Martin County Coal Corporation v. Universal Underwriters Ins. , 727 F.3d 589 ( 2013 )

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit I.O.P. 32.1(b)
File Name: 13a0236p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
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X
Plaintiff-Appellant/Cross-Appellee, -
MARTIN COUNTY COAL CORPORATION,
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Nos. 11-5773/5793
v.
,
>
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UNIVERSAL UNDERWRITERS INSURANCE
Defendant-Appellee/Cross-Appellant. N-
COMPANY,
Appeal from the United States District Court
for the Eastern District of Kentucky at Pikeville.
No. 7:08-cv-93—Amul R. Thapar, District Judge.
Argued: October 12, 2012
Decided and Filed: August 16, 2013
Before: KEITH, MARTIN, and ROGERS, Circuit Judges
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COUNSEL
ARGUED: Judd R. Uhl, MANNION GRAY CO., L.P.A., Fort Wright, Kentucky, for
Appellant/Cross-Appellee. Robert E. Stopher, BOEHL, STOPHER & GRAVES, LLP,
Louisville, Kentucky, for Appellee/Cross-Appellant. ON BRIEF: Judd R. Uhl,
MANNION GRAY CO., L.P.A., Fort Wright, Kentucky, for Appellant/Cross-Appellee.
Robert E. Stopher, Robert D. Bobrow, BOEHL, STOPHER & GRAVES, LLP,
Louisville, Kentucky, for Appellee/Cross-Appellant.
MARTIN, J., delivered the opinion of the court, in which KEITH, J., joined.
ROGERS (15–18), delivered a separate dissenting opinion.
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OPINION
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BOYCE F. MARTIN, JR., Circuit Judge. The legal issue in this case is whether
an insurance company, Universal, must indemnify its insured, Crum Motor Sales, against
a settlement that Crum Motor Sales entered into with a third party, Martin County Coal
1
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Corporation, to settle a personal-injury lawsuit that Crum Motor Sales and one of its
employees, Philip Crum, brought against Martin County Coal for injuries Crum suffered
while on Martin County Coal’s premises. We agree with the district court that Universal
does not have any duty to indemnify Martin County Coal, standing in Crum Motor
Sales’ shoes, because Crum Motor Sales proffered enough evidence in its summary-
judgment motion on the indemnity issue to show that Crum Motor Sales was not actually
legally liable to Martin County Coal in the personal-injury case. Crum Motor Sales was
not actually legally liable to Martin County Coal because the basis of its supposed
liability—an indemnification agreement that Martin County Coal and Crum Motor Sales
entered into in 1997—was unenforceable because it was against public policy for two
reasons. The first reason is that the 1997 indemnification agreement was the product of
a significant disparity in bargaining power between Martin County Coal and Crum
Motor Sales. The second, and related, reason is that the 1997 indemnification agreement
shifted liability for compliance with at least one mining-safety statute away from Martin
County Coal and onto Crum Motor Sales. We therefore AFFIRM the district court’s
judgment.
In 1997, Crum Motor Sales agreed to service Martin County Coal’s light-duty
vehicles, such as pick-up trucks. At the time, Crum Motor Sales was a Kentucky-based
company with five to nine employees. It was on the brink of insolvency. Martin County
Coal, also a Kentucky-based company, was a wholly owned subsidiary of the A.T.
Massey Coal Company, Inc., a Virginia-based corporation publicly traded on the New
York Stock Exchange. The agreement allowed Crum Motor Sales to enter Martin
County Coal’s property to service its vehicles. Under the agreement, Crum Motor Sales’
employees would pick up Martin County Coal’s vehicles either at the coal mine’s guard
gate or office, or elsewhere on the premises, and return them there after Crum Motor
Sales had completed the repairs.
But because Crum Motor Sales’ employees would have to enter Martin County
Coal’s mining site to retrieve the vehicles to be repaired, Martin County Coal also
required Crum Motor Sales to enter into an indemnification agreement in 1997. The
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parties did not bargain over the indemnification agreement’s terms; Crum Motor Sales
agreed to the terms that Martin County Coal put forth. According to this indemnity
agreement, Crum Motor Sales agreed to “release, indemnify, defend and hold harmless
Martin County Coal” over “any and all liabilities, demands, losses, claims and damages
of any kind” caused by the acts or omissions of any of Crum Motor Sales’ employees
while on Martin County Coal’s premises, and with respect to injuries or damages to
Crum Motor Sales or its employees caused by Crum Motor Sales’ performance of work
or service. The indemnity agreement also required Crum Motor Sales to provide Martin
County Coal with proof of insurance coverage for workers’ compensation, commercial
general liability, employer’s liability, and automobile liability “in amounts reasonably
acceptable to Martin County [Coal].” Crum Motor Sales got coverage from Universal.
The coverage was effective from September 2000 to September 2001—the period during
which Philip Crum was injured.
When Philip Crum, a forty-year-old single man and father of two dependent
children, as well as an officer and employee of Crum Motor Sales, arrived at the entrance
to Martin County Coal on the morning of January 19, 2001 to pick up a Martin County
Coal vehicle for repair, he certainly did not know that he would spend the rest of the year
in hospitals and rehabilitation centers. Crum asked David Canterbury, a Martin County
Coal employee, if he could ride with him to the mine site to get a Ford pickup truck to
take in for service. Canterbury agreed, and Crum got in on the passenger side of the
1997 Chevrolet 2500 series pick-up truck. Canterbury drove the truck across the mine
property for almost eight miles along a company haul road.
Suddenly, near the area of Maynard Fork, as the Chevy ascended the last hill to
the highwall miner pit, a boulder—measuring about three-and-a-half feet in
girth—trundled down the slope on the right side of the road. The boulder gained enough
momentum to clear a thirty-foot highwall before it struck the top of the pick-up truck’s
cab—directly above where Crum was seated. Canterbury would later state that he had
no warning before the boulder hit. After impact, the pick-up truck rolled backwards
before coming to a stop. The boulder was so heavy that Canterbury and another Martin
Nos. 11-5773/5793 Martin Cnty. Coal Corp. v. Univ.Underwriters Ins. Co. Page 4
County Coal employee could not move it from the truck cab, nor could they extract
Philip Crum. It took a Caterpillar 988 loader and boom truck to remove the boulder and
to pull the cab of the truck up and away from Crum so that he could be extricated. Crum
emerged with broken bones—a left tibia, a fibula, and a right femur, as well as a
fractured pelvis. He also sustained a concussion. Philip Crum spent the rest of 2001 in
hospitals and rehabilitation centers, finally returning home to Inez, Kentucky on
December 31, 2001.
Both a Kentucky and a federal mine-regulatory agency investigated the accident.
A federal mine-safety regulation imposed on Martin County Coal a duty to “strip[]”
“[l]oose hazardous material . . . for a safe distance from the top of pit or highwalls” and
otherwise secure “loose unconsolidated material.” 30 C.F.R. § 77.1001. The Mine
Safety and Health Administration of the United States Department of Labor issued
Martin County Coal a citation, having found that “[l]oose unconsilidated [sic] rock and
dirt was present above the roadway leading to the Maynard Fork workings in the area
where [the accident] occurred from falling rock.” The citation also stated that “[t]his
condition existed for a distance of [about] 150–200 feet.” Whoever filled out the citation
form checked a box indicating that Martin County Coal’s negligence was “moderate.”
An administrative law judge of the Federal Mine Safety and Health Review Commission
approved a settlement in which Martin County Coal agreed to pay a civil penalty of
$6,000 “for the alleged violation of mine safety regulations.” Sec’y of Labor, Mine
Safety & Health Admin. v. Martin Cnty. Coal Corp., 2002 WL 31056752(F.M.S.H.R.C.).
Then, in 2002, both Philip Crum and Crum Motor Sales sued Martin County Coal
in Kentucky state court in Martin County. In their complaint, they alleged that Martin
County Coal and its employees were negligent and grossly negligent in maintaining its
mining operations. They alleged that Martin County Coal and its employees allowed the
slope above the roadway where the accident occurred to become unstable, which caused
the boulder to roll down the slope and crash into the pick-up truck, injuring Crum.
Philip Crum sought damages for his injuries, and Crum Motor Sales sought
Nos. 11-5773/5793 Martin Cnty. Coal Corp. v. Univ.Underwriters Ins. Co. Page 5
consequential damages, presumably in the form of lost income, stemming from Philip
Crum’s injuries and his inability to work. But in answering the complaint, Martin
County Coal counterclaimed against Crum Motor Sales. The counterclaim asserted that
neither Crum nor Crum Motor Sales could recover from Martin County Coal because
Crum Motor Sales had entered into the 1997 indemnification agreement requiring Crum
Motor Sales to “indemnify, defend and hold harmless” Martin County Coal from any
claims that either Crum Motor Sales or its employees might bring against Martin County
Coal.
Faced with Martin County Coal’s counterclaim asserting that Crum Motor Sales
would have to defend Martin County Coal against Philip Crum’s lawsuit, Crum Motor
Sales asked its insurer, Universal, to defend it in the counterclaim. Universal declined
to do so, asserting that exclusions C and D of its policy with Crum Motor Sales applied.
Martin County Coal entered into mediation with Philip Crum and Crum Motor Sales.
Both Martin County Coal and Crum Motor Sales invited Universal to attend mediation,
but Universal declined.
In 2008, after mediation, Crum Motor Sales and Martin County Coal then
entered into a settlement agreement. Martin County Coal agreed—without admitting
liability for the accident—to pay $3,650,000 to Philip Crum and Crum Motor Sales. In
consideration for paying this amount, Crum Motor Sales agreed to do two things. First,
it agreed to enter into an “agreed judgment” in Kentucky state court in Martin County
on Martin County Coal’s counterclaim, then still pending. The agreed judgment would
be against Crum Motor Sales and in favor of Martin County Coal for $3,650,000 (plus
costs and attorneys’ fees) pursuant to the 1997 indemnification agreement. In other
words, Crum Motor Sales agreed that the 1997 indemnification agreement made Crum
Motor Sales liable to indemnify Martin County Coal against the $3.65 million
settlement. Second, Crum Motor Sales agreed to assign to Martin County Coal any
rights that Crum Motor Sales might have to recover money from Universal for Crum’s
injuries. In exchange, Martin County Coal agreed not to enforce the agreed judgment
Nos. 11-5773/5793 Martin Cnty. Coal Corp. v. Univ.Underwriters Ins. Co. Page 6
against Crum Motor Sales. Martin County Coal also agreed to assume all risks
associated with the assignment.
Later in 2008, Martin County Coal—now standing in the shoes of Crum Motor
Sales—sued Universal, Crum Motor Sales’ insurer, in Kentucky state court seeking the
amount of Martin County Coal’s settlement with Crum Motor Sales. Universal removed
the case to federal court because of the diversity of the parties. The first question in the
case was whether Universal had a duty to defend Crum Motor Sales. The district court
held that, because Crum Motor Sales’ dispute with Martin County Coal might have come
within the coverage of Universal’s policy, Universal did have a duty to defend Crum
Motor Sales. Ultimately, Universal moved for summary judgment, arguing that it could
avoid paying for Crum Motor Sales’ settlement with Martin County Coal because Crum
Motor Sales was not actually liable to Martin County Coal. The district court granted
the motion because Martin County Coal failed to support its arguments with record
evidence. Martin County Coal appealed, and Universal filed a protective cross-appeal.
We review de novo a district court’s grant of summary judgment. EEOC v.
Prevo’s Family Mkt., Inc., 135 F.3d 1089, 1093 (6th Cir. 1998). Summary judgment is
proper if there is no genuine issue as to any material fact and the moving party is entitled
to judgment as a matter of law. Id. The party moving for summary judgment bears the
burden of demonstrating that there is an absence of evidence to support the nonmoving
party’s case. Id. Once the moving party satisfies its burden, the burden shifts to the
nonmoving party to set forth specific facts showing a triable issue. Mosholder v.
Barnhardt, 679 F.3d 443, 448–49 (6th Cir. 2012) (citing Matsushita Elec. Indus. Co. v.
Zenith Radio Corp., 475 U.S. 574 (1986); Fed. R. Civ. P. 56(e)). The court must
determine either whether the evidence—viewed in the light most favorable to the
nonmoving party—presents a sufficient disagreement to require submission to the fact-
finder, or whether the evidence is so one-sided that the moving party must prevail as a
matter of law. Prevo’s Family Mkt., Inc., 135 F.3d at 1093 (citing Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 251–52 (1986)).
Nos. 11-5773/5793 Martin Cnty. Coal Corp. v. Univ.Underwriters Ins. Co. Page 7
On appeal, Martin County Coal argues that the district court erred in its June 1,
2011 order and opinion granting summary judgment to Universal and holding that
Universal did not owe indemnity to Martin County Coal standing in the shoes of Crum
Motor Sales. The district court held that Universal did not owe indemnity to Martin
County Coal because Crum Motor Sales was not actually legally liable to Martin County
Coal. Martin County Coal argues that Kentucky law does not require insureds, like
Crum Motor Sales to prove that they were actually legally liable for a settlement before
compelling an insurer, like Universal, to indemnify the insured against the settlement.
Martin County Coal is wrong. Under Kentucky law, an insured who has paid a
settlement to a third party must prove that it could have been legally compelled to pay
the settlement before the insured can get indemnity from its insurer. The duty to
indemnify, under Kentucky law, “only arises when there is an actual basis for the
insured’s liability to a third party.” Travelers Prop. Cas. Co. of Am. v. Hillerich &
Bradsby Co., Inc., 598 F.3d 257, 269 (6th Cir. 2010) (citing James Graham Bround
Found, Inc. v. St. Paul Fire & Marine Ins. Co., 814 S.W.2d 273, 279–80 (Ky. 1991); Ky.
Sch. Bds. Ins. Trust v. State Farm Mut. Ins., 907 F. Supp. 1036, 1038 (E.D.Ky. 1995)).
Stated differently, if an insured settles with a third party, but the insured would not have
been actually legally liable to the third party, then the insurer does not have to indemnify
the insured for having paid a settlement to the third party. Kentucky School Boards
Insurance Trust v. State Farm Mutual Insurance, 907 F.Supp. 1036 (E.D. Ky. 1995), and
Barnes v. Pennsylvania Casualty Company, 208 S.W.2d 314 (Ky. 1948) illustrate
Kentucky’s actual-legal-liability rule.
In Kentucky School Boards, the Halls, a mother and her son, were struck by a car
right after the son got off a school bus at a school-bus stop in Knott County, Kentucky.
Ky. Sch. Bds., 907 F. Supp. at 1037. The mother died, and her son was seriously injured.
Id. The Halls filed a personal-injury action against the car’s driver and the Knott County
Board of Education. Id. The School Board had two insurance policies covering its
vehicles: a general liability insurance policy with the Kentucky School Boards Insurance
Trust and an automobile liability insurance policy with State Farm. Id. State Farm
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denied that its policy covered the accident and refused to defend the School Board. Id.But the Trust did defend the School Board, and, without State Farm’s consent, paid a
settlement to the Halls. Id. Then, the Trust sued State Farm to recover all or part of the
settlement amount as well as the costs of defending the School Board. Id.The district court stated the rule that, under Kentucky law, the Trust, if it were
to assert the School Board’s rights against State Farm under the insurance contract,
would have to present evidence of negligence and causation. Id. at 1037–38 (citing
Barnes, 208 S.W.2d at 315; Royal Indem. Co. v. May & Ball, 300 S.W. 347 (Ky. 1927);
Interstate Cas. Co. v. Wallins Creek Coal Co., 176 S.W. 217 (Ky. 1915)). Applying
Barnes, the district court in Kentucky School Boards Insurance Trust explained that “for
[the Trust] to succeed on its subrogated claim, it “must show that the School Board had
a legally enforceable claim against State Farm. That is, there must have been liability
of the School Board to the Halls in the antecedent [personal-injury] case and such
liability must have been covered by the State Farm policy.” Id. at 1038 (footnote
omitted).
In Barnes, one of Barnes’ dump trucks collided with a bus. Barnes, 208 S.W.2d
at 314. Barnes paid the bus’s owners $800 to settle the matter. Id. Barnes then sued
Pennsylvania Casualty Company for reimbursement of the $800. Id. The court did not
even reach the question of whether or not Pennsylvania Casualty Company’s insurance
contract with Barnes “covered the dump truck . . . because its liability under that contract
was conditioned upon the negligence of [Barnes], his agents or servants, in operating the
truck.” Id. at 315. The court stated the rule that “the liability imposed by law upon the
insured is only that caused by his negligence.” Id. (internal quotation marks omitted).
So, “[i]f the accident was not the result of the negligence of [Barnes], his agents or
servants, then the law imposes no liability upon him, and in turn, his insurance carrier
is not liable.” Id. Accordingly, “before [Pennsylvania Casualty Company] can be held
liable under the contract of insurance it must be established that the accident was the
result of [Barnes’] negligence.” Id. (citing Royal Indem., 300 S.W. at 349). In Barnes,
the court observed, Barnes failed to introduce any evidence to show that the accident
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between his dump truck and the bus resulted from the dump truck’s driver’s negligence.
Id. The driver of the dump truck (Barnes’ son) did not testify, nor did the bus’s driver
nor any other eyewitness. Id.
Here, the actual-legal-liability rule was incorporated into Crum Motor Sales’
policy with Universal. The policy expressly provided that Universal would only be
liable to indemnify Crum Motor Sales for “sums [Crum Motor Sales] legally must pay
as damages.” (emphasis added). Stated differently, Universal’s duty to indemnify Crum
Motor Sales was contingent upon Crum Motor Sales’ actual liability to a third party such
as Martin County Coal.
But Crum Motor Sales was not actually legally liable to Martin County Coal
because the basis of this liability—the 1997 indemnity agreement between Martin
County Coal and Crum Motor Sales—violates public policy and so is unenforceable.
Under Kentucky state law, “[a]s a general rule, a party cannot contract away liability for
damages caused by that party’s failure to comply with a duty imposed by a safety
statute.” Cumberland Valley Contractors, Inc. v. Bell Cnty. Coal Corp., 238 S.W.3d
644, 646 (Ky. 2007). Common sense tells us that the rationale behind this rule is that
exculpatory contracts—like the 1997 indemnification agreement—allow a party like
Martin County Coal to avoid liability for its own negligence, which reduces its incentive
to comply with safety statutes. Kentucky law disfavors such exculpatory agreements;
while “[a]n exculpatory contract for exemption from future liability for negligence,
whether ordinary or gross, is not invalid per se . . . such contracts are disfavored[.]” Id.
at 649 (quoting Hargis v. Baize, 168 S.W.3d 36, 47 (Ky. 2005)).
Here, the 1997 indemnification agreement allows Martin County Coal to escape
liability for damages caused by Martin County Coal’s violation of a safety statute,
30 C.F.R. § 77.1001, which imposed on Martin County Coal a duty to “strip[]” “[l]oose
hazardous material . . . for a safe distance from the top of pit or highwalls” and otherwise
secure “loose unconsolidated material.” 30 C.F.R. § 77.1001. On appeal, Martin
County Coal has not argued that the district court erred by holding that Martin County
Coal sought to enforce its 1997 indemnity agreement against Crum Motor Sales to avoid
Nos. 11-5773/5793 Martin Cnty. Coal Corp. v. Univ.Underwriters Ins. Co. Page 10
damages resulting from Martin County Coal’s violation of this safety regulation. Indeed,
the effect of the 1997 indemnification agreement is to shift liability imposed on it by
30 C.F.R. section 77.1001 to Crum Motor Sales, and by extension, to Universal. But
Martin County Coal cannot do that. The rule of Cumberland Valley Contractors applies
to this case: “‘[a] party cannot contract away liability for damages caused by that party’s
failure to comply with a duty imposed by a safety statute.’” Cumberland Valley
Contractors, 238 S.W.3d at 651 (quoting Hargis, 168 S.W.3d at 47). Martin County
Coal cannot contract away liability for damages caused by its failure to comply with a
duty imposed by a safety statute.
Furthermore, when Kentucky “courts have invalidated exculpatory clauses based
upon a breach of a statutory duty or breach of a duty to the public at large, those
agreements involved a major disparity in bargaining power between the parties.” Id. at
653. As an example, the Kentucky Supreme Court looked at Hargis, in which a
“significant disparity in bargaining positions existed between the two parties to that
contract.” Id. In Hargis, “[t]he plaintiff’s decedent was an individual truck driver who
worked as an independent contractor with the defendant owner of several sawmills.” Id.
(citing Hargis, 168 S.W.3d at 39). The Court further observed that “[p]resumably, the
plaintiff’s decedent in Hargis was required to sign the release at issue before he could
deliver logs to the defendant’s sawmill and, therefore, was ‘compelled to submit to the
stipulation.’” Id.
The Kentucky Supreme Court distinguished Hargis from the facts in Cumberland
Valley Contractors, because, in Cumberland Valley Contractors, “sophisticated
corporate entities negotiated the allocation of a jointly shared risk and expressly
incorporated that risk allocation into a contract that neither of them was compelled to
enter into to obtain a necessity, such as medical care or personal employment.” Id. The
Kentucky Supreme Court found “no suggestion that [Bell County Coal and Cumberland
Valley Contractors] were not on ‘a footing of equality[.]’” Id. at 654 (quoting D.H.
Davis Coal Co. v. Polland, 62 N.E. 492, 495–96 (Ind. 1902)).
Nos. 11-5773/5793 Martin Cnty. Coal Corp. v. Univ.Underwriters Ins. Co. Page 11
Rather, because Bell County Coal and Cumberland Valley Contractors were
dealing at arm’s length and upon an equal footing, the effect of the exculpatory clause
in that case was not so much that Bell County Coal contracted against its own negligence
as that Cumberland Valley Contractors agreed to alone bear all risks. Id. (quoting Jones
v. Hanna, 814 S.W.2d 287, 289 (Ky. Ct. App. 1991)) (quotation marks omitted).
Cumberland Valley received consideration for agreeing to bear the risks of flooding, and
so the Court could not “‘see that the public [was] in any wise affected by such a
contract[.]’” Id. (quoting Greenwich Ins. Co. v. Louisville & Nashville R.R. Co., 66 S.W.
411 (Ky. 1902)). So, “[g]iven that the [exculpatory clause] was negotiated as part of an
arm’s-length transaction between two business corporations with presumably equal
bargaining power,” the Court found “no compelling reason to disturb their written
contract.” Id.As the Kentucky Supreme Court has more recently held, indemnification
provisions “applied to defend against the indemnitee’s own negligence, are not against
public policy generally, but they are when agreed to by a party in a clearly inferior
bargaining position.” Speedway Superamerica, LLC v. Erwin, 250 S.W.3d 339, 344 (Ky.
2008).
Here, Crum Motor Sales was in a clearly inferior bargaining position in relation
to Martin County Coal. Crum Motor Sales is the independent contractor in Hargis, not
the sophisticated mining entity in Cumberland Valley Contractors. At the time of
entering into the 1997 indemnification agreement, Martin County Coal was a wholly
owned subsidiary of an out-of-state corporation, the A.T. Massey Coal Company, Inc.,
listed on the New York Stock Exchange. Crum Motor Sales was a nearly insolvent
mom-and-pop wholly in-state company with fewer than ten employees. We therefore
disagree with Martin County Coal’s assertion that Crum Motor Sales “was a
sophisticated business entity.” There was a major disparity in bargaining power between
Martin County Coal and Crum Motor Sales.
We infer that this disparity in bargaining power existed because Martin County
Coal required that Crum Motor Sales sign the indemnity agreement, without bargaining
Nos. 11-5773/5793 Martin Cnty. Coal Corp. v. Univ.Underwriters Ins. Co. Page 12
over it, before it would allow it to perform any work. Just as the sawmill owner in
Hargis required the plaintiff’s decedent to release from liability the sawmill owner
before entering the premises, so did Martin County Coal require Crum Motor Sales to
sign the 1997 indemnification agreement before entering Martin County Coal’s premises
to perform repair work. Testimony in the record of Martin County Coal’s former
president and Massey Energy’s former corporate counsel shows that Martin County Coal
simply required the indemnity agreement and did not allow negotiations over its terms.
Dennis Hatfield, Martin County Coal’s president from 1994 to 2001, who
testified on behalf of Martin County Coal pursuant to Federal Rule of Civil Procedure
30(b)(6), stated that Martin County Coal, during the time of his presidency, required, as
a company policy, vendors coming on the property to provide services both to have
insurance and to sign an indemnification agreement. When asked whether anyone who
wanted to enter Martin County Coal’s property was able to persuade the company to
modify or vary the terms of the release, Hatfield responded no, and that the
1997 indemnification agreement was a “standard agreement” which Martin County Coal
“required of all parties.”
Another Rule 30(b)(6) witness, John Poma, who served as corporate counsel for
Massey Energy Company, Martin County Coal’s parent company, testified that the
1997 indemnification agreement “was a requirement for work to be done for the property
at Martin County or any of our other subsidiaries[,]” and that Crum Motor Sales “just
needed to agree that they were going to come onto our property, that if anything
happened they would agree to indemnify and hold us harmless.” Poma further testified
that the 1997 indemnification agreement was not customized in any way, other than the
entering of the names Martin County Coal and Crum Motor Sales. Poma said that “[t]he
communications with any of our customers coming onto [the] property would be if
you’re going to come onto [the] property, you need to sign the agreement as a
requirement of doing business.”
And, in answering interrogatories in Philip Crum’s personal injury case, Crum
Motor Sales wrote that no negotiations were conducted for the 1997 indemnification
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agreement, which Martin County Coal required Crum Motor Sales to accept before it
could conduct business with Martin County Coal.
So, contrary to Martin County Coal’s assertion in its brief, there is evidence in
the record that Martin County Coal forced Crum Motor Sales to enter into the 1997
indemnity agreement to get Martin County Coal’s business. The 1997 indemnification
agreement was a take-it-or-leave-it contract.
Because the 1997 indemnification agreement was bargained by parties in clearly
unequal positions, and because it effectively contracted away liability for damages
caused by Martin County Coal’s failure to comply with a duty imposed by a federal
mine-safety regulation, the 1997 indemnification is, under Kentucky law, void as against
public policy.
Therefore, Crum Motor Sales was not actually legally liable to Martin County
Coal on Martin County Coal’s contractual-indemnity counterclaim in the underlying
case. As a result, the indemnity claim that Crum Motor Sales assigned to Martin County
Coal—and which Martin County Coal is now asserting against Universal—fails as a
matter of law. Crum Motor Sales was not actually legally liable for the $3.65 million
that it agreed to pay Martin County Coal under the settlement and agreed judgment.
Universal has filed a protective cross-appeal of the district court’s January 4,
2010 order granting summary judgment against it and in favor of Martin County Coal
and holding that Universal owed Crum Motor Sales a duty to defend it against Martin
County Coal’s counterclaim in Kentucky state court based on the 1997 indemnification
agreement. We have allowed parties to bring protective cross-appeals to be considered
in the event that the appellant, here Martin County Coal, succeeds in its own appeal.
Rice v. Ohio Dep’t of Transp., 14 F.3d 1133 (6th Cir. 1994); Avery Prods. Corp. v.
Morgan Adhesives Co., 496 F.2d 254 (6th Cir. 1974). As we have said, “[a] protective
cross-appeal differs from a cross-appeal because the protective cross-appellant is not
necessarily dissatisfied with the judgment. Appellate courts generally allow protective
cross-appeals but do not consider them unless it is appropriate to do so after the
disposition of the appeal.” Anderson v. Roberson, 90 F. App’x 886, 888 (6th Cir.
Nos. 11-5773/5793 Martin Cnty. Coal Corp. v. Univ.Underwriters Ins. Co. Page 14
2004)(unpublished) (internal quotations and citations omitted) (quoting Hartman v.
Duffey, 19 F.3d 1459, 1465 (D.C. Cir. 1994)).
Here, because we affirm the district court’s June 1, 2011 order, and agree that
Crum Motor Sales was not actually liable to Martin County Coal so that Universal had
no duty to indemnify Martin County Coal standing in the shoes of Crum Motor Sales,
we need not address Universal’s protective cross appeal of the district court’s January
4, 2010 order concluding that Universal breached its duty to defend Crum Motor Sales.
For the foregoing reasons, we AFFIRM the district court’s judgment.
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________________
DISSENT
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ROGERS, J., Circuit Judge, dissenting. This case involves a contractor’s
agreement with a mine operator to indemnify for, and obtain insurance covering, injury
to the contractor’s employees while on the mine operator’s land. A terrible accident
resulting from a regulatory violation by the mine operator gravely injured an employee
of the contractor. The employee has been compensated with $3.6 million from the mine
operator. The contractor, it turns out, had complied with its contractual obligation and
obtained the insurance. The issue on appeal is whether the mining company, having paid
the compensation, can ultimately recover over on the insurance that it successfully
required the contractor to obtain. There is nothing in Kentucky public policy that
prohibits such an indemnity resulting from a contract between two employers, where the
arrangement could in no way have led to the employee’s not recovering. This is not a
case where the mine contractually required the employee to bear the risk as a condition
of employment, in which case there might have been no recovery absent a public policy
against such a contract. To extend this public policy to invalidate contracts requiring
that other parties obtain insurance is not consistent with the very idea that entities can
obtain insurance covering liability for their own negligence. The winner on this appeal
is not the small company that faithfully obtained the insurance that it contracted to
obtain, but the insurance company that will not have to pay for losses that it accepted
premiums to cover. I therefore respectfully dissent.
For the reasons given by the district court, Universal owed Crum Motor Sales a
contractual duty to defend, which it breached. Moreover, I agree with the majority that
Universal should not have to pay if Crum Motor Sales had no obligation to indemnify
Martin County Coal. Under Kentucky law and the facts of this case, however, Crum
Motor Sales did have such an obligation.
Kentucky law generally counsels against invalidating contracts. It is true that an
agreement that exempts a party from liability for future negligence is “disfavored and
Nos. 11-5773/5793 Martin Cnty. Coal Corp. v. Univ.Underwriters Ins. Co. Page 16
. . . strictly construed against the [party] relying upon [it].” Hargis v. Baize, 168 S.W.3d
36, 47 (Ky. 2005); see also Cumberland Valley Contractors, Inc. v. Bell Cnty. Coal
Corp., 238 S.W.3d 644, 650 (Ky. 2007). Such contracts must be unmistakably clear as
to the liabilities released and assumed, and the contract may be relied upon only for
harms that were “clearly within the contemplation of the [parties].” Hargis, 168 S.W.3d
at 47.
But there is of course no contract in this case that exempts Martin County Coal
from liability. The injured employee received $3.6 million and the resolution of this
appeal in no way affects that payment one way or another. The plaintiff in Hargis was
an individual, although to be sure he was an independent contractor for workers’
compensation purposes. The release in Hargis made clear that the lumber company that
caused his injury was forever held harmless for any bodily injury sustained by an
individual worker. Id. at 46-47. This is a classic exemption from liability and precisely
the type of pre-injury release that courts often invalidate as against public policy.
Indeed, the commentary to the Restatement (Second) of Torts, § 496B, relied upon by
Hargis, 168 S.W.2d at 47, states:
Where the defendant and the plaintiff are employer and employee, and
the agreement relates to injury to the employee in the course of his
employment, the courts are generally agreed that it will not be given
effect. The basis for such a result usually is stated to be the disparity in
bargaining power and the economic necessity which forces the employee
to accept the employer’s terms, with the general policy of the law which
protects him against the employer’s negligence and against unreasonable
contracts of employment.
Restatement (Second) of Torts § 496B cmt.f (1965). It was a small jump for the
Kentucky Supreme Court to extend this widely accepted public policy doctrine to
individuals who work for employers but who are technically independent contractors.
In each case, without the public policy exception there would be no recovery for the
negligence—an untoward result.
This public policy does not logically extend to prohibiting an employer from
obtaining insurance to cover its liability for negligence. That would be an absurd
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reading of Hargis. Indeed, public policy arguably supports obtaining insurance, so that
injured workers get compensation. The coal mining company in this case insisted that
a contracting company obtain insurance so as to indemnify the mining company for the
compensation that it must pay to the individual. This is a commercial transaction
designed to shift the cost of insurance, not a release to avoid compensation to the injured
worker. Particularly in this case, where the contractor was able to obtain the insurance
as part of its cost of doing business, it makes no sense to say that public policy protects
the contractor’s insurance company from liability.
This reasoning is supported a fortiori by the Kentucky Supreme Court’s later
case of Cumberland Valley Contractors, Inc. v. Bell County Coal Corp., 238 S.W.3d 644(Ky. 2007). That case involved economic harm resulting to a mine operator from the
landowner’s violation of a safety regulation. The court upheld as valid an exculpatory
clause in the mining contract. The case in other words involved no liability to the
injured party, not who was going to have to pay or who was going to have to obtain
insurance. The court still held that the exculpatory clause was enforceable. To
invalidate a contractual provision, the court required a major disparity in bargaining
power. The court distinguished the situation in Hargis where “[t]he plaintiff’s decedent
was an individual truck driver who worked as an independent contractor with the
defendant owner of several sawmills,” from that in Cumberland Valley, in which
“sophisticated corporate entities negotiated the allocation of a jointly shared risk,” and
neither party “was compelled to enter into [a contract] to obtain a necessity, such as
medical care or personal employment.” Id. at 653. I do not assume that a family-run,
rural business is of necessity one that must be viewed as unsophisticated, but even if so,
Crum Motor Sales was clearly not an individual and there was no necessity such as
“medical care or personal employment.” Thus even if the contractual provision in this
case could be described as an exculpatory clause, which it could not, the instant case
appears much closer to Cumberland Valley than to Hargis.
But the contract was not an “exculpatory clause.” It was an insurance obligation
clause, not exculpating the coal operator, but agreeing to obtain insurance to indemnify
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him. And despite any asserted lack of sophistication, Crum Motor Sales was able to
obtain the required insurance from Universal, an entity that in turn certainly does not
lack in sophistication.
The later decision of the Court of Appeals of Kentucky in Speedway
Superamerica, LLC v. Erwin, 250 S.W.3d 339 (Ky. Ct. App. 2008), is like Hargis and
similarly does not support Universal. The court in Speedway invalidated an
indemnification provision signed by a 55-year-old man with an eighth grade education
who was injured at work. Id. at 340. The court said the provision was analytically
indistinguishable from an exculpatory, pre-injury release. Id. at 341. As in Hargis, but
unlike in the instant case, validating the contractual provision would have precluded
recovery by the injured individual.
There is little harm to the public where these risks are adequately insured against.
Here, Crum Motor Sales was required to provide the insurance for mine-site accidents
befalling its own employees, and Crum Motor Sales did indeed procure such insurance.
A fair resolution of this case would require Universal to accept responsibility under its
policy, and public policy certainly does not preclude it. I would reverse and remand.
Finally, I would dismiss the cross-appeal for lack of appellate jurisdiction.
Parties may not cross-appeal judgments where they seek no change to the judgment
appealed from. See Wheeler v. City of Lansing, 660 F.3d 931, 939–40 (6th Cir. 2011).
Counsel for Universal may of course defend their favorable judgment on grounds
rejected by the district court, but they are not entitled under the appellate rules to file an
extra brief to do so. Treating Universal’s arguments on cross-appeal as arguments
supporting affirmance on grounds rejected by the district court, I would reject those
arguments for the reasons given by the district court.