harmless another
person from that person's own negligence is void as
against public policy and wholly unenforceable." 740
ILCS 35/1 (West 1996).
There are no factual disputes in the record about the
installation work performed by Liquid Carbonic as part of the
BGA. Paragraph 4 of the BGA addresses those installation
activities. Paragraph 4 states:
"INSTALLATION OF STORAGE UNIT: LIQUID will plan and
supervise installation of storage equipment of a size
it determines to be sufficient to supply BUYER and will
connect the storage equipment at the site to BUYER's
distribution system. BUYER shall provide a site,
concrete foundation, and protective fence for the
storage unit ***."
Whether this language creates a contract for "the
construction, alteration, repair or maintenance" of a structure
are questions of contract interpretation. The interpretation and
construction of an unambiguous contract are questions to be
decided by a court as a matter of law. Farm Credit Bank v.
Whitlock, 144 Ill. 2d 440, 447, 581 N.E.2d 664 (1991).
We believe the work required under paragraph 4 is part of an
"alteration, repair or maintenance of a structure" covered by the
Indemnification Act. It is undisputed that there was alteration
and repair of the furnace and the building and that city
construction permits were obtained. Liquid Carbonic, however,
argues that construction was completed at the time of the
accident and that North River Insurance Co. v. Jones, 275 Ill.
App. 3d 175, 655 N.E.2d 987 (1995), bars application of the
Indemnification Act. The argument is not supported by the
record. Testing of the new furnace had not been completed and
Liquid Carbonic's obligations had not ended when the explosion
occurred.
Liquid Carbonic argues in the alternative that the contract
was only for the lease of a nitrogen/methanol system, and the
sale of nitrogen and any construction were incidental. Liquid
Carbonic cites Winston Network, Inc. v. Indiana Harbor Belt R.R.
Co., 944 F.2d 1351, 1359 (7th Cir. 1991), and argues that, like
Winston, this case does not involve a contract "for the
construction, alteration, repair or maintenance of a structure"
(emphasis added) but merely has "some connection with the
construction, alteration, repair or maintenance of a structure."
Winston involved a train collision with a painters'
scaffold. After concluding that the insured had agreed to
indemnify the railroad, the court held that the anti-
indemnification provisions of the Indemnification Act did not
apply because the railroad's licensing space for advertising, the
licensee's hiring of painters, and the painters' construction of
a scaffold did not involve a construction contract between the
insured and the railroad. Here it is undisputed, however, that
the work required under paragraph 4 was part of the contract and
that the fuel could not be delivered until that work was done.
As the work was a contractual prerequisite to delivery of the
fuel, the argument that it was "incidental" is less than
persuasive. Delivery of the fuel, and the price to be paid for
it, were the last elements in a contract that contemplated
refurbishment of the furnace. That refurbishment included work
by Liquid Carbonic and subcontractors Liquid Carbonic hired. We
believe that the BGA was a construction contract within the
meaning of the Indemnification Act.
But that does not end our inquiry, as Liquid Carbonic
recognizes. Even if the BGA is a construction contract, Liquid
Carbonic argues that the language in the Indemnification Act that
would void paragraph 14 of the BGA in an indemnity scenario has
no application in a two-party lawsuit where the issue of
indemnity does not exist, and in particular where the "sole
negligence" language of the upper part of the paragraph is
separated from the third party language of the lower part of the
paragraph. Liquid Carbonic describes Modern Steel's argument
that the Indemnification Act applies here as "bizarre" because
"no third party indemnity claim exists here." Liquid Carbonic
emphasizes that "[n]o third party claim has been brought against
Liquid Carbonic. Rather, this case involves the enforcement of
the unequivocal contractual language relating to damage claims
between the two contracting parties."
Liquid Carbonic cites no authority for the proposition that
the Indemnification Act never applies to two-party suits, and the
plain language of the Act suggests otherwise. The Act applies to
"every covenant, promise or agreement to indemnify or hold
harmless another person from that person's own negligence." 740
ILCS 35/1 (West 1996). The contract provision upon which Liquid
Carbonic relies is clearly an agreement to hold Liquid Carbonic
harmless for its own negligence.
We do not find it relevant that the suit here only involves
the parties to the contract. The Act is no more intrusive on a
party's right to contract here than in an indemnity scenario.
Although third parties are involved when indemnity is sought
under a contract, the indemnity suit itself is always between the
parties to the contract and has no bearing on the third party's
right to recover. See Lonigro v. Lockett, 253 Ill. App. 3d 308,
314, 625 N.E.2d 265 (1993) (noting that whether or not tortfeasor
is indemnified, that tortfeasor remains liable to the third party
for his negligence).
Liquid Carbonic suggests that applying the Act in a two-
party action would not serve the policy objectives of the Act.
The Indemnification Act seeks to protect those injured in the
construction process by ensuring that those who perform under a
construction contract do not have a disincentive to exercise
reasonable care because someone else has agreed to pay for damage
resulting from their negligence. See Braye v. Archer-Daniels-
Midland Co., 175 Ill. 2d 201, 216-17, 676 N.E.2d 1295 (1997).
This policy is served whether or not the party invoking the Act
has first been sued by someone else. We note, in this context,
that some of the preliminary work was done by subcontractors of
Liquid Carbonic.
In its petition for rehearing, Liquid Carbonic cites two
cases to support the argument that "Illinois appellate courts
have held that the Indemnification Act does not apply to a 'two-
party lawsuit.'" See Intergovernmental Risk Management v.
O'Donnell, Wicklund, Pigozzi & Peterson Architects, Inc., 295
Ill. App. 3d 784, 692 N.E.2d 739 (1998); Ralph Korte Construction
Co. v. Springfield Mechanical Co., 54 Ill. App. 3d 445, 369 N.E.2d 561 (1977). But Intergovernmental Risk and Korte are
distinguishable. In Intergovernmental Risk and Korte, the
parties only waived their rights against each other to the extent
that they were covered by property insurance. See
Intergovernmental Risk, 295 Ill. App. 3d at 787-88; Korte, 54
Ill. App. 3d at 446. In both cases, the courts held that since
the plaintiff's loss was covered by insurance, "avoidance of the
burden of liability did not effect any prejudice to the interest
in the safety of workers and members of the general public."
Intergovernmental Risk, 295 Ill. App. 3d at 794; Korte, 54 Ill.
App. 3d at 447. The agreement to "hold harmless" in this case is
not limited "to the extent covered by property insurance."
Intergovernmental Risk and Korte are not applicable here.
Because the contract provision on which the trial court
relied is void, we find that the trial court erred in granting
summary judgment for Liquid Carbonic. We reverse summary
judgment on count I and remand for further proceedings.
Modern Steel next argues that the trial court erred in
dismissing counts II and III of the complaint based on oral and
written warranties. The trial court dismissed these counts based
on a reading of the warranty language in the BGA. Modern Steel's
position is that the warranties alleged in its complaint are
based on oral and written representations independent of the BGA.
We have already concluded that the evidentiary materials,
including an admission by the president of Modern Steel,
establish that the BGA was the only agreement between the
parties. Modern Steel poses no argument on appeal that the
warranty language of the BGA is implicated in this cause of
action. That issue is waived. See Illinois State Board of
Elections v. Human Rights Comm'n, 291 Ill. App. 3d 185, 188, 683 N.E.2d 1011 (1997). Summary judgment on the warranty counts was
proper.
Affirmed in part and reversed in part; cause remanded.
LEAVITT, P.J., and GORDON, J., concur.