UNITED STATES COURT OF APPEALS
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
FOR THE FIRST CIRCUIT
Nos. 95-2051
95-2207
CHARLES MACGLASHING AND SHARLENE MACGLASHING,
Plaintiffs, Appellees,
v.
DUNLOP EQUIPMENT COMPANY, INC.,
Defendant, Appellee.
RESTORATION PRESERVATION MASONRY, INC.,
Third-Party Defendant, Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Reginald C. Lindsay, U.S. District Judge]
Before
Cyr, Circuit Judge,
Coffin and Bownes, Senior Circuit Judges.
Robert P. Powers, with whom Michael R. Byrne, Andre A. Sansoucy,
and Melick & Porter were on brief for Restoration Preservation
Masonry, Inc., appellant.
Thomas G. Hoffman, with whom Thomas M. Greene, Paul D. Hoffman,
Greene & Hoffman, P.C. were on brief for Charles MacGlashing and
Sharlene MacGlashing, plaintiffs, appellees and Dunlop Equipment
Company, Inc., defendant, appellee.
July 25, 1996
BOWNES, Senior Circuit Judge. This appeal concerns
BOWNES, Senior Circuit Judge.
the interpretation and enforceability of an indemnification
clause in a lease between third-party defendant-appellant
Restoration Preservation Masonry, Inc. ("RPM") and defendant-
appellee Dunlop Equipment Company, Inc. ("Dunlop").
Plaintiff-appellee Charles MacGlashing was injured when an
elevated work platform leased by Dunlop to RPM collapsed
while he and another employee of RPM were using it in their
masonry work. MacGlashing and his wife, residents of New
Hampshire, brought a diversity action in tort against Dunlop,
a Massachusetts corporation, in the district court of
Massachusetts. Dunlop sued RPM, invoking the lease
indemnification clause. Prior to trial the MacGlashings,
with court approval, entered into a settlement agreement with
Dunlop. The issue on appeal is whether the MacGlashings,
standing in the shoes of Dunlop, can collect the amount of
the settlement from RPM under the indemnification clause of
the lease between RPM and Dunlop. This issue was decided in
favor of the MacGlashings and Dunlop by summary judgment.
There is no question that Massachusetts law applies.
RPM maintains that it has no obligation under the
lease agreement to indemnify Dunlop for damages flowing from
Charles MacGlashing's accident because Dunlop materially
breached the agreement. It also challenges the scope of the
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indemnification clause. Discerning no error in the district
court's summary judgment analysis, we affirm.
I.
I.
BACKGROUND
BACKGROUND
Viewed in the light most favorable to RPM, the
nonmoving party, the facts are as follows. RPM, a
Massachusetts-based corporation, employed Charles MacGlashing
as a brick mason until September 2, 1993, when he was
involved in a work-related accident at The Longwood Towers
located in Brookline, Massachusetts. In 1993, the Longwood
Corporation ("Longwood"), owner of The Longwood Towers
complex, commissioned RPM to conduct phase II of a renovation
project at Longwood Towers. Like phase I, which had been
completed a year earlier by NER, Inc. ("NER"), phase II
involved removal and replacement of brick and stone at the
top of three eight-story buildings located in the complex.
RPM was formed by former employees of NER. Several of them,
including RPM's president Paul Haven, had worked on phase I.
During both phase I and II, mobile, elevated work platforms
fitted with eight-foot outrigger devices, which extended off
the main platform to expand its width, were utilized for
stone and brick removal and to make certain setback portions
of the buildings accessible. The outriggers were
modifications to the original platform design.
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On September 2, 1993, MacGlashing and a co-worker,
James Proctor, were removing a piece of stone from the
parapets of Building B when the work platform they were using
collapsed. Both men fell eight stories to the ground.
Proctor died from the injuries he sustained. MacGlashing,
who was thirty-nine at the time, survived, but suffered
injuries that hospitalized him for six months and left him
partially paralyzed and in constant pain. These injuries
included, inter alia, broken bones, internal and neurological
damage, a ruptured aorta and bladder, a perforated colon,
lung damage, and lacerations. MacGlashing incurred more than
$800,000.00 in medical fees and expenses as a result of the
accident. His future medical costs and net economic loss
have been projected between $600,000.00 to $1.1 million and
$1.1 million to $1.3 million, respectively. At trial, the
parties agreed that the platform involved in the accident
collapsed because it could not bear the weight placed on it,
but disagreed about whether the platform had been defectively
designed, used negligently, or negligently modified by
Dunlop. Dunlop, whose business consists of supplying work
platforms for sale or lease, provided the platforms employed
in both phase I and II of the Longwood Towers renovation
project. It executed a July 7, 1993, lease agreement to
provide four platforms with RPM's president, Paul Haven, who
had left NER to form RPM.
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The lease agreement executed between RPM and Dunlop
was a standard form contract and contained the following
indemnification clause:
12. THE LESSEE HEREBY ABSOLVES THE
LESSOR OF ANY RESPONSIBILITY OR
OBLIGATION IN THE EVENT OF ACCIDENT,
REGARDLESS OF CAUSES OR CONSEQUENCES, AND
THAT ANY COSTS, CLAIMS, COURT OR
ATTORNEY'S FEES, OR LIABILITY RESULTING
FROM THE USE OF DESCRIBED EQUIPMENT WILL
BE INDEMNIFIED BY THE LESSEE REGARDLESS
AGAINST WHOM THE CLAIMANT OR CLAIMANTS
INSTITUTE ACTION.
II.
II.
PROCEEDINGS BELOW
PROCEEDINGS BELOW
The MacGlashings brought a federal diversity
jurisdiction suit, see 28 U.S.C. 1332(a), against Dunlop,
seeking recovery on theories of negligence, product
liability, and breach of warranty. They charged Dunlop with
negligence in the design and modification of the work
platforms leased to RPM, negligence in failing to inspect the
platforms and repair defects and damage, and negligence in
failing to warn and instruct RPM employees in the use of the
platform. They also asserted that Dunlop breached the
implied warranty that the work platforms were merchantable
and fit for their intended use. The MacGlashings later
amended their complaint to assert claims against Longwood
under Mass. Gen. L. ch. 143, 51. These claims are not
relevant to this appeal.
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Dunlop filed a third-party complaint against RPM,
seeking indemnification pursuant to their lease agreement.
RPM denied any indemnification responsibility and
counterclaimed, alleging that Dunlop materially breached the
lease agreement by providing defective and unreasonably
dangerous equipment.
Each of the parties filed summary judgment motions
before the magistrate judge. Dunlop and the MacGlashings
moved for summary judgment on Dunlop's third-party complaint.
They maintained that, under the indemnification clause
contained in the lease agreement, RPM was obligated to
indemnify Dunlop for any liability resulting from the use of
the leased equipment and that Dunlop did not materially
breach its obligations under that agreement. RPM contested
this joint motion and filed its own motion for summary
judgment on Dunlop's third-party claims. In both instances,
it contested the enforceability of the lease agreement
executed with Dunlop, claiming that Dunlop materially
breached the implied warranties of merchantability and
fitness for a particular purpose contained in the agreement
by failing to test the load-bearing capacity of the work
platforms and outriggers prior to delivery of them to the
project site.
The case was assigned to a magistrate judge. In
her report and recommendations, she first addressed RPM's
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summary judgment motion. The magistrate judge denied RPM's
claim that the lease agreement it executed with Dunlop
included an implied warranty of fitness for a particular
purpose, under Mass. Gen. L. ch. 106, 2-315, but agreed
that it contained an implied warranty of merchantability,
under Mass. Gen. L. ch. 106, 2-314. The magistrate judge
recommended that RPM's motion for summary judgment be denied
because she found that genuine issues of material fact
existed as to whether Dunlop breached its implied warranties.
Turning to the joint motions for summary judgment
filed by Dunlop and the MacGlashings, the magistrate judge
concluded that the record, viewed in RPM's favor, precluded a
dismissal with prejudice, of RPM's counterclaim for breach.
She recommended, however, that Dunlop and the MacGlashings'
joint motion for summary judgment on Dunlop's third-party
complaint be allowed. The magistrate judge found that,
barring a determination that Dunlop materially breached the
lease agreement, RPM was "obligated to indemnify Dunlop for
any liability resulting from Charles MacGlashing's use of the
leased equipment." She concluded that "whether Dunlop's
conduct amounted to a material or serious breach of the
contract" was an issue of fact for the jury. Each of the
parties filed timely objections to the magistrate judge's
report.
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The district court issued an order accepting, in
part, and modifying, in part, the Report and Recommendation
of the magistrate judge. The district court agreed with the
magistrate judge's determination that RPM's motion for
summary judgment should be denied. While it also agreed that
summary judgment in favor of Dunlop and the MacGlashings was
appropriate on Dunlop's third-party complaint, the court
rejected the magistrate judge's conclusion that RPM's
obligation to indemnify Dunlop for damages arising from
Charles MacGlashing's injuries could be relieved by a
material breach by Dunlop. The court held that, under
Massachusetts law, a party's breach of an implied warranty
was insufficient to invalidate a broadly worded
indemnification clause.
The district court scheduled a jury trial on the
various claims asserted by the parties. Before the trial
date arrived, however, the MacGlashing's entered into a
settlement agreement with Dunlop, subject to court approval.
The settlement contemplated satisfying the MacGlashings' suit
for damages against Dunlop with a $750,000.00 cash payment --
approximately 75 percent of the insurance coverage available
to Dunlop through its insurer -- and the assignment of
Dunlop's claims against RPM and Longwood to the MacGlashings.
Under the agreement, judgment was to enter in favor of
Charles MacGlashing in the amount of $4,560,000.00 and in
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favor of Sharlene MacGlashing for $300,000.00. The
MacGlashings agreed to seek no further recovery from Dunlop
in the event they could not recover from RPM or Longwood.
The district court held a hearing and reviewed
evidence before approving the settlement. At the hearing
RPM's counsel stated, inter alia:
I don't believe that RPM has any
objection to the structure of the
settlement under the current
circumstances . . . I believe that the
settlement is fair and equitable under
these circumstances.
The district court approved the settlement. The
claims against Longwood were tried to a jury which returned a
verdict in favor of Longwood. The district court issued a
final judgment dismissing the action of the MacGlashings
against Longwood, entering judgment against Dunlop, and
ordering that Charles MacGlashing recover $4,651,739.23 and
his wife, $306,032.52 -- the amount of the settlement plus
post-judgment interest at the rate of 5.86% -- from RPM.
This appeal followed.
III.
III.
STANDARD OF REVIEW
STANDARD OF REVIEW
We review the district court's grant of summary
judgment de novo and review the record in the light most
favorable to the nonmoving party, drawing all inferences in
that party's favor. Den Norske Bank AS v. First Nat'l Bank
of Boston, 75 F.3d 49, 53 (1st Cir. 1996); EEOC v. Green, 76
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F.3d 19, 23 (1st Cir. 1996). "Our review is limited to the
record as it stood before the district court at the time of
its ruling." J. Geils Band Employment Benefit Plan v. Smith
Barney Shearson, Inc., 76 F.3d 1245, 1250 (1st Cir. 1996).
Summary judgment is proper "if the pleadings, depositions,
answers to interrogatories, and admissions on file, together
with the affidavits, if any, show that there is no genuine
issue as to any material fact and that the moving party is
entitled to judgment as a matter of law." Fed. R. Civ. P.
56(c).
Allegations of a factual dispute "will not defeat
an otherwise properly supported motion for summary judgment;
the requirement is that there be no genuine issue of material
fact." Morrissey v. Boston Five Cents Sav. Bank, 54 F.3d 27,
30 (1st Cir. 1995)(quoting Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 247-48 (1986)). Material facts are those that
have the potential to affect the outcome of a suit. J. Geils
Band, 76 F.3d at 1250-51. Disputes as to the existence of
material facts are genuine if "'the evidence is such that a
reasonable jury could return a verdict for the nonmoving
party.'" Morrissey, 54 F.3d at 30 (quoting Anderson, 477
U.S. at 247-48). We must affirm the district court's grant
of summary judgment "[i]f the evidence [presented by RPM] is
merely colorable, or is not significantly probative." Id.
We apply Massachusetts law.
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IV.
IV.
DISCUSSION
DISCUSSION
The issue is whether the indemnification clause
contained in the lease agreement RPM executed with Dunlop is
enforceable and, if so, whether its scope includes liability
for damages stemming from the injuries MacGlashing sustained
as a result of the accident. RPM avers that it is not
obligated, under Massachusetts law, to pay the judgment
awarded the MacGlashings because Dunlop materially breached
the lease agreement, relieving RPM of the promise to
indemnify Dunlop contained in the agreement. In the
alternative, RPM argues that even if the indemnification
clause is valid, it should not be deemed responsible for the
particular claims advanced by the MacGlashings because they
fall outside the contemplated scope of the agreement.
Appellees contest both of these arguments. We
begin by addressing the enforceability of the lease agreement
and then turn to a discussion of its scope.
Enforceability of the Lease Agreement's
Enforceability of the Lease Agreement's
Indemnification Clause
Indemnification Clause
RPM challenges the enforceability of the
indemnification clause by attacking the validity of the lease
agreement it executed with Dunlop. See Kelly v. Dimeo, Inc.,
31 Mass. App. Ct. 626, 628 (1991)("Under Massachusetts law, a
contract-based right to indemnification exists only if there
is a binding contract between indemnitor and indemnitee in
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which such right is expressed or from which it can be fairly
implied."), review denied, 412 Mass. 1102 (1992). RPM, using
the Uniform Commercial Code as its launching pad, argues that
the indemnification clause is unenforceable because Dunlop
materially breached implied warranties of merchantability,
see Mass. Gen. L. ch. 106, 2-314 (1990), and fitness for a
particular purpose, see Mass. Gen. L. ch. 106, 2-315
(1990), by providing RPM with work platforms that were
defective and unreasonably dangerous. RPM asserts that
because, under Massachusetts law, the MacGlashings would not
have been entitled to any recovery in the absence of a
finding that the work platform Dunlop provided was defective
or unreasonably dangerous, Dunlop, ipso facto, breached the
implied warranties of merchantability and fitness for a
particular purpose.
RPM, in effect, attempts to use the tort claim of
the MacGlashings against Dunlop as a basis for its argument
that Dunlop breached its implied warranty of merchantability.
But the contract between RPM and Dunlop was for the lease of
property. RPM cannot use the indemnity clause to turn an
economic contract into one based on tort concepts.
Massachusetts law plainly forecloses RPM's
argument. It adopts the majority view which draws a clear
distinction between tort recovery for physical injury and
contract recovery for economic loss. See Jacobs v. Yamaha
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Motor Corp., 420 Mass. 323, 329 n.5 (1995); Bay State-Spray &
Provincetown S.S., Inc. v. Caterpillar Tractor Co., 404 Mass.
103, 107 (1989); Colter v. Barber-Greene Co., 403 Mass. 50
(1988); Correia v. Firestone Tire & Rubber Co., 388 Mass.
342, 356 (1983); Marcil v. John Deere Indus. Equip. Co., 9
Mass. App. Ct. 625, 630 (1980); see also Canal Elec. Co. v.
Westinghouse Elec. Co., 973 F.2d 988, 996 (1st Cir. 1992);
Reibold v. Simon Aerials, 859 F. Supp. 193, 198 (E.D. Va.
1994). The rule that the absence of a showing of personal
injury, or of physical damage to property belonging to the
contracting party forecloses recovery for economic losses
stemming from tort-based strict liability or negligence is
well established in Massachusetts. Garweth Corp. v. Boston
Edison Co., 415 Mass. 303, 305 (1993). Attempts to
circumvent this rule by "[c]ouching the allegations in terms
of breach of contract" have been rejected routinely. See,
e.g., FMR Corp. v. Boston Edison Co., 415 Mass. 393, 394
(1993). We cannot, as RPM urges, regard the difference
between tort and contract-based claims as "irrelevant" in
this case. RPM's attempt to shift the obligation to
compensate the MacGlashings back to Dunlop fails because RPM
alleges no direct damage or injury to itself. The argument
that RPM is entitled to relief from the contract it
negotiated with Dunlop hinges entirely on the physical injury
its employee, Charles MacGlashing, sustained. Compare
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Garweth, 415 Mass. at 307. RPM has not made the showing of
injury or damage to itself as Massachusetts law requires.
Moreover, appellant has not convinced us that the
alleged breach of the lease agreement rendered the
indemnification clause invalid, as if it had never been
executed. The one-page contract executed between RPM and
Dunlop contains standard-form language and clauses which
suggest that the indemnity provision is separate from the
underlying lease. The face of the agreement sets out, inter
alia, the type and cost of the equipment to be leased, as
well as guidelines for its installation and transportation
around the site, and expressly incorporates a July 21, 1993,
handwritten note regarding delivery, assembly, and pickup of
the work platforms by Paul Haven, RPM's president.
The reverse side of the agreement contains
seventeen numbered paragraphs that outline lease conditions
and are clearly separated by spacing. Two of these reverse-
side clauses concern responsibility for damages flowing from
the use of equipment referred to in the lease agreement. The
first clause provides that RPM assumes full responsibility
under the agreement for damages, injuries, and accidents
caused by the use of Dunlop equipment and reads:
3. Lessee assumes the full
responsibility for damages, injuries and
accidents resulting to any property or
persons, caused by the use of said
equipment while in the possession of the
lessee, from the time of arrival at the
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above named location, during the term of
lease, and until equipment is returned to
lessor.
The second clause deals with indemnification and is one of
six written in boldfaced type. It provides that RPM absolves
Dunlop of any responsibility or obligation in the event of
accidents resulting from the use of the leased equipment,
regardless of cause or consequence and reads:
12. THE LESSEE HEREBY ABSOLVES THE
LESSOR OF ANY RESPONSIBILITY OR
OBLIGATION IN THE EVENT OF ACCIDENT,
REGARDLESS OF CAUSES OR CONSEQUENCES, AND
THAT ANY COSTS, CLAIMS, COURT OR
ATTORNEY'S FEES, OR LIABILITY RESULTING
FROM THE USE OF DESCRIBED EQUIPMENT WILL
BE INDEMNIFIED BY THE LESSEE REGARDLESS
AGAINST WHOM THE CLAIMANT OR CLAIMANTS
INSTITUTE ACTION.
The standard form equipment sign-off sheets Paul Haven signed
on the 20th, 22nd, 23rd, and 27th of July 1993, when Dunlop
delivered the work platforms to the work site, contain
similar language. They provide that RPM agrees that:
"Dunlop, Inc. is not responsible for any damages to the
building, or any injuries or accidents resulting to people or
property caused from the use or misuse of this equipment."
Based on our reading of the lease and the sign-off
sheets, we do not think RPM and Dunlop intended the covenants
contained in the lease agreement and the indemnification
clause to be dependent. See Connolly v. Haines-CE Brook,
Inc., 277 Mass. 423, 427 (1931)("[W]hether covenants are
conditional is determined . . . by the true intention of the
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parties as expressed by the language of the contract."); see
also 41 Am. Jur. 2d 17, at 358 (1995) ("Where the language
of the indemnity contract is neither technical nor ambiguous,
the words are given their legal, natural, and ordinary
meaning."). Because the right of action on the leased
platforms accrues as soon as there is a breach of its terms,
-- i.e., failure to deliver the equipment in a timely fashion
-- the right of action under the indemnity agreement does not
accrue until Dunlop makes payment to a third party or suffers
the loss addressed by the agreement. See 41 Am. Jur. 2d 4,
at 349 (1995); 42 C.J.S. 2, at 72-73 (1991); see also
Restatement (Second) of Contracts 379, comment a. We agree
with the district court that the better and more logical
approach is to treat the indemnification clause as an
independent provision of the lease. See Chatlos Sys., Inc.
v. Nat'l Cash Register Corp., 635 F.2d 1081, 1085 (3d Cir.
1980).
There is solid precedent for our decision to treat
the indemnification clause as a separate agreement unaffected
by any breach of the lease contract. See, e.g., Hill Constr.
Corp. v. American Airlines, Inc., 996 F.2d 1315 (1st Cir.
1993)(carrier cargo liability limitations survive breach of
the agreement to carry cargo); County of Middlesex v. Gewvyn
Constr. Corp., 450 F.2d 53 (1st Cir. 1971), cert. denied, 405
U.S. 955 (1972) (arbitration agreement valid despite
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construction contract breach). The Supreme Judicial Court of
Massachusetts addressed the question of whether breach of a
contract undermines a consensual allocation of risk in Canal
Elec. Co. v. Westinghouse Elec. Corp., 406 Mass. 369 (1990).
That case involved electric utility companies which sought
remedies for breach, under the UCC, for losses they allegedly
incurred as the result of the failure of electric generator
components supplied by Westinghouse Electric Corporation.
They sought to be relieved of the limits on indirect,
special, incidental, and consequential damages imposed by the
selling policies to which they agreed. Id. at 371. The
Supreme Judicial Court held that the liability limitations
were enforceable even though Westinghouse's efforts to cure
the problems created by its generator components were
unsuccessful. Id. at 374-75.
This holding persuades us that the course we adopt
in this case would be followed by the Massachusetts courts.
Under Massachusetts law, the allocation of risk through
contractual agreements neither conflicts with public policy,
Canal Elec., 406 Mass. at 372; Minassian v. Ogden Suffolk
Downs, Inc., 400 Mass. 490, 493 (1987), nor the Massachusetts
workers' compensation statute prohibition against an employee
receiving direct compensation for work-related injuries from
its employer. See Decker v. Black and Decker Mfg. Co., 389
Mass. 35, 38 (1983); Whittle v. Pagani Bros. Constr. Co., 383
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Mass. 796, 800 (1981); see also Mass. Gen. L. ch. 152, 23
(1988); Clarke v. Kentucky Fried Chicken of California, Inc.,
57 F.3d 21, 24 (1st Cir. 1995)(describing provisions of
workers' compensation statute). This is especially true
where, as in this case, the parties to the agreement
allocating risk are "sophisticated business entities." Canal
Elec., 406 Mass. at 374; Deerskin Trading Post, Inc. v.
Spencer Press, Inc., 398 Mass. 118, 123 (1986).
Risk allocation agreements are common in the
construction industry and are widely-regarded as a
"reasonable accommodation" between parties to a commercial
agreement. See Canal Elec., 406 Mass. at 374; Jones v. Vappi
Co., 28 Mass. App. Ct. 77 (1989); see also Debra A. Perelman,
Risk Allocation Through Indemnity Obligations In Constr.
Contracts, 40 S.C. Law. Rev. 989, 989-90 (1989). They have
the advantage of allowing owners, contractors, and
subcontractors to shift the significant and, oftentimes,
unforeseeable risks inherent in construction work. Cf. Hill
Constr., 996 F.2d at 1317; Perelman, Risk Allocation, 40 S.C.
Law. Rev. at 989-90. They also permit the equipment needed
to complete construction jobs to be obtained at lower rates
because the lessors of such equipment can exclude the cost of
insuring against accident-related damages from the equipment
price. Cf. Hill Constr., 966 F.2d at 1317. In Shea v. Bay
State Gas Co., 383 Mass. 218, 224 (1981), the Supreme
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Judicial Court candidly recognized that "realistically
viewed, the shift of liability is a shift in the burden of
providing adequate insurance coverage."
Nothing in the record suggests that Dunlop acted in
bad faith, see Mass. Gen. L. ch. 106 1-203 (1990), Hill
Constr., 996 F.2d at 1317, or unfairly seeks to bind RPM to
an indemnity clause which was hidden or buried deep in the
contract. Compare Mobil Chemical Co. v. Blount Bros. Corp.,
809 F.2d 1175, 1182 (5th Cir. 1987). Paragraph 12 shifts
liability to RPM in clear and unmistakable language.
Additionally, the record makes it clear that RPM's president,
Paul Haven, a man with more than twenty years of experience
in the construction industry, knew or should have known about
the risk allocation provisions contained in the agreement.
He negotiated the lease agreement and represented, in signing
it on RPM's behalf, that he had "read and agree[d] to all
terms stated on both sides of th[e] form." By Haven's own
acknowledgement indemnity clauses of the sort contained in
the Dunlop lease agreement are standard in the construction
industry. Cf. Perelman, Risk Allocation, 40 S.C. Law. Rev.
at 989-90 (Indemnity provisions in construction contracts
should be interpreted by "recognizing the intent of the
parties entering into the agreement."). We, therefore,
conclude that the indemnity clause contained in the lease
agreement RPM executed with Dunlop is enforceable.
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Scope of the Indemnification Clause
Scope of the Indemnification Clause
Under Massachusetts Law
Under Massachusetts Law
In addition to attacking the enforceability of the
indemnity clause, RPM attacks its scope. It argues that,
under Massachusetts law, the term "use" contained in
paragraph 12 of the agreement cannot be read to include
liability for claims brought on a theory of strict liability
instead of negligence. See Hayes v. Douglas Dynamics, Inc.,
8 F.3d 88, 88 n.1 (1st Cir. 1993) ("Under Massachusetts law,
the theory of breach of an implied warranty of
merchantability is basically the same as strict liability
theory in tort."), cert. denied, 114 S. Ct. 2133 (1994).
The rule that indemnity contracts are to be
strictly construed against the indemnitee no longer obtains
in Massachusetts. See Whittle, 383 Mass. at 797. The modern
rule is that "'[c]ontracts of indemnity are to be fairly and
reasonably construed in order to ascertain the intention of
the parties and to effectuate the purpose sought to be
accomplished.'" Shea, 383 Mass. at 222 (quoting New York,
N.H. & H.R. Co. v. Walworth Co., 340 Mass. 1, 3 (1959).
Courts are expected to give effect to the parties' intentions
at the time of the agreement and to give them reasonable
meaning. Id.; see also Cohen v. Steve's Franchise Co., Inc.,
927 F.2d 26, 28 (1st Cir. 1991); Polaroid, 416 Mass. at 694;
Speers v. H.P. Hood, Inc., 22 Mass. App. Ct. 598 (1986),
review denied, 398 Mass. 1105 (1986).
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We are not impressed by RPM's argument that the
indemnity clause's failure to specifically refer to strict
liability claims omits such claims from its scope. That the
clause also fails to mention claims brought on a theory of
negligence undermines the force of RPM's argument
significantly because there is little support for the
contention that the omission of a specific reference to
negligence invalidates an indemnity clause. Massachusetts
cases such as Shea, 383 Mass. 219-20, "teac[h] that . . . an
indemnity provision may be read to cover situations of [an]
indemnitee's negligence although there is no explicit
statement to that effect." Speers, 22 Mass. App. Ct. 598,
601. Where the language is broad and the parties' intent
relatively clear, responsibility for a risk not expressly
mentioned in the indemnity clause may be properly placed with
the indemnitor. Cf. Shea, 383 Mass. at 224-25.
We have little doubt that the language contained in
the indemnity clause is broad enough to encompass claims
brought on a theory of either negligence or strict liability.
First, we do not agree with RPM that private agreements
allocating the risk of strict liability for tort damages in
the circumstances presented here thwart public policy. Such
agreements are reasonable accommodations in the construction
industry context. Second, the language contained in
paragraph 12 of the lease agreement is broad and expansive.
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It absolves Dunlop for "any responsibility or obligation" in
the event of an accident, "regardless of cause or
consequences," stemming from the use of its equipment.
Similar language has been found sufficient to
encompass indemnification obligations on claims brought on a
theory of strict liability. See Beloit Power Sys., Inc. v.
Hess Oil Virgin Islands Corp., 757 F.2d 1427, 1428 (3d Cir.
1985) ("agrees to indemnify and hold harmless seller from all
claims by third parties which extend beyond the foregoing
limitations on seller's liability"); Midland Ins. Co. v.
Delta Lines, Inc., 530 F. Supp. 190 (1982)("all loss lessor .
. . may sustain or suffer because of . . . the use of the
equipment."); Mid-America Sprayers, Inc. v. U.S. Fire Ins.
Co., 8 Kan. App. 2d 451, 454 (1983)("any responsibility or
obligation . . . resulting from the use of described
equipment"); see also Berry v. V. Ponte & Sons, 166 N.J.
Super. 513, 517, cert. denied, 81 N.J. 271 (1979). In Cohen
v. Steve's Franchise Co., Inc., 927 F.2d 26, 29 (1st Cir.
1991), we interpreted a franchise agreement executed under
Massachusetts law and held that the language contained in an
indemnity clause was broad enough to cover both negligent and
nonnegligent business decisions. The clause required the
franchisor to indemnify Steve's Ice Cream, Inc. "for any
liability arising 'by reason of an act or omission with
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respect to the business or operation of the STEVE'S ICE CREAM
STORE . . . .'" Id. at 29.
In Polaroid Corp. v. Rollins Envtl. Serv. (NJ),
Inc., 416 Mass. 684 (1993), the Supreme Judicial Court held
that an indemnity clause encompassed claims for strict
liability, even though it did not explicitly provide for it.
Polaroid involved an indemnity clause for liability and loss
"for release or a substantial threat of release of hazardous
substances." Id. at 686. The plaintiffs in the case sought
a determination that the hazardous waste transporter with
whom they executed the contracts containing the
indemnification clauses, Rollins Environmental Services (NJ),
Inc., was obligated to indemnify them against claims arising
from a spill at a hazardous waste storage facility. The
language contained in the indemnity clause read in relevant
part: "You hereby agree to indemnify and save Polaroid
harmless from all liability and loss arising from services
performed by you or your employees hereunder . . . ." After
concluding that the private indemnity agreements were not
prohibited by CERCLA, 42 U.S.C. 9607(e)(1), the court held
that the clause was broad enough to cover strict liability
for hazardous waste damage imposed under CERCLA. In reaching
this conclusion, the court found that strict liability in
tort for ultrahazardous activities existed in Massachusetts
at the time the parties entered into their agreements and
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that there was no outward manifestation on the part of the
indemnitor to limit its obligations under the agreement to
negligence.
Moreover, paragraph 14 of the lease convinces us
that the parties intended the indemnity agreement to cover
all liability whether grounded in negligence or strict
liability. Paragraph 14 provides, in relevant part, "Our
insurance [Dunlop's] does not cover the equipment while in
your possession [RPM's]." It can be reasonably inferred from
this that the parties intended RPM to procure insurance to
cover the burden it assumed under the indemnity clause. Cf.
Speers, 22 Mass. App. Ct. at 601; see also Cohen, 927 F.2d at
29. That RPM carried $5 million in liability insurance,
whereas Dunlop carried only $1 million supports this
contention. See Midland Insurance, 530 F. Supp. at 194
(broad language of agreement and existence of increased
insurance is evidence of obligation to indemnify). RPM gave
no indication that it intended to indemnify for negligence
liability only. See Polaroid, 416 Mass. at 694 ("[A]
contracting party's objective intention dictates and a party
is bound by its outward manifestations to the other party.").
RPM cannot escape its obligations under the indemnity clause.
RPM's contention that the indemnity clause is not
conspicuous and cannot shift liability for defective
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equipment does not deserve extended comment. The clause is
printed in capital letters. Its language is neither
ambiguous nor confusing. The president of RPM testified that
he read it and understood it. At oral argument counsel for
RPM agreed that the lease was not a contract of adhesion.
We end our analysis by noting that at the hearing
on the proposed settlement between the MacGlashings and
Dunlop, counsel for RPM expressly approved the structure of
the settlement and stated that it was fair and equitable.
V.
V.
The judgments of the district court are affirmed.
The judgments of the district court are affirmed.
There will be added to the judgment amounts of $4,651,739.23
There will be added to the judgment amounts of $4,651,739.23
and $306,032.52 such additional post-judgment interest as is
and $306,032.52 such additional post-judgment interest as is
due.
due.
Costs on appeal awarded to appellees.
Costs on appeal awarded to appellees.
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