Contract – Breach of Contract – Indemnification

One Beacon Insurance Co. v. United Mechanical Corp. (Lawyers Weekly No. 10-07-1009, 14 pp.) (Sam Ervin IV, J.) Appealed from Mecklenburg County Superior Court (Robert P. Johnston, J.) N.C. App. Click here for the full text of the opinion.

Holding: Even when an indemnification clause exists in a contract, a party cannot recover from a subcontractor whose employee is injured on the job and sues the party without a showing that the injuries arose from some act or omission of the subcontractor. Trial court ruling of summary judgment for defendant is affirmed.

 Background

The plaintiff-owner procured liability insurance from the plaintiff-insurer. The owner hired Industrial Piping Inc. (the contractor) to perform work at its facility. The contractor hired the defendant-subcontractor to perform the work. The contract between the contractor and the subcontractor included an indemnity clause in which the subcontractor agreed to protect, hold harmless and fully indemnify the contractor and the owner from any claims.

In 2005, an employee of the subcontractor was seriously injured while performing work related to the subcontract. He received workers’ compensation for his injuries from the subcontractor but later pursued a personal injury claim against the owner. The owner unsuccessfully demanded that the subcontractor indemnify it. The insurer settled the claim for $1.48 million.

Plaintiffs filed suit to recover damages for an alleged breach of the indemnity clause of the contract between the contractor and the subcontractor. Plaintiffs claim the owner was entitled to indemnification because it was a third-party beneficiary of the indemnity provision of the contract. The trial court granted summary judgment in favor of the subcontractor. Plaintiffs appeal.

Legal Analysis

No party contends that any issues of material fact are in dispute. Parties have relied on their preferred interpretations of documents instead of advancing competing factual contentions. The issue here is whether defendant was entitled to a summary judgment on a breach of contract claim as a matter of law.

Indemnity losses do not cover losses for which the indemnitee is not liable to a third person, and which the indemnitee improperly pays. Thus if a plaintiff sues a defendant when the negligence of another defendant is the proximate cause of the injuries, and the plaintiff has no derivative or imputed liability for the acts of the first defendant, the second defendant is not liable and is not entitled to indemnity.

The indemnity clause at issue here requires the subcontractor to indemnify the contractor and the owner. That is consistent with G.S. § 22B-1. To support their breach of contract claim, plaintiffs were required to allege facts and forecast evidence showing that the employee’s claims arose from or were related to some act or omission on the part of the subcontractor and that plaintiffs were liable in damages for the subcontractor’s acts or omissions.

Plaintiffs acknowledge that a construction contract generally may not include a provision whereby a party is indemnified for its own negligence. However, plaintiffs contend that the indemnity clause does not violate the statute because it does not state that the owner will be indemnified for its own negligence. But plaintiffs have failed to allege facts or forecast evidence to support a finding that the claim they seek to be indemnified for stemmed from the subcontractor’s acts or omissions.

According to plaintiffs, the insurer settled the employee’s claim under the terms of its liability policy. Plaintiffs did not, however, provide a copy of the documents showing evidence of the claim or the policy. We are unable to determine if the claims asserted against the owner arose from any acts or omissions on the part of the subcontractor. Plaintiffs failed to allege facts or forecast evidence to show that their claim fell within the purview of the indemnity provision of the contract. The subcontractor asserted that the plaintiffs’ payments to the employee were “voluntary and not recoverable.”

Plaintiffs failed to allege facts or to forecast evidence that, if the claims did stem from acts or omissions by the subcontractor, plaintiffs were liable as a result. There has been no allegation that the owner was liable for the employee’s injuries under the respondeat superior theory.

Affirmed.