United States District Court, Northern District of Illinois
February 16, 1956
UNITED STATES STEEL CORPORATION, A CORPORATION, SUCCESSOR TO AMERICAN BRIDGE COMPANY, A CORPORATION,
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
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
"§ 574. Legal Bargains for Exemption From Liability
"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 harm, is legal
except in cases stated in § 575.
"a. By negligence is meant any conduct not
recklessly disregardful of the interests of others
which falls below the standard established by law for
the protection of others against unreasonable risk of
harm. By gross negligence is meant conduct falling
greatly below that standard."
The exceptions stated in Section 575 are here inapplicable.
They relate to contracts between parties where one is in a
position to take advantage of the other, as the employer
contracting with its employees, and a party charged with a duty
of public service contracting with a member of the public. In the
instant case the parties to the indemnity agreement are business
concerns who contract on a basis of equal bargaining power.
Once it is determined that such agreements are to be deemed
perfectly legitimate business arrangements, the only issue is
that of determining whether the parties intended that the
negligence of the indemnitee be a covered risk. For the leading
cases applying Illinois and Indiana law in construing indemnity
agreements to determine whether the language used should be
fairly construed as encompassing the indemnitee's negligence, see
Insurance Co. of North America v. Elgin, J. & E. Ry. Co., 7 Cir.,
229 F.2d 705; Chicago & N.W.R. Co. v. Chicago Packaged Fuel Co.,
7 Cir., 1950, 183 F.2d 630, 632; Russell, for Use of Continental
Casualty Co. v. Shell Oil Co., 1949, 339 Ill. App. 168,
89 N.E.2d 415. In each of these cases it was held that language used was
broad enough to include the risk of the indemnitee's negligence
although there was no express reference to that risk. For cases
from other jurisdictions see Annotation: Validity of contractual
provision by one other than carrier or employer for exemption
from liability, or indemnification, for consequences of own
negligence, 175 A.L.R. 8.
The language used in the indemnity clause between plaintiff and
defendant is all inclusive. The defendant agreed to save harmless
and defend the plaintiff "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." There cannot be any broader classification than
"all * * * claims * * * in any manner * * * incident to,
connected with or growing out of the performance of this
contract." The phrase "in any manner caused" obviously includes
claims arising from anyone's negligence, including the
The hazard of an injury to Cole from fire caused by electricity
while removing the wiring was one of the risks incident to the
performance of the contract. It is most unrealistic to assume
that the two business concerns party to the contract had any
intent that the broad language they used should make the coverage
of any injuries to employees working on the dismantling of wires
dependent upon whether an employee of the plaintiff rather than
an employee of the defendant was involved in the turning on of
current or in failing to warn the injured employee. Businessmen
do not draft contracts using such all-embracing language if they
have any such unexpressed reservations in mind.
Accordingly it is held that the indemnity clause of the
contract between plaintiff
and defendant requires the defendant to indemnify the plaintiff
for the loss which the plaintiff suffered as a result of the
injury to Cole.
The subsidiary issues relating to the amount which plaintiff
may recover must likewise be decided in the plaintiff's favor.
The argument that plaintiff was a "volunteer" in paying one-half
of the judgment which Cole had recovered against plaintiff and
its joint tortfeasor, is untenable. The plaintiff was subject to
a judgment in favor of Cole under which Cole could have held
plaintiff for the full $12,000, plus interest and costs. If
plaintiff had remained inactive and let Cole proceed to levy and
collect the full judgment from it, the defendant would be
compelled to indemnify plaintiff for the full amount. Similarly
if plaintiff had paid the full judgment instead of waiting levy
and execution, it could have collected the full amount from
No one is ever a volunteer when he pays only the sum which a
judgment of court fixes as due from him. And this is true
irrespective of the fact that there are co-defendants jointly and
severally liable for the full amount of the judgment. Cf.
Berylwood Inv. Co. v. Graham, 1941, 43 Cal.App.2d 659, 671,
111 P.2d 467, 475.
Indiana and Illinois follow the common law rule that joint
tortfeasors are not entitled to contribution from each other.
Jackson v. Record, 1937, 211 Ind. 141, 145, 5 N.E.2d 897, 898;
Aldridge v. Morris, 1949, 337 Ill. App. 369, 375-376,
86 N.E.2d 143; Johnson v. Chicago & Pacific Elevator Co., 1882,
105 Ill. 462, 467-468, affirmed 119 U.S. 388,
7 S.Ct. 254, 30 L.Ed. 447. While there are some jurisdictions
which by either judicial decision, e.g., George's Radio v.
Capital Transit Co., 1942, 75 U.S.App.D.C. 187, 126 F.2d 219, or
legislative action (e.g., Uniform Contribution Among Tortfeasors
Act) have abandoned the common law rule, it still has strong
support. See Judge Edgerton dissenting in George's Radio case,
supra, 126 F.2d at page 223; Fleming James, Jr., Contribution
Among Joint Tortfeasors: A Pragmatic Criticism, 54 Harv.L.Rev. 1156
(May, 1941); Note: Torts — Joint Tortfeasors — Right to
Contribution As Affected by Separate Settlements, 27 Notre Dame
Lawyer 653 (Summer 1952).
Even without a judgment, it has been held that if, as here, the
indemnitor denies liability and refuses to defend, one of two
joint tortfeasors is not a volunteer when it pays the full amount
of a liability. Luton Mining Co. v. Louisville & N.R. Co., 1938,
276 Ky. 321, 330-331, 123 S.W.2d 1055, 1060. There the court
"It seems clear to us that the railroad company was
not acting as a volunteer in making the settlement
with Jagoe's Administratrix. Regardless of the fact
that the mining company might have had a primary
liability imposed on it for this accident,
nevertheless the railroad company also had this
liability imposed on it if there was negligence
rendering someone liable to the administratrix. * * *
As said by this court in Ligons Adm'r v. Evansville
Railways Co., 165 Ky. 202, 176 S.W. 968, 971: `* * *
In such state of case the person injured may maintain
a joint action against both wrongdoers. * * *'
"As establishing definitely that the railroad
company was not a volunteer in making this
settlement, we find that the mining company, when
notified that the railroad company expected to be
indemnified on account of this accident, denied
liability under the contract. * * *
"The mining company having denied liability under
the contract of indemnity, there seems little
question that the railroad company thereupon had the
right to exercise a reasonable judgment in settling
the case. * * *"
Here the plaintiff, however, did not pay the full amount of the
judgment. By agreement with the other judgment debtor, they each
paid half. At common
law an equal division among joint tortfeasors was recognized as
fair. In Selz v. Unna, 1867, 6 Wall. 327, 73 U.S. 327, 336-337,
18 L.Ed. 799, the court said:
"* * * Equal contribution to discharge a joint
liability is not inequitable, even as between
wrongdoers, although the law will not, in general,
support an action to enforce it where the payments
have been unequal. Where the liability is joint equal
contribution is just, and it would afford the
complainants no ground of relief if it appeared that
the arrangement with the marshal was such as is
alleged in the bill or complaint." (Footnotes
In those jurisdictions where contribution is allowed, the equal
division of the loss is the rule. George's Radio v. Capital
Transit Co., 1942, 75 U.S.App.D.C. 187, 126 F.2d 219; Uniform
Contribution Among Tortfeasors Act.
And if any legal basis could exist for suggesting that
plaintiff's contribution should have been less than one-half, the
defendant by its denial of liability as indemnitor and its
refusal to defend became bound by any reasonable amount the
plaintiff paid in settlement of the liability. In Chicago, R.I.
& P.R. Co. v. Dobry Flour Mills, 10 Cir., 1954, 211 F.2d 785,
788, the court said:
"* * * where the indemnitor denies liability under
the indemnity contract and refuses to assume the
defense of the claim, then the indemnitee is in full
charge of the matter and may make a good faith
settlement without assuming the risk of being able to
prove absolute legal liability or the actual amount
of the damage. [Citing cases.] A contrary rule would
make the right to settle meaningless in cases where
the indemnitor has denied liability."
To the same effect see Luton Mining Co. v. Louisville & N.R.
Co., 1938, 276 Ky. 321, 330-331, 123 S.W.2d 1055, 1060.
The plaintiff's conduct in arriving at an arrangement with its
co-judgment-debtor whereby they each paid half of the judgment
was obviously reasonable and in good faith. The court cannot see
the slightest basis for relieving the defendant from indemnifying
the plaintiff for the half share of the judgment which the
plaintiff assumed and paid.
Nor, in view of the defendant's refusal to defend, is there any
basis for denying the plaintiff recovery for the amount of
interest, attorney's fees and costs which it paid on account of
the unsuccessful appeal. If the plaintiff had not participated in
the appeal it would have risked being left as the sole judgment
debtor for a liability which the defendant denied was covered by
the indemnity agreement. For, if its co-defendant in that suit
had been successful on an appeal prosecuted solely by it, the
judgment would have been left in effect against only the
plaintiff. In these circumstances the plaintiff's participation
in the appeal was reasonably necessary to protect its interests
and to reduce the potential liability of the defendant. It is
well established that in instances where the indemnitor denies
any liability the interest, attorney's fees and costs incident to
an unsuccessful appeal may be recovered so long as the appeal was
taken in good faith. Fidelity & Casualty Co. of New York v.
Bisso, 1934, 179 La. 56, 64-65, 153 So. 19, 22; Hartford Accident
& Indemnity Co. v. Worden-Allen Co., 1941, 238 Wis. 124, 133,
297 N.W. 436, 440. As long as the indemnitor is denying all liability
the appeal is not a useless act. The indemnitee is not required
to gamble solely on the success of a suit against the indemnitor.
It is equally entitled to protect itself by an appeal which may
save it if its suit against the indemnitor proves ill founded.
Judgment will accordingly be entered for the plaintiff with
costs in conformity with this opinion. Counsel for the plaintiff
are directed to prepare a judgment order and to submit the same
to the court for signature on or before March 12, 1956.
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