R. E. M. IV, Inc. v. Robert F. Ackermann & Associates, Inc.

Citations: 313 N.W.2d 431; 1981 Minn. LEXIS 1532Docket: 81-59

Court: Supreme Court of Minnesota; December 17, 1981; Minnesota; State Supreme Court

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The Supreme Court of Minnesota addressed an appeal regarding a summary judgment order from the Ramsey County District Court, which required subcontractor Norcol, Inc. to indemnify general contractor Buhler Construction Company and to either defend Buhler or cover certain defense costs. R.E.M. IV, Inc. filed a lawsuit against Buhler, Norcol, and the architect Robert F. Ackermann Associates, Inc. for property damage and lost profits stemming from failures in the sprinkler system due to freezing fittings. R.E.M. alleged negligent design, construction, and installation of the system. Buhler's motion for partial summary judgment against Norcol was granted, prompting Norcol's appeal, while R.E.M. and Ackermann did not participate in this appeal.

The case involved the completion of two buildings designed for special needs residents, with Buhler hiring Norcol to install the sprinkler system. Following the buildings' completion, fittings in the sprinkler system froze and burst, causing damage. R.E.M. sought $30,000 in damages, claiming negligence from the defendants. R.E.M. indicated that the buildings' design allowed cold air to enter and freeze the pipes, and an expert would testify that the burst fitting was likely due to excessive internal pressure from ice buildup. The existence of any defect in the fittings remains contested. The court ultimately reversed the lower court's decision.

R.E.M.'s expert asserts that the fracture in the cast iron tee fitting was not due to a casting defect, opposing earlier opinions from non-expert R.E.M. employees who noted the presence of pipe sealer in the seam, suggesting a fault. Buhler has sought to defend itself against claims from Norcol, invoking a contractual indemnification clause in Subdivision 7 of their subcontract. This clause states that the Subcontractor assumes full responsibility for all damages or injuries related to the execution of the work and agrees to indemnify the Contractor against such claims. Norcol rejected Buhler's defense, arguing that since the installation of the sprinkler system was completed and accepted before the pipes froze, the indemnification obligation did not apply. Norcol interprets the language regarding "the execution of the work" as limiting indemnification to damages occurring during the performance of the subcontract work, citing a strict construction rule. The appeal centers on whether the subcontractor is obligated to indemnify the general contractor for its own negligence concerning property damage that occurred after the subcontract work was completed. Subdivision 7 also requires the subcontractor to obtain and maintain various insurance coverages. Evaluating the indemnity claims necessitates determining: 1) whose negligent acts are covered by the indemnity, and 2) the scope of the indemnity's applicability.

The court has established that the indemnity provisions in Subdivision 7 require a subcontractor to indemnify a general contractor for damages, even those resulting from the general contractor's own negligence. This interpretation is supported by previous cases, including Johnson v. McGough Construction Co., Inc., Jacobson v. Rauenhorst Corp., and Christy v. Menasha Corp. However, the court notes that these cases do not resolve the issue of the indemnity's scope, specifically whether it applies to damages occurring after the subcontractor's work is completed. 

The indemnity is limited to damages "arising out of, resulting from or in any manner connected with, the execution of the work provided for in this Subcontract." The court identifies three key considerations for determining the scope: the strict construction of indemnity agreements, the precise language of the contract, and the parties' logical expectations. The court concludes that indemnity does not extend to damages arising post-completion of the subcontractor’s work unless explicitly stated in the contract.

Citing Farmington Plumbing, Heating Co. v. Fischer Sand, Aggregate, Inc., the court emphasizes the need for an express provision in the contract to indemnify the indemnitee for its own negligence. It acknowledges that while "execution of the work" is akin to "the performance of the work," this similarity does not clarify whether post-completion damages fall within the indemnity provision. The court refers to Anstine v. Lake Darling Ranch, asserting that indemnification requires a temporal, geographical, or causal connection between the subcontractor's work and the resulting injury. Subcontractors not actively working on-site at the time of an injury were deemed not liable for indemnity claims under similar circumstances.

The ruling in Farmington Plumbing, Heating Co. overruled conflicting aspects of Anstine but retained the necessity of a temporal, geographical, or causal relationship. The trial court's assertion that Johnson rejected this requirement is incorrect; Johnson confirmed the existence of a causal relationship because the injury occurred during the performance of the subcontracted work. In the current case, however, no such relationship exists as Norcol had completed its work before the damage occurred and was not present on-site when the incident happened. The damages are not sufficiently linked to Norcol's actions. 

The indemnity clause within the subcontract only requires Norcol to obtain general liability insurance, not completed operations insurance, which covers different risks. The differentiation is explained by the Appleman treatise, highlighting that general liability insurance protects against injuries or damages arising during construction, whereas completed operations insurance protects against risks associated with completed work. The court previously distinguished these policies in Security Insurance Co. of Hartford v. Kaye Milling Supply, Inc., noting that completed operations coverage involves substantially greater risks and higher premiums. Consequently, the indemnity provision indicates that the drafters intended to require indemnity only during the performance of work, placing responsibility for actions after completion on the contractor.

The subcontractor signing the standard agreement intends to protect the general contractor only during the performance of the subcontract work and does not foresee long-term liability for the contractor's future negligence after the subcontract is completed. The indemnity provision is meant to cover only damages occurring during the subcontract work, as supported by the logic and strict construction rule established in Farmington Plumbing, Heating Co. The language of the contract must clearly indicate any intention to include liability for damages resulting from the general contractor's negligence post-completion; otherwise, the indemnity provision should not be enforced. It is essential that the subcontractor is given clear and unambiguous notice of any risks assumed that are beyond their control. The provision requiring indemnity for damages connected to the subcontract work should not extend to damages incurred after the completion of that work, based on legal principles, the contract itself, and common sense. The refusal to impose such indemnity does not exempt Norcol from liability; Norcol remains responsible for assessing direct liability for damages. Subdivision 6 of the subcontract mandates that the subcontractor must indemnify the contractor for losses arising from the subcontractor's failure to fulfill contract provisions, except when such failures are due to causes outside the subcontractor's control. The matter is reversed and remanded for trial. It should be noted that the order is nonappealable as it does not resolve all claims and rights of the parties, but discretionary review is granted due to the significance of the issue. Lastly, the indemnity provision referenced in Anstine, while differing from the current subcontract, does not alter the overall analysis.