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Vertecs Corp. v. Reichhold Chemicals, Inc.
Citations: 661 P.2d 619; 1983 Alas. LEXIS 401Docket: 6566
Court: Alaska Supreme Court; March 25, 1983; Alaska; State Supreme Court
Vertecs Corporation appeals a summary judgment that dismissed its crossclaim against Reichhold Chemicals, Inc., seeking contribution and indemnity for liability in a multi-party action related to a 1977 fire that destroyed a fish processing plant in Yakutat, Alaska. The central issue is whether Alaska law recognizes non-contractual implied indemnity between concurrently negligent tortfeasors. The court concludes it does not and affirms the dismissal. The case stems from a 1970 contract by the City of Yakutat to build a cold storage plant. Construction faced issues with moisture condensation, leading to the decision to use polyurethane foam insulation, a choice influenced by cost. Vertecs was subcontracted to install this insulation, using materials supplied by Reichhold. On May 13, 1977, a fire, following a boiler explosion, destroyed the plant, allegedly exacerbated by the foam insulation. In 1979, the City of Yakutat and the Yakutat Fishermen's Cooperative filed a complaint against multiple defendants, including Vertecs and Reichhold, alleging negligence in the application of the insulation and failure to warn about its flammability. Reichhold settled with the plaintiffs for $275,000 and a conditional guarantee of an additional $475,000, leading to its dismissal from the case. Vertecs subsequently filed a crossclaim for indemnity, asserting its negligence was passive compared to Reichhold's active negligence. Vertecs claimed independent causes of action against Reichhold for strict liability in tort, breach of warranty, negligent manufacture, and negligent misrepresentation, all seeking indemnity for liability to plaintiffs. Reichhold sought dismissal or summary judgment, arguing that contribution was inappropriate due to a prior settlement and that indemnity was not applicable since any potential liability of Vertecs stemmed from its own negligence. Judge Milton M. Souter ruled in a hearing on August 14, 1981, that Alaska law, which does not recognize indemnity among concurrently negligent tortfeasors, applied to the case. Consequently, he granted summary judgment on the indemnity claim, as only fault-based claims had been alleged against Vertecs. The court also found summary judgment on the contribution claim to be appropriate given Reichhold's good faith settlement with the plaintiffs. A judgment dismissing Vertecs' crossclaim was entered on December 4, 1981, followed by an appeal from Vertecs on December 24, 1981. The document further discusses the common law's historical rejection of contribution among tortfeasors while noting the evolution of indemnity to allow for complete liability shifting in cases of vicarious liability. It highlights that some courts have expanded indemnity in cases of significant moral disparity between tortfeasors, using terms like "primary-secondary negligence" to describe such situations. Vertecs argues that the common law, supported by the Restatement (Second) of Torts section 886B, allows for indemnity when one tortfeasor's conduct is less blameworthy than another's and cites City, Borough of Juneau v. Alaska Electric Light, Power Co. as an indication of implied indemnity acceptance in Alaska. The case interpretation involved contractual indemnity provisions and acknowledged various potential fact patterns in indemnity scenarios. The indemnitee may face liability under three scenarios: being sued for the indemnitor's negligence, both parties being concurrently negligent but only one being sued due to joint and several liability, or the indemnitee being solely negligent with the indemnitor liable by agreement. Vertecs claims that the second scenario implies court approval for loss-shifting among concurrently negligent parties; however, the court clarifies that this discussion was in the context of contractual indemnity. The relevant clause allowed the City of Juneau to seek contribution from Alaska Electric Light and Power, which was not recognized by common law at the time, thus proving the clause's necessity. Vertecs attempts to differentiate the case Heritage v. Pioneer Brokerage, asserting it only involves defense costs and not indemnity for liability. However, the court refutes this, noting that the ruling in Heritage indicated an indemnitee must generally be free from personal fault to obtain indemnification, particularly concerning defense costs. The court's previous ruling suggests that implied indemnity may not be favored for concurrently negligent tortfeasors, although it has not been directly addressed before. Arguments in favor of allowing indemnity between such tortfeasors include fairness, as one party may unfairly bear the total cost despite having minor fault. Historically, courts permitted indemnity in cases with significant fault disparities prior to recognizing contribution rights. Additionally, the principle that those at fault should be accountable for their actions supports loss-shifting from less to more blameworthy tortfeasors. Indemnity among tortfeasors presents challenges in assigning fault and financial responsibility. A tortfeasor with some fault may escape liability, distorting the principle that each should bear the cost of their actions. Indemnity can efficiently spread losses when the indemnitor is insured or part of a larger entity, but it raises concerns of vagueness in determining when indemnity is appropriate among concurrently negligent parties. Courts face the complex task of categorizing negligence as "active" or "passive" and assessing relative culpability, often leading to confusion and inconsistent outcomes. Critics argue that such vagueness undermines the principle of each tortfeasor paying for their damages, as more culpable parties may be unfairly burdened while less culpable parties evade full responsibility. This situation also discourages settlement, as defendants may prefer to litigate rather than risk losing indemnity claims, leading to judicial inefficiency and prolonged litigation. The Uniform Contribution Act aims to encourage settlements, but the preservation of indemnity rights complicates this goal, potentially resulting in increased trials as defendants attempt to shift liability. Contribution, as established by Alaska's legislature, mandates that concurrently negligent tortfeasors share losses equally due to their wrongful acts. Legislative history indicates that despite a proposed amendment to base contribution on each tortfeasor's fault, the legislature opted for equal sharing provisions. This approach, while not universally fair, is viewed as more equitable than the indemnity system, which previously lacked a contribution framework. The common law's exclusion of contribution has been addressed through legislation in Alaska, and adopting implied indemnity would regress to outdated principles. Two legal scholars have argued that once contribution is adopted, it should be the exclusive method for shifting losses among negligent tortfeasors. In light of these considerations, Alaska's public policy does not support implied indemnity between concurrently negligent parties. Therefore, the court ruled that summary judgment on Vertecs' crossclaim was appropriate, affirming that one concurrently negligent tortfeasor cannot transfer their entire loss to another without a specific contractual obligation. Any disputes regarding the relative culpability of Vertecs and Reichhold are deemed irrelevant. Vertecs did not assert a contractual right to indemnity or any relationship that would impose vicarious liability for Reichhold's actions. Consequently, the court upheld the summary judgment, affirming the decision. Notes clarify that Reichhold's application of Washington law is not contested in this appeal, and Vertecs has not appealed the dismissal of its contribution claim. Indemnitees may only be liable vicariously for the indemnitor's actions under specific circumstances: (a) if they acted under the indemnitor’s lawful directions; (b) if they relied justifiably on the indemnitor’s misrepresentation; (c) if a defective product or work supplied by the indemnitor led to liability for both parties, and the indemnitee failed to discover the defect; (d) if the indemnitor created a dangerous condition resulting in liability, and the indemnitee failed to notice it; or (e) if the indemnitor had a duty to protect the indemnitee from third-party liability. The legal context emphasizes that the Restatements are not binding in Alaska unless adopted by the court. While Vertecs argues that common law indemnity remains applicable in Alaska, Reichhold contends that Alaska recognizes implied indemnity only when the indemnitee is vicariously liable. Previous cases indicate that indemnity claims require the indemnitee to be free from personal fault to recover reasonable attorney's fees as part of damages. Additionally, there is a distinction between contractual and implied indemnity concerning the recovery of attorney's fees, which Vertecs argues is consistent with Alaska law on joint tortfeasors. The court determined that a duty to indemnify does not automatically arise from a mere assertion that contractual and implied indemnity should be treated similarly. The case referenced, Manson-Osberg Co. v. State, involved a contractual indemnity clause, which differs significantly from the current situation. The argument that losses should be shifted to a blameworthy tortfeasor, like Reichhold, fails because Manson-Osberg's context does not apply here. Additionally, although the court cited Insurance Co. of North America v. King in a prior case, it was merely for illustrative purposes regarding concurrent fault, and does not imply adoption of the active-passive indemnity theory discussed in that case. The text also notes that when two blameworthy tortfeasors are involved, they should rely on the Uniform Contribution Act, which allows for shared financial responsibility. In this case, Reichhold has already settled for $275,000 and faces potential further liability of $475,000. By settling in good faith, Reichhold is protected from additional contribution claims, yet it still retains some responsibility for the overall loss incurred. The reference to the Uniform Contribution Act emphasizes its role in facilitating settlements among multiple parties. Vertecs contends that the rejection of loss allocation based on relative fault in Arctic Structures necessitates the use of an implied indemnity theory for concurrently negligent tortfeasors. This argument overlooks the Alaska Uniform Contribution Among Joint Tortfeasors Act. During oral arguments, Reichhold indicated that if the plaintiffs revised their complaint to include non-fault-based claims against Vertecs, it could seek indemnity from other defendants, including Reichhold. Vertecs also claims that its crossclaim against Reichhold included independent causes of action that were improperly dismissed. However, a reasonable interpretation of the crossclaim suggests that its primary basis was indemnity, making the dismissal appropriate in light of the court's ruling on the indemnity issue. After filing the appeal, Vertecs sought to amend its crossclaim, but this request was denied, with the matter of any potential independent claims against Reichhold pending appeal and not addressed in the current proceedings.