Zahn v. KROGER CO. OF MICHIGAN

Michigan Supreme Court
Lansing, Michigan
Chief Justice: Justices:

Opinion Marilyn Kelly Michael F. Cavanagh
Elizabeth A. Weaver
Maura D. Corrigan
Robert P. Young, Jr.
Stephen J. Markman
Diane M. Hathaway

FILED APRIL 1, 2009

TIMOTHY ZAHN,

Plaintiff,
v No. 136382

KROGER COMPANY OF MICHIGAN,

Defendant/Cross-Plaintiff-Appellee,

and

F.H. MARTIN CONSTRUCTION COMPANY,

Defendant/Cross-Defendant/
Third-Party Plaintiff-Appellee,

and

CIMARRON SERVICES, INC.,

Third-Party Defendant-Appellant.

BEFORE THE ENTIRE BENCH

HATHAWAY, J.

Cimarron Services, Inc.,1 appeals from a judgment in favor of F.H. Martin

1
Cimarron was the third-party defendant below.
Construction Company2 requiring Cimarron to indemnify Martin for a share of a

settlement that Martin had paid as the result of an injury to an employee in a

construction accident. Cimarron alleges that the language of the contract does not

control. Instead, Cimarron contends that MCL 600.2956 effectively limits the

application of express contractual indemnification clauses, because the statute

mandates that parties may only be held responsible for their own pro rata share of

the negligence.3 The Court of Appeals rejected this argument and, in an

unpublished opinion, held that MCL 600.2956 does not apply to contracts.4 We

granted leave to appeal to review this issue and asked the parties to also address

whether the exclusive remedy provision of the Worker’s Disability Compensation

Act (WCDA), MCL 418.131(1), in any way precludes a third-party defendant

employer from voluntarily subjecting itself to liability for negligence to an

employee by virtue of an indemnification contract.5 We affirm the judgment of

2
Martin was a defendant, cross-defendant, and third-party plaintiff below.
3
MCL 600.2956 provides:

Except as provided in [MCL 600.6304], in an action based on
tort or another legal theory seeking damages for personal injury,
property damage, or wrongful death, the liability of each defendant
for damages is several only and is not joint. However, this section
does not abolish an employer’s vicarious liability for an act or
omission of the employer’s employee.
4
Zahn v Kroger Co of Michigan, unpublished opinion per curiam of the
Court of Appeals, issued March 27, 2008 (Docket No. 274994).
5
Zahn v Kroger Co of Michigan, 482 Mich 993 (2008).

2
the Court of Appeals in favor of Martin and hold that MCL 600.2956 does not

apply to contract actions, and that an employer may voluntarily subject itself to

liability for damages to employees from which it would otherwise be insulated.

We write briefly to address these issues and to clarify the law regarding

indemnification contracts.

The underlying case arose from a construction site accident during the

renovation of a Kroger store. Martin was the general contractor and Cimarron was

a subcontractor for the project. A Cimarron employee, Timothy Zahn, was injured

when he fell from scaffolding while installing drywall. Zahn brought a negligence

action against the Kroger Company of Michigan and Martin. Kroger filed a third-

party action against Martin for indemnification. Martin, in turn, filed a third-party

action against Cimarron seeking indemnification pursuant to their subcontract

agreement. Martin entered into a settlement with Zahn for $225,000 and resolved

claims for indemnification with Kroger for $12,489.45. Martin then asked the trial

court to enforce the terms of the indemnification clause in the subcontract

agreement with Cimarron.

This appeal addresses the indemnification clauses in that subcontract. The

pertinent contract clauses provide:

3. . . . By acceptance of this subcontract, Subcontractor
assumes every duty imposed upon Martin, to the extent related to
the subject matter of this Subcontract.

***

3
 17. Indemnity – To the fullest extent permitted by law,
Subcontractor shall defend, indemnify and hold Martin, the Owner
and Others (required by the Contract Documents) harmless from all
claims for bodily injury and property damage that may arise from the
performance of the Subcontract work to the extent of the negligence
attributed to such acts or omissions by Subcontractor, or anyone
employed or contracted by Subcontractor for whose acts any of them
may be liable. In no event shall the indemnity contained herein be
deemed to cover damages arising exclusively through the negligence
of Martin.

The trial court conducted a bench trial on Martin’s third-party action for

express contractual indemnity. The court ruled that Cimarron’s negligence was

greater, as it had constructed the scaffolding and ordered Zahn to work on it even

after he had protested that it was unsafe. The court ruled that Martin was also

negligent, but to a lesser degree, for failing to inspect the scaffolding for safety

rails or to take further steps to make the workplace safer for Zahn. The trial court

concluded that Martin’s percentage share of the negligence was 20 percent and

that Cimarron was 80 percent at fault. The trial court held that, pursuant to the

terms of the contract, Cimarron was not required to indemnify Martin to the extent

of Martin’s negligence, but was required to reimburse 80 percent of the settlement

amounts back to Martin for its own share of the negligence.

We first address whether MCL 600.2956 renders such indemnification

clauses effectively unenforceable. Cimarron contends that the abolition of joint

and several liability, as set forth in MCL 600.2956, requires an analysis beyond

the language of the contract itself. It proffers that it cannot be held liable for

Martin’s negligence because MCL 600.2956 requires that parties pay only for their

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own pro rata share of liability. It further contends that MCL 600.2956 limits

indemnification clauses by operation of law and that we are to disregard the actual

language of the contract. We find these arguments unpersuasive. Here, Cimarron

voluntarily entered into an agreement with another business entity. These are

business entities with equal bargaining power. The parties came to a mutually

acceptable agreement to govern liability for construction site injuries. Such

agreements are common in the construction industry. Importantly, neither party

claims that the pertinent contractual clauses are ambiguous. To adopt the position

that MCL 600.2956 renders express contractual indemnification clauses

unenforceable would require that we negate the parties’ contract. We find no

language in the statute, nor any compelling public policy, that would require us to

do so.

The Court of Appeals addressed the identical legal challenge in reviewing a

substantially similar express indemnification clause governing a construction site

accident. See Essell v George W Auch Co.6 That Court noted, “Although novel,

the argument is also contrived because it selectively implicates the underlying

negligence complaint and ignores the substance of the cross-complaint, an action

based in contract.”7 The Court opined:

6
Essell v George W Auch Co, unpublished opinion per curiam of the Court
of Appeals, issued February 24, 2004 (Docket No. 240940).
7
Id. at 4.

5
 However, defendants ignores [sic] the first sentence of MCL
600.2956, that limits its application to “an action based on tort or
another legal theory seeking damages for personal injury, property
damage, or wrongful death . . . [.]” While the underlying complaint
by Essel [sic] is a tort action seeking damages for personal injury,
the action at issue in this cross-complaint is an action based on
contract theory. Plaintiff’s lawsuit seeks reimbursement for monies
paid, not for its own personal injury, property damage, or wrongful
death. There is no indication that the Legislature, by amending
MCL 600.2956, sought to limit or eliminate the parties’ freedom of
contract to allocate damages should a breach of contractual duty
occur. Indeed, MCL 600.2956 contains the proviso that it applies to
tort actions or actions where the legal theory results in damages for
personal injury, property damage, or wrongful death. ISB, supra. If
the Legislature had intended to include all other actions, including
contract actions, it expressly would have done so and would not
have placed any restricting language within the statute. [Id. at 5.]

We find the above analysis persuasive and hold that MCL 600.2956 does

not apply to contract actions, and the language chosen by the parties as contained

in the contract is controlling.8

We must next determine whether the indemnification clause the parties

used was properly interpreted. An indemnity contract is to be construed in the

same fashion as other contracts. Hubbell, Roth & Clark, Inc v Jay Dee

8
Cimarron also urges us to interpret this contract in light of the legislative
change in the law concerning joint and several liability. It contends that these
clauses were commonly used in contracts drafted before the enactment of the
current MCL 600.2956, and that these clauses simply continue to be part of form
contracts. However, we note that this agreement was drafted and entered into long
after the abolition of joint and several liability, and neither party has alleged that
this contract or the pertinent clauses are ambiguous. We cannot assume that the
parties in this case, given their equal bargaining power, agreed to a clause that has
no meaning or that we should ignore it because the language was part of a form
contract.

6
Contractors, Inc, 249 Mich App 288, 291; 642 NW2d 700 (2002); Zurich Ins Co v

CCR & Co (On Rehearing), 226 Mich App 599, 603; 576 NW2d 392 (1997);

Triple E Produce Corp v Mastronardi Produce, Ltd, 209 Mich App 165, 172; 530

NW2d 772 (1995). The extent of the duty must be determined from the language

of the contract, itself. Grand Trunk W R, Inc v Auto Warehousing Co, 262 Mich

App 345, 353; 686 NW2d 756 (2004). All contracts, including indemnity

contracts should be construed to ascertain and give effect to the intentions of the

parties and should be interpreted to give a reasonable meaning to all of its

provisions. Klever v Klever, 333 Mich 179, 186; 52 NW2d 653 (1952); MSI

Constr Managers, Inc v Corvo Iron Works, Inc, 208 Mich App 340, 343; 527

NW2d 79 (1995). This Court has generally observed that if the language of the

contract is clear and unambiguous, it is to be construed according to its plain sense

and meaning. Grosse Pointe Park v Michigan Muni Liability & Prop Pool, 473

Mich 188, 198; 702 NW2d 106 (2005). Courts may not make a new contract for

parties under the guise of a construction of the contract, if doing so will ignore the

plain meaning of words chosen by the parties. Lintern v Michigan Mut Liability

Co, 328 Mich 1, 4; 43 NW2d 42 (1950).

Here, the contract clearly preserved Martin’s right to seek indemnification

from Cimarron for any injury arising from Cimarron’s negligence. The trial court

adhered to the terms of the contract and made a determination of the respective

negligence of the two parties. The court ruled that Cimarron was negligent and its

pro rata share was 80 percent. The contract terms expressly provide for

7
indemnification under these circumstances. The court ordered Cimarron to

indemnify Martin for 80 percent of the settlement of the claim. The Court of

Appeals affirmed. We find no error in the lower courts’ interpretation of the

contract, and the judgment should stand.

Finally, we address whether the exclusive remedy provision of the WDCA9

precludes enforcement of an indemnification contract when the injured party is the

employee of the entity being required to pay the indemnification amount.

Cimarron suggests that an employer cannot be required to assume liability for a

particular type of damages for negligence from which it is otherwise shielded as a

9
MCL 418.131 provides:

(1) The right to the recovery of benefits as provided in this act
shall be the employee’s exclusive remedy against the employer for a
personal injury or occupational disease. The only exception to this
exclusive remedy is an intentional tort. An intentional tort shall
exist only when an employee is injured as a result of a deliberate act
of the employer and the employer specifically intended an injury.
An employer shall be deemed to have intended to injure if the
employer had actual knowledge that an injury was certain to occur
and willfully disregarded that knowledge. The issue of whether an
act was an intentional tort shall be a question of law for the court.
This subsection shall not enlarge or reduce rights under law.

(2) As used in this section and [MCL 418.827], “employee”
includes the person injured, his or her personal representatives, and
any other person to whom a claim accrues by reason of the injury to,
or death of, the employee, and “employer” includes the employer’s
insurer and a service agent to a self-insured employer insofar as they
furnish, or fail to furnish, safety inspections or safety advisory
services incident to providing worker’s compensation insurance or
incident to a self-insured employer’s liability servicing contract.

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matter of law. Although Cimarron cannot be held directly liable for negligence by

its own employee by virtue of the WDCA, nothing in contract law precludes an

employer from voluntarily assuming liability for negligence through a contractual

arrangement. Similarly, nothing in the WDCA precludes parties from entering

into such an agreement. Accordingly, we conclude that the contract language

controls, and we affirm the judgment of the Court of Appeals.

Diane M. Hathaway
Marilyn Kelly
Michael F. Cavanagh
Elizabeth A. Weaver

9
 S T A T E OF M I C H I G A N

SUPREME COURT

TIMOTHY ZAHN,

Plaintiff,

v No. 136382

KROGER COMPANY OF MICHIGAN,

Defendant/Cross-Plaintiff-
Appellee,
and

F.H. MARTIN CONSTRUCTION
COMPANY,

Defendant/Cross-
Defendant/Third-Party
Plaintiff-Appellee,

and

CIMARRON SERVICES, INC.,

Third-Party Defendant-
Appellant.

YOUNG, J. (concurring). I concur in Justice Markman’s opinion. I write

separately to note that stability in the law contributes to stability in our society.

This is the essence of the rule of law—that controversies are decided on the basis

of law, not the identity of the disputing parties. This is why the symbol of justice

is blindfolded, because she is uninterested in the identity of the parties but

concerned only with the legal merit of their cause. This is also what distinguishes
the justice systems of great democracies from those of nations where who one is

matters more than the law.

In the grand scheme of things, it might be hard to understand why this great

principle matters. But whenever one buys property or enters into a contractual

relationship, one does so with the expectation that the rules of law that govern now

will not be summarily changed in the future. So, in commercial matters, no less

than in other spheres of life, it is important to know in advance what rules will

govern in the future and this is especially true of contracts.

When judges desire to assert the power to control the outcomes of

controversies—to ensure that favored parties such as the “little guy” win whatever

the law—commitment to fixed rules of law becomes an obstacle and thus an

inconvenience that must be the first thing cast aside in aid of such power. In the

place of announced rules of law are substituted myriad judicial dodges that allow a

judge to manipulate outcomes after the fact. Thus, in contractual matters, the

willful judge must negate fixed rules of contract in favor of ones that permit after-

the-fact “adjustments.” These dodges are usually announced as serving a principle

of “equity” but are usually no more than a mask that hides the judicial desire to

alter outcomes for favored parties.

However well intentioned, I believe that this Court is moving away from

defending the rule of law (applying rules known in advance to existing

controversies) to a system in which a party’s status is what becomes important to

2
litigation outcomes. For all the reasons stated in Justice Markman’s partial

concurrence, this case represents a small but significant step in that direction.

Robert P. Young, Jr.
Maura D. Corrigan
Stephen J. Markman

3
 STATE OF MICHIGAN

SUPREME COURT

TIMOTHY ZAHN,

Plaintiff,
v No. 136382

KROGER COMPANY OF MICHIGAN,

Defendant/Cross-Plaintiff-Appellee,

and

F.H. MARTIN CONSTRUCTION COMPANY,

Defendant/Cross-Defendant/
Third-Party Plaintiff-Appellee,

and

CIMARRON SERVICES, INC.,

Third-Party Defendant-Appellant.

MARKMAN, J. (concurring). In this straightforward contract case, one that

ought to be the subject of consensus on this Court, the majority needlessly

introduces uncertainty and doubt into the law of our state. By its gratuitous

observation that the parties to the contract here are “business entities with equal

bargaining power,” ante at 5, the majority suggests that this circumstance is

somehow relevant to its conclusion that the contract ought to be read in

accordance with its language. Neither of the parties to this contract has raised any

argument concerning their respective “bargaining powers.”
 After a decade in which this Court has sought to bring a greater consistency

and certainty to the law of this state by a disciplined interpretation of statutes,

ordinances, deeds, and contracts, and by clear judicial statements concerning the

rights and obligations of individuals and businesses, the majority seems bent on

restoring a legal regime in which the stability and predictability of the law is

perpetually subject to creative legal arguments.

The majority offers no explanation of why it is necessary to remark upon

the allegedly “equal bargaining power” of the parties in this case. What, for

example, would be different in the majority’s analysis if one of the parties to this

dispute had not been a “business entity”? What would be different in this analysis

if the parties had not been of “equal bargaining power”? Indeed, what does it

mean to be of “equal bargaining power,” and how do we calculate such

“equality”? Where does such a requirement of “equality” derive from in the law

of this state? Through what means can a party with “unequal” bargaining power

ensure that its contract is binding on another party?

While the majority provides no guidance in answering these questions, one

can hardly doubt that it will become an increasingly common aspect of the

appellate landscape in contract cases in Michigan for one party-- generally the

party that finds the language of the contract to be inhospitable to its claims-- to

offer its own answers. And as things tend to go, appellate courts will increasingly

come to articulate vague rules, fraught with exceptions and exceptions to

exceptions, “totality of circumstances” analyses, and multi-part tests for

2
ascertaining what constitutes “equal bargaining power.” And eventually in place

of a rule of law in which the words of contracts are taken seriously, and in which

parties to contract disputes can understand their rights and responsibilities, and in

which parties may even find it possible to understand these rights and

responsibilities without having to avail themselves of a lawyer, the majority will

leave in its wake a legacy of more litigation, more appeals, higher legal costs, and

a diminished role for private parties, with a concomitantly enhanced role for

judges, in resolving contract disputes. But I suppose this is the very point. When

our new Chief Justice promises to “undo . . . the damage” she asserts has been

done by this Court over the past decade, Detroit Free Press, December 10, 2008, at

2A, I would venture that the respect this Court has accorded during this time to

competent persons to enter into contracts of their own choosing constitutes one

aspect of such “damage.” See also, e.g., Genesee Foods Services, Inc v

Meadowbrook, Inc, ___ Mich ___ (2009), order of the Supreme Court, entered

March 20, 2009 (Docket No. 137526).

It is well established in Michigan that “‘competent persons shall have the

utmost liberty of contracting and that their agreements voluntarily and fairly made

shall be held valid and enforced in the courts.’” Terrien v Zwit, 467 Mich 56, 71;

648 NW2d 602 (2002), quoting Twin City Pipe Line Co v Harding Glass Co, 283

US 353, 357; 51 S Ct 476; 75 L Ed 1112 (1931); see also Port Huron Ed Ass’n v

Port Huron Area School Dist, 452 Mich 309, 319; 550 NW2d 228 (1996)

(discussing the “‘fundamental policy of freedom of contract’” under which

3
“‘parties are generally free to agree to whatever specific rules they like’”). Rather

than merely reiterating this law and resolving the instant controversy, the majority

introduces a new murkiness into a realm of law in which clarity and certainty are

essential to everyday business relationships. While the present controversy may

not seem of great consequence beyond the parties, it is entirely typical of

thousands of such contracts freely entered into by individuals and businesses

throughout this state each day. And it is essential to the rule of law that these

contracts be respected and that this Court provide the leadership and direction to

ensure that this takes place. Today’s decision moves in exactly the wrong

direction in that regard.

The majority reaches the correct result and applies the correct analysis. It is

simply not content to end its opinion where it ought, choosing instead to invite

new litigation by eroding clear-cut principles of contract law.1 I would affirm, but

1
By its equally gratuitous references to the absence of “ambiguous”
language in this contract, and the absence of “compelling public policy” that
“would require that we negate the parties’ contract,” ante at 5, the majority also, I
fear, foreshadows future approaches by which traditional rules of freedom of
contract can be disregarded where a contract is viewed disapprovingly by a
majority of this Court. See generally Klapp v United Ins Group Agency, Inc, 468
Mich 459; 663 NW2d 447 (2003); Federated Publications, Inc v City of Lansing,
467 Mich 98; 649 NW2d 383 (2002); Terrien, supra.

4
without the majority’s unsettling language concerning the “equal bargaining

power” of the parties.

Stephen J. Markman
Maura D. Corrigan
Robert P. Young, Jr.

5