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UNITED STATES STEEL CORP. v. EMERSON-COMSTOCK CO.

February 16, 1956

UNITED STATES STEEL CORPORATION, A CORPORATION, SUCCESSOR TO AMERICAN BRIDGE COMPANY, A CORPORATION,
v.
EMERSON-COMSTOCK CO., INC., A CORPORATION.



The opinion of the court was delivered by: Hoffman, District Judge.

The main issue presented by the instant case is whether the language used by the parties in their contract requires the defendant to indemnify the plaintiff for losses resulting from the plaintiff's negligence. The plaintiff does not here dispute that the loss was occasioned by its negligence. That issue was decided against the plaintiff in a suit in the United States District Court for the Northern District of Indiana, Hammond Division, and the judgment was affirmed by our Court of Appeals. Cole v. American Bridge Co., 7 Cir., 152 F.2d 157.

There are two subsidiary issues which will require decision only if the indemnity clause is construed as protecting the plaintiff from its own negligence: (1) whether the plaintiff acted as a "volunteer" so as to disqualify itself from recovering in whole or in part indemnity for the sum expended by the plaintiff in paying, pursuant to its own agreement with a joint tortfeasor, one-half of the amount of a joint and several judgment against the plaintiff and the joint tortfeasor; and (2) whether the plaintiff may recover the amounts which it paid for interest on the judgment, attorneys' fees and court costs resulting from an unsuccessful appeal.

The contractual obligation of the defendant to indemnify the plaintiff was part of a contract by which the defendant agreed to dismantle all electrical equipment and wires in a group of buildings at Gary, Indiana, which plaintiff had purchased. The seller of the buildings retained title to all electrical equipment and wires, plaintiff agreed to dismantle and remove such material at its expense, and contracted to have the defendant do the dismantling.

Cole, an electrician employed by the defendant, was severely burned while engaged in dismantling the wires. The injury resulted from the negligent turning on, without warning to Cole, of electric current in wires with which Cole was working. Cole filed a suit for damages for negligence naming as joint defendants the party who is the plaintiff here and the seller of the buildings. Cole recovered a joint and several judgment against them for $12,000, in the United States District Court for the Northern District of Indiana. Cole's own employer, the defendant here, was not a party to that suit. Cole did not name the instant defendant as a party because obviously Cole's recourse against the defendant would have been solely under the Indiana Workmen's Compensation Act, Burns' Ann.St. § 40-1201 et seq. Although the defendant as indemnitor was given notice and requested to defend, the defendant declined to do so, apparently on the ground that defendant believed that the injury was occasioned by the indemnitee's own negligence and as such was not covered by indemnity agreement.

In the negligence suit our Court of Appeals found that at the time he was injured Cole was working under the supervision of three different companies, his own employer who is the indemnitor and defendant here, the buyer of the buildings who is the indemnitee and the plaintiff here, and the seller of the buildings who retained title to the electrical wires and equipment involved. Cole v. American Bridge Co., 7 Cir., 152 F.2d 157, 160. Nothing in the decision of that case undertakes to fix the responsibility for the injury as between these three companies. The decision merely holds that Cole was entitled to go to the jury on the issue of whether the two who were defendants in that suit were negligent "either in turning on the electric current without first ascertaining where plaintiff [Cole] was working or in failing to warn plaintiff [Cole] that the current was to be sent through the wires upon which he was working." Id, 152 F.2d at page 160.

In this suit the plaintiff here has accepted as conclusive of its negligence the jury's verdict of joint and several liability of both the plaintiff and the seller of the buildings and affirmance thereof by the Court of Appeals. In the instant suit the plaintiff bases its case solely on the proposition that the language of the indemnity clause obligates the defendant to indemnify it for all losses incident to performance of the contract, including those caused by the plaintiff's own negligence. Since, as hereafter appears, the court agrees with this construction of the contract, the court has no occasion to, and does not, examine the facts respecting the negligence to determine whether primary responsibility therefor may have rested on the defendant itself or on the seller of the buildings rather than on the plaintiff.

The indemnity clause which is determinative of the case imposes on the defendant the obligation

    "To provide all proper safeguards in performing the
  work, to save harmless and defend [plaintiff]
  American Bridge Company from and against all suits,
  actions, legal proceedings, claims, demands, damages,
  costs, expenses and attorney's fees, in any manner
  caused by, arising from, incident to, connected with
  or growing out of the performance of this
  contract."

This contract was accepted in Illinois, contemplated performance in Indiana and was performed in Indiana. This being a diversity suit it is governed by state law. Since both Illinois and Indiana follow the overwhelming weight of modern authority with respect to the law applicable to a suit by an indemnitee for losses occasioned by the indemnitee's own negligence, there are no conflict of law problems for decision.

While there are early cases in some states expressing a public policy against indemnifying a tortfeasor for his own negligence it is today well established that the parties may so contract. Modern legal theory does not ignore the desirable objective of accident prevention which motivated the earlier decisions. But it finds nothing in the financial arrangements by which the business community through insurance and indemnity agreements allocates losses, inconsistent with that objective. The one on whom the contract imposes the liability has the same incentive to prevent the losses. Increased premiums and increased cost of services or materials act to deter the insured or indemnitees in the long run. At the same time society benefits through the spreading of the burdens of these unfortunate events and business does not have to risk the uncertainties of uninsured or unindemnified losses.

The Restatement of the Law of Contracts states the modern rule as follows:

    "§ 574. Legal Bargains for Exemption From Liability
  For Negligence.
    "A bargain for exemption from liability for the
  consequences of negligence not falling greatly below
  the standard established by law for the protection of
  others against unreasonable risk of ...

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