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April 5, 1968


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


This is an action founded on diversity of citizenship in which Ford Motor Company, a Delaware corporation, and Insurance Company of North America (I.N.A.), a Pennsylvania corporation, seek recovery of $39,356.65 plus interest, costs, expenses, and attorneys' fees from Commissary, Incorporated, an Illinois corporation, and Zurich Insurance Company, a Swiss corporation. The cause has been submitted for determination on stipulated facts, which may be stated as follows.

For seven years beginning in 1958 Commissary operated a cafeteria in the Ford Motor Company plant located at 12600 Torrence Avenue, Chicago, Illinois. This was done pursuant to a written agreement entered into between these parties on September 24, 1958. On May 11, 1963, Mae Hurd, an employee of Commissary, injured her back when she slipped on a wet floor in the cafeteria kitchen, where she was working. The water on the floor resulted from a leak in a soup kettle which was installed by Ford. Ford employees had been informed of the leak during the week preceding May 11, 1963, but they had not repaired it as requested.

On May 11, 1964 Mae Hurd filed a complaint against Ford in this Court (No. 64 C 787), charging Ford with negligence and seeking damages for personal injuries resulting from the fall in the kitchen. At the time of the accident Ford was insured for liability by I.N.A., and Commissary was insured by Zurich. Ford and I.N.A. retained the services of the law firm of Baker, McKenzie and Hightower to defend the suit. On March 12, 1965, however, I.N.A. made formal demand upon Commissary to take over further defense of the suit against Ford. The demand was made pursuant to Paragraph 3 of the agreement of September 24, 1958; that paragraph was a provision for Commissary to defend, indemnify, and hold Ford harmless for losses arising out of the operation of the cafeteria. Commissary and its insurer, Zurich, agreed to take over the defense, and I.N.A. agreed to allow the Baker, McKenzie and Hightower firm to continue to conduct the defense with Commissary and Zurich as the parties controlling the defense and paying the costs of it.

Investigation of the case and settlement negotiations were undertaken under these arrangements, and beginning on November 1, 1966 the case was carried day to day on the trial call. On November 3 letters were sent by Commissary and Zurich to both Ford and I.N.A., informing them that Commissary and Zurich had "recently" received information indicating that the injury to Hurd was the result of Ford's negligence and its breach of the agreement for operation of the cafeteria. Accordingly, they declared that they would not be liable for any further costs, expenses, attorneys' fees, judgments, or settlement amounts related to the Hurd lawsuit. On November 4 counsel who had been handling the defense of Ford requested, but was denied, leave of court to withdraw its appearance for Ford.

The Hurd case was tried beginning on November 14, 1966, and a jury verdict against Ford in the amount of $37,500 was rendered on November 23, 1966. Ford was thus found guilty of negligence in the ownership of and failure to repair the equipment on the cafeteria premises which caused the injury.

The present complaint is in two counts. Count I asserts that defendants are obligated by the terms of the indemnity provision in the contract to reimburse Ford for the judgment it paid to Hurd. Count II claims that even if there was not a contractual obligation to indemnify, defendants became estopped to deny such an obligation when they undertook the defense of the Hurd lawsuit for an extended period of time and then withdrew shortly before the trial.

Count I

The contractual indemnity provision which is involved in Count I is Paragraph 3 of the agreement and reads as follows:

  "[Commissary] agrees that it will indemnify,
  defend and hold Ford harmless against any and all
  loss, damage and expense, or claims therefor, for
  injury to or illness caused any person or damage,
  loss or expense to property arising out of the
  operation of said cafeteria (excepting property
  damaged by fire or unavoidable casualty), and for
  any loss, injury or illness resulting from the
  courtesy first aid treatment furnished employees
  of [Commissary], and for any loss or penalty
  resulting from [Commissary's] violation of any
  law or ordinance."

Plaintiffs' interpretation of this provision is that "operation" of the cafeteria must be taken in its broadest possible sense, meaning any function related in any way to the business and maintenance of the cafeteria, regardless of whether Ford or Commissary had the duty of performing the function. Defendants' view of Paragraph 3 is narrower and, I believe, sounder. It suggests that "operation" must be distinguished from activities such as the equipment maintenance and repair functions assigned to Ford by Paragraph 1(d). A close examination of the contract supports this interpretation.

Paragraph 1(c) requires Ford to furnish all equipment necessary "for the efficient operation of the cafeteria." Apparently the furnishing of equipment is a prerequisite to the operation of the cafeteria and is not considered as part of it. Paragraph 1(d) imposes upon Ford the duty to:

  "keep said mechanical cafeteria equipment
  [including kitchen equipment such as soup
  kettles] in good mechanical condition and furnish
  at its expense all replacements and repair parts
  therefor * * *."

Also as part of the duties assumed by Ford in Paragraph 1, Ford agreed in Paragraph 1(e) to furnish "courtesy first-aid treatment" to the employees of Commissary while ...

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