Rush v. Norfolk Elec. Co.
Incorporation clauses within subcontract agreements that impose each and every term and obligation of the general contract, including indemnity obligations, upon the subcontractor are commonplace. Disagreements and ultimately litigation result when the terms of the general contract and the subcontract conflict. In Rush v. Norfolk Elec. Co., et al, 70 Mass App. Ct. 373 (2007), the Appeals Court addressed this issue in assessing a general contractor’s indemnity rights against a subcontractor in the context of a personal injury claim brought by an injured employee of a subcontractor.
In Rush, Modern Continental (“Modern”) was the general contractor on a construction project and subcontracted the electrical work to Norfolk & Electric. Modern subcontracted the plumbing work to Harding & Smith. Harding & Smith then entered into a sub-subcontract with New England Insulation Co. (“NEI”). The plaintiff, Michael Rush, worked for NEI and was injured in the course of his work for NEI. He brought suit against Modern and NEI. Norfolk & Electric’s insurer assumed the defense of, and agreed to indemnify, Modern pursuant to an indemnity agreement. At trial, the jury found both Modern and Norfolk Electric 37.5 percent negligent, while the plaintiff was 25 percent negligent. The jury assessed damages in the amount of $1,153,445 and that amount was then reduced by 25 percent for the plaintiff’s negligence.
Modern had asserted a third-party claim for complete indemnification against Harding & Smith pursuant to the indemnity provision contained in the subcontract agreement. Harding & Smith, in turn, sought indemnity against Rush’s employer, NEI. The parties agreed to submit the indemnity issues to the trial judge after trial. The trial judge denied Modern’s indemnity claim and Modern appealed.
On appeal, Modern argued that the controlling indemnity provision was not the one contained in the subcontract agreement, but one in the general contract between Modern and the owner that was incorporated within the subcontract agreement. The indemnity provision in the general contract required Harding & Smith to indemnify Modern for any damages arising out of the work caused by any negligent act or omission of Harding & Smith, or any of its subcontractors or employees, regardless of whether the damages were caused in part by Modern. In contrast, the indemnity provision in the direct subcontract required Harding & Smith to indemnify Modern from all liabilities for personal injuries arising out of or in consequence of the performance of Harding & Smith’s work, “but only to the extent caused in whole or in part by the acts or omissions of the Subcontractor, its subcontractors, anyone directly or indirectly employed by it, or anyone for whose acts it may be liable.”
The competing indemnity provisions differ in two respects. First, the indemnity provision in the general contract required a causal connection between the injury and Harding & Smith’s work to trigger the indemnity obligation. In contract, the indemnity in the direct subcontract required a negligent act on the part of Harding & Smith. Second, the indemnity provision in the general contract was a broad form indemnity provision, and obligated Harding & Smith to indemnify Modern. In contract, the indemnity provision in the direct subcontract was a comparative indemnity provision, and obligated Harding & Smith to indemnify Modern “only to the extent” that a negligent act or omission Harding & Smith caused the loss.
Modern, in reality the insurer for Norfolk Electric, sought to enforce the indemnity provision in the general contract in order to recover the full amount of the judgment. Noting that the clause in the general contract applied when the injury was caused by a negligent act or omission, while the clause in the subcontract applied when there was a causal connection between the work and the injury, Modern argued that the competing clauses were not in conflict and thus Modern could pick and choose which one to enforce.
The Court rejected Modern’s argument. In reaching its decision, the Court reasoned that the general contract applied to all of the work performed on the project and was drafted to reflect the needs and desires of the owner. The Court noted that the subcontract focused on the work of one particular trade and was influenced by the needs and desires of Modern. Applying the “conflicting clause” rule, the Court found that the competing indemnity provisions were in conflict because the subcontract’s indemnity provision was more limited and specific in its coverage.
Turning to the language of the indemnity provision, the Court determined that the phrase “to the extent caused in whole or in part” limited the indemnity obligation to losses caused by Harding & Smith. Reasoning that the only conduct for which Harding & Smith was responsible was the contributory negligence of the plaintiff, an employee of its sub-subcontractor NEI, Harding & Smith’s proportional contribution to Modern’s loss was equal to the percentage of negligence of the plaintiff as found by the jury, or 25 percent. Because Modem had incurred no loss with respect to that 25 percent contributory negligence by virtue of the application of G. L. c. 231, § 85, and the consequent reduction of the damage award, nothing was left to indemnify and Harding & Smith was not responsible for any portion of the judgment in favor of the plaintiff.
The Court concluded by commenting on the indemnity claim of Modern and the real party in interest, Norfolk Electric’s insurer. This insurer paid the judgment on behalf of defendants and could justifiably claim reimbursement for the amount that it paid on behalf of Modern on a subrogation theory. Although it made the payment in the name of Modern only, this did not give it any greater rights of recovery against Harding & Smith. Norfolk & Electric had no right of indemnity against Harding & Smith. Thus, the insurer would be limited to recovery of only that part of the judgment it paid on behalf of Modern, not that paid on behalf of Norfolk & Electric.
This case is significant in that it a specific and limited indemnity clause within a subcontract agreement will control over an indemnity provision in a general contract that is incorporated within the subcontract agreement and it reaffirms the holding in North Am. Site Developers, Inc. v. MRP Site Dev., Inc., 63 Mass. App. Ct. 529 (2005), that the use of the phrase “to the extent caused by” creates a comparative indemnity obligation. Moreover, the Court commented that the insurer for a subcontractor that assumed the defense and indemnity of the general contractor and had paid part of the judgment on the general contractor’s behalf had a right to pursue a subrogated claim on behalf of the general contractor.
Thomas C. Federico, Partner
Morrison Mahoney, LLP
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