Indemnity Enmity

AN ENGINEERING CONSULTANT THAT figured it had covered its backside on liability got a harsh comeuppance from the Iowa Supreme Court. The city of Dubuque, Iowa, hired Salt Lake City-based Maxim Technologies Inc. to monitor construction of a public parking ramp.

Maxim drafted the contract with a provision obligating the city to defend and indemnify the firm if a third party sued Maxim for “damage from materials [or] elements” at the project site or for “claims arising from remedial action, cleanup, uninhabitability of property or other property damage,” and if Maxim was not grossly negligent.

After construction got underway, cracks developed in the buildings abutting the job site. The building owners sued the city, Maxim and other parties, alleging that the installation of the ramp's foundation, which involved drilling holes for auger cast piles, disturbed the soil under their buildings. For its part, Maxim was accused of ordinary negligence in failing to properly monitor the installation and report problems.

Maxim filed a cross-claim against the city, asserting that Dubuque had agreed to defend and indemnify the firm from third-party lawsuits, even if the claims were based on Maxim's own carelessness. The city contended that the provision did not apply to what had occurred and declined to assume responsibility for Maxim's situation.

At trial, the jury found both the city and Maxim liable for damage to the plaintiffs' buildings, and the judge dismissed Maxim's indemnification claim against the city. Maxim appealed that ruling.

The Supreme Court of Iowa upheld the lower court's decision, finding that the contract did not clearly express an intention that the city indemnify Maxim for a non-environmental claim.

Not surprisingly, Maxim had an expansive view of the scope of the indemnification. It argued that soil is a “material” or “element,” invoking Empedocles, an early Greek philosopher who invented the four-element theory of matter (fire, air, earth and water).

The state high court, however, had a much narrower view of the provision. (Think of “narrow” as meaning both “limited” and “cramped.” It seems Maxim printed its contract “in a font small enough to make even the youngest eyes feel old,” the court observed, presumably with some strain.) Citing a rule of law followed in most states, the court said that when a party seeks indemnification for its own negligence, the contract terms are construed very strictly against the party seeking the benefit.

Turning to the indemnity provision, the court found broad language (“materials, elements … and other property damage”) but also specific and prominent references to suits alleging “remedial action,” “cleanup,” or “uninhabitability of property.” Those words and phrases are terms of art “associated with environmental practice,” the court said. The “environmentally loaded terms” provide a context for interpreting the general phrases, which thereby become “limited to environmental-type claims,” the court concluded.

Under a well-established legal precept used to interpret written documents, where specific items are listed with more general words or phrases, the broader terms are deemed to refer to the same subject as the particular things.

Maxim, it seems, was foiled by a maxim.

[Maxim Technologies, Inc. v. City of Dubuque, 690 N.W.2d 896 (2005)]

The legal editor welcomes comments from readers. Contact Barry Shanoff via e-mail: [email protected].

The columnist is a Rockville, Md., attorney and serves as general counsel of the Solid Waste Association of North America.