Heat & Power Corp. v. Air Products & Chemicals, Inc.

CHASANOW, Judge.

Respondent, Air Products & Chemicals, Inc. (Owner), produces gas for industrial use. In April, 1977, Owner entered into a contract with Petitioner, Heat & Power Corp. (Contractor), to construct a silencer building¹ at Owner’s Sparrows Point plant. Owner designed and prepared all specifications for the building.

In July, 1987, an employee of Contractor, Ivor LaBarrie, was removing scaffolding from the silencer building roof when the building exploded. LaBarrie was seriously injured. The dispute in this case is not about who caused the accident. No challenge was made to the circuit court’s entry of summary judgment in favor of LaBarrie against Owner. That decision was based on a finding that LaBarrie’s injuries were caused by Owner’s sole negligence in the design of the building which rendered the building incapable of withstanding the pressures to which it was subjected. Owner makes no allegation in this Court that any negligence of Contractor, or anyone other than Owner, contributed to LaBarrie’s injuries. Rather, the dispute concerns the interpretation of the extent of insurance coverage Contractor obtained for Owner, as well as the interpretation of the construction contract.

The relevant portion of Article 13 of the construction contract between Owner and Contractor states:

The Contractor shall indemnify [Owner] ... and save and hold each of them harmless from any and all loss, liability, fine, penalty or other charge, cost or expense by reason of any claim, fine or penalty, or any action or suit for injury to, or death of any persons, including agents and employees, or for damage to property, including the property of [Owner] and/or the Owner and their respective representatives, assigns, and successors, resulting from or arising out of or in connection with the performance of this Contract by Contractor and Subcontractor selected by Contractor if any. Contractor shall obtain appropriate insurance coverage with respect to such liability. (Emphasis added.)

In addition, the bidding instructions for the construction contract, expressly incorporated into the contract, required Contractor to name Owner as an “additional insured” on the comprehensive general liability policy Contractor maintained with its insurance carrier, Petitioner General Accident Fire and Life Assurance Corp., Ltd. (Insurer). Following Contractor’s request, Insurer added Owner to Contractor’s general liability policy in an endorsement which provides:

In consideration of a flat charge of $25.00, it is agreed that the 'Persons Insured’ provision is amended to include as insureds [Owner]. The provisions of this endorsement apply only in connection with work performed by the named insured for [Owner]. (Emphasis added.)

Owner maintains that Article 13 of the contract is unambiguous and clearly requires Contractor to indemnify and to secure insurance coverage for all claims made against Owner at this construction site, including claims made against Owner as a result of its own negligence. Contractor agrees with the Owner’s contention that the language is unambiguous, but contends that clearly Article 13 only requires indemnification and insurance for Owner’s vicarious liability, i.e., indemnification for any claims made against Owner as a result of Contractor’s negligence for which Owner may be held vicariously liable.

In its dispute with Insurer, Owner contends that Insurer is obligated to defend and indemnify Owner for Owner’s own negligence by virtue of the endorsement in Contractor’s general liability policy with Insurer. Insurer, however, argues that the insurance contract endorsement is limited to protecting Owner against liability for work performed by Contractor for Owner. They maintain this language unambiguously limits any coverage to Owner’s vicarious liability as the result of Contractor’s work. Various judges of the Circuit Court for Baltimore City faced with the issue of ambiguity in the instant case "resolved” the issue four separate times, issuing four separate motions rulings.

Owner sought a defense and indemnity from Insurer based on the endorsement in Contractor’s insurance policy. When Insurer refused, Owner filed a third-party complaint both against Insurer based on the endorsement, and against Contractor based on the indemnification provision in the construction contract. Owner’s motion for summary judgment against Insurer was granted. Insurer then filed a motion for reconsideration of the summary judgment entered in favor of Owner. This motion for reconsideration was granted, and the order granting summary judgment in1 favor of Owner was vacated. Next, a series of summary judgment motions and cross motions between Owner and Contractor were filed, which ultimately ended with a partial summary judgment in favor of Contractor. In response to Owner’s motion for reconsideration from this ruling, the court reversed itself, finding that material issues of fact were presented which should be resolved by a jury. Despite this ruling, Contractor and Insurer each filed yet another motion for summary judgment on essentially the same grounds as their previóus motions. ■ Owner opposed them as before. This time1 the court entered summary judgment in favor of Contractor and Insurer; Owner appealed to the Court of Special Appeals.

In an unreported opinion the Court of Special Appeals reversed the Circuit Court for Baltimore City holding that the matters were inappropriate for summary judgment. Contractor and Insurer petitioned this Court, and we granted certiorari.

I. STANDARD FOR APPELLATE REVIEW OF SUMMARY JUDGMENTS GRANTED ON THE, . BASIS OF A CONTRACT INTERPRETATION

The parties differ as to the proper standard for appellate review of a judgment entered on a motion for summary.judgment. Petitionérs, Contractor arid Insurer, contend that the proper standard of review of summary judgment is “clearly erroneous.” They rely on subsection (c) of Maryland Rule 8-131, Scope of Review, which states:

(c) Action Tried Without a. Jury. — When an action has been tried without a jury, the appellate court will review the case on both the law and the evidence. It will not set aside the judgment of the trial court on the evidence .unless clearly erroneous, and will give due regard , to the opportunity of the trial court to judge the credibility of the witnesses.

The clearly erroneous standard for appellate review in section (c) of this rule does not apply to a trial court’s determinations of legal questions or conclusions of law based on findings of fact. Davis v. Davis, 280 Md. 119,124, 372 A.2d 231, 233, cert, denied, 434 U.S. 939, 98 S.Ct. 430, 54 L.Ed.2d 299 (1977). A trial court determines issues of law when granting summary judgment.

Petitioners also rely on the child custody determination in Sewell v. Sewell, 218 Md. 63, 145 A.2d 422 (1958). In Sewell, this Court employed the clearly erroneous standard on review notwithstanding the fact that the trial court decided the case primarily on depositions, as well as the recorded testimony of a witness taken before an Examiner. Our review of the trial court’s decision in Sewell, however, was very different from a review of a summary judgment motion.

In granting a motion for summary judgment, the trial court makes rulings as a matter of law, resolving no disputed issues of fact from the record. In Sewell, the trial court used the depositions and the record before the Examiner to resolve factual disputes and make factual determinations based on recorded testimony. Sewell involves a judgment following a court trial utilizing testimony from depositions and testimony taken before the Examiner. “Clearly erroneous” was the proper standard for review of a judgment following a court trial.

Respondent Owner contends, and we agree, that the standard for appellate review of a trial court’s grant or denial of a motion for summary judgment is whether the trial court was legally correct. A trial court decides issues of law, not fact, when granting summary judgment. Maryland Rule 2-501; King v. Bankerd, 303 Md. 98, 111, 492 A.2d 608, 614 (1985). Even where the underlying facts are undisputed, if the undisputed facts are susceptible of more than one permissible factual inference, the choice between those inferences should not be made as a matter of law, and summary judgment should not be granted. Id. In reviewing a summary judgment, an appellate court has the same information from the record and decides the same issues of law as the trial court. It follows then that the proper standard for reviewing the granting of a summary judgment motion should be whether the trial court was legally correct. Honaker v. W.C. & A.N. Miller Dev. Co., 278 Md. 453, 458 n. 3, 365 A.2d 287, 290 n. 3 (1976); Lynx, Inc. v. Ordnance Products, Inc., 273 Md. 1, 8, 327 A.2d 502, 509 (1974); Brewer v. Mele, 267 Md. 437, 441, 298 A.2d 156, 159 (1972).

II. INDEMNITY PROVISION IN THE CONTRACT

Article 13 of the contract required Contractor to indemnify Owner for any liability “resulting from or arising out of or in connection with the performance of this contract by Contractor____” This provision cannot be construed as indemnifying the Owner against its own sole negligence. Any such construction would render the provision against public policy and void pursuant to Maryland Code (1974, 1989 Repl.Vol.), Courts & Judicial Proceedings Article, § 5-305. That section provides:

A covenant, promise, agreement or understanding in, or in connection with or collateral to, a contract or agreement relating to the construction, alteration, repair, or maintenance of a building, structure, appurtenance or appliance, including moving, demolition and excavating connected with it, purporting to indemnify the promisee against liability for damages arising out of bodily injury to any person or damage to property caused by or resulting from the sole negligence of the promisee or indemnity, his agents or employees, is against public policy and is void and unenforceable. This section does not affect the validity of any insurance contract, workmen’s compensation, or any other agreement issued by an insurer. (Emphasis added.)

As this statute states and as we construed it in Bethlehem Steel v. G. C. Zarnas & Co., 304 Md. 183, 498 A.2d 605 (1985), any covenant, promise, agreement, or understanding in a construction contract which purports to indemnify the promisee against liability for damages caused by the promisee’s sole negligence is rendered void and unenforceable by Cts. & Jud.Proc. Art., § 5-305. Id. at 195, 498 A.2d at 611. If, on the other hand, “a particular contract provision or sentence can properly be construed as reflecting two agreements, one providing for indemnity if the promisee is solely negligent and one providing for indemnity if the promisee and promisor are concurrently negligent, only the former agreement is voided by the statute.” Id.

Even if Cts. & Jud.Proc. Art. § 5-305 was not applicable, Article 13 of the contract is not sufficiently clear and unequivocal to indemnify Owner against its own negligence. In Crockett v. Crothers, 264 Md. 222, 227, 285 A.2d 612, 615 (1971), this Court held that “contracts will not be construed to indemnify a person against his own negligence unless an intention to do so is expressed in those very words or in other unequivocal terms.” Since the contract did not expressly or unequivocally indemnify Owner against its own negligence, the circuit court judge was correct in ruling as a matter of law that Contractor had no contractual duty to indemnify Owner.

Owner next contends that even if Contractor had no contractual obligation to indemnify Owner against its own negligence, Contractor did have a contractual duty to provide liability insurance which would insure Owner against its own negligence. We need not address the issue of whether Cts. & Jud.Proc. Art. § 5-305 voids a provision in a construction contract requiring the promisor to obtain an insurance policy which would indemnify the promisee against its sole negligence.² In the instant case, Article 13 of the contract required Contractor “to obtain insurance coverage for such liability ” (Emphasis added). The circuit court was legally correct in holding that “such liability,” when read in the context of this contractual provision, means the liability of Contractor to Owner under the indemnification provision. In contracting to provide insurance for “such liability,” the Contractor agreed to provide insurance coverage co-extensive with its liability to Owner. Since Contractor did not contract to indemnify Owner against its own negligence, Contractor did not contract to insure Owner against its own negligence.

There are additional contractual provisions which Owner contends preclude summary judgment in favor of Contractor. The “Instructions to Bidders,” which were expressly incorporated into the contract, required the Contractor to have Owner named as an “additional insured” on certain listed insurance coverage.

The Instructions to Bidders stated:

[Owner] shall be made an additional insured on all of the above contracts ... and shall be given 30 days notice in the event of cancellation of any policy. Certificates evidencing this coverage shall be forwarded to [Owner] prior to commencing work under the Contract.

Owner was made an “additional insured” by endorsement on all of the enumerated policies, although there is now disagreement between Owner and Insurer as to the interpretation of the endorsements. Owner may be correct in asserting that the term “additional insured” is ambiguous; however, Contractor secured endorsements on each of the enumerated insurance coverages, and the unrebutted evidence was that the language in the endorsements was acceptable to Owner. Further, in response to a request for admissions, Owner acknowledged that it was made an additional “persons insured” on all policies of insurance obtained in accordance with that section of the contract. Contractor fulfilled the requirement of having Owner named as an “additional insured” by procuring endorsements on the named policies in language that was acceptable to Owner. Owner got what it asked for even though it may not have gotten what it wanted.

There was one issue not raised in any petition for certiorari, but alluded to in the briefs. A provision in the contract required the Contractor to obtain a waiver of subrogation of any worker’s compensation liens against the Owner. The issue of failure to obtain the waiver of subrogation was not mentioned in the pleadings, and was never properly raised before the trial court. We, therefore, will not consider the issue and will reverse the judgment of the Court of Special Appeals and affirm the circuit court’s entry of summary judgment in favor of Contractor.

III. EXTENT OF INSURANCE COVERAGE UNDER THE CONTRACT

Although we need not address the issue of whether a provision in a construction contract requiring a promisor to provide insurance coverage for the promisee’s sole negligence is voided by Cts. & Jud.Proc. Art. § 5-305, we must determine, when such an insurance policy is in fact procured, is it enforceable? A policy of insurance insuring Owner for Owner’s own negligence obviously would not be against public policy. The primary purpose of a liability insurance policy is to provide coverage to a policy holder for the policy holder’s own negligence. What may arguably be against public policy under the statute would be a provision in a construction contract requiring one party to purchase insurance to cover the other party’s sole negligence. Thus, who contractually must pay the insurance premiums may raise a public policy issue, but an insurance policy once issued and paid for is valid even if the wrong party paid the premiums. Insurer collected a premium and issued an endorsement. It cannot avoid its contractual obligations by claiming that Contractor was not compelled to purchase the endorsement. See Sentry Insurance Co. v. National Steel Corp., 147 Mich.App. 214, 382 N.W.2d 753 (1985); Long Island Lighting Co. v. American Employers Insurance, 517 N.Y.S.2d 44, 131 A.D.2d 733 (1987).

Contractor’s obligations under the contract were only to provide insurance coverage to Owner for Owner’s vicarious liability, not for Owner’s liability as a result of its own negligence. If, however, Contractor in fact procured insurance which provided broader liability coverage than it was obligated to provide under the construction contract, the insurance policy would be valid and insurer would be obligated to provide coverage purchased by Contractor. We note also that Cts. & Jud.Proc. Art. § 5-305 expressly provides “this section does not affect the validity of any insurance contract, workmen’s compensation, or other agreement issued by an insurer.”

We hold that the insurance endorsement in the instant case could insure owner against its own negligence. We do not hold that the endorsement does provide such coverage. The rule of construction that a “contract will not be construed to indemnify a person against his own negligence unless an intention to do so is expressed in those very words or in other unequivocal terms,” Crockett, supra, does not apply to an insurance contract. The policy consideration against implying agreements to indemnify one for one’s own negligence are inapplicable to liability insurance contracts which generally have as their primary purpose indemnification against one’s own negligence. Also, one of the reasons why contracts to indemnify must be expressed in unequivocal terms is to protect the unwary or uninformed promisor. A liability insurer is rarely an unwary or uninformed promisor.

In interpreting a contract, the trial judge must first consider “the character of the contract, its purpose, and the facts and circumstances of the parties at the time of execution.” Pacific Indem. Co. v. Interstate Fire & Cas. Co., 302 Md. 383, 388, 488 A.2d 486, 488 (1985). Second, with this background, the judge examines the four-corners of the contract to determine if the contract is unambiguous. An ambiguity exists when, to a reasonably prudent person, the language used in the contract is susceptible of more than one meaning. Truck Ins. Exchange v. Marks Rentals, Inc., 288 Md. 428, 433, 418 A.2d 1187, 1190 (1980). If the contract is ambiguous, the court must consider any extrinsic evidence which sheds light on the intentions of the parties at the time of the execution of the contract.

In the instant case, Contractor had a comprehensive general liability policy with Insurer. Owner was added as an additional insured pursuant to an endorsement which provided:

[T]he “person’s insured” provision is amended to include as insureds [Owner]. The provisions of this endorsement apply only in connection with work performed by the named insured for [Owner].

The Court of Special Appeals held that the endorsement was ambiguous, and that there were factual disputes about the true intention of the parties which must be resolved by the trier of fact. Owner and Insurer both contend that the endorsement is unambiguous, but they disagree as to the unambiguous meaning of the endorsement. Owner contends that the endorsement provides Owner with complete liability coverage for all negligent acts committed on this construction site. Insurer contends the endorsement only provides coverage for negligent acts of the Contractor or its agents. We agree with the Court of Special Appeals that the endorsement is ambiguous, and that factual findings about the intention of the parties will have to be made by the trier of fact.

JUDGMENT OF THE COURT OF SPECIAL APPEALS AFFIRMED IN PART AND REVERSED IN PART. COSTS IN THIS COURT AND IN THE COURT OF SPECIAL APPEALS TO BE PAID BY AIR PRODUCTS & CHEMICALS, INC. AND GENERAL ACCIDENT FIRE AND LIFE ASSURANCE CORP., LTD.

1 . A silencer building is a structure which houses the assembly used to produce gases such as oxygen and nitrogen, muffling the noise inherent in that production process.

2 . See Bethlehem Steel v. G. C. Zarnas & Co., 304 Md. 183, 498 A.2d 605 (1985), dissenting opinion, Rodowsky, J. A promise to obtain insurance is different from a promise to indemnify directly.