Contract – Indemnification – Railroad – Power Lines – ‘By Reason of’

CSX Transportation, Inc. v. City of Fayetteville (Lawyers Weekly No. 011-173-16, 16 pp.) (John Tyson, J.) Appealed from Cumberland County Superior Court (Beecher Gray, J.) N.C. App.

Holding: Even though the plaintiff-railroad’s own negligence led to or contributed to an incident that caused $118,000 in damages to third-party CenturyLink’s equipment, since the incident would not have happened but for the defendant Public Works Commission’s power lines suspended over the railway, the parties’ contract requires the PWC to indemnify the railroad for the $118,000 it paid to settle CenturyLink’s claim.

We reverse summary judgment for the PWC. Remanded.

It is well settled in North Carolina that a party may contractually provide for indemnification against its own negligence.

The trial court granted summary judgment in favor of PWC on the grounds that the railroad had admitted its negligence in causing or contributing to the incident, which gave rise to CenturyLink’s claim, and this admission barred the railroad from receiving indemnification from PWC as a matter of law. This conclusion is contrary to well-established North Carolina law.

The language in the parties’ contract provides for indemnification for damage “which may be incurred by the Railroad Company by reason of the construction, maintenance, use or operation of the said conductors, wires or supports, or by reason of the exercise of any of the privileges conferred by this license or agreement.”

Although “by reason of” has never expressly been defined by North Carolina’s appellate courts, the First Circuit interpreted the phrase “by reason of” in an indemnification provision and held, “[W]e consider the language unambiguous: ‘by reason of’ means ‘because of,’ and thus necessitates an analysis at least approximating a ‘but-for’ causation test.” Pac. Ins. Co., Ltd. v. Eaton Vance Mgmt., 369 F.3d 584 (1st Cir. 2004).

The parties’ indemnification provision allows the railroad to be indemnified for damages paid to CenturyLink, because the damage was “by reason of,” or “by virtue of,” PWC’s exercise of its privilege, i.e. hanging power lines above the railroad tracks. In other words, but for PWC’s exercise of its privilege and license pursuant to the parties’ contract, CenturyLink’s equipment would not have been damaged as a result of the railroad’s crane colliding with PWC’s power lines.

Under the agreement, the railroad is entitled to indemnification from PWC, even though damages resulted from the railroad’s own negligence. On de novo review, the railroad’s motion for partial summary judgment on its claim for contractual indemnity is granted.

Reversed and remanded.