U.S. Fidelity and v. Housing Authority ( 1997 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
____________
No. 96-1556
____________
United States Fidelity and *
Guaranty Company, *
*
Appellee, *
*
v. *
* Appeal from the United States
Housing Authority of the City * District Court for the
of Poplar Bluff, Missouri, * Eastern District of Missouri
*
Appellant. *
*
Joe Barnes, *
*
Third-Party Defendant-Appellee. *
____________
Submitted: November 22, 1996
Filed: May 19, 1997
____________
Before McMILLIAN and MORRIS SHEPPARD ARNOLD, Circuit Judges, and
BOGUE,* District Judge.
____________
McMILLIAN, Circuit Judge.
United States Fidelity and Guaranty Company (USF&G) brought this
indemnity action in the United States District Court1 for the
*The Honorable Andrew W. Bogue, United States
District Judge for the District of South Dakota,
sitting by designation.
1
The Honorable Stephen N. Limbaugh, United States District
Judge for the Eastern District of Missouri.
Eastern District of Missouri against Housing Authority of the City of
Poplar Bluff, Missouri (Housing Authority), to enforce rights assigned to
it by the Morris and Wallace Elevator Company (Morris and Wallace).
Housing Authority thereafter filed a third-party action against Joe Barnes,
an employee of Morris and Wallace. Following a final judgment in favor of
USF&G and Barnes, Housing Authority filed the present appeal from the
district court's order granting summary judgment in favor of USF&G and
Barnes, United States Fidelity & Guaranty Co. v. Housing Authority, 885
F. Supp. 194 (E.D. Mo. 1995) (USF&G v. Housing Authority), and the district
court's final order denying Housing Authority's motion for reconsideration
and awarding USF&G $239,849.30 plus interest. Id., No. 1:92 CV 164 (E.D.
Mo. Feb. 5, 1996) (hereinafter "slip op. (Feb. 5, 1996)"). For reversal,
Housing Authority argues that the district court erred in (1) holding that
Housing Authority's written agreement to indemnify Morris and Wallace for
certain losses and liabilities covered Morris and Wallace's liability in
an underlying state court action; (2) holding that the indemnity agreement
was not void as an adhesion contract; (3) ordering Housing Authority to pay
interest on the money judgment pursuant to Mo. Rev. Stat. § 408.020 and
accruing as of July 20, 1995, the date on which the district court entered
its judgment of liability; and (4) dismissing on summary judgment Housing
Authority's third-party action against Barnes. For the reasons set forth
below, we modify the district court's order dated February 5, 1996, to
provide post-judgment interest pursuant to 28 U.S.C. § 1961, accruing as
of February 5, 1996, and we affirm the judgment as modified.
Background
The underlying facts are not in dispute. Housing Authority, at all
relevant times, operated a housing complex called the
-2-
Brent B. Tinnin Apartments (the complex), in Poplar Bluff, Butler County,
Missouri. The complex was owned by the Butler County Council on Housing
for the Elderly and Handicapped (the Butler County Council), and was
developed with the assistance of the United States Department of Housing
and Urban Development (HUD). As the managing agent of the complex, Housing
Authority hired Morris and Wallace to install, maintain, and service two
elevators at the complex. In October 1984, Housing Authority and Morris
and Wallace entered into a "Full Maintenance Service Contract" (hereinafter
referred to as "maintenance service contract"), which provided in pertinent
part:
You [Housing Authority] shall indemnify, protect and
save harmless Morris & Wallace Elevator Company from and
against liabilities, losses and claims of any kind or
nature imposed on, incurred by, or asserted against
Morris & Wallace Elevator Company arising out of the
active or passive negligence of Morris & Wallace
Elevator Company in any way connected with the use or
operation of the equipment.
. . . .
. . . You [Housing Authority] shall at all times
and at your own cost, maintain comprehensive bodily
injury and property damage insurance (naming Morris &
Wallace Elevator Company as an additional insured),
including bodily injury and property damage caused by
the ownership, use or operation of the equipment
described herein.
See Joint Appendix at 80 (indemnity agreement in maintenance service
contract); see also USF&G v. Housing Authority, 885 F. Supp. at 195
(quoting indemnity agreement). Housing Authority never purchased or
maintained any insurance naming Morris and Wallace as an insured.
-3-
In December 1986, while the maintenance service contract was still
in effect, Mamie Jane Farmer accidentally fell down one of the elevator
shafts at the complex and died from injuries sustained in the fall.
Members of her family brought a wrongful death action in state court
against Morris and Wallace and the Butler County Council. (Hereinafter,
the family members who brought this state court action are referred to as
"the state court plaintiffs.") USF&G, as Morris and Wallace's insurer,
tendered the defense of the state court claims to Housing Authority, based
upon the indemnification language in the maintenance service contract.
Housing Authority refused to provide a defense for, or otherwise indemnify,
Morris and Wallace. Thereafter, the state court plaintiffs settled their
claims against the Butler County Council for $40,000 and settled their
claims against Morris and Wallace for $150,000, which was paid by USF&G.
USF&G, as Morris and Wallace's assignee, then brought this action in
federal district court, seeking to enforce the above-quoted indemnity
agreement against Housing Authority. Housing Authority filed a third-party
complaint against Barnes, alleging that Barnes's negligence caused the
accident. (Hereinafter USF&G and Barnes are together referred to as
"appellees.") Housing Authority moved for summary judgment asserting that
it had no duty to indemnify Morris and Wallace. Appellees moved for
partial summary judgment on the indemnity issue and for dismissal of
Housing Authority's third-party action against Barnes. The district court
denied Housing Authority's motion for summary judgment and granted
appellees' cross-motion for summary judgment. USF&G v. Housing Authority,
885 F. Supp. at 197. Following further summary judgment proceedings on the
amount of damages owed by Housing Authority to USF&G, the district court
ordered Housing Authority to pay (1) reasonable attorneys' fees and costs
in the amount of $239,849.30 (which included the $150,000 settlement
-4-
payment by USF&G to the state court plaintiffs on behalf of Morris and
Wallace) and (2) a "per diem interest penalty" calculated pursuant to Mo.
Rev. Stat. § 408.020, accruing as of July 20, 1995, the date upon which the
district court entered a judgment of liability. Slip op. (Feb. 5, 1996)
at 3. This appeal followed.
Discussion
Indemnity agreement
Housing Authority first argues that the district court erred in
holding, on summary judgment, that the indemnity agreement in the
maintenance service contract, if valid, covered Morris and Wallace's
liability arising out of the underlying state court action. We review a
grant of summary judgment de novo. The question before the district court,
and this court on appeal, is whether the record, when viewed in the light
most favorable to the non-moving party, shows that there is no genuine
issue as to any material fact and that the moving party is entitled to
judgment as a matter of law. Fed. R. Civ. P. 56(c); see, e.g., Celotex
Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 249-50 (1986); Get Away Club, Inc. v. Coleman, 969 F.2d
664, 666 (8th Cir. 1992); St. Paul Fire & Marine Ins. Co. v. FDIC, 968 F.2d
695, 699 (8th Cir. 1992). Where, as here, the unresolved issues are
primarily legal rather than factual, summary judgment is particularly
appropriate. Crain v. Board of Police Comm'rs, 920 F.2d 1402, 1405-06 (8th
Cir. 1990).
In support of the argument that the indemnity agreement does not
cover Morris and Wallace's liability arising from the underlying state
court wrongful death action, Housing Authority highlights language in the
agreement which limits the
-5-
indemnification to liabilities and losses "arising out of the active or
passive negligence [of Morris and Wallace] . . . in any way connected with
the use and operation of the equipment." Housing Authority argues that the
state court action was based upon a theory of product liability, not
negligence. Moreover, Housing Authority argues, although claims of
"negligence and carelessness" were asserted in the state court plaintiffs'
second amended petition, those negligence claims were in connection with
the design, manufacture, sale, or distribution of the elevator equipment,
not the "use or operation" of the elevator equipment. Housing Authority
separately claims that the Butler County Council settled with the state
court plaintiffs on the condition that the state court plaintiffs agree to
pursue only strict liability claims against Morris and Wallace. The
settlement between the Butler County Council and the state court plaintiffs
was consummated before the state court plaintiffs settled with Morris and
Wallace. Therefore, Housing Authority argues, the state court plaintiffs
could not -- consistent with their contractual obligations -- pursue a
negligence claim against Morris and Wallace at the time they settled their
claims against Morris and Wallace. Thus, Housing Authority concludes, the
settlement could not have implicated the indemnity agreement in the
maintenance service contract. Housing Authority also contends, among other
things, that the indemnity agreement is at least ambiguous with respect to
whether Morris and Wallace's settlement with the state court plaintiffs
would be covered, thus precluding summary judgment.
The district court concluded that the indemnity agreement in the
maintenance service contract clearly and unambiguously covered Morris and
Wallace's potential liabilities and losses arising out of the underlying
state court action. We agree. As the district court observed, "the
indemnification was broad, but it was specific." 885 F. Supp. at 196.
According to the undisputed facts
-6-
of the present case, each of the two distinct requirements of the indemnity
agreement were satisfied. First, the state court plaintiffs' claims
against Morris and Wallace arose out of the alleged negligence of Morris
and Wallace. Second, those claims were connected with the use or operation
of the elevator equipment. The district court correctly held that,
according to the plain and ordinary meaning of the indemnity agreement,
Morris and Wallace's potential liability in the underlying state court
action was covered. Finally, notwithstanding the settlement agreement
between the state court plaintiffs and the Butler County Council (to which
neither Morris and Wallace nor USF&G was a party), which purportedly bound
the state court plaintiffs to pursue only strict liability claims against
Morris and Wallace, the state court plaintiffs' second amended petition,
which was pending at the time they settled with Morris and Wallace,
nevertheless did assert claims of negligence against Morris and Wallace.
Therefore, we hold that the district court did not err in holding on
summary judgment that the indemnity agreement in the maintenance service
contract covers the losses incurred by USF&G, on behalf of Morris and
Wallace, in settling the underlying state court wrongful death action.
Housing Authority next argues that the indemnity agreement is
contained in an adhesion contract and void as against public policy.
Housing Authority maintains that, "[i]n order for a contract of indemnity
to avoid violating public policy, particularly where one party seeks
indemnification against the results of his own negligence," the following
three factors must be present: (1) the contract was formed in a commercial
setting; (2) the parties were on substantially equal footing when the
contract was formed; and (3) the contract is unambiguous. Brief for
Appellant at 18; see also Kansas City Power & Light Co. v. Federal Constr.
Corp., 351 S.W.2d 741, 745 (Mo. 1961) (where
-7-
parties stand on substantially equal footing, one may legally agree to
indemnify the other against the results of the indemnitee's own negligence
so long as such intent is expressed in clear and unequivocal terms).
Housing Authority contends that the parties to the maintenance service
contract were neither in a commercial setting nor on substantially equal
footing. Citing the HUD "Management Agreement" executed by Housing
Authority and the Butler County Council, Housing Authority argues that HUD
requirements essentially compelled Housing Authority to accept Morris and
Wallace's bid because it was the lowest bid submitted and Housing Authority
was given no indication of Morris and Wallace's poor workmanship or
inability to comply with deadlines. See Joint Appendix at 71 (section
entitled "Bids and Purchase Discounts, Rebates of Commissions" of HUD
Management Agreement).2 Moreover, Housing Authority argues, it was
precluded from negotiating or modifying the terms of the indemnity
agreement because that provision was contained in a pre-printed form
contract provided by Morris and Wallace. Finally, Housing Authority
suggests that, to the extent the indemnity agreement may be construed to
cover Morris and Wallace's potential liability for the design, manufacture,
or sale of the elevator equipment, it must be ambiguous because it is
2
The HUD Management Agreement provides in pertinent part:
The Management Agent [Housing Authority] shall
solicit written cost estimates (i.e., bids) from at
least three contractors or suppliers for any work
item which the Project Owner [Butler County
Council] or the Secretary [of HUD] estimates will
cost $5,000 or more and for any contract or ongoing
supply or service arrangement which is estimated to
exceed $5,000 per year. The Management Agent
agrees to accept the bid which represents the
lowest price taking into consideration the bidder's
reputation for quality of workmanship or materials
and timely performance, and the time frame within
which the service or goods are needed.
-8-
contained in a maintenance contract, not a sales contract. Brief for
Appellant at 18, 20-21 (citing Minden v. Otis Elevator Co., 793 S.W.2d 461,
463-64 (Mo. Ct. App. 1990) (purported indemnity contract was ambiguous on
its face and therefore not valid)).
The district court held that the indemnity agreement was not void as
an adhesion contract. USF&G v. Housing Authority, 885 F. Supp. at 196.
We again agree. As the district court noted, the HUD Management Agreement
did not require Housing Authority to accept Morris and Wallace's bid simply
because it was the lowest. It bound Housing Authority to "accept the bid
which represent[ed] the lowest price taking into consideration the bidder's
reputation for quality of workmanship or materials and timely performance,
and the time frame within which the service or goods are needed." Id.
(quoting HUD Management Agreement) (emphasis added). More importantly,
however, there is no evidence to suggest that HUD prohibited Housing
Authority from negotiating the contract terms, including the indemnity
agreement. Id. at 197. As the district court correctly reasoned, the mere
fact that Housing Authority and Morris and Wallace entered into a pre-
printed form contract does not render it void; such a per se rule
automatically invalidating adhesion contracts would be unworkable and is
not recognized under Missouri law. Id. at 196 (citing Hartland Computer
Leasing Corp. v. Insurance Man, Inc., 770 S.W.2d 525, 527 (Mo. Ct. App.
1989)). Finally, as discussed above, we hold as a matter of law that the
indemnity agreement is not ambiguous with respect to the indemnification
issue in the present case. According to the maintenance service contract's
express terms, Housing Authority agreed to indemnify Morris and Wallace
against any and all liabilities and losses asserted against Morris and
Wallace "arising out of the active or passive negligence of [Morris and
Wallace] in any way connected with the use or operation of the equipment."
Id. at 195 (quoting indemnity agreement). Moreover, Housing Authority
-9-
had a contractual duty (which it breached) to maintain on behalf of Morris
and Wallace comprehensive bodily injury and property damage insurance,
"including bodily injury and property damage caused by the ownership, use
or operation of" the elevator equipment. Thus, we agree with the district
court's conclusion that the indemnity agreement clearly and unambiguously
covered the negligence and related claims asserted by the state court
plaintiffs against Morris and Wallace, and the losses arising out of those
claims. Id. at 196. Accordingly, we hold that the district court did not
err in holding on summary judgment that the maintenance service contract,
including the indemnity agreement, is not void as an adhesion contract.
Post-judgment interest
Housing Authority next argues that the district court erred in
ordering it to pay a "per diem interest penalty" calculated according to
Mo. Rev. Stat. § 408.020, rather than the federal standard, 28 U.S.C.
§ 1961(a). See slip op. (Feb. 5, 1996) at 3. In support of this argument,
Housing Authority cites Weitz Co. v. Mo-Kan Carpet, Inc., 723 F.2d 1382,
1385-86 (8th Cir. 1983) (per curiam) (§ 1961 applies to any judgment in a
civil case recovered in a federal district court; no exemption is made for
diversity cases). Housing Authority also argues that the district court
erred in holding that post-judgment interest should begin to accrue as of
the date of the district court's liability judgment, July 20, 1995, rather
than the date of final judgment on damages, February 5, 1996. See id. In
support of this argument, Housing Authority cites Happy Chef Systems, Inc.
v. John Hancock Mut. Life Ins. Co., 933 F.2d 1433, 1437 (8th Cir. 1991)
("Section 1961(a) does not provide for interest until a money judgment has
been entered.").
-10-
In response, USF&G agrees that post-judgment interest should be
calculated according to 28 U.S.C. § 1961 and should accrue beginning on
February 5, 1996. However, USF&G argues that the interest awarded for the
period between July 20, 1995, and February 5, 1996, should not be vacated
but should instead be awarded as pre-judgment interest.
We modify the interest portion of the district court's order. Slip
op. (Feb. 5, 1996) at 3. USF&G shall be awarded post-judgment interest
calculated in accordance with 28 U.S.C. § 1961, accruing as of the date of
the final judgment on damages, February 5, 1996 (instead of a "per diem
interest penalty" calculated in accordance with Mo. Rev. Stat. § 408.020
and accruing as of July 20, 1995). We reject USF&G's suggestion that we
treat the district court's award of interest for the interim period of July
20, 1995, to February 5, 1996, as an award of pre-judgment interest. The
district court clearly intended to award only post-judgment interest to
USF&G. See id. (awarding reasonable attorneys' fees and costs, "plus a per
diem interest penalty . . . from the date of judgment of July 20, 1995")
(emphasis added). Thus, USF&G is essentially arguing that the district
court erred in failing to award pre-judgment interest. However, because
USF&G failed to raise this separate issue in a cross-appeal, USF&G is
jurisdictionally barred from raising it now. The district court's order
of February 5, 1996, is affirmed as modified.
Third-party action
In dismissing Housing Authority's third-party action against Barnes,
the district court observed that, in some instances, an employee may be
liable to his or her employer for damages which he or she causes but which
are paid by the employer. 885 F. Supp. at
-11-
197. However, the district court noted, the maintenance service contract
provided for the indemnification of Morris and Wallace. "Because a
corporation is an artificial entity, it must operate through the acts of
its agents. . . . [T]he indemnification agreement served to indemnify Joe
Barnes as an agent of the corporation." Id. Thus, the district court
concluded, Housing Authority, as the indemnitor, could not state a claim
against Barnes, its indemnitee, by subrogating into the rights of USF&G.
On appeal, Housing Authority argues that the district court erred in
holding that Barnes is indemnified under the service maintenance contract
and consequently dismissing Housing Authority's third-party action against
Barnes. Because the indemnification language in the maintenance service
contract does not expressly mention agents, servants, or employees of
Morris and Wallace, Housing Authority argues, indemnification of such
individuals may not be implied. Housing Authority argues that, "when a
party to a contract agrees to indemnify a corporation as an entity, it does
not without clear and unequivocal language to that effect, contract to
indemnify the individual agents, servants and employees whose culpable
conduct renders the corporation liable." Brief for Appellant at 26 (citing
Lake Center Boatworks, Inc. v. Martin, 804 S.W.2d 842 (Mo. Ct. App. 1991)
(Martin)). Housing Authority also notes that Morris and Wallace drafted
the contract and, therefore, could have specifically included "agents and
employees" within the terms of the indemnity agreement. Moreover, Housing
Authority argues, the use of such language is not uncommon. Id. at 25
(quoting Minden, 793 S.W.2d at 464 (quoting indemnity agreement, which
refers to "agents and employees")). Housing Authority thus concludes that
the indemnity agreement in the present case clearly and unambiguously
excluded coverage for agents and employees of Morris and Wallace and,
therefore, Housing
-12-
Authority should be permitted to subrogate into the rights of USF&G against
Barnes.
Contrary to Housing Authority's assertions, the cases cited in its
brief do not reject the proposition that an indemnity agreement naming a
corporation may extend to the corporation's agents and employees, despite
the absence of express language to that effect. In Martin, 804 S.W.2d at
845, for example, the court held that the indemnitors were not obligated
to pay for losses resulting from a fire of unknown origin. The Martin
court explained that, under the particular circumstances of that case,
"[t]he indemnity clause . . . did not specifically extend to events not
resulting from the [indemnitors'] negligence." Id. Indemnification for
a corporation's agent or employee was not an issue. The Martin court also
noted that "[a] contract of indemnity is construed to cover all losses,
damages or liabilities which it reasonably appears to have been intended
by the parties to cover." Id. In the present case, we find it beyond
genuine dispute that the indemnity agreement in the maintenance service
contract was intended to cover losses or liabilities arising out of the
alleged negligence of individual employees of Morris and Wallace in
connection with the use or operation of the elevator equipment.3
Accordingly, we hold that the district court did not err in dismissing
Housing Authority's third-party action against Barnes.
3
In assessing the intent of the parties, we also find
noteworthy the fact that Housing Authority had a contractual duty
to purchase and maintain comprehensive bodily injury and property
damage insurance, naming Morris and Wallace as an insured. Had
Housing Authority not breached that contractual duty, such
comprehensive bodily injury and property damage insurance would
likely have covered the exact type of claim Housing Authority now
seeks to assert against Joe Barnes under a subrogation theory.
-13-
Conclusion
For the foregoing reasons, we modify the district court's order of
February 5, 1996, to provide that the award of post-judgment interest shall
be calculated at the rate determined pursuant to 28 U.S.C. § 1961 and shall
begin to accrue on February 5, 1996, and we affirm the judgment as
modified.
A true copy.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
-14-