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Opheim v. Norfolk & Western Ry. Co.

APRIL 7, 1970.

CHRIS OPHEIM, PLAINTIFF,

v.

NORFOLK & WESTERN RAILWAY CO., DEFENDANT AND THIRD-PARTY PLAINTIFF-APPELLEE,

v.

DEALERS TRANSIT, INC., TRUCK INSURANCE EXCHANGE, ET AL., THIRD-PARTY DEFENDANTS-APPELLANTS.



Appeal from the Circuit Court of Cook County; the Hon. ABRAHAM W. BRUSSELL, Judge, presiding. Reversed and remanded with instructions.

MR. PRESIDING JUSTICE MCCORMICK DELIVERED THE OPINION OF THE COURT.

This is an appeal from an order granting summary judgment in favor of Norfolk & Western Railway Co. (Norfolk), third-party plaintiff and appellee, as to Count II of the third-party complaint against Dealers Transit, Inc. (Dealers), and its liability insurer, Truck Insurance Exchange, appellants and third-party defendants. The third-party action only is involved in this appeal.

The trial court entered an order reciting that Dealers and its insurer had made a binding election to assume the defense of Norfolk against the original plaintiff, Chris Opheim, and directed them to assume the defense of Norfolk and indemnify it. The order was based on Dealers' acceptance of Norfolk's defense for a brief period at the outset of the case, and was entered while the case was still in the pleading stage, before any significant steps had been taken in preparation of the trial of the principal claim. The order contained a finding that there was no just reason for delay in enforcement or appeal. The court decided the case solely on the pleadings and on affidavits supporting and opposing Norfolk's motion for summary judgment.

The questions presented for review are:

1) whether the trial court was correct in entering a summary judgment that imposed an indemnity agreement by estoppel on Dealers; and

2) whether, absent a detrimental change of position, Norfolk was entitled to take advantage of the material mistake that had caused Dealers and its insurer initially to accept defense of the principal claim when that mistake was either mutual or known to Norfolk's attorney.

Dealers had a contract with Norfolk whereby Dealers was to inspect, unload and assemble automobiles brought to Norfolk's yard on car carriers. Chris Opheim, an employee of Dealers, was injured while performing duties under the contractual agreement. He sued Norfolk for damages he allegedly sustained as a result of the accident. Norfolk was served on September 21, 1967, and turned the matter over to its attorneys, Lord, Bissell and Brook. A Mr. Peterson of that firm wrote Dealers and demanded that they fulfill their obligations under a hold-harmless clause which was part of the contract with Norfolk, and which provided, in part, that Dealers would

"be responsible for and shall indemnify and hold harmless Railroad Company from any and all loss, damage, liability, cost or expense resulting from injury to or death of persons (including agents, servants and employees of the parties hereto) arising out of, directly or indirectly, the performance or attempted performance by Contractor of the services contemplated by this agreement, unless caused by the sole negligence of the Railroad Company, its agents, employees, or servants."

An alternate assertion of Peterson's was that Dealers' active negligence in the matter obligated it to indemnify Norfolk. His letter included a request that Dealers assume Norfolk's defense, and threatened that unless defense was assumed, Norfolk would file a third-party complaint against Dealers. A copy of the letter was also sent to Dealers' insurer.

On October 20, 1967, a Mr. Reynolds of the carrier's firm called Norfolk's counsel and requested a copy of the hold-harmless provision so that the insurance company could evaluate the request for Dealers to assume Norfolk's defense. On October 26, 1967, the contract was mailed to the insurance company, and on that same day Norfolk's counsel filed an answer to Opheim's complaint and a third-party complaint against Dealers.

The following day Reynolds called Norfolk's counsel to notify him that the tender of defense was accepted and that he would assign counsel to the case. The conversation was confirmed by letter. The file was assigned to Hinshaw, Culbertson, Moelmann & Hoban, and on November 28, 1967, Norfolk's third-party complaint was dismissed.

On December 1, 1967, at Hinshaw's request for investigative material regarding the accident, Norfolk's counsel sent the law firm a folder bearing Opheim's name; however, the file contained no information whatsoever about the accident of the current lawsuit, only some material relating to a prior accident of Opheim's.

On January 10, 1968, 44 days after Dealers and its insurer had entered the case, the tender of defense was revoked. During that time the Hinshaw firm had done nothing but obtain an order permitting them to inspect Opheim's income tax returns. The revocation was based primarily upon the fact that Opheim's complaint alleged only that the railroad company had been negligent; that the accident was therefore caused by the negligence, so that the hold-harmless clause was inapplicable by its own terms. The Hinshaw firm filed a motion to withdraw from the case, but the motion was denied. Subsequently, Norfolk's counsel reentered the case, refiled its third-party complaint against Dealers and its insurer, and sought and obtained summary judgment, which judgment bound Dealers to indemnify the railroad, hold it harmless from any and all loss, damage, liability, cost or expense resulting from Opheim's injury, and ordered it to assume Norfolk's defense, since it had made a binding "election." It is from that judgment that this appeal is taken.

Dealers' primary argument before this court is that the summary judgment was improper because Norfolk was, and still is, unable to demonstrate in what manner it was prejudiced by Dealers' short term assumption of the defense. Dealers reasons that whether calling the issue estoppel, election or waiver, there is no prejudice, and to affirm the judgment in this case would create an absolute rule of law in derogation of the law as it now exists. Under the current law an indemnitee must show how it was prejudiced by the withdrawal from the case of the indemnitor. However, if we maintain that in this case the indemnitor was ...


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