Waddell v. Ltv Steel Co. , 124 Ohio App. 3d 350 ( 1997 )

I agree with the majority that R.C. 2305.31 applies to the RCR indemnity agreement in Section 12 of the LTV purchase order, that the ducts to be cleaned in the kiln were an appliance or structure within the meaning of that statute, and that third-party defendant RCR did not expressly waive its immunity under workers' compensation law. However, I must respectfully dissent from my colleagues' conclusion that the separate contractual obligation of RCR to provide insurance under Section 13(b) of the purchase order was also void and against public policy under R.C. 2305.31.

In the first place, I take exception to the majority's conclusion that LTV waived the insurance requirement because it "did not raise this issue in the trial court." Civ.R 15(B) provides:

"When issues not raised by the pleadings are tried by express or implied consent of the parties they shall be treated in all respects as if they had been raised in the pleadings. * * * Failure to amend as provided herein does not affect the result of the trial of these issues."

The fact remains that RCR's contractual obligation to purchase insurance was raised and addressed in the summary judgment proceedings by both parties two years before trial. Further, RCR responded to these arguments in its reply to LTV's brief opposing summary judgment filed December 12, 1994. The issue was raised and argued again in RCR's trial brief filed on November 12, 1996. RCR submitted proposed jury instruction No. 8 on November 12, 1996, which covered the insurance issue. Further, LTV counsel again raised the issue of the applicability of the insurance clause during oral argument regarding RCR's motion for directed verdict on opening statement, and counsel for RCR responded to the argument, without objecting that the matter had not been pleaded in the third-party complaint.

In short, RCR consented to the inclusion of the insurance clause issue in this case, and the majority is mistaken in concluding otherwise. In my judgment, it was treated as an issue in the case from early on by both parties and therefore was tried by implied consent of the parties pursuant to Civ.R. 15(B). Greathouse v. Barberton (Nov. 28, 1990), Summit App. No. 14629, unreported, 1990 WL 190361 (issue raised in summary judgment motion acts as amendment to complaint); Porter Hybrids,Inc. v. Pontious (Aug. 20, 1984), Clinton App. No. CA83-09-012, unreported, 1984 WL 3408 (issues brought up in motion for summary judgment and closing argument which were not objected to were tried by implied consent); In re Zweibon (C.A.D.C. 1977),565 F.2d 742, 747 ("Process of amendment may be initiated by presentation of an issue for the first time in a motion for summary judgment."); cf. Austintown Local School Dist. Bd of Edn.v. Mahoning Cty. Bd. of Mental Retardation Dev. Disabilities (1993), 66 Ohio St.3d 355, 365, 613 N.E.2d 167, 175-176 (since issue not raised in motion for summary judgment, issue not tried by implied consent).

On the merits of the insurance issue, it is my opinion that third-party plaintiff LTV has made out a potential claim for relief on the contractual requirement of Section 13 of the purchase order, which states that RCR "shall procure at its own cost and keep in force the following insurance satisfactory to [LTV] as to the form and limitations of liability until completion and final payment hereunder.

"* * *

"(b) Public liability and property damage insurance including contractual liability insurance as required to cover liabilities assumed in clause 12 * * *." This obligation to supply public liability insurance in favor of, and satisfactory to, LTV was a separate undertaking and contractual commitment by RCR apart from the indemnity provision, which I agree is void under R.C.2305.31. The majority refuses to recognize this distinction and confuses an agreement to supply insurance with indemnification clauses. However, it is our role "to discover and effectuate the intent of the parties [which] is presumed to reside in the language they chose to use in their agreement." Graham v. DrydockCoal Co. (1996), 76 Ohio St.3d 311, 313, 667 N.E.2d 949, 952. It was obviously the intent of the parties that RCR provide public liability insurance as to form and limits satisfactory to LTV during the performance of the contract. In my judgment, this brings this case squarely within the holding of Brzeczek v. Std.Oil Co. (1982), 4 Ohio App.3d 209, 4 OBR 313, 447 N.E.2d 760, which held that "a provision in a construction contract requiring that the promisor obtain liability insurance naming the promises as an additional insured is not null and void due to the application of R.C. 2305.31 and is not contrary to public policy."

If it does not violate R.C. 2305.31 to make Standard Oil an additional insured on its contractor's general liability insurance policy, it follows that no violation occurs when RCR is required to supply public liability coverage in favor of LTV in form and limits satisfactory to it.

The decision of this court in Buckeye Union Ins. Co. v.Zavarella Bros. Constr. Co. (1997), 121 Ohio App.3d 147,699 N.E.2d 127, does not require a different result. There we agreed that "the additional insured agreement does not violate public policy, but that the express language of the policy does not afford coverage under the circumstances." Id. at 148,699 N.E.2d at 128. This court found that the policy language as written did not provide coverage to Snavely, the general contractor, for its negligence, but only for the negligence of Zaverella, the subcontractor. Id. at 151-152, 699 N.E.2d at 130. In the instant case, the policy does not appear in the record and we do not know whether RCR fulfilled its contractual obligation to furnish public liability coverage satisfactory to LTV "as to the form and limitations." Nor do I accept the majority's conclusion that it is "irrelevant whether RCR did or did not purchase the insurance policies" because they would have covered contractual obligations found to be void in Section 12.

I note that the insurance purchase provision in Brzeczek required the contractor to obtain for Standard Oil's benefit comprehensive general liability insurance that "shall contain provisions insuring the contractual liability assumed hereunder, "naming Standard Oil as an additional assured. Brzeczek is on all fours with the instant case, where RCR was also required to furnish public liability insurance "including contractual liability insurance as required to cover liabilities assumed in clause 12."

Although Brzeczek found the indemnity provisions void, as we do, it upheld the obligation to purchase insurance for the owner's benefit, relying on the last sentence of R.C. 2305.31, which encouraged the purchase of insurance. In reviewing the trial court's decision, the Brzeczek court stated as follows at4 Ohio App.3d at 211-212, 4 OBR at 316-317, 447 N.E.2d at 763-764:

"The trial court analyzed the second sentence of R.C. 2305.31, which is as follows:

"`Nothing in this section shall prohibit any person from purchasing insurance from an insurance company authorized to do business in the [s]tate of Ohio for his own protection or from purchasing a construction bond.'

"The court found that this sentence permits the purchase of insurance only for one's own benefit and that the purchase of insurance for another's protection would contravene the purpose of R.C. 2305.31. The trial court stated that:

" `In interpreting this second sentence, it is the Court's opinion that the only insurance contracts excepted from the statute are those purchased `from an insurance company authorized to do busieness [sic] in the state of Ohio' and purchased for one's `own protection.' Construction contracts requiring a promisor to purchase insurance for the promisee's protection against the promisee's own negligence do not fall within this exception and are null and void under the first sentence of § 2305.31.'

"We do not read R.C. 2305.31 as voiding the insurance contracts procured by Tulsa Tank, wherein Standard Oil is an additional insured. The trial court's interpretation would preclude the naming of more than one insured per insurance policy. Such a restriction was clearly not the intent of the legislature. It is common practice to name several parties as insureds in a policy, each having different liabilities. See 43 American Jurisprudence 2d 312, Insurance, Section 253, where it states:

" `Where several persons are insured under one policy, the rights and obligations of one insured are not necessarily dependent upon those of another insured, and the insurance company may undertake separate and distinct obligations to the various insureds. Insurance policies may name additional insureds by their definition of the term "insured." This is particularly true in liability policies.' "

The Brzeczek decision followed the wise course of recognizing a distinction between the indemnification provision, which was void under R.C. 2305.31, and the contractual requirement to provide insurance, which was fully supported by the construction given similar provisions in Illinois and New York.

I again cite Brzeczek, where the court explained the rationale of upholding the insured contractual provision by citing other leading cases as follows at 4 Ohio App.3d at 212-213, 4 OBR at 317-318, 447 N.E.2d at 764:

`We also find the analysis of the Court of Appeals of New York in Bd. of Edn. v. Valden Associates, Inc. (1979), 46 N.Y.2d 653 [416 N.Y.S.2d 202] 389 N.E.2d 798, persuasive. The court at 657 [416 N.Y.S.2d at 203, 389 N.E.2d at 799], states as follows:

" `* * * A distinction must be drawn between contractual provisions which seek to exempt a party from liability to persons who have been injured or whose property has been damaged and contractual provisions, such as those involved in this suit, which in effect simply require one of the parties to the contract to provide insurance for all of the parties. Absent any indication of overreaching or unconscionability, such provisions violate neither Section 5-323 of the General Obligations Law nor any other public policy * * *.'

"The court in Valden, supra, relied on Hogeland v. Sibley,Lindsay Curr Co. (1977), 42 N.Y.2d 153, 161 [397 N.Y.S.2d 602,607] 366 N.E.2d 263, [267], which held as follows:

" `It is against this background of declared purpose that the indemnification clauses before us must be considered. So analyzed, Berenson is not exempting itself from liability to the victim for its own negligence. Rather, the parties are allocating the risk of liability to third parties between themselves, essentially through the employment of insurance. Courts do not, as a general matter, look unfavorably on agreements which, by requiring parties to carry insurance, afford protection to the public. * * *'

"See, also, Buscaglia v. Owens-Corning Fiberglas (1961),68 N.J. Super. 508, 172 A.2d 703.

"We find that a contractual provision such as paragraph 8 is not null and void due to the application of R.C. 2305.31 and is not contrary to public policy. We, therefore, find the second assignment of error well taken."

The Illinois courts have a long history of dealing with a statutory provision similar to R.C. 2305.31 and, in doing so, draw a sharp distinction between pure indemnity agreements and agreements to procure insurance in like circumstances. This was summarized most recently in GTE N., Inc. v. Henkels McCoy, Inc. (1993), 245 Ill.App.3d 322, 329, 184 Ill.Dec. 215, 220,612 N.E.2d 1375, 1380, as follows:

"Some uncertainty concerning the public purpose of the Act arises from the decisions in Davis [v. Commonwealth Edison Co. (1975), 61 Ill.2d 494, 336 N.E.2d 881] and Capua [v. W.E. O'NeilConstr. Co. (1997), 67 Ill.2d 255, 10 Ill.Dec. 216,367 N.E.2d 669], because both liability insurance and indemnity agreements negate incentive to be careful since they relieve the insured and the indemnity from ultimate responsibility for their negligence. However, the two decisions, taken together, seem to express a policy in regard to indemnity agreements in construction contracts, which is as follows: (1) indemnity agreements, except in construction bonds and agreements to insure to protect the indemnitor from contractual liability, are void because the dominant aspect of these agreements is the disincentive to the exercise of care by the indemnity which results; and (2) indemnity agreements in construction bonds and agreements to provide liability insurance for another party to the contract, even though that party is an indemnity, are valid because their dominant aspect is to afford a souree of funds for persons tortiously injured in the work on the construction contract."

It is my view that this court should recognize the same distinctions that other leading jurisdictions do in making insurance coverage available to injured workers where the parties have contracted to supply same.

Given the foregoing discussion, since the record does not reveal whether RCR procured the insurance required by Section 13(b), I would reverse the directed verdict on the insurance issue and remand the cause for further proceedings consistent with this opinion. In the alternative, I would certify the majority decision to the Ohio Supreme Court as in conflict with the Brzeczek case.