Schnabel Lumber Co. v. State

OPINION

Before MATTHEWS, C.J., and RABINOWITZ, BURKE, COMPTON, and MOORE, JJ.

RABINOWITZ, Justice.

In 1981, Schnabel Lumber Company (Schnabel) entered into a contract with the state of Alaska to log state-owned land near Haines. Schnabel subcontracted logging operations to Northern Timber Company (Northern). On October 17, 1981, a bridge on the Kelsall Road (a logging road) collapsed under the weight of a CAT 235 logloader. The driver, Bill Higdon, a Northern employee, was killed in the fall; the CAT was damaged.

As a result of this accident, two lawsuits, a wrongful death action, Higdon v. State, and a property damage action, Pine Top Insurance Co. v. State, were filed against the state. In each case the state filed third party complaints against Schnabel for contractual indemnity. In its third party complaints, the state sought recovery against Schnabel on three counts: contractual indemnity for the plaintiff’s recovery, breach of Schnabel’s contractual obligations, and contribution from Schnabel as a joint tort-feasor.

The state subsequently settled with all plaintiffs, paying $500,000 to the plaintiffs in Higdon and $136,871 in the Pine Top case. The Higdon wrongful death action proceeded on the third party complaint against Schnabel. Both sides filed motions for summary judgment as to all three counts. The court granted summary judgment in favor of Schnabel on the breach of contract claim, and denied motions for summary judgment on the other counts. In its order regarding the summary judgment motions, the superior court held that, under the reasoning of City and Borough of Juneau v. Alaska Electric Light & Power Co., 622 P.2d 954 (Alaska 1981), “the most reasonable interpretation of the indemnity clause involved in the present case is that it covers all losses except that portion of loss which is directly attributable to the negligence of the State.” (Emphasis in original.)

The indemnity clause of the timber sale contract between Schnabel and the state reads:

The Purchaser shall indemnify the state and hold it harmless for any and all claims, demands, suits, loss, liability and expense for injury to or death of persons, and damage to or loss of property arising out of or connected with the exercise of the privileges granted the Purchaser by this contract, except for injury, damages, or loss proximately caused by negligence of the State.

The third-party action in the Higdon case went to trial. The jury returned a special verdict, finding the state responsible for 60% of the total negligence, Schnabel responsible for 10%, and Northern responsible for 30%. Under the court’s interpretation of the indemnity clause, Schnabel was required to reimburse the state for the percentage of the settlement that was not attributable to the state’s negligence ($200,000 — 40% of the $500,000 settlement —plus costs and attorney’s fees).

Before the Higdon case was settled, Pine Top Insurance Co. received an estimate for repairs to the CAT. Pine Top reimbursed its insured, Schnabel,¹ for that amount ($158,400). About three weeks after the Higdon jury’s determination that the state was 60% liable for the collapse of the Kel-sall Road bridge, the state settled with Pine Top. The state paid Pine Top $136,-871, an amount it calculated by adding costs and attorney's fees to Pine Top’s value of the CAT, and taking 60% of that total.

Ten days after the state settled with Pine Top, Schnabel moved for summary judgment on all three counts in the third party complaint. Schnabel argued that it was entitled to summary judgment because the state had not paid more than its share of the damage to the CAT under the indemnity clause. The state opposed Schnabel’s motion and filed a cross motion for summary judgment. The state argued that under the indemnity clause Schnabel was responsible for 40% of whatever settlement amount it paid to Pine Top.²

The superior court granted summary judgment in favor of Schnabel on the breach of contract and contribution claims. It granted summary judgment in favor of the state for 40% of the settlement it had paid to Pine Top. Schnabel appeals from the court’s decision that it must reimburse the state for 40% of the $136,871 paid to Pine Top, arguing that through its insurer it has already suffered 40% of the loss.

DISCUSSION

At issue in this appeal is the definition of the “loss” to which the indemnity clause applies. Both sides concede that the jury’s allocation of negligence in the wrongful death action is res judicata in the instant case. Schnabel argues that the loss should be the value of the CAT — $158,400—and that because the state paid only 60% of that loss, Schnabel is under no obligation to reimburse the state for its settlement payment to Pine Top. The state argues that, as in the Higdon case, the loss is the amount of money that it paid to settle the claim, and that Schnabel must reimburse it for 40% of that amount. Thus, in Higdon the state paid $500,000 to the plaintiff, then sought and received reimbursement for $200,000 — 40% of the settlement amount— from Schnabel.

Schnabel argues that the loss at issue differs significantly from the loss in Hig-don. In Higdon the loss was “an intangible claim that cannot be ascertained, the wrongful death of Bill Higdon.” The present loss, however, is tangible — it is the damage to the CAT logloader, which is estimated to be $158,400. Thus, Schnabel argues, the court need not resort to the settlement amount to calculate the value of the loss as it did in Higdon; it can use the $158,400 repair figure.

A second distinction, Schnabel contends, is that the loss in Higdon was suffered by a third party, but that the loss here was suffered by a party. Because Schnabel owned the CAT, it already suffered its share of the loss. The state’s payment of 60% of the CAT’s value to Schnabel’s insurer therefore represents its share of the total liability as determined in Higdon. Schnabel argues that requiring it to reimburse the state for 40% of the state’s payment to the insurer, after it has suffered its 40% share of the loss of the logloader, would give a windfall to the state.

We are not persuaded that the differences which Schnabel emphasizes require the result Schnabel requests. If the Hig-don court had applied Schnabel’s method of calculating the loss to be apportioned, Schnabel would have been responsible for more than the $200,000 it paid to the state. Higdon’s estate claimed more than $1,000,-000 in damages, yet the court apportioned between the parties only the $500,000 actually paid by the state in settlement. Had the court identified the loss as the amount claimed by Higdon’s estate, Schnabel’s liability would have increased dramatically. Schnabel obviously did not encourage the Higdon court to employ this approach to evaluating the loss.

The superior court apportioned damages in the instant case in the same manner in which it had apportioned them in Higdon: it required Schnabel to reimburse the state for 40% of the amount the state paid to settle the claim. The superior court’s approach is entirely consistent with the Hig-don jury’s apportionment of liability, which all parties concede is res judicata here, and consistent with its prior definition of the loss to be indemnified as that amount which the state paid.

Because we see no reason to construe the term “loss” in the indemnity clause at issue in the instant case differently than in the earlier wrongful death action, we define the loss to be indemnified as the amount of money actually paid by the state in settlement of the claim. We therefore affirm the superior court’s grant of summary judgment against Schnabel and its order that Schnabel reimburse the state for 40% of the amount paid in settlement of the claim.

AFFIRMED.

COMPTON, J., with whom MOORE, J., joins, dissents.

1 . Whether Schnabel or Northern was Pine Top’s insured was disputed. Schnabel, however, produced documents showing that it had received the insurance payment of $158,400, that it owned the CAT, and that it held the policy with Pine Top. The state produced no conflicting evidence and the trial court noted “[t]hat Pine Top Insurance Company may have misrepresented itself in its dealings with the state ... should not be held against Schnabel_"

2 . The state further argued that its negligence might be less than 60% if some of the damage to the CAT resulted from its retrieval. The superi- or court denied the state’s request to proceed to trial on that issue because the state offered no evidence in support of its claim.