Navigating Tender in Light of Contractual Indemnification Clauses and Allegations Implicating Comparative Negligence

A typical indemnification agreement may provide that Party A will indemnify, defend and hold harmless Party B from any claims, or causes of action arising from the negligent acts of Party A, but excepting responsibility under the indemnification agreement where the alleged harm arises from Party B’s negligence. Thus, if a person is injured as a result of Party A’s negligence Party A must indemnify, defend and hold harmless Party B from the injured person’s claims against Party B. With respect to the converse, if the injured person was harmed as a result of Party B’s sole negligence, then Party A would not be required to indemnify, defend and hold harmless Party B.[1]

The above-proposition is simple enough. However, a particular pitfall occurs in cases where the alleged harm arises from the arguably-combined negligence of Party A (the indemnitor) and Party B (the indemnitee) as alleged in the subject complaint or pre-suit claim. The Wisconsin Court of Appeals, District III, recently revisited this issue and the decision is instructive.

In MillerCoors, LLC v. Millis Transfer, Inc., Appeal No. 2015AP1894 (Feb. 1, 2017, Wis. App. Dist. III), MillerCoors, LLC (MillerCoors) a Millis employee, engaged in transporting MillerCoors product, sustained injury in a single-vehicle accident. He alleged his injuries arose from negligent acts of both MillerCoors and Millis. Pursuant to an indemnification agreement in its contract with Millis, MillerCoors tendered its defense to Millis. Millis denied the tender and refused to defend MillerCoors citing the allegations of negligence against MillerCoors. The underlying case between the Millis employee, Millis and MillerCoors resolved via settlement. Thereafter, MillerCoors filed suit to recover for the reasonable costs of defending the lawsuit ($850,000) from Millis for the failure to accept the tender. After the parties entered into certain stipulations, the circuit court granted summary judgment in favor of MillerCoors. Cross-appeals followed.

On appeal, Millis argued the underlying lawsuit did not trigger indemnification agreement because the Millis employee alleged that his injuries arose, at least in part, from MillerCoors’s negligence. The court of appeals disagreed:

[T]he unambiguous terms of the indemnification provision required Millis to defend and indemnify MillerCoors from all claims, liabilities, and judgments that arose out of or were related to: (1) Millis’s and its employees/agents’ acts or omissions; and (2) claims or actions filed by Millis’s employees/agents, except that Millis’s duty to indemnify MillerCoors from such claims/actions was limited by MillerCoors’s share of causal negligence.

Id. at ¶11. Since the Millis employee’s complaint alleged his injuries were caused in part by both his own and Millis’s negligence, this triggered the duty to defend regardless of the allegations of negligence against MillerCoors. Id. at ¶12. In other words, despite the fact the operative complaint alleged MillerCoors was itself negligent and caused the harm at issue, the mere fact that Millis was also allegedly causally negligent was enough to obligate it to defend MillerCoors. Accordingly, Millis was required to reimburse MillerCoors for the reasonable defense costs MillerCoors incurred defending the action even though MillerCoors was not entitled to indemnification to the extent of its own causal negligence.

Given the potential for duplicative and exorbitant defense costs, it is critical that claims adjusters and attorneys seriously evaluate defense tenders even where comparative negligence will be a central issue. Accepting tender under the circumstances above may not avoid additional defense costs entirely, but it will typically permit the accepting-entity the ability to control the litigation and search for other financial efficiencies in the defense.

-Jacob Sosnay

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[1] Under well-settled law, where an indemnitee seeks indemnification for its own negligent act, indemnification agreements are strictly construed; [t]he courts will not allow an indemnitee to be indemnified for his own negligent acts absent a clear and unequivocal statement to that effect in the agreement.” Fabco, 2013 WI App 141, ¶11; See also Spivey v. Great Atl. & Pac. Tea Co., 79 Wis.2d 58, 63 (1977) and Mustas v. Inland Const. Inc., 19 Wis. 194, 206 (1963) (acknowledging vast majority of states share this construction).