Rossmoor Sanitation, Inc. v. Pylon, Inc.

Opinion

Pylon Inc., (Pylon) and its insurance carrier, United States Fire Insurance Company (U.S. Fire), appeal from a judgment indemnifying Rossmoor Sanitation, Inc., (Rossmoor) for certain sums expended in satisfying a prior tort judgment, and finding Rossmoor’s carrier, Insurance Company of North America (INA), not liable under an insurance policy. Appellants contend that Rossmoor was actively negligent as a matter of law, thus barring its recovery under an indemnity provision of a contract, and that INA should be liable for a portion of the loss. In addition they urge that the active-passive negligence test used in indemnification cases be modified. We conclude that the judgment was correct and should be affirmed.

Rossmoor employed Pylon to construct a sewage pump station and certain sewer lines at a cost of $88,000. The station was to be constructed in conformity with plans prepared by an engineering firm which Rossmoor retained. In the employment contract Pylon agreed to

I

ndemnity may be defined as the obligation resting on one party to make good a loss or damage another party has incurred. (Sammer v. Ball (1970) 12 Cal.App.3d 607 , 610 [ 91 Cal.Rptr. 121 ].) This obligation may be expressly provided for by contract (e.g., Markley v. Beagle (1967) 66 Cal.2d 951 , 961 [ 59 Cal.Rptr. 809 , 429 P.2d 129 ]), it may be implied from a contract not specifically mentioning indemnity (see Cahill Bros., Inc. v. Clementina Co. (1962) 208 Cal.App.2d 367 , 375-379 [ 25 Cal.Rptr. 301 ]), or it may arise from the equities of particular circumstances (S.F. Examiner Division v. Sweat (1967) 248 Cal.App.2d 493 , 497 [ 56 Cal.Rptr. 711 ]; see Note, Contribution and Indemnity in California (1969) 57 Cal.L.Rev. 490 , 492-493). Where, as here, the parties have expressly contracted with respect to the duty to indemnify, the extent of that duty must be determined from the contract and not by reliance on the independent doctrine of equitable indemnity. (Markley v. Beagle, supra, at p. 961.)

Past cases have held that an indemnity agreement may provide for indemnification against an indemnitee’s own negligence, but such an agreement must be clear and explicit and is strictly construed against the indemnitee. (Goldman v. Ecco-Phoenix Elec. Corp. (1964) 62 Cal.2d 40 , 44 [ 41 Cal.Rptr. 73 , 396 P.2d 377 ].) If an indemnity clause does not address itself to the issue of an indemnitee’s negligence, it is referred to as a “general” indemnity clause. (See Markley v. Beagle, supra, at p. 962; Morgan v. Stubblefield (1972) 6 Cal.3d 606 , 624 [ 100 Cal.Rptr. 1 , 493 P.2d 465 ].) While such clauses may be construed to provide indemnity for a loss resulting in part from an indemnitee’s passive negligence, they will not be interpreted to provide indemnity if an indemnitee has been actively negligent. (Markley v. Beagle, supra, at p. 962; Morgan v. Stubblefield, supra, at p. 624; see also Burlingame Motor Co. v. Peninsula Activities, Inc. (1971) 15 Cal.App.3d 656 , 661 [ 93 Cal.Rptr. 376 ].)

Provisions purporting to hold an owner harmless “in any suit at law” (Markley v. Beagle, supra, at p. 961), “from all claims for damages to

In the case at bar there is an express contractual agreement requiring Pylon to indemnify Rossmoor against “all claims for damages” arising out of Pylon’s work; Rossmoor is not to be held accountable “for any loss ... or for injury to any person . . . .” Since the agreement does not state what effect Rossmoor’s negligence will have on Pylon’s obligation to indemnify, the clause is a “general” indemnity provision, and under existing case law Rossmoor may not benefit from the agreement if it is deemed actively negligent as Pylon and U.S. Fire claim. The trial court has found, however, that Rossmoor was at most passively negligent. We are not persuaded that this determination was erroneous.

Passive negligence is found in mere nonfeasance, such as the failure to discover a dangerous condition or to perform a duty imposed by law. (Markley v. Beagle, supra, at p. 962; Morgan v. Stubblefield, supra, at pp. 624-625; see also Cahill Bros., Inc. v. Clementina Co., supra, at p. 382.) Active negligence, on the other hand, is found if an indemnitee has personally participated in an affirmative act of negligence, was connected with negligent acts or omissions by knowledge or acquiescence, or has failed to perform a precise duty which the indemnitee had agreed to perform. (See Morgan v. Stubblefield, supra, at p. 625, and Cahill Bros., Inc. v. Clementina Co., supra, at p. 382.) “The crux of the inquiry is to determine whether there is participation in some manner by the person seeking indemnity in the conduct or omission which caused the injury beyond the mere failure to perform a duty imposed upon him by law.” (Morgan v. Stubblefield, supra, at p. 625.)

Whether conduct constitutes active or passive negligence depends upon the circumstances of a given case and is ordinarily a question for the trier of fact; active negligence may be determined as a matter of law, however, when the evidence is so clear and undisputed that reasonable persons could not disagree. (See Morgan v. Stubblefield, supra, at pp. 625, 627; Cahill Brothers, Inc. v. Clementina Co., supra, at pp. 382-383; see also Pearson Ford Co. v. Ford Motor Co. (1969) 273 Cal.App.2d 269 , 275 [ 78 Cal.Rptr. 279 ].)

In support of their contention that Rossmoor was actively negligent as a matter of law, Pylon and U.S. Fire rely on evidence that the two trenches were excavated in accordance with plans and specifications furnished to Pylon by Rossmoor; that the plans were prepared by an engineering firm retained by Rossmoor; that Rossmoor approved the plans; that Rossmoor and the engineering firm had numerous supervisory personnel on the job site at various stages of construction to interpret the plans and to direct Pylon’s work; that Rossmoor’s supervisors and engineers knew of, permitted, and approved the excavation of the trench; that the excavation of two parallel trenches 18 inches apart was extremely hazardous and not consistent with good construction practice; that lateral pressure from the first trench was the primary reason for the collapse of the 18-inch partition into the second trench; that it would have been safer to dig one wide trench rather than two parallel trenches; that Rossmoor had experienced considerable difficulty with land slippage and excavation collapse during construction; that Rossmoor never requested a compaction report on the first trench; that in the area Rossmoor was conducting dynamiting operations which caused the ground to shake; that trucks and heavy equipment also caused vibrations; and that Rossmoor was worried about delays in construction. From this evidence, appellants submit, Rossmoor must be adjudged guilty of active negligence as a matter of law.

We believe, however, that the trier of fact could reasonably conclude from all the evidence that at the time of the accident Rossmoor had no supervisory personnel at the site of the accident and had no knowledge that Pylon employees intended to enter the unshored trench; that Pylon

Subsequent cases have followed this approach and restated the principle in somewhat varying terms. Thus it has been said that while “An indemnity clause phrased in general terms will not be interpreted ... to provide indemnity for consequences resulting from the indemnitee’s own actively negligent acts,” mere nonfeasance or passive negligence “will not preclude indemnity under a general clause . . . .” (Markley v. Beagle, supra, at p. 962.)

Appellants contend that attempts to classify conduct as either “active” or “passive” are often difficult, and that on occasions the distinction between the types of negligence can be criticized as serving only to “muddy already troubled waters” in contractual indemnity situations. (Conley & Sayre, Indemnity Revisited: Insurance of the Shifting Risk (1971) 22 Hastings L.J. 1201 , 1207.) Appellants insist that under the active-passive approach an analysis to determine whether a particular set of circumstances warrants indemnification pursuant to an agreement is evaded in favor of an inflexible rule of construction which may not reflect the intent of the parties, which ignores the language of the agreement, and which focuses instead on an illusory distinction between “active” or “passive” negligence. They urge that indemnity should not depend on mere labels. (See, e.g., Dole v. Dow Chemical Company (1972) 30 N.Y.2d 143 [ 331 N.Y.S.2d 382 , 282 N.E.2d 288 , 53 A.L.R.3d 175 ].)

In actuality, however, we do not employ the active-passive dichotomy as wholly dispositive of this or any other case. We are ever mindful of the pragmatic approach taken by this court in Harvey Mach. Co. v. Hatzel & Buehler, Inc. (1960) 54 Cal.2d 445 [ 6 Cal.Rptr. 284 , 353 P.2d 924 ]. There we viewed the issue as whether the indemnity clause in question

The opinion in Harvey, while distinguishing Vinnell, pointed out that throughout Vinnell “it is manifest that it is the intent of the parties which the court seeks to ascertain and make effective. Where, as in the present case, the circumstances of the claimed wrongful conduct dictate that damages resulting therefrom were intended to be dealt with in the agreement, there is no room for construction of the agreement. It speaks-for itself.” {Id. at p. 449.)

Thus, while adhering to the underlying distinction between active and passive negligence which has long been accepted by the bench, the bar, and the insurance industry, we hold that, as declared in Harvey, the question whether an indemnity agreement covers a given case turns primarily on contractual interpretation, and it is the intent of the parties as expressed in the agreement that should control. When the parties knowingly bargain for the protection at issue, the protection should be afforded. This requires an inquiry into the circumstances of the damage or injury and the language of the contract; of necessity, each case will turn on its own facts.

Under the indemnity agreement in the present case, Rossmoor is not to be held accountable for any loss or injury to any person occurring during construction undertaken by Pylon, and Pylon has agreed to indemnify Rossmoor for all claims arising out of its execution of the work. It is a reasonable and practical conclusion that the parties bargained for the protection here at issue, given the language of the contract and the facts, as found by the trial court, that the accident resulted from Pylon’s inadequate execution of the work, not from any active negligence by Rossmoor. Since the accident may be seen as one of the risks against which Rossmoor sought to be covered, Rossmoor is entitled to the protection it seeks under the agreement.

Generally, an insurer on paying a loss is subrogated in a corresponding amount to the insured’s right of action against any person responsible for the loss. (6A Appleman, Insurance Law and Practice

Pylon and U.S. Fire, however, cite language in Universal Underwriters Ins. Co. v. Aetna Ins. Co. (1967) 249 Cal.App.2d 144 , 153 [ 57 Cal.Rptr. 240 ], for the proposition that the terms of the insurance contracts requiring proration in case of other insurance should control, rather than the right to indemnification that exists between the parties insured by the contracts. Under the circumstances of the present case, we cannot agree. However correct the Universal rule may be when applied in tort suits arising out of automobile accidents, we do not find it to be controlling authority here. The case at bar concerns a contractual indemnity agreement, not theoretical noncontractual rights of indemnification between insureds. Cases following Universal are thus distinguishable.

It appears that both INA and U.S. Fire calculated and accepted premiums with knowledge that they might be called upon to satisfy a full judgment. There is no evidence that either company knew there was or would be other insurance when they issued the policies. The fact that there is other insurance is a mere fortuitous circumstance. We view one factor as compelling, however: to apportion the loss in this case pursuant to the other insurance clauses would effectively negate the indemnity agreement and impose liability on INA when Rossmoor bargained with Pylon to avoid that very result as part of the consideration for the construction agreement. We therefore conclude that the rights of indemnity and subrogation must control, and are persuaded the trial court was correct in finding that because the U.S. Fire policy was part of the consideration for the construction job, it must be viewed as primary

The judgment is affirmed.

Wright, C. J., McComb, J., Tobriner, J., Sullivan, J., Clark, J., and Richardson, J., concurred.