Summary
stating that the "general rule that clauses limiting liability of drafter are to be strictly construed need not apply when parties are sophisticated entities"
Summary of this case from White Consolidated Ind. v. Westinghouse ElecOpinion
No. 86-567
Decided March 25, 1987.
Contracts — Indemnity agreements — Strict construction of limitation of liability clause need not be applied, when.
O.Jur 3d Contribution etc. §§ 37, 41, 42.
1. While clauses limiting the liability of the drafter are ordinarily to be strictly construed, such strict construction need not be applied in the interpretation of an indemnification agreement entered into between business entities in a context of free and understanding negotiation.
2. When the subject of liability is anticipated in an enforceable indemnity agreement, such indemnification must be provided.
APPEAL from the Court of Appeals for Mahoning County.
Thomas E. Glaspell was injured while employed by Mahoning Valley Cablevision, Inc. ("Cablevision"), appellee herein. At the time of injury, Glaspell was assigned the task of transferring Cablevision's equipment from the top of an older utility pole onto the top of a new, taller pole. This function he accomplished by means of metal gaffs which, when attached to his boots, allowed him to ascend or descend the pole.
On the date of the events at issue, Glaspell had climbed the older pole, dismantled the equipment and reinstalled it on the new pole located next to the older one. On his way down, he caught the gaff attached to his right boot in a metal clamp designed to hold a ground rod in place. In attempting to extricate the gaff from the clamp, he set the gaff on his left boot into the pole and then placed his weight upon it. The left gaff failed to hold Glaspell's weight and he fell approximately ten to fifteen feet, thereby sustaining injuries.
Glaspell and his wife filed a personal injury and loss of consortium action against United Telephone Company ("United Telephone") and Ohio Edison Company ("Ohio Edison"). It was alleged that these defendants, appellants herein, had owned and erected the utility poles and that Glaspell's fall was caused by, among other alleged causes, either negligent maintenance or the "willful, careless and wanton conduct * * *" of appellants.
Prior to trial, United Telephone filed a third-party complaint, pursuant to Civ. R. 14, against Cablevision. Ohio Edison then cross-claimed against Cablevision. Both claims against Cablevision are predicated upon an agreement entitled "Joint Use Agreement" which was signed between United Telephone and Cablevision. This agreement purported to require Cablevision to indemnify both United Telephone and Ohio Edison.
Ultimately the trial court was presented with the issue of whether the indemnification clause in the Joint Use Agreement was applicable to the circumstances of this case. Strictly construing the agreement against the allegedly negligent parties, the trial court found that the agreement failed to express in clear and unequivocal terms that Cablevision was required to indemnify appellants for their own alleged negligence. The court of appeals affirmed, finding the contract provisions to be unclear and equivocal.
This cause is now before the court pursuant to the allowance of a motion to certify the record.
Harrington, Huxley Smith and John C. Litty, Jr., for appellant Ohio Edison Company. Haynes Sontich and Joseph P. Sontich, for appellant United Telephone Company.
Pfau, Pfau Pfau and William E. Pfau, Jr., for appellee.
The precise issues for determination are whether the indemnity agreement before the court is violative of public policy and, if not, whether its terms encompass the injury complained of. For the reasons expressed within, we find that the agreement is enforceable among the parties.
United Telephone granted Cablevision a license which, among other acts, permitted appellee to install equipment upon and make use of appellants' utility poles for the purpose of transmitting cable television signals to Cablevision's subscribers. The agreement also provided, in pertinent part:
"8. Indemnity to the Licensor
"(a) The Licensee [Cablevision] covenants and agrees to indemnify and save harmless the Licensor, its agents, officials, servants or workmen, and the Ohio Edison Company, its agents, officials, servants or workmen from and against any loss, cost, charges, damages and expenses which the Licensor or Ohio Edison Company may at any time or times hereafter bear, sustain, suffer, be at or be put unto for, or by reason of, or on account of (i) the installation, maintenance or use of the said equipment on or in the Licensor's or Ohio Edison Company's facilities, * * *; and the Licensee shall, upon demand and at its own sole risk and expense, defend any and all suits, actions or other legal proceedings which may be brought or instituted by third persons against the Licensor or Ohio Edison Company or their successors or assigns, on any such claim, demand or cause of action; and will pay and satisfy any judgment or decree which may be rendered against the Licensor or Ohio Edison Company, their respective successors or assigns, in any such suit, action or other legal proceedings; and will reimburse the Licensor or Ohio Edison for any and all legal expense, including court costs, incurred in connection therewith."
Agreements purporting to indemnify have received varied treatment by the law. Earlier common law disfavored the shifting of liability among potentially negligent parties. See, e.g., Merryweather v. Nixon (K.B. 1799), 8 T.R. 186, 101 Eng. Rep. 1337. In particular kinds of circumstances, Ohio has forbidden enforcement of indemnity agreements. See, e.g., R.C. 2305.31 and Kendall v. U.S. Dismantling Co. (1985), 20 Ohio St.3d 61, 20 OBR 360, 485 N.E.2d 1047 (construction contracts); R.C. 4123.82 and Ledex, Inc. v. Heatbath Corp. (1984), 10 Ohio St.3d 126, 10 OBR 449, 461 N.E.2d 1299 (employment contracts). However, absent specified public policy exceptions, the law of Ohio generally allows enforcement of indemnity agreements. See, e.g., Allen v. Standard Oil Co. (1982), 2 Ohio St.3d 122, 2 OBR 671, 443 N.E.2d 497; 18 Ohio Jurisprudence 3d (1980) 389, Section 38.
Where it is alleged that the agreement protects an indemnitee from the financial consequences of his own negligence, the greater weight of authority, particularly in Ohio, would construe the words of such an agreement most narrowly. George H. Dingledy Lumber Co. v. Erie RR. Co. (1921), 102 Ohio St. 236, 131 N.E. 723; Kay v. Pennsylvania RR. Co. (1952), 156 Ohio St. 503, 46 O.O. 417, 103 N.E.2d 751; Ohio Jurisprudence 3d, supra, at 393, Section 41; 15 Williston on Contracts (1972) 141, Section 1750; 6A Corbin on Contracts (1950) 602, Section 1472; see 2 Restatement of the Law, Contracts (1932) 1079-1081, Sections 574 and 575.
The requirement that this court strictly construe this particular category of indemnity agreement would be unreasonable, in that the rule was developed to guard against a specific practice. Often one party to a contract, being in a position to impose terms upon the other with no realistic opportunity to bargain afforded, would include those standardized clauses in the contract as would unreasonably impose upon the nonbargaining party burdens which were wholly inequitable. With such contracts of adhesion in hand, the drafting party invariably asserted, "the indemnity or the exculpation, so that the policies supporting the rule of `contra proferentem' [against the proffering party], * * * caused the courts to apply the rule." Corbin on Contracts (1984 Supp., Part 2) 624, Section 1472(E). Thus, while clauses limiting the liability of the drafter are ordinarily to be strictly construed, we need not do so when such burden of indemnification was assented to in a context of free and understanding negotiation. See, e.g., Williston on Contracts, supra, at 141, Section 1750.
The parties in the case before us are commercial enterprises of sufficient size and quality as to presumably possess a high degree of sophistication in matters of contract. They all provide services to the general public as their means of producing income and customarily rely on contracts. Each has the financial power to provide against loss by insurance or other means.
Appellants' possession of property for which appellee sought rights of access and use merely describes the ordinary circumstances which give rise to a freely negotiated agreement. That a company bargains from a position of need and would consider it inadvisable to engage in a particular enterprise unless access to specific resources were available cannot be construed as a coercion which offends public policy, especially where, as here, the indemnity clause agreed upon was a most reasonable allocation of the risks of doing business among fellow businesses. Consequently, there is apparently no applicable rule which would require a narrow interpretation of the clause sub judice.
Having determined the inadvisability of narrowly construing the agreement before us, it should be pointed out that even a strict construction would require that all the words used be taken in their ordinary and popular sense. Ohio Jurisprudence 3d, supra, at 395, Section 42. There is also authority for the proposition that the word "negligence" need not be utilized where an intention to exclude liability predicated upon such is set forth by words excluding liability "for any and all harms however caused." Corbin on Contracts, supra, at 604, Section 1472; Restatement of Contracts, supra, at 1079-1081, Sections 574 and 575. Notwithstanding such latitude, the agreement before us is resolvable by its own terms, which are clear and precise in their allocation of the risk of doing business. See Standard Oil Co., supra, at 124, 2 OBR at 672, 443 N.E.2d at 499, quoting Lawler v. Burt (1857), 7 Ohio St. 340, 350.
Even a cursory review of the clause at issue demonstrates that it is not an attempt to exculpate appellants for their actions under all circumstances. Rather, the thrust of the agreement is to allocate the burden of additional risk, which risk of harm comes into existence solely as a result of the grant to appellee of rights to access and use appellants' property.
The text of the full Joint Use Agreement, which was available to the courts below, demonstrates that the parties intended to allow appellee access rights for various purposes, including installation of equipment or facilities upon the utility poles. The phrase at issue provides indemnification of appellants for "any loss * * * which * * * [appellants] may at any time or times hereafter bear, sustain, suffer, be at or be put unto for, or by reason of, or on account of (i) the installation, maintenance or use of the said equipment on or in * * * [appellants'] facilities." (Emphasis added.) The "said equipment," far from being an ambiguous term, refers to the equipment to be installed by appellee, since it is the only equipment comprehended by the agreement which is to be installed "on or in" appellants' facilities. Furthermore, the same language is used with a similar intent in provision 2(g) of the agreement, which allocates liability for damage to United Telephone's facilities. It is stated there that: "In the event that the facilities or equipment of * * * [United Telephone] is in any way damaged * * * by reason of, or on account of, the installation, maintenance, or removal of * * * [appellee's] facilities or equipment in or on * * * [United Telephone's] facilities * * *" (emphasis added), then the burdens of notice and liability are upon the appellee.
What was intended by the parties, as evidenced by the words utilized in the agreement at issue, was that in exchange for rights of access to appellants' facilities, appellee was obligated to bear all risk of additional harm which might occur in connection with appellee's right of access. The issues of what kind or degree of harm are determined by the word "any." The only question which this clause allows, consistent with public policy, is whether the loss and consequent legal action derive from appellee's right to install, maintain or use its equipment "on or in" appellants' facilities. In the case sub judice harm occurred during such activities. Since the subject of liability was anticipated in the indemnity agreement, such indemnification must be provided to appellants. Kay, supra; Standard Oil Co., supra.
Accordingly, we reverse the judgment of the court of appeals.
Judgment reversed.
MOYER, C.J., SWEENEY, LOCHER, WRIGHT and H. BROWN, JJ., concur.
DOUGLAS, J., dissents.
Since I cannot agree with the analysis of the majority, I respectfully dissent.
I believe today's opinion will cause unnecessary confusion regarding the continued viability of George H. Dingledy Lumber Co. v. Erie RR. Co. (1921), 102 Ohio St. 236, 131 N.E. 723, and Kay v. Pennsylvania RR. Co. (1952), 156 Ohio St. 503, 46 O.O. 417, 103 N.E.2d 751. The majority's analysis contradicts the holdings of those landmark decisions, and yet leaves it to the reader to guess whether they remain good law. Dingledy and Kay are contradicted by discarding the requirement for strict construction of agreements limiting the liability of the drafter in situations where the parties thereto are business entities. Yet both Dingledy and Kay involved agreements where both parties thereto were sophisticated commercial enterprises and both decisions still required strict construction. The new rule created today for business entities flatly refutes that requirement. If the majority wishes to overrule, or at least modify, Dingledy and Kay, it should expressly so state for the guidance of the bench and bar.
I have a second, more serious, objection to today's decision. After much reflection on the matter, I have become convinced that a party should not be permitted to deflect liability for his own negligence onto another, even where the bargaining power of both parties is equal and the context is one of free and understanding negotiation. This kind of practice has too great a potential for limiting and even foreclosing the options of an innocent injured third party. For example, if the indemnifying party has gone bankrupt, the injured party would have no meaningful remedy against such indemnitor and at the same time would be barred from pursuing the party actually responsible. A similar situation would exist where a person is injured on the job by defectively designed machinery, and the manufacturer has deflected liability, by agreement, onto the injured party's employer. In such a case, the injured party would again be without a remedy, since the employer is immune from suit under the Ohio Workers' Compensation Act.
Accordingly, since it is my belief that at the very least we should require strict construction of such agreements as recognized in the previous Ohio case law, I dissent.