Enforceability of Indemnity Agreements Between Airport Authorities And Their Contractors/Tenants A paper presented in connection with the Airports Council International North America s 2014 15 th Annual Risk Management Conference held in West Palm Beach, FL. on January 12-14, 2014 Bruce R. Marx, Esq. MARLOW, ADLER, ABRAMS, NEWMAN & LEWIS 4000 Ponce de Leon Boulevard Suite 570 Coral Gables, Fl. 33146 Main Telephone Number: 305-446-0500 bmarx@marlowadler.com
TABLE OF CONTENTS ABOUT THE AUTHOR...ii ENFORCEABILITY OF INDEMNITY AGREEMENTS... 1 I. INTRODUCTION... 1 II. RELEVANT LEGAL PRINCIPALS... 1 a. Premises Liability.... 1 b. Common Law Indemnity... 2 c. Contractual Indemnity... 2 d. Recovery of Defense Expenses by Indemnitees from Indemnitors... 5 III. Conclusion... 6 i
ABOUT THE AUTHOR Bruce R. Marx Email: bmarx@marlowadler.com Direct Dial: 786-999-1766 Fax: 305-446-3667 Bruce Marx is a partner in the law firm of Marlow, Adler, Abrams, Newman & Lewis located in Coral Gables, Fl. He has been a practicing defense attorney since 1991 specializing in the defense of complex claims against aviation, admiralty and hospitality-related businesses. Part of Bruce s aviation practice includes the defense of various airport authorities and fixed based operators located throughout the state of Florida from Jacksonville to Key West. Bruce graduated in 1987 with a B.A. from Tulane University in New Orleans and obtained his J.D. in 1991 from St. Thomas University in Miami. ii
ENFORCEABILITY OF INDEMNITY AGREEMENTS BETWEEN AIRPORT AUTHORITIES AND THEIR CONTRACTORS/TENANTS I. INTRODUCTION By the nature of its operation, airport property (including the leaseholds of airport tenants such as F.A.A. approved repair facilities and/or fixed based operators) provides an environment susceptible to personal injury and property damage claims. Given the manner in which airport authorities operate through contractors/tenants, there is usually more than one culpable party responsible for a particular loss. Accordingly, it is important for airport authorities to have valid indemnity agreements in place with their contractors in order to pass on the costs of the defense and indemnity for contractor/tenant-related claims. This writer has had the privilege of representing various airport authorities and fixed based operators throughout the State of Florida from Jacksonville to Key West. These claims, a majority of which are predicated upon premises liability theories, bring into play the interaction between indemnity and insuring provisions contained in contracts between airport authorities and their contractors/tenants. Without fail, questions always arise (mostly during the pre-suit stages of a claim) as to the scope of the contractor's/tenant s indemnity obligation owed to the airport authority. When the airport authority makes a pre-suit tender of a claim upon a contractor and/or its insurance carrier, the tender is usually refused based upon the fact that the investigation into the particular claim is either ongoing, or there is no current evidence of negligence on the part of the contractor/named insured. In most cases, the indemnity issues are not finally resolved until such time as suit is actually filed in the particular case. The following will serve as a basic outline of the relevant Florida case law relating to contractual indemnity agreements, as well as various issues which affect the tender of a claim. An understanding of the law discussed below will assist anyone wading through the process of enforcing the indemnity agreements in place between airport authorities and their contractors/tenants. II. RELEVANT LEGAL PRINCIPALS a. Premises Liability. Under Florida law, an invitee is a person who is invited to enter or remain on the premises for a purpose directly connected with business dealings with the possessor of the premises. Post v. Lunney, 261 So. 2d 146 (Fla. 1972). A premises owner and/or occupier owes an invitee the following duties: (1) to use ordinary or reasonable care in keeping the premises in a reasonably safe condition and (2) to warn of latent or concealed perils that are known or should be known to the owner or occupier, of which the invitee is unaware and which the invitee cannot discover through the exercise of reasonable care. Hickory House, Inc. v. Brown, 77 So. 2d 249 (Fla. 1955) and Matukas 1
v. Kassam, 702 So. 2d 543 (Fla. 5th DCA 1997). Inasmuch as the foregoing duties are non-delegable, the airport authority will always enjoy exposure directly to the claimant for the injuries sustained on its property. If there is a properly drafted indemnity agreement in place between the airport authority and its contractor, however, the airport authority can shift the liability for the claimant's injury to the contractor/tenant. b. Common Law Indemnity Common law indemnity is a right which inures to one who discharges a duty owed by him, but which, as between himself and another, should have been discharged by the other and is allowable only where the whole fault is in the one against whom indemnity is sought. AMI Insurance Agency v. Elie, 394 So. 2d 1061 (Fla. 3rd DCA 1981) (emphasis supplied). Common law indemnity is an equitable remedy that arises out of obligations imposed by special relationships which create vicarious, constructive, derivative or technical liability upon one for acts of another. Camp, Dresser & McKee, Inc. v. Paul N Howard Company, 853 So. 2d 1072 (Fla. 5th DCA 2003); Dade County School Board v. Radio Station WQBA, 731 So. 2d 638 (Fla. 3rd DCA 1999) and Houdaille Industries, Inc. v. Edwards, 374 So. 2d 490 (Fla. 1979). c. Contractual Indemnity Contractual indemnity is a tool by which the risk of loss is shifted by one party (iethe indemnitee/airport authority) to another (the indemnitor/contractor) even if the party shifting the loss is at fault. Unlike common law indemnity, contractual indemnity is not concerned with special relationships or vicarious, constructive, derivative or technical liability-rather, it is concerned with the express terms of the agreement to indemnify. Camp, 853 So. 2d at p. 1077. Indemnity contracts are subject to the general rules governing the formation, validity and construction of contracts. Contractual indemnity issues arising out of airport premises liability claims usually involve two separate contracts: 1) the contract between the airport authority and its contractor; and 2) the commercial general liability insurance policy secured by the indemnitor (the named insured) providing insurance coverage to the indemnittee as an additional insured. Once notice of a claim is received by the airport authority, it is important to try and identify all of the responsible contractors for the incident so they (and their insurers) can be placed on notice as soon as possible. Rarely does a premises liability claim arise on airport property that does not involve at least one contractor whose negligence caused and/or contributed to the subject injury. Accordingly, the focus from the outset should be upon the culpable contractor so as to be in a position to shift the risk of loss from the airport authority to the contractor's insurer. The airport authorities whom this writer has represented generally maintain very good record keeping. Accordingly, once the potential liability of the contractor is identified, immediate steps should be taken to secure a copy of the indemnity 2
agreement that was in force and effect at the time of the subject incident along with a copy of the certificate of insurance identifying the airport authority as an additional insured under the contractor's commercial general liability insurance policy. Because there are notice provisions contained in the subject service contract with the contractor, as well as the insurance policy of the contractor's insurer, it is imperative that notices issue as soon as possible so as to avoid any type of late notice defense. After receipt of the aforementioned documents, the wording of the indemnity provision needs to be carefully studied as same will provide a barometer as to what to expect by way of resistance on the part of the contractor and/or its insurer in providing a defense to the suit and, ultimately, in providing indemnity to the airport authority. Although they are looked upon with disfavor, agreements for indemnification which protect an indemnitee against the indemnitee's own negligence and/or wrongful acts will nonetheless be enforced by Florida Courts so long as the contracts express an intent in clear and unequivocal terms to provide for such indemnity. See, Cox Cable Corp. v. Gulf Power Company, 591 So. 2d 627 (Fla. 1992); Charles Poe Masonry, Inc. v. Spring Lock Scaffolding Rental Equipment Co., 374 So.2d 487 (Fla. 1979); University Plaza Shopping Center v. Stewart, 272 So.2d 507 (Fla. 1973); Greater Orlando Aviation Authority v. Bulldog Airlines, Inc., 705 So. 2d 120 (Fla. 5th DCA 1998); and Allianz Insurance Company v. Goldcoast Partners, Inc., 684 So. 2d 336 (Fla. 4th DCA 1996). Therefore, in order for the indemnitee to be indemnified for its own wrongful conduct, a specific provision protecting the indemnitee from liability caused by the indemnitee's own negligence is required. Id. This specificity requirement is necessitated the fact that contracts providing indemnification for one's own negligence are disfavored in Florida and are strictly construed. See, United Parcel Service of America, Inc. v. Enforcement Security Corporation, 525 So.2d 424 (Fla. 1st DCA 1987). Rarely does a claim involve a services contract wherein the contractor/tenant has agreed to indemnify the airport authority for the airport authority's own negligence and/or wrongful acts. 1 As previously stated, airport premises liability claims usually involve allegations of joint negligence against the airport authority and their contractor/tenant. Although each complaint must be reviewed on a case by case basis with respect to the allegations presented against an airport authority, there are Florida cases which require a contractor to indemnify the airport authority in instances where joint negligence is alleged. Florida D.O.T. v. V.E. Whitehurst & Sons, Inc., 636 So.2d 101 (Fla. 1st DCA 1994) (cause of action for indemnification was stated based upon the contractual provision that the contractor would indemnify the FDOT from all actions and liabilities "due to any negligent act or occurrence of omission or commission of the contractor, its subcontractors, agents or employees" and the provision providing 1 Attached at the end of this paper are a few sample indemnity agreements which have been the focus of litigation involving certain Florida Airport Authorities and their contractors and/or tenants. The first indemnity provision of the attached samples is the most beneficial contract this writer has ever seen utilized by an airport authority to secure indemnity for its own wrongful acts and/or conduct consistent with the Florida law cited above. 3
indemnification except for "damages directly caused or resulting from the sole negligence of the department or any of its officers, agents or employees."); United Parcel Service of America, Inc. v. Enforcement Security Corp., 525 So.2d 424 (Fla. 1st DCA 1987) (indemnification provisions in contract between joint tortfeasors was enforced in case where contract provided indemnification for all claims "except from and against all losses, damages, expenses, etc., as set forth hereinabove, arising out of the sole negligence of UPS."); Mitchell Maintenance Systems v. State D.O.T., 442 So.2d 276 (Fla. 4th DCA 1983) (Department of Transportation could obtain contractual indemnification from its contractor where contractor agreed to indemnify the Department "except that neither CONTRACTOR nor any of its subcontractors will be liable under this section for damages arising out of injury or damage to persons or property directly caused or resulting from the sole negligence of Department or any of its contractors, agents or employees."); City of Jacksonville v. Franco, 361 So.2d 209 (Fla. 1st DCA 1978) (under indemnity contract, city was liable to railroad for indemnity regardless of railroad's contributing negligence); and Leonard L. Farber Co., Inc. v. Jaksch, 335 So.2d 847 (Fla. 4th DCA 1976) (Lessee was liable to indemnify lessor from matters "occasioned wholly or in part by any act or omission of lessee."). When an airport claim is assigned to this writer for handling, it is usually already in suit. At this point, the claims handler has already provided notice of the airport authority's request for a defense/indemnity and has likely received a notice from the contractor (and/or its insurer) that the tender has been refused. The standard response usually provided to the tender request is that the facts of the claim are under investigation and, as a result, no decision can be reached. While this response may suffice pre-suit, as there are no record legal allegations by which to judge the contractor's/insurer's obligation to defend and/or indemnify, as shown below it can no longer suffice once a complaint has been filed. Once suit is filed, the defense/indemnity obligations of contractors and their insurers become more immediate than they were pre-suit. Under Florida law, there are two duties (similar to duties owed by insurers under their insurance policies) which arise in the context of indemnity contracts: (1) the duty to indemnify and hold harmless the indemnitee, and (2) the duty to defend the indemnitee. National RR Passenger Corp. v. Roundtree Transport and Rigging, Inc., 286 F.3d 1233 (11th Cir. 2002). The duty to defend is entirely separate from the right to indemnification. Id.; Department of Transportation v. Southern Bell Telephone and Telegraph Company, Inc., 635 So. 2d 74 (Fla. 1 st DCA 1994) ("The duty to defend is entirely separate from the duty indemnify because the duty to defend is based upon the allegations contained in the complaint at the time of its filing). Therefore, since the duty to defend is based solely upon the allegations contained in a complaint, the issue of the airport authority's fault is of no relevance to the analysis as to whether the duty to defend is owed by the contractor and/or its insurer. DOT, 635 So. 2d at p. 78 ("[t]urning next to DOT's claim for breach of Bell's duty to defend, even if DOT was later determined to be solely liable to Misener on its claim for damages and had no right to indemnification from Bell, Bell's duty to defend is 4
entirely separate from DOT's right to indemnification, because its duty to defend must be determined from the allegations in Misener's complaint against DOT at the time it was filed.") and J.A. Jones Construction Co. v. Zack Co., 232 So. 2d 447 (Fla. 3d DCA 1970) ("[h]ere the claim asserted and sued upon by Eastern was of that character, in that it represented a potential liability of the contractor for property damage for which the contractor would have been entitled to indemnity, thereby calling into effect the obligation of the subcontractors to supply Jones' defense, regardless of whether the party asserting the claim should win or lose upon a final determination of the suit."); See also, Metropolitan Dade County v. CBM Industries of Minnesota, Inc., 776 So. 2d 937 (Fla. 3d DCA 2000) (janitorial service contract owed airport a defense in premises liability claim where complaint against airport contained allegations of active and passive negligence of airport); Hart Properties v. Eastern Elevator Service Corp., 357 So. 2d 257 (Fla. 3rd DCA 1978) ("It is well established in Florida that when the active or primary negligence of one tortfeasor and the passive or secondary negligence of another tortfeasor combine to proximately cause an injury to a third party, the passively negligent tortfeasor is entitled to indemnity from the actively negligent one."); Florida Power Corporation v. Taylor, 332 So. 2d 687 (Fla. 2 nd DCA 1976) (Id.); GACL, Inc. v. Riviera Tile and Terrazzo Co., 300 So. 2d 39 (Fla. 3rd DCA 1974) (Id.); Maybarduk v. Bustamante, 294 So. 2d 374 (Fla. 4th DCA 1974) (Id.). Once a complaint is filed, the contractor and/or its insurer have to consider the airport authority's request for a defense and/or indemnity. The filing of the complaint creates pressure upon the contractor and/or its insurer to make a determination since the filing of the complaint commences the legal process wherein the indemnitee will have to secure defense counsel. As a result, an additional element of pressure is placed upon the contractor and/or its insurer given the potential exposure for the airport authority's attorney's fees in the defense of the underlying action for which indemnity is sought. d. Recovery of Defense Expenses by Indemnitees from Indemnitors Once the contractor is presented with the tender of defense after the filing of a complaint, the exposure for the attorney's incurred by the airport authority fees becomes an additional item of potential damages. This potential exposure is useful in forcing an acceptance of the tender of defense. Additionally, this attorney's fee exposure is useful in forcing a complete acceptance of the tender, including an agreement to indemnify the airport authority with a waiver of any future reservation of rights, in cases involving joint negligence. "It has been established in Florida that generally an indemnitee is entitled to recover, as part of his damages, reasonable attorney's fees, and reasonable and proper legal costs and expenses, which he is compelled to pay as a result of suits by or against him in reference to the matter against which he is indemnified." Insurance Company of North America v. King, 340 So. 2d 1175 (Fla. 4th DCA 1976). The fees and costs that are subject to recovery, however, are the fees and costs incurred in defending the underlying case, not the fees and costs incurred in establishing the right to indemnity. 5
Jewelcor Jewelers & Distributors, Inc. v. Southern Ornamentals, Inc., 499 So. 2d 850 (Fla. 4th DCA 1987) ("there is an exception to the general rule that an indemnitee is entitled to recover reasonable attorney's fees and that is that attorney's fees in establishing the right to indemnification are not allowable."). Given the foregoing case law, an airport authority is entitled to make claim for the attorney's fees it incurs in connection with the defense of the underlying claim. In addition to citing to the contractor and/or its insurer the exposure for attorney's fees under indemnity law, there is additional practical leverage that can be utilized to force an insurer to accept a tender fully, completely and without reservation. In the complaints filed against the airport authority and their contractor, the active negligence of the airport authority is alleged in concert with the active negligence of the contractor. When this occurs, the contractor's insurer often times tries to offer a defense to the airport authority which is subject to a reservation of any defenses under the policy. If it is that important for the contractor's insurer to preserve such reservations under the policy, they must, by law, appoint separate counsel to defend the County. 2 Otherwise, there is an impermissible conflict of interest that exists with one set of counsel representing the named insured contractor and the additional insured airport authority. This writer has found the requirement that the insurer must assign mutually agreeable counsel to be quite helpful in forcing the contractor's insurer to simply withdraw any policy defense and provide coverage to the airport authority under the subject policy. This way, the counsel appointed by the insurer to represent the named insured (contractor) can also represent the airport authority without conflict which provides an obvious economic benefit to the contractor's insurance carrier since it does not have to pay two sets of counsel. More importantly, it effectively represents and acknowledgement by the contractor s insurer to pay for the exposure being foisted upon the airport authority. III. Conclusion. Indemnity agreements and insurance clauses are useful risk shifting provisions among the parties to various business relationships. In order to be enforceable, however, the indemnity provisions require specificity and the intent of the parties must be clear and unequivocal. Because indemnity agreements will be construed by the court, as a matter of law, it is important for the drafters to use very specific language in ensuring that the airport authority will be indemnified by its contractor/tenant even if the airport authority s was the cause of the liability in whole or in part. 2 Florida's claims administration statute, 627.426 provides that in order for an insurer to preserve all policy defenses, that insurer must, inter alia, "retain independent counsel which is mutually agreeable to the parties." 6