S&B Engineers & Constructors, Ltd. and Zurich American Insurance Company v. Scallon Controls, Inc. ( 2024 )

In The
Court of Appeals
Ninth District of Texas at Beaumont
__________________
NO. 09-22-00261-CV
__________________
S&B ENGINEERS & CONSTRUCTORS, LTD. AND
ZURICH AMERICAN INSURANCE COMPANY, Appellants
V.
SCALLON CONTROLS, INC., Appellee
__________________________________________________________________
On Appeal from the 172nd District Court
Jefferson County, Texas
Trial Cause No. E-198,919
__________________________________________________________________
MEMORANDUM OPINION
In this appeal, defendants (and an insurer) who paid to settle a lawsuit are
seeking a recovery from a third-party-defendant for the amounts paid in the
settlement. Appellant S&B Engineers and Constructors, Ltd. (“S&B”) appeals from
an Order on Cross Motions for Summary Judgment. In the order, the trial court
granted summary judgment in favor of Appellee Scallon Controls, Inc. (“Appellee”
or “Scallon”) on all claims asserted against Scallon and denied S&B’s motion for
1
partial summary judgment against Scallon. In four issues on appeal, S&B argues that
the trial court erred. Appellant Zurich American Insurance Company (“Zurich”),
who was an intervenor in the trial court and asserted subrogation rights as Sunoco’s1
insurer, also appeals. As explained herein, we affirm.
Background
Seven individual plaintiffs (“Individual Plaintiffs”) filed a personal injury
lawsuit against Sunoco Logistics Partners Operations GP LLC, Sunoco Logistics
Partners LP (collectively “Sunoco”), and S&B. 2 The Individual Plaintiffs alleged
they were employed by Insulations, Inc. as insulators and insulator helpers, and on
January 5, 2015, they were working at a Sunoco Logistics Terminal. While working,
they heard a loud noise or explosion and saw a thick “chemical cloud” (later
determined to be a fire suppressant chemical called “Purple K”) moving toward
them. As they tried to leave the work area, several of them fell and sustained injuries.
According to the petition, the Fire Suppression System was activated while the S&B
instrument technicians were working in the area, and when they attempted to “put
the system in alarm fail,” it caused the loud noise the Individual Plaintiffs heard and
1
Sunoco is not a party to this appeal. At trial, Sunoco Logistics Partners
Operations GP LLC and Sunoco Logistics Partners LP (collectively “Sunoco”) were
defendants.
2
We do not name the individual plaintiffs but rather refer to them herein
collectively as “the Individual Plaintiffs” because the Individual Plaintiffs settled
their claims, and this appeal concerns claims between the defendant S&B, Sunoco’s
insurer (intervenor Zurich), and third-party defendant Scallon.
2
the cloud that the Individual Plaintiffs saw. The Individual Plaintiffs alleged that the
Defendants’ (S&B and Sunoco) negligence proximately caused their injuries.3
S&B filed a general denial answer and an Original Third-Party Petition
against Scallon. In the Third-Party Petition S&B alleged that Scallon’s negligence
in performing “PLC Technical Services”4 was a proximate cause of the release of
Purple K and of the Individual Plaintiffs’ injuries. S&B also asserted that if S&B is
found liable for Individual Plaintiffs’ damages, then Scallon, as a third-party
defendant, would be liable to S&B for contribution. According to S&B’s third-party
petition, it entered into a Subcontract Agreement (“Subcontract”) with Scallon that
included a provision that Scallon defend, indemnify, and hold S&B harmless against
any and all losses. S&B asserted a claim for contribution and indemnity under the
Subcontract Agreement and a Purchase Order.
3
Specifically, the Individual Plaintiffs alleged the following acts or omissions
of negligence by all the Defendants: failure to provide a safe environment; failure to
inspect the worksite to make sure it was safe; failure to remedy the condition on the
premises that caused the Individual Plaintiffs’ injuries; failure to warn the Individual
Plaintiffs of the sound of an explosion or the release of the cloud; negligent
installation of the fire suppression system; negligent check of the fire suppression
system in a crowded area with workers present; negligent inspection of the fire
suppression system; negligent coordination of work on the fire suppression system
and in the Area 250 Pipe Rack; negligent training of employees working on or
around the fire suppression system; and negligent purchase and use of the fire
suppression system.
4
A purchase order included in the record reflects “PLC” refers to
“Programmable Logic Controller.”
3
Sunoco also filed a third-party petition against Scallon. According to Sunoco,
discovery revealed that software and hardware errors had resulted from Scallon’s
negligence, Scallon had subcontracted with S&B to provide services, and Scallon’s
negligence was the proximate cause of the accidental release of fire retardant.
Sunoco sought contribution and indemnity from Scallon.
In its Answer, Scallon asserted a general denial and the following affirmative
defenses: the injuries were caused by the acts or omissions of others for whom
Scallon was not responsible; the injuries resulted from new and independent
intervening or superseding causes; the injuries resulted from Third-Party Plaintiff’s
own negligence. We include a chart below to demonstrate the relationship of the
parties.
4
Over the course of the underlying lawsuit, S&B amended its petition against
Scallon, and S&B’s Ninth Amended Original Petition was S&B’s live pleading
when the trial court rendered its Final Judgment. In the Ninth Amended Original
Petition, S&B asserted claims against Scallon pursuant to its Subcontract, as well as
the Terms and Conditions of the Purchase Order. S&B asserted a claim for breach
of contract, alleging that Scallon (1) changed the work from what was instructed
without obtaining prior written approval by S&B, and (2) Scallon failed to indemnify
S&B as required by the Purchase Order and Subcontract. S&B also asserted a claim
against Scallon for breach of express warranty under both the Purchase Order and
Subcontract, alleging that Scallon’s work had defects and did not conform to S&B’s
specifications. Specifically, S&B alleged that it directed Scallon that both the inputs
and outputs of the Fire Suppression System should be configured as “non-fail-safe”
but that Scallon configured the inputs as “fail-safe.” S&B also asserted claims for
breaching the implied warranty of fitness for a particular purpose and the warranty
of merchantability under the UCC. 5 S&B sought damages of $2,350,000 that it paid
in settling with the Individual Plaintiffs plus $2,000,000 paid by insurers on its
behalf, Zurich American Insurance Company (“Zurich”) and American Guarantee
and Liability Insurance Company.
5
Citing Tex. Bus. & Com. Code Ann. §§ 2.314, 2.315.
5
Scallon filed a Counterclaim against S&B, alleging that S&B failed to meet
its obligations under the Sunoco Contract, and S&B’s errors and omissions were the
proximate cause of the equipment failure, the release of Purple K, and the Individual
Plaintiffs’ injuries, and sought a recovery of Scallon’s attorney’s fees and expenses
in the lawsuit. Scallon also demanded that S&B defend and indemnify Scallon
pursuant to the parties’ Subcontract. The Counterclaim also stated a claim for breach
of contract, alleging that S&B breached its obligations under the Subcontract to
defend and indemnify Scallon. Scallon pleaded actual and consequential damages,
attorney’s fees, and interest.
S&B and Sunoco settled with all the Individual Plaintiffs. Copies of the
confidential settlement agreements that are in the record include a provision in which
the Individual Plaintiffs agree that all their claims against Defendants S&B and
Sunoco are fully released and discharged, and a provision in which S&B and Sunoco
fully and completely release and discharge each other from all claims relating to the
matter. After the settlements, the lawsuit was restyled as S&B Engineers and
Constructors, Ltd., Sunoco Logistics Partners Operations GP LLC, and Sunoco
Logistics Partners LP, Plaintiffs v. Scallon Controls, Inc., Defendant. Thereafter,
Sunoco also nonsuited its claims without prejudice, and Zurich filed a Petition in
Intervention asserting subrogation claims, seeking to recover the amounts it paid on
behalf of Sunoco, its insured, to settle with the Individual Plaintiffs.
6
Subcontract and Purchase Order
The Subcontract between S&B and Scallon is styled “Short Form Subcontract
Agreement[,] PLC Technical Services” and states that it is for “Subcontracted
Services (Services/Work)”—namely, “labor, equipment, tools, and consumables
necessary as needed to complete the PLC Technical Services”—and “[t]hese
services are for equipment purchased on S&B Purchase order number C1505-
I0050.” (“Purchase Order”) The Subcontract was signed by the parties’
representatives in September and October of 2014. The first page of the Subcontract
defines the S&B as the Contractor and Scallon as the Subcontractor. The Subcontract
includes the following provisions at issue in this lawsuit:
2. Warranty and Guarantee. All articles, materials and Work,
furnished by or through SUBCONTRACTOR shall be of good quality
and free from any defects and conform to CONTRACTOR’S
specifications, and shall at all times be subject to CONTRACTOR’S
inspection; but neither CONTRACTOR’S inspection nor failure to
inspect shall relieve SUBCONTRACTOR of any obligation hereunder.
9. Liability Indemnity. SUBCONTRACTOR [SCALLON] SHALL
BE SOLELY RESPONSIBLE FOR ALL MATERIALS,
EQUIPMENT AND SERVICES UNTIL THE WORK IS
COMPLETED TO CONTRACTOR’S SATISFACTION.
SUBCONTRACTOR SHALL BE SOLELY RESPONSIBLE FOR
TOOLS, EQUIPMENT AND OTHER PROPERTY OWNED,
RENTED OR LEASED BY SUBCONTRACTOR OR
EMPLOYEE WHICH ARE NOT TO BE INCORPORATED
INTO THE WORK.
SUBCONTRACTOR SHALL DEFEND, INDEMNIFY AND
SAVE HARMLESS THE CONTRACTOR [S&B] AND OWNER
[SUNOCO] AND THEIR PARENTS AND AFFILIATED
COMPANIES (“INDEMNITEES”) FROM AND AGAINST ANY
7
AND ALL LOSS, DAMAGE, INJURY, LIABILITY, AND CLAIMS
THEREOF FOR INJURY TO OR DEATH OF ANY PERSON
(INCLUDING AN EMPLOYEE OR SUBCONTRACTOR OF AN
INDEMNITEE) OR FOR LOSS OF OR DAMAGE TO PROPERTY
(INCLUDING THE PROPERTY OF INDEMNITEES) OR FOR LOSS
OR DAMAGE ARISING FROM ATTACHMENTS, LIENS OR
CLAIMS OF MATERIALMEN OR LABORERS TO THE EXTENT
CAUSED BY THE NEGLIGENT ACTS OR OMISSIONS OF
SUBCONTRACTOR. CONTRACTOR SHALL DEFEND,
INDEMNIFY AND SAVE HARMLESS THE SUBCONTRACTOR
FROM AND AGAINST ANY AND ALL LOSS, DAMAGE, INJURY,
LIABILITY, AND CLAIMS TO THE EXTENT CAUSED BY
CONTRACTOR. THIS INDEMNITY SHALL NOT APPLY TO THE
EXTENT THAT SUCH INDEMNIFICATION IS VOID OR
OTHERWISE UNENFORCEABLE UNDER APPLICABLE LAW IN
EFFECT ON OR VALIDLY RETROACTIVE TO THE DATE OF
THIS AGREEMENT. THE INDEMNITEES’ RIGHTS TO
INDEMNIFICATION BY SUBCONTRACTOR UNDER THE
FOREGOING SHALL BE INDEPENDENT OF THEIR RIGHTS
UNDER INSURANCE PROVIDED UNDER SECTION 10.
13. Changes. SUBCONTRACTOR shall make no change in the Work,
or perform any additional Work without CONTRACTOR’S specific
prior written approval, CONTRACTOR may order changes in the
Work, or require additional Work at any time, and
SUBCONTRACTOR shall comply therewith, but the price hereunder
shall be increased by an amount as approved by CONTRACTOR.
24. CONSEQUENTIAL, INDIRECT, INCIDENTAL OR
SPECIAL DAMAGES. NOTWITHSTANDING ANYTHING TO
THE CONTRARY CONTAINED HEREIN, NEITHER PARTY
SHALL BE LIABLE TO THE OTHER FOR CONSEQUENTIAL,
INDIRECT, INCIDENTAL, OR SPECIAL DAMAGES INCLUDING
BUT NOT LIMITED TO LOSS OF PLANT CAPACITY, LOSS OF
BUSINESS OR ANY OTHER SUCH LOSS, HOWSOEVER
CAUSED, INCLUDING BY THE NEGLIGENCE OR STRICT
LIABILITY OF EITHER PARTY.
8
The parties’ Purchase Order number C1505-I0050, dated December 13, 2013,
states that it “will be governed by the attached mutually agreed upon terms and
conditions between S&B Engineers and Constructors, Ltd. and Scallon Controls,
Inc., dated 11/19/13.” The Terms and Conditions attached to the Purchase Order
include the following relevant provisions:
11. WARRANTY. Seller [Scallon] represents and WARRANTS: (1)
that the articles herein described are fit for use for the specified purpose
for which they are purchased by S&B and are free from defect in
design, workmanship, and material and are in strict accordance with the
specifications hereof, unless otherwise agreed in writing and Seller
agrees to replace without cost any article, material or workmanship
which shall be found defective within eighteen (18) months after start-
up or twenty-four (24) months from shipment, whichever occurs first;
(2) that said articles and the sale or use of them does not infringe,
directly or indirectly, any valid patent, copyright or trademark, and that
Seller will, at Seller’s cost and expense, defend, indemnify and hold
S&B, and its affiliated companies, sub-contractors, and clients
harmless from and against any claims, demands, actions and litigation
based on alleged or actual infringement thereof; (3) that all amounts
charged by the Seller and payable pursuant hereto are lawfully
chargeable under and shall not violate, directly or indirectly, the
provisions of any present or future laws, decrees, regulations, rules or
orders of any governmental authority which in any manner fix, limit,
regulate, or otherwise affect prices at which said articles may be sold;
(4) that all United States statutes, applicable to furnishing labor and
materials or sales merchandise for use on government contracts, have
been fully complied with; and (5) that where Seller is furnishing articles
in accordance with designated plans and specifications, that all articles
furnished meet and perform in accordance with such plans and
specifications. These WARRANTIES are in addition to, and shall not
be construed as restricting or limiting any warranties of the Seller,
express or implied, or which are provided by law or exist by operation
of law. These warranties shall run to the benefit of S&B and its
affiliated companies, subsidiaries and clients.
9
12. LIABILITY AND INDEMNITY.
...
Other Claims. TO THE MAXIMUM EXTENT PERMITTED BY
APPLICABLE LAW, SELLER [Scallon] SHALL DEFEND,
INDEMNIFY AND HOLD HARMLESS S&B, AND ITS
AFFILIATED COMPANIES, SUBSIDIARIES AND CLIENTS
FROM AND AGAINST ANY AND ALL LOSS, DAMAGE, CLAIM,
SUIT, LIABILITY, STRICT LIABILITY, PRODUCT LIABILITY,
JUDGMENT AND EXPENSE (INCLUDING ATTORNEY’S FEES
AND OTHER COSTS OF LITIGATION) AND ANY FINES,
PENALTIES AND ASSESSMENTS, ARISING OUT OF (A)
DAMAGE TO OR LOSS OF PROPERTY OR (B) BODILY INJURY,
DISEASE OR DEATH TO PERSONS OTHER THAN EMPLOYEES
OF SELLER, ITS AGENTS OR SUBCONTRACTORS RESULTING
FROM OR IN CONNECTION WITH THE EXECUTION OF THIS
PURCHASE ORDER TO THE EXTENT OF SELLER’S
NEGLIGENCE OR WILLFUL MISCONDUCT. IN CASE OF
COMPARATIVE, CONCURRENT AND/OR CONTRIBUTING
NEGLIGENCE, FAULT OR STRICT LIABILITY OF SELLER OR
BUYER, WHETHER THROUGH ITS EMPLOYEES AND/OR
REPRESENTATIVES, SELLER’S DUTY TO INDEMNIFY AND
HOLD HARMLESS REFERRED TO IN THE PREVIOUS
SENTENCE SHALL BE SELLER’S ALLOCABLE SHARE OF
COMPARATIVE, CONCURRENT AND/OR CONTRIBUTING
NEGLIGENCE, FAULT OR STRICT LIABILITY.
Motions for Summary Judgment
Scallon’s Traditional and No-Evidence MSJ Against S&B
Scallon filed a traditional and no-evidence motion for summary judgment
seeking a judgment against S&B. Therein, Scallon argues that, although S&B
alleged that Scallon breached the parties’ Subcontract by configuring the inputs as
“fail-safe” when the work called for them to be configured as “non-fail-safe,” the
Final Acceptance Testing sign off sheets (which were exhibits to Scallon’s motion)
10
reflect that S&B approved the configuration and that Scallon installed the inputs the
way they were approved by S&B. Scallon also argues that the indemnity provision
in the Subcontract is unenforceable against Scallon because the Individual Plaintiffs
only alleged negligence claims against S&B and Sunoco, and the Individual
Plaintiffs made no allegations of negligence by Scallon.6 According to Scallon,
because S&B settled with the Individual Plaintiffs, S&B’s claim against Scallon for
indemnification “effectively seeks to have Scallon pay for [S&B’s] settlement.”
Scallon argues it is also entitled to judgment as a matter of law on S&B’s
claims for breach of contract and breach of express warranty. As to S&B’s breach
of contract claim, Scallon argues there is no evidence that Scallon breached the terms
of the Subcontract or that S&B sustained damages as a result of any breach. As to
S&B’s claim for breach of express warranty, Scallon argues there is no evidence of
an express promise by Scallon relating to the goods, no evidence that S&B relied on
any promise, no evidence that the goods failed to comply with any promise, and no
evidence that S&B was injured thereby.7
6
Citing Fisk Elec. Co. v. Constructors & Assocs., 888 S.W.2d 813 (Tex. 1994)
(applying the “express negligence doctrine,” whereby a party seeking indemnity
from consequences of its own negligence must clearly express that intent in language
that contains specific terms within the four corners of the contract).
7
Citing Great Am. Prods. v. Permabond Int’l, 94 S.W.3d 675, 681 (Tex.
App.—Austin 2002, pet. denied) (reciting the elements for breach of express
warranty).
11
S&B’s Traditional Motion for Partial Summary Judgment
S&B filed a traditional motion for partial summary judgment on its claims
against Scallon for breach of the warranty of merchantability, breach of an implied
warranty of fitness for a particular purpose, and breach of an express warranty. S&B
alleged as follows:
. . . S&B hired Scallon to design, build and configure the logic for a
Safety Control System at the Mariner South Terminal Project (“the
Project”). The logic included control of a fire suppression system
(“FSS”) for Tank 2201 on the Project. Relying on his “personal
experience,” an employee configured the input for the FSS as “fail-
safe” or energized. Due to this configuration, the FSS inadvertently
discharged when there was a brief momentary loss of power at the
Project. As a matter of law, the evidence established the logic in
question operating the FSS was not fit for the purpose desired by S&B
and the logic was not free of defects.
S&B attached selected pages from a transcript of the deposition of Chris
Lampman, a systems engineer for Scallon who worked on the Sunoco project. In the
S&B motion, S&B alleged that Lampman testified that he generally designs a
program to operate in the way the client wants, and the safety control system at
Sunoco was the first time he was involved with a Fire Suppression System.
Lampman testified that he used the “cause and effects and control philosophy” to
design and build the logic for the fire suppressant system, but he also acknowledged
that if the cause and effects philosophy would not have all the information necessary
to design and build the logic, in that event he would have either exercised his
independent judgment or asked for a consultation with S&B, but he did not recall
12
having requested a consultation with S&B for this project. Lampman testified that,
if the cause and effects provided by the client did not specify whether the input for
the solenoid on the fire safety system should be non-fail-safe, he would “go with []
the common practice of a fail-safe[.]” In his deposition, Lampman also
acknowledged that when the power failed at the project, the dry chemical Fire
Suppression System activated because the logic for the fire safety system’s inputs
were “fail-safe,” not non-fail-safe.
S&B also attached selected pages from a transcript of the deposition of Peter
Mondello, the Vice President of Systems for Scallon. Mondello testified that he did
not know whether S&B directed Lampman to configure the inputs as “fail-safe.”
Mondello also testified that the fire safety system activated on loss of power to the
input and that he could not think of a reason why a refinery or chemical plant would
want a fire safety system to discharge in the absence of a fire. According to
Mondello, when S&B signed off on and accepted Scallon’s work at the conclusion
of Factory Acceptance Testimony (“FAT”), the FAT would not reflect whether the
fire safety system was configured in fail-safe or non-fail-safe mode.
Another attachment to the motion was selected pages from a transcript of the
deposition of Paul Dougharty, who was in charge of Process Control & Safety
Systems for S&B at the Project and who was the technical contact for the project.
Dougharty testified that S&B told Scallon that the fire safety system needed to be
13
configured as non-fail-safe mode or “de-energized,” but that Scallon “pushed back”
on this requirement. Dougharty testified there were several discussions between
S&B and Scallon employees during which Dougharty explained to Scallon that the
fire safety system, unlike other components of the Safety Control System, was to be
configured as non-fail-safe or de-energized. According to Dougharty, Scallon was
provided documents that indicated that the fire safety system was to be a non-fail-
safe system. Dougharty testified that, in an investigation after the incident, he
learned from Lampman that Scallon had programmed the system so that all the
inputs were configured as fail-safe.
S&B argued that Scallon breached the implied warranties of merchantability
and fitness for a particular purpose under the Uniform Commercial Code (“UCC”)
as codified in the Texas Business and Commerce Code. According to S&B, the
undisputed evidence reflects that Scallon sold goods to S&B, including the logic
control for the fire safety system, and the logic control for the fire safety system was
not fit for its ordinary purpose because it activated and discharged in the absence of
a fire. S&B argued that the undisputed evidence also reflects that Scallon knew that
S&B hired it to design, build, and configure the logic that would operate the fire
safety system, that S&B relied on Scallon’s skill to develop a logic that would
operate the fire safety system, and that S&B notified Scallon of its breach shortly
14
after the “inadvertent” discharge of the fire safety system. S&B argued that both of
these breaches caused S&B to be sued and to incur substantial financial damages.
As to its claim for breach of express warranty, S&B noted that the Subcontract
provided that Scallon agreed to provide the labor, equipment, tools, and consumables
necessary to complete the PLC Technical Services. S&B argued that paragraph 2 of
the Subcontract was an express warranty by which Scallon warranted that all articles,
materials, and work it furnished “shall be of good quality and free from any defects
and conform to Contractor’s specifications[.]” According to S&B, it relied on
Scallon’s expertise in system integration, and Scallon configured the fire safety
system input as “fail-safe[,]” which was “clearly a defect in the logic created by
Scallon.” S&B argued that because the logic as Scallon configured it was not free of
defects, Scallon breached an express warranty to S&B.
Scallon’s MSJ Against S&B and Sunoco and Scallon’s Response to S&B’s MPSJ
Scallon also filed a combined MSJ on S&B’s and Sunoco’s claims against
Scallon and a response to S&B’s MPSJ. Scallon asserted that there is no enforceable
indemnity agreement, and the express negligence rule precludes S&B and Sunoco
from recovering from Scallon. Scallon argues that the indemnity language in its
Subcontract with S&B 8 is insufficient under the express negligence rule set forth in
8
Paragraph 2, titled “Warranty and Guarantee,” quoted supra.
15
Ethyl Corp. v. Daniel Construction Co., 725 S.W.2d 705, 708 (Tex. 1987). In Ethyl,
the Court stated:
The express negligence doctrine provides that parties seeking to
indemnify the indemnitee from the consequences of its own negligence
must express that intent in specific terms. Under the doctrine of express
negligence, the intent of the parties must be specifically stated within
the four corners of the contract.
Id. According to Scallon, in this case S&B and Sunoco are suing for reimbursement
of monies they paid in the face of Individual Plaintiffs’ negligence claims for
personal injury, and therefore, they are seeking to get indemnity for their own
negligence, which is impermissible under the express negligence rule and Ethyl.
Scallon also argues that S&B and Sunoco cannot argue that the indemnity provision
of the Subcontract “equates to contractual comparative responsibility” because the
Ethyl Court also concluded that “[p]arties may contract for comparative indemnity
so long as they comply with the express negligence doctrine[.]” Id. at 708-09.
Scallon also argues that the Subcontract was primarily for services and not for
the sale of goods, so that the UCC does not apply, and therefore, S&B (nor Sunoco,
by extension) has no warranty claims. The Subcontract states it is for “Subcontracted
Services (Services/Work)[.]” Scallon argues that the UCC expressly applies only to
contracts for the sale of goods, 9 but where a contract is for both goods and services,
courts determine whether the dominant factor in the transaction is the sale of goods
9
Citing Tex. Bus. & Com. Code Ann. §§ 2.102, 2.106.
16
or of services.10 According to Scallon, because the dominant factor of the
Subcontract is the sale of services, the UCC does not apply, and S&B is not entitled
to summary judgment on its UCC breach of warranty claims. Quoting S&B’s MPSJ,
Scallon also states that S&B’s complaints against Scallon relate to services it
rendered on the configuration of the Fire Suppression System, wherein S&B “relied
on the expertise of Scallon as self-proclaimed experts in the field of system
integration [] to complete site acceptance testing of hardware and software Scallon
designed, developed, built and configured.”
But even assuming S&B asserted a common law breach of warranty claim for
services, Scallon argues that S&B cannot succeed because S&B has failed to
establish a breach. According to Scallon, it configured the inputs as “fail-safe”
pursuant to industry customs, and there were no written specifications otherwise.
Scallon also argues that S&B relies on deposition testimony of “an alleged
conversation between Paul Dough[a]rty (S&B) and Scallon employees Steven
Erickson, Chris Lampman and Bret Jordan[,]” but section 13 of the Subcontract
expressly requires that change orders be made in writing. Even so, Scallon argues
10
Citing Palmer v. Espey Huston & Assocs., Inc., 84 S.W.3d 345, 355-56 (Tex.
App.—Corpus Christi 2002, pet. denied); Geotech Energy Corp. v. Gulf States
Telecomms. & Info. Sys., Inc., 788 S.W.2d 386, 389 (Tex. App.—Houston [14th
Dist.] 1990, no writ).
17
that a fact issue exists as to what specifications S&B gave to Scallon, which
precludes S&B from prevailing on its MPSJ.
Finally, Scallon argues that paragraph 24 of the Subcontract expressly
disclaims any liability for consequential, indirect, incidental, or special damages.
According to Scallon, by statute, only actual damages are recoverable for a seller’s
breach of an implied warranty of merchantability—that is, the difference between
the value of the goods accepted and the value of the goods as warranted—and that
under the language of its Subcontract, there is a disclaimer for consequential
damages that result from its breach. 11 According to Scallon, paragraph 24 of the
Subcontract disclaims consequential damages in a provision that it claims “broadly
and unambiguously negates any liability by either party for all indirect damages.”
Since “personal injury damages for breach of contract are ‘consequential’, not
‘direct’, damages, Scallon concludes they are therefore not recoverable because they
“fall within the liability disclaimer for consequential damages.” Scallon further
argues that the Warranty and Guarantee provision of the Subcontract limits the
available remedy to repair or replacement.
S&B’s Response to Scallon’s MSJ
S&B filed a response to Scallon’s MSJ based on the Ethyl express negligence
doctrine, and S&B argues that the Terms and Conditions of the Purchase Order
11
Citing Tex. Bus. & Com. Code Ann. §§ 2.714(b), 2.715(b).
18
included warranty and indemnity provisions under which “Scallon agreed to
indemnify S&B and its client, Sunoco, for losses and damages incurred by them as
a result of Scallon’s negligence and fault.” According to S&B, the Terms and
Conditions did not contain a provision regarding consequential damages.
S&B maintains that it entered into a separate Subcontract with Scallon on or
about October 1, 2013, under which Scallon agreed to provide PLC Technical
Services. The Subcontract states it is for “services [] for equipment purchased on
S&B Purchase order number C1505-I0050.” The Subcontract includes a “Warranty
and Guarantee” provision, requiring Subcontractor’s (Scallon’s) materials and work
to conform to Contractor’s (S&B’s) specifications. The Subcontract also includes a
provision requiring that Subcontractor make no changes to the work without
Contractor’s specific prior written approval. According to S&B, the Subcontract also
requires Scallon to indemnify and hold S&B harmless from any and all loss or
damage incurred by S&B as a consequence of Scallon’s negligence.
S&B argues that Paul Dougharty instructed Scallon that the Fire Suppression
System should be configured as non-fail-safe or de-energized. Dougharty testified
that he gave this instruction, and that this specification was provided to Scallon in
the “CB&I documents[,]”12 although Dougharty could not recall when such
documents were provided to Scallon. However, in an investigation after the incident,
12
The “CB&I documents” are not in our appellate record.
19
S&B determined that Scallon had programmed inputs as fail-safe. And Scallon’s
Vice President of Systems, Peter Mondello, testified in his deposition that Chris
Lampman, a systems engineer for Scallon, decided to configure the Fire Suppression
System inputs as fail-safe. Mondello also testified in his deposition that Factory
Acceptance Testing would not have revealed whether the inputs were configured as
fail-safe or non-fail-safe.
S&B argues that there is no dispute that the inputs were configured as fail-
safe, and this action was a change in the work without prior written authorization
from S&B. Therefore, S&B argues that Scallon breached the parties’ Subcontract.
And S&B contends that it incurred damages as a consequence of the release of
Purple K when the Fire Suppression System activated, including paying $2.2 million
to settle with the Individual Plaintiffs, so S&B seeks indemnification from Scallon
for Scallon’s negligence and not for S&B’s negligence, which means the express
negligence rule does not apply.
S&B further argues that the Terms and Conditions applicable to the Purchase
Order included an express warranty, and the Subcontract itself included a warranty.
According to S&B, Scallon’s argument that there is no express warranty because the
parties’ Subcontract was predominantly for “services” not covered by the UCC is
“baseless” because the parties’ agreements encompassed goods, such as hardware,
20
cabinets, and workstations. S&B also argues that, under Texas law, an implied
warranty need not be for tangible goods to be enforceable. 13
S&B further argues that because Scallon built and configured the Process
Control System and Safety Control System pursuant to the Purchase Order, S&B is
not precluded from seeking consequential damages because the Terms and
Conditions that apply to the Purchase Order do not contain a contractual disclaimer
of consequential damages. According to S&B, the consequential damages disclaimer
in the Subcontract “has no bearing on the scope and effect of the indemnity provision
found earlier in the Subcontract.” S&B then argues that Scallon’s argument
regarding the distinction between consequential and direct damages only applies to
damages proximately caused by breach of terms of the Subcontract and not the
Purchase Order.
S&B attached to its response copies of the parties’ Purchase Order, the Terms
and Conditions to the Purchase Order, the Subcontract, selected pages from the
transcript of Paul Dougharty’s deposition, selected pages from the transcript of Chris
Lampman’s deposition, and selected pages from the transcript of Peter Mondello’s
deposition.
13
Citing Tex. Bus. & Com. Code Ann. §§ 2.314, 2.315; Nghiem v. Sajib, 567
S.W.3d 718, 724-25 (Tex. 2019).
21
Sunoco’s Response to Scallon’s MSJ
Sunoco also filed a response to Scallon’s motion for summary judgment.
Therein, Sunoco alleged that “Scallon supplied a defective electrical control product
to Sunoco, leading to the Plaintiffs’ injuries in this case for which Sunoco now seeks
indemnification.” Sunoco further alleged that the Purchase Order included a
warranty provision that runs to its benefit as S&B’s client, and it has an applicable
indemnity provision. Sunoco also alleged that the Subcontract between S&B and
Scallon also included warranty and indemnity provisions. Sunoco alleged that it filed
its cross-claim against Scallon for breach of contract for failing to indemnify Sunoco
against the Individual Plaintiffs’ claims for breaching the specific and implied
warranties in the Purchase Order and the Subcontract.
Sunoco argues that Scallon is just wrong about the application of the express
negligence rule because it does not preclude Sunoco from recovering because
Sunoco is seeking a recovery for Scallon’s negligence and not for a recovery of
damages caused by Sunoco’s negligence. Sunoco also argues that the implied
warranties under the UCC apply because the system Scallon sold to S&B and to
Sunoco is a good, as defined under the UCC. According to Sunoco, Scallon’s motion
only addresses its Subcontract with S&B, and Scallon has failed to address the terms
of the Purchase Order. And Sunoco argues that the services Scallon supplied were
“incidental” to the goods for the PLC/Safety Control Services, which were valued
22
in excess of $1.3 million. Further, Sunoco maintains that, under the UCC, computer
programming is embedded in computer hardware (or goods), so that the computer
programming at issue in this case is a “good” and that the UCC’s warranties apply.
In addition, Sunoco argues that the disclaimer of consequential damages in
the Subcontract does not negate Scallon’s liability because Sunoco’s damages are
direct. In support of this position, Sunoco points to the “liability and indemnity”
provision of the Terms and Conditions attached to the Purchase Order, in which the
seller is obligated to indemnify S&B and its clients from any and all loss, including
bodily injury “resulting from or in connection with the execution of this Purchase
Order to the extent of seller’s negligence or willful misconduct.” Sunoco contends
that, Scallon maintains that Sunoco is limited to repair-and-replace remedies, but the
parties did not expressly agree that these were the exclusive remedies, and the
Purchase Order and Subcontract “specifically contemplate[] the damages sought in
this case.”
Scallon’s Post-Hearing Brief in Support of its MSJ
In an additional brief filed after the hearing on Scallon’s motion for summary
judgment, Scallon argues, “Scallon was never sued by Plaintiff[s]. Plaintiff[s] only
asserted allegations of negligence against S&B and Sunoco. S&B and Sunoco
entered into a voluntary settlement with Plaintiffs. [] The only damages sought by
S&B and Sunoco are the amounts paid by each to defend and resolve the underlying
23
litigation.” Scallon also states that, although S&B’s first third-party claim against
Scallon asserted claims for negligence and contribution, the live pleading asserted
claims only for breach of contract and warranty. Scallon also asserts that Sunoco had
also “recast” its claims against Scallon for contribution, negligence, and indemnity
as claims for breach of contract and warranty.
According to Scallon, S&B’s and Sunoco’s claims for contribution and
indemnity are contingent on the Individual Plaintiffs’ recovery of damages. Scallon
argues that the Purchase Order and Subcontract in this case include no language
providing that S&B and Sunoco with a right to settle claims brought against them
and then seek reimbursement for what they paid in settlement from Scallon.14
Scallon argues that by voluntarily settling with the Individual Plaintiffs, S&B and
Sunoco “‘have destroyed any forum for determining who was at fault.’”15
Scallon argues that the UCC provides only that the measure of direct damages
for a breach of warranty claim is the difference between the value of the goods
accepted and the value of the goods if they had been as warranted, but that S&B and
14
Distinguishing Air Liquide Am. Corp. v. Crain Bros., Inc., 11 F.Supp.2d 709(S.D. Tex. 1997) (finding that the contract specifically provided that Air Liquide
could settle claims against it and then seek indemnity from Crain, even absent a
finding of fault by Crain).
15
Quoting MAN GHH Logistics GMBH v. Emscor, Inc., 858 S.W.2d 41 (Tex.
App.—Houston [14th Dist.] 1993, no writ) (where co-defendants cross-claimed
against one another for contribution after settling with plaintiffs, the defendants’
contract provided for reciprocal indemnity obligations but not for contractual
contribution to reimburse the other for any voluntary settlements with plaintiffs).
24
Sunoco are seeking “the damages that they paid to the Plaintiffs and defense costs []
as a result of a voluntary settlement[,]” which would not be recoverable under a
breach of warranty theory.
S&B’s Response to Scallon’s Post-Hearing Brief
Responding to Scallon, S&B alleged that Texas law recognizes claims for
reimbursement after settlement under a contractual indemnity provision and that
Scallon’s position that S&B is recasting its contribution and indemnity claims as a
breach of warranty claim is “fallacious[.]” S&B further argues that, under Texas law,
a claimant may recover incidental and consequential damages for a breach of
warranty claim.16
Sunoco Nonsuit and Zurich Intervention
In a separate post-hearing brief, Sunoco adopted the arguments in S&B’s post-
hearing brief. Sunoco subsequently non-suited all claims against Scallon, and the
trial court dismissed the Sunoco’s claims without prejudice. The following day,
Zurich filed a petition in intervention, arguing that as Sunoco’s subrogee, it was
entitled to recover the amount it paid to defend Sunoco and to settle the suit filed by
the Individual Plaintiffs against Sunoco, its insured. According to Zurich,
Zurich, as a subrogated Intervenor, asserts that Defendant Scallon
Control, Inc.’s breaches of contract to indemnify Sunoco, together with
its breaches of warranty, express and implied, caused the accident and
the incident which injured the workers who were plaintiffs in the
16
Citing Tex. Bus. & Com. Code Ann. § 2.715.
25
Underlying Case, harm for which Zurich paid both to defend and
resolve. . . . With respect to Scallon’s contractual indemnity obligations,
Zurich asserts that Scallon was negligent and the sole or dominant legal
cause of the accident leading to the Underlying Case and expenses
sought herein.
In a response that Zurich filed to Scallon’s motion for summary judgment, Zurich
adopted the responses Sunoco filed to Scallon’s motion. In a separate Supplemental
Brief, Zurich adopted S&B’s arguments and argued that after a settlement, a
contractual indemnity agreement may be enforced.
Scallon’s MSJ Against Zurich
Scallon also filed a motion for summary judgment on Zurich’s claims.
Attached to that motion are copies of the confidential settlement agreements with
the seven Individual Plaintiffs, executed in June of 2019. In the settlement
agreements, the Individual Plaintiffs agreed to fully release and discharge their
claims against Defendants. In another of the provisions in the settlement agreement,
S&B and Sunoco fully released and discharged each other from any and all claims.
Scallon argues there is an “insurmountable problem for [Zurich] that it filed
its intervention one day after Sunoco’s nonsuit was granted *and* 6 years, 11 months
and 4 days after the underlying loss *and* there is an absolute 4 year statute of
limitations applicable to UCC warranty claims[].” According to Scallon, Zurich
seeks to “spin an express or implied warranty claim into a right of full tort
indemnity[.]” Scallon again argues that neither the Purchase Order (and its Terms
26
and Conditions) nor the Subcontract meet the express negligence test. Scallon
explains that the indemnity language in the Purchase Order is limited to
indemnification for “Seller’s allocable share of comparative[] negligence[,]” so that
Scallon is not obligated to indemnify Zurich nor S&B for Sunoco’s nor S&B’s
negligence. Applying the express negligence rule, Scallon argues that Zurich may
not recover the “settlement dollars and defense dollars” which it claims. In addition,
Scallon argues that Zurich and S&B, as settling tortfeasors, have no right to post-
settlement contribution.17 Due to the settlement and subsequent dismissal of the
Individual Plaintiffs’ claims against S&B and Sunoco, there is no evidence that, in
settling, S&B paid more than its percentage of liability, and Zurich may not seek
indemnity for the costs of defending Sunoco.
Scallon also argues that implied warranties under the UCC are subject to a
four-year statute of limitations, the statute of limitations on Zurich’s intervention
began to run on the date of the underlying loss, and Zurich’s intervention is too late.
In this case, Scallon states, “all [seven] settling plaintiffs dismissed their claims
against [S&B and Sunoco] at a time when no plaintiff was claiming against Scallon
*and* Scallon was before the Court as a third-party defendant[.]” In addition, the
17
Citing Beech Aircraft Corp. v. Jinkins, 739 S.W.2d 19, 21 (Tex. 1987) (The
Court held that defendants who settled the plaintiff’s entire claim could not preserve
the right to contribution from an alleged joint tortfeasor who did not participate in
the settlement and stated, “An agreed judgment incorporating a settlement does not
provide a basis for subsequent contribution claims.”).
27
discovery rule cannot save Zurich because the rule does not apply to UCC breach of
implied warranty claims.18 Further, the discovery rule does not apply where a
claimant knows it has sustained a loss, as here, when the Individual Plaintiffs sued
in August of 2016 for injuries allegedly sustained in January of 2015. Scallon also
cites to other cases holding that a warranty to perform in a good and workmanlike
manner may not be used to seek indemnity for negligent injuries to third parties.19
Zurich’s Response to Scallon and Its First Amended Petition in Intervention
After Scallon filed its MSJ against Zurich, Zurich filed a First Amended
Petition in Intervention claiming that, as subrogee or assignee to Sunoco’s rights, it
is either a direct or a third-party beneficiary under the Purchase Order and
Subcontract between Scallon and S&B and that its rights to indemnification derive
from these agreements. Zurich states that its claim for damages is based on Scallon’s
breach of its contractual obligation to indemnify Zurich, as Sunoco’s subrogee, for
damages caused by Scallon’s negligent acts or omissions. Zurich specifically denies
that the negligence of any party other than Scallon caused the mistake in the design
of the system inputs that resulted in the release of Purple K fire suppressant. And
18
Citing PPG Indus., Inc. v. JMB/Hous. Ctrs. Partners Ltd. P’ship, 146
S.W.3d 79 (Tex. 2004) (holding that the UCC requires suit on a breach of warranty
claim within four years of delivery unless the warranty explicitly guarantees
performance beyond four years).
19
Citing Haring v. Bay Rock Corp., 773 S.W.2d 676, 680 (Tex. App.—San
Antonio 1989, no writ); Exxon Corp. v. Roberts, 724 S.W.2d 863, 871 (Tex. App.—
Texarkana 1986, writ ref’d n.r.e.).
28
Zurich alleges that Scallon’s breaches of contract in failing to indemnify Sunoco and
Zurich are the cause of the expenses and damages for which it seeks recovery.
In Zurich’s First Amended Petition in Intervention, Zurich alleges Scallon was
negligent as follows: (1) Scallon failed to investigate and obtain the information
necessary to design the circuit in a way that would avoid a discharge due to a brief
power outage; (2) Scallon failed to anticipate and plan for the effect of a power
outage; and (3) it failed to assign adequately trained personnel and supervision to
the project.
In Zurich’s Response to Scallon’s motion for summary judgment against it,
Zurich argues that the express negligence rule does not apply because Zurich is not
seeking indemnity for Sunoco’s negligence but for Scallon’s negligence. Zurich also
argues that Scallon’s reliance on Beech Aircraft Corp. v. Jinkins, 739 S.W.2d 19(Tex. 1987), is misplaced because Beech only addresses contribution for tort liability
and not contractual indemnity. Zurich further asserts that a claim for contractual
indemnity from a third party does not ripen until the underlying case is resolved and
the indemnitee’s liability becomes fixed and certain.20 Zurich’s response also
incorporates all prior responses by S&B and Sunoco.
20
Citing Gilbert Tex. Constr., L.P. v. Underwriters at Lloyd’s London, 327
S.W.3d 118, 134 (Tex. 2010).
29
Trial Court Orders
On January 27, 2022, the trial court granted Scallon’s motion for summary
judgment and denied S&B’s motion for partial summary judgment. The Order
expressly stated that it was interlocutory because it did not address Zurich’s
intervention. On July 15, 2022, the trial court granted Scallon’s motion for summary
judgment against Zurich.
On August 17, 2022, the trial court entered a Final Judgment, stating in
relevant part:
[I]t is now ORDERED, ADJUDGED AND DECREED that:
1. S&B Engineers and Constructors LTD and Zurich American
Insurance Company take nothing by reason of their suits against
Scallon Controls, Inc.
2. All costs of court incurred herein are hereby ordered taxed
against S&B Engineers and Constructors LTD.
3. This judgment disposes of all issues and parties now before
the Court.
4. All relief not expressly granted is denied.
5. This Judg[]ment is Final.
Then on September 21, 2022, the trial court signed a nunc pro tunc order confirming
that the July 15, 2022 order “was intended to be and is a full and final disposition of
all claims by all parties[.]” S&B and Zurich timely filed their Notices of Appeal.
Issues
Appellant S&B raises four issues on appeal. In its first issue, S&B argues that
the trial court erred in ordering summary judgment for Scallon because the Purchase
Order was for the sale of goods—namely software programming and system
30
integration—that caused the accident. S&B argues that the Purchase Order included
an express warranty that the goods were fit for their specified purpose, an
enforceable promise of indemnification for personal injury, and did not include a
disclaimer of liability for consequential damages.
In its second issue, S&B argues that the trial court erred if it granted summary
judgment for Scallon due to a lack of evidence that Scallon’s breach of express or
implied warranties caused the personal injuries for which S&B paid a settlement to
the Individual Plaintiffs.
In its third issue, S&B argues that the trial court erred in granting summary
judgment for Scallon based on the express negligence rule because that rule does not
apply to Scallon’s obligations under the Terms and Conditions of the Purchase
Order, and because the Terms and Conditions obligate Scallon to indemnify S&B
for Scallon’s own fault.
In its fourth issue, S&B argues that the trial court erred by granting summary
judgment for Scallon because S&B’s right to contractual indemnity is “by
definition” not tort contribution and can be enforced after a settlement.
Appellant Zurich raises two issues in its brief. In its first issue, Zurich argues
that the trial court erred by granting summary judgment in favor of Scallon based on
the express negligence rule because that rule does not void Scallon’s contractual
obligations.
31
In its second issue, Zurich argues that the trial court erred by granting
summary judgment for Scallon if it did so based on Scallon’s argument that Zurich’s
claim is not a contractual indemnity claim but rather a claim for contribution under
tort law.
Standard of Review
We review grants of summary judgment de novo. Helena Chem. Co. v. Cox,
664 S.W.3d 66, 72 (Tex. 2023); Cantey Hanger, LLP v. Byrd, 467 S.W.3d 477, 481
(Tex. 2015). In our review we take as true all evidence favorable to the non-movant,
indulging every reasonable inference in favor of the non-movant, and resolving any
doubts in the non-movant’s favor. See Helena Chem. Co., 664 S.W.3d at 73; Valence
Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005).
To defeat a no-evidence motion, the non-movant must produce evidence
raising a genuine issue of material fact as to the challenged elements. See Tex. R.
Civ. P. 166a(i) (stating that the trial court must grant a no-evidence motion for
summary judgment “unless the respondent produces summary judgment evidence
raising a genuine issue of material fact[]”); Helena Chem. Co., 664 S.W.3d at 72. A
genuine issue of material fact exists if the evidence “‘rises to a level that would
enable reasonable and fair-minded people to differ in their conclusions.’” First
United Pentecostal Church of Beaumont v. Parker, 514 S.W.3d 214, 220 (Tex. 2017)
(quoting Merrell Dow Pharms., Inc. v. Havner, 953 S.W.2d 706, 711 (Tex. 1997)).
32
The evidence does not create an issue of material fact if it is “‘so weak as to do no
more than create a mere surmise or suspicion’” that the fact exists. Id. (quoting Kia
Motors Corp. v. Ruiz, 432 S.W.3d 865, 875 (Tex. 2014)). “Both direct and
circumstantial evidence may be used to establish any material fact.” Ford Motor Co.
v. Ridgway, 135 S.W.3d 598, 601 (Tex. 2004).
A party moving for a traditional summary judgment must establish that no
genuine issue of material fact exists, and it is entitled to judgment as a matter of law.
Tex. R. Civ. P. 166a(c); Randall’s Food Mkts., Inc. v. Johnson, 891 S.W.2d 640,
644 (Tex. 1995). If the moving party produces evidence entitling it to a summary
judgment, the burden shifts to the nonmovant to present evidence that raises a fact
issue. Walker v. Harris, 924 S.W.2d 375, 377 (Tex. 1996). In determining whether
there is a disputed fact issue precluding summary judgment, evidence favorable to
the nonmovant will be taken as true. Nixon v. Mr. Prop. Mgmt. Co., 690 S.W.2d 546,
548-49 (Tex. 1985). We review the summary judgment record in the light most
favorable to the non-movant, “indulging every reasonable inference and resolving
any doubts against the motion.” City of Keller v. Wilson, 168 S.W.3d 802, 824 (Tex.
2005).
When the parties cross move for summary judgment and the trial court grants
one motion and denies the other, we consider both sides’ summary judgment
evidence, determine all questions presented, and render the judgment the trial court
33
should have rendered. Concho Res., Inc. v. Ellison, 627 S.W.3d 226, 233 (Tex. 2021)
(citing Gilbert Tex. Constr., L.P. v. Underwriters at Lloyd’s London, 327 S.W.3d
118, 124 (Tex. 2010)).
Zurich’s Claims
We examine Zurich’s subrogation claims first. Zurich contends it has rights
as Sunoco’s subrogee. Zurich filed its original Petition in Intervention on December
10, 2021—almost 6 years after the incident and almost 5 years after the Individual
Plaintiffs filed their Original Petition. Zurich did not intervene until after Sunoco
had already settled with the Individual Plaintiffs and after Sunoco nonsuited all of
its counter and crossclaims against all other parties.
Generally, subrogation actions are subject to the same defenses, including
limitations, that would apply if the action had been brought by the subrogor. Guillot
v. Hix, 838 S.W.2d 230, 232 (Tex. 1992); PNC Mortg. v. Howard, 651 S.W.3d 154,
157 (Tex. App.—Dallas 2021), aff’d, 668 S.W.3d 644 (Tex. 2023). Therefore,
Zurich’s claims for breach of contract, whether in common law or under the UCC,
are still subject to a four-year statute of limitations. See PPG Inds., Inc. v. JMB/Hous.
Ctrs. Partners Ltd. P’ship, 146 S.W.3d 79, 92 (Tex. 2004) (“The UCC generally
requires suit on breach of warranty claims within four years of delivery, regardless
of when the buyer discovers defects in the goods.”) (citing Tex. Bus. & Com. Code
Ann. § 2.725(a), (b)); Stine v. Stewart, 80 S.W.3d 586, 592 (Tex. 2002) (explaining
34
that a four-year statute of limitations applies to claims for breach of contract) (citing
Tex. Civ. Prac. & Rem. Code Ann. § 16.051)). Because Zurich filed its Petition in
Intervention outside the applicable limitations period, the trial court could have
based its summary judgment on the conclusion that the intervention seeking
subrogation was wholly barred by limitations. We agree and we overrule both of
Zurich’s issues on appeal.
S&B’s Issues on Appeal
S&B’s petition alleges two breaches of contract by Scallon: (1) a breach of
the “Changes” provision of the Purchase Order and the Subcontract by making
changes to the work as instructed by S&B without obtaining prior written approval,
and (2) a breach of the contractual obligation to indemnify S&B. We first examine
the indemnification issue.
S&B’s Claim for Breach of Contract for Alleged Failure to Indemnify
Both the Subcontract and the Purchase Order include indemnification
provisions. Paragraph 9 of the Subcontract, titled “Liability Indemnity[,]” provides,
in relevant part,
SUBCONTRACTOR SHALL DEFEND, INDEMNIFY AND
SAVE HARMLESS THE CONTRACTOR AND OWNER AND
THEIR PARENTS AND AFFILIATED COMPANIES
(“INDEMNITEES”) FROM AND AGAINST ANY AND ALL LOSS,
DAMAGE, INJURY, LIABILITY, AND CLAIMS THEREOF FOR
INJURY TO OR DEATH OF ANY PERSON (INCLUDING AN
EMPLOYEE OR SUBCONTRACTOR OF AN INDEMNITEE) OR
FOR LOSS OF OR DAMAGE TO PROPERTY (INCLUDING THE
35
PROPERTY OF INDEMNITEES) OR FOR LOSS OR DAMAGE
ARISING FROM ATTACHMENTS, LIENS OR CLAIMS OF
MATERIALMEN OR LABORERS TO THE EXTENT CAUSED BY
THE NEGLIGENT ACTS OR OMISSIONS OF
SUBCONTRACTOR. CONTRACTOR SHALL DEFEND,
INDEMNIFY AND SAVE HARMLESS THE SUBCONTRACTOR
FROM AND AGAINST ANY AND ALL LOSS, DAMAGE,
INJURY, LIABILITY, AND CLAIMS TO THE EXTENT CAUSED
BY CONTRACTOR. THIS INDEMNITY SHALL NOT APPLY TO
THE EXTENT THAT SUCH INDEMNIFICATION IS VOID OR
OTHERWISE UNENFORCEABLE UNDER APPLICABLE LAW IN
EFFECT ON OR VALIDLY RETROACTIVE TO THE DATE OF
THIS AGREEMENT. . . .
Paragraph 12 of the Terms and Conditions of the Purchase Order, titled “Liability
and Indemnity[,]” provides, in relevant part,
OTHER CLAIMS. TO THE MAXIMUM EXTENT PERMITTED
BY APPLICABLE LAW, SELLER SHALL DEFEND, INDEMNIFY
AND HOLD HARMLESS S&B, AND ITS AFFILIATED
COMPANIES, SUBSIDIARIES AND CLIENTS FROM AND
AGAINST ANY AND ALL LOSS, DAMAGE, CLAIM, SUIT,
LIABILITY, STRICT LIABILITY, PRODUCT LIABILITY,
JUDGMENT AND EXPENSE (INCLUDING ATTORNEY’S FEES
AND OTHER COSTS OF LITIGATION) AND ANY FINES,
PENALTIES AND ASSESSMENTS, ARISING OUT OF (A)
DAMAGE TO OR LOSS OF PROPERTY OR (B) BODILY INJURY,
DISEASE OR DEATH TO PERSONS OTHER THAN EMPLOYEES
OF SELLER, ITS AGENTS OR SUBCONTRACTORS RESULTING
FROM OR IN CONNECTION WITH THE EXECUTION OF THIS
PURCHASE ORDER TO THE EXTENT OF SELLER’S
NEGLIGENCE OR WILLFUL MISCONDUCT. IN CASE OF
COMPARATIVE, CONCURRENT AND/OR CONTRIBUTING
NEGLIGENCE, FAULT OR STRICT LIABILITY OF SELLER OR
BUYER, WHETHER THROUGH ITS EMPLOYEES AND/OR
REPRESENTATIVES, SELLER’S DUTY TO INDEMNIFY AND
HOLD HARMLESS REFERRED TO IN THE PREVIOUS
SENTENCE SHALL BE SELLER’S ALLOCABLE SHARE OF
36
COMPARATIVE, CONCURRENT AND/OR CONTRIBUTING
NEGLIGENCE, FAULT OR STRICT LIABILITY.
In Scallon’s motions for summary judgment, Scallon argued that the express
negligence rule precludes S&B from seeking indemnification from Scallon for
S&B’s own negligence. Under the express negligence rule, “parties seeking to
indemnify the indemnitee from the consequences of its own negligence must express
that intent in specific terms [] within the four corners of the contract.” Ethyl Corp.,
725 S.W.2d at 708; see also Fisk Elec. Co. v. Constructors & Assocs., 888 S.W.2d
813, 813-14 (Tex. 1994); SpawGlass, Inc. v. E.T. Servs., Inc., 143 S.W.3d 897, 899
(Tex. App.—Beaumont 2004, pet. denied) (per curiam) (“The express negligence
rule requires that the intent of the party seeking indemnity from the consequences of
that party’s own future negligence must be expressed in unambiguous terms within
the four corners of the contract.”). The rule is one of contract construction or
interpretation. See Fisk, 888 S.W.2d at 814.
In Fisk, Fisk Electric Company (“Fisk”) entered into a contract with
Constructors & Associates (“Constructors”). Id. One of Fisk’s employees was
injured on the job, and the employee sued Constructors for negligence. Id.
Constructors then brought a third-party action against Fisk seeking indemnification.
Id. The contract between Fisk and Constructors provided, “to the fullest extent
permitted by law, [Fisk] shall indemnify, hold harmless, and defend [Constructors]
. . . from and against all claims, damages, losses, and expenses” arising out of or
37
resulting from the performance of Fisk’s work. Id. Applying Ethyl, the Texas
Supreme Court held Fisk had no obligation to indemnify Constructors under the
parties’ contract because the claim against Constructors was for Constructors’ own
negligence and because the parties’ contract did not meet the requirements of the
express negligence rule. Id.
Many Texas courts, including our Court, have discussed the application of the
express negligence doctrine. For example, in Faulk Management Services v. Lufkin
Industries, Inc., 905 S.W.2d 476, 478 (Tex. App.—Beaumont 1995, writ denied),
Faulk Management Services (“Faulk”) provided janitorial services to Lufkin
Industries (“Lufkin”) under a written agreement between the parties which contained
an indemnity provision. Id. at 477. Harrison, one of Faulk’s employees, was injured
while working at Lufkin. Id. Harrison sued Lufkin for negligence, alleging that
Lufkin failed to provide a safe place to work or failed to warn of hidden dangers. Id.Lufkin demanded indemnity and defense from Faulk based on its contract with
Faulk. Id. at 477-48. The trial court granted summary judgment in favor of Lufkin.
Id. at 477. On appeal, this Court affirmed the trial court’s judgment because the
parties’ contract expressly provided, in relevant part,
It is the intention of the Seller and/or Contractor to indemnify Lufkin
Industries, Inc. even in the event that any such claims, demands,
actions or liability arises in whole or in part from warranties, express
or implied, defects in materials, workmanship or design, condition of
property or its premises and/or negligence of Lufkin Industries, Inc. or
any other fault claims as a basis of liability for Lufkin Industries, Inc.
38
Id. at 478. This Court held that the contract met the express negligence test because
it did not limit indemnification to claims caused by Faulk and provided for indemnity
arising out of performance of the contract, even if wholly caused by Lufkin’s
negligence. Id.; see also SpawGlass, Inc., 143 S.W.3d at 900-01 (holding that the
parties’ agreement expressly provided that the subcontractor indemnify the
contractor for the consequences of contractor’s own negligence).
In the agreements at issue here, unlike the language at issue in Faulk, here the
indemnity language fails to specify that Scallon will indemnify S&B for S&B’s own
negligence and it is more like the language in Gilbane Building Co. v. Keystone
Structural Concrete, Ltd., 263 S.W.3d 291 (Tex. App.—Houston [1st Dist.] 2007,
no pet.). In Gilbane, Gilbane Building Co. (“Gilbane”), a general contractor,
executed a subcontract with Keystone Structural Concrete, Ltd. (“Keystone”) for
work at Rice University. Id. at 294. One of Keystone’s employees was injured during
construction, and the employee sued Gilbane for negligence. Id. The employee
settled with Gilbane, and Gilbane’s insurers paid the settlement. Id. Then Gilbane
sued Keystone and its insurer seeking to recover the amounts Gilbane paid to settle
the employee’s claim. Id. The appellate court affirmed the summary judgment on
Gilbane’s claim for contractual indemnity because “the contractual indemnity
provision [was] not enforceable because Gilbane was sued for its own negligence,
the indemnity provision [did] not expressly indemnify Gilbane for its own
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negligence, and therefore, it [did] not comply with the express negligence test
mandated by Texas law.” Id. at 296. The Court further stated, “only Gilbane was
sued for negligence; Keystone was not sued.” Id. at 297. As stated by the Gilbane
court, the policy underlying the express negligence rule is to prevent post-settlement
“satellite litigation” about who caused the plaintiff’s injury. Id. at 298.
Here, S&B and Sunoco were sued for negligence, and the Individual Plaintiffs
made no claim against Scallon. S&B and Sunoco settled with the Individual
Plaintiffs, and then sought indemnification under the contract (either the Subcontract
and Purchase Order, or both) for the amounts they paid to settle. However, in this
case, the indemnification provisions of both the Subcontract and the Purchase Order
only require Scallon to indemnify S&B (and its clients) for Scallon’s negligence and
not for S&B’s own negligence. We conclude that S&B’s claim against Scallon for
indemnification is barred by the express negligence rule. See Fisk, 888 S.W.2d at
814; Ethyl Corp., 725 S.W.2d at 708; Faulk Mgmt. Servs., 905 S.W.2d at 478. As in
Gilbane, S&B and Sunoco were sued for their own negligence. Scallon was not sued
by the Individual Plaintiffs. S&B may not seek indemnification from Scallon where
S&B settled the Individual Plaintiffs’ claims against S&B for negligence, and the
Individual Plaintiffs did not state a claim for negligence against Scallon, and where
the contracts between S&B and Scallon did not expressly provide that Scallon was
obligated to indemnify S&B for S&B’s own negligence. See Gilbane, 263 S.W.3d
40at 296-97. And we agree with Gilbane that the application of the express negligence
rule prevents post-settlement “satellite litigation” about who caused the Individual
Plaintiffs’ injuries. Id. at 298.
Although S&B maintains that its claim for contractual indemnity is not one
for contribution, we also note the record provides no basis for S&B to seek
contribution against Scallon. Although the terms “contribution” and “indemnity”
may be used interchangeably, they do not mean the same thing. “Contribution” refers
to the payment by each tortfeasor of its proportionate share of the plaintiff’s
damages. See Gus M. Hodges, Contribution and Indemnity Among Tortfeasors, 26
Tex. L. Rev. 150, 150 (1947). By contrast, indemnity refers to the “shifting [of] the
entire burden of loss from one tortfeasor to another.” B & B Auto Supply, Sand Pit
& Trucking Co. v. Cent. Freight Lines, Inc., 603 S.W.2d 814, 816 (Tex. 1980). The
Texas Supreme Court has explained that “[t]he essential prerequisites for a
contribution claim are a judgment finding the party seeking contribution to be a joint
tortfeasor and the payment by such party of a disproportionate share of the common
liability. An agreed judgment incorporating a settlement does not provide a basis for
subsequent contribution claims.” Beech Aircraft Corp., 739 S.W.2d at 21. The
appellate record in this case does not include a judgment finding Scallon to be a joint
tortfeasor with S&B. See Tex. Civ. Prac. & Rem. Code Ann. § 32.002 (Recovery for
contribution is only available against a “codefendant against whom judgment is also
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rendered.”). Therefore, the record provides no basis for S&B to claim contribution
against Scallon. See id.; Beech Aircraft Corp., 739 S.W.2d at 21.
S&B’s Claims for Breach of Contract and Breach of Warranty
Appellants do not argue in their appellate briefs that the trial court erred in
granting summary judgment for Scallon on S&B’s claim for breach of contract or
breach of warranty claims based on Scallon’s alleged failure to obtain prior written
approval for changes in the work or for failing to design and install a non-fail-safe
system. However, in one statement in their appellate brief, S&B does state that
breach of warranty is a type of “fault” that would trigger Scallon’s contractual duty
to indemnify S&B. That said, Appellants’ briefs do not include a “succinct, clear,
and accurate statement” of any argument supported by relevant authority and
citations to the record that the trial court erred in granting summary judgment for
Scallon on S&B’s claim for breach of contract or breach of warranty claims based
on Scallon’s alleged failure to obtain prior written approval for changes in the work
or for failing to design and install a non-fail-safe system. See Tex. R. App. P. 38.1(h),
(i). Additionally, Appellants have failed to identify evidence of damages incurred
due to any such alleged breach, and under the UCC, the remedy for breach for non-
conforming goods is the “difference at the time and place of acceptance between the
value of the goods accepted and the value they would have had if they had been as
warranted[.]” See Tex. Bus. & Com. Code Ann. § 2.714(b).
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Conclusion
To summarize, we conclude that the trial court did not err in granting summary
judgment in favor of Scallon on S&B’s and Zurich’s claims for indemnity, for breach
of contract, and breach of warranty. We overrule S&B’s and Zurich’s issues, and we
affirm the trial court’s judgment.
AFFIRMED.
LEANNE JOHNSON
Justice
Submitted on September 18, 2023
Opinion Delivered May 23, 2024
Before Golemon, C.J., Johnson and Wright, JJ.
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