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3 0 www.uslaw.org U S L A W Trying the Indemnity Case Mark S. Barrow and Ryan C. Holt Sweeny, Wingate & Barrow, P.A. While the availability of indemnity is not confined to a particular practice area, it appears most often in those contexts where multiple entities are engaged in commerce which intersects in some way with the plaintiff. This article explores the theories of recovery in indemnity and the practical ways in which the indemnity case might be tried. THEORIES OF RECOVERY The theories of recovery typically available to an indemnitee (the one seeking indemnity) are contractual or equitable. The availability of a contractual indemnity claim is of course contingent upon the existence of a contract and a provision therein that provides for indemnification. Practitioners and claims personnel alike have no doubt seen a wide variety of indemnification provisions. Some contracts contain dual indemnification provisions which in many contexts prove inconsequential because the provisions in some way cancel each other out. Other provisions are exceedingly specific, thereby reducing the availability of indemnification to a small universe of occasions. Other indemnification provisions are clearly the result of form drafting over time and contain boiler plate language. And still others appear in contrast to have been the result of a powerful drafter who has ensured that all liability has been passed along to the weaker party to the contract (e.g., the big box retailer whose bargaining power is extraordinarily strong). The claim for contractual indemnification may also be accompanied by a claim for breach of contract. Typically, before any cross claim or third party action is filed against an indemnitor, a tender is made. If the tender is accepted, there is of course no need for the cross claim or third party complaint. If the tender is denied, the denial is then alleged to be a breach of the contract which requires indemnification. Sometimes these breach of contract claims will include not only an allegation that the indemnification provision was breached, but that likewise any insurance provisions were breached. Many of the contracts contemplated in this article are those which would require the indemnitee be included as an additional insured on the policy of the indemnitor. If the indemnitee was not included as an additional insured, the claim for breach of contract exists against the indemnitor. If the indemnitee was included as an additional insured, an opportunity exists to now file a companion declaratory judgment action against the indemnitor's insurance carrier for failure to defend the indemnitee as a legitimate additional insured. A cousin of contractual indemnification is equitable indemnification. This is referred to in some jurisdictions as "common law" indemnification. In most jurisdictions, the elements for such a claim are as follows: (1) the indemnitee is exposed to a settlement or judgment, (2) the indemnitee has clean hands, i.e. it did not do anything to bring the judgment upon itself, and (3) a special relationship exists between the in-
U S L A W www.uslaw.org 3 1 demnitor and the indemnitee. The third element seems at first look to be the easiest to satisfy. However, case law contains several examples of instances where relationships are too attenuated to be considered "special." Consider the case of a defendant car that rear ends the plaintiff car only because the defendant car was struck first by a tractor trailer behind it. The plaintiff car has a viable personal injury claim against the defendant car but the defendant car may not seek equitable indemnification from the tractor trailer due to the absence of a special relationship. Of course, the defendant car may have defenses it presents in the case brought by the plaintiff car, and it may also have personal injury and property damage claims against the tractor trailer for its own damages, but no right to indemnity exists. WHOSE CASE AM I ARGUING? One of the difficulties associated with trying the indemnity case is living within the evidentiary confines you may have created while defending against the first party plaintiff’s claim. At times, you may feel as if you are talking out of both sides of your mouth. As a primary defendant, your defense strategy involves highlighting the plaintiff’s failure to satisfy the elements of the causes of action which have been pled. You may also raise certain affirmative defenses that further assist in dismantling the plaintiff’s case. Once you settle a case as the primary defendant and then pursue an indemnitor in a third-party claim or severed cross-claim, the well-crafted defense record you established to chisel away the plaintiff’s claim may now return to haunt you. As a thirdparty plaintiff or cross-claimant, you will now be required to “stand in the shoes” of the plaintiff and prove your case against the third-party defendant. Because an essential element of equitable indemnity is proving that an act of the third-party defendant (rather than your own) caused injury to the plaintiff, you are essentially arguing the plaintiff’s case you just recently resisted. While alternative argument/pleading is certainly appropriate in the indemnity context, your witnesses’ deposition testimony from the plaintiff’s case may include prior inconsistent statements which may be used to impeach any contradictory statements made in the prosecution of the thirdparty claim. Experts may be forced to take contrary positions and so it may be necessary to retain new experts for the third-party case to make the plaintiff’s case. Suddenly, your most favorable witnesses may be those whom the plaintiff would have called had her case gone to trial. (In a contribution action, you may even need to call as a witness the plaintiff’s attorney to establish that the settlement was not excessive.) BENCH OR JURY Whether the indemnity case should be tried before a judge only or a jury is a nuanced inquiry. If the indemnity claim is based on a contractual indemnity provision, factual questions may exist which need to be established by a jury. There may be questions concerning whether certain contingencies within the provision are met (e.g. if indemnity is permitted except in the case of the indemnitee’s own negligence and the jury is needed to determine if the indemnitee was negligent). Of course, the parties can certainly waive their right(s) to a jury trial and allow the judge to conduct a bench trial. Equitable indemnity cases are more complicated. The very reference to equity suggests that the matter should be handled entirely by the judge. However, certain factual questions, including the question of whether the indemnitee has successfully proved the plaintiff’s negligence claim, may warrant jury involvement in some jurisdictions. Perhaps the business versus business paradigm typically seen in indemnity cases is the practical reason these often dry disputes are heard exclusively by the bench. PRESENTATION OF THE CASE If the parties agree — or the court orders — that the case is one in which no questions of fact exist or one that should be heard exclusively by a judge, the indemnitee will probably begin with a short opening statement, shorter and more technical than that which would have typically been provided to the jury. The indemnitor will then respond with an opening of its own. The indemnitee then begins the presentation of witnesses. While a jury trial involves the presentation of live witnesses, except in the cases of medical providers or unavailability, this is less necessary in a bench trial. The litigation of the plaintiff’s claim has likely yielded a number of deposition transcripts, which might be brought to court for the trial of the indemnity case. With advance approval from the judge, the parties might agree to present witnesses entirely by deposition. Indeed, because the judge’s decision will eventually come in the form of a lengthy, reasoned order with findings of fact and conclusions of law, she may appreciate the collection of transcripts to review later in chambers while drafting her order. Of course, if a witness whose testimony is necessary at trial was never deposed, live testimony may be the only available option. The civil rules do not prohibit a motion for judgment as a matter of law (JMOL or “directed verdict”) in a bench trial. For this reason and for appellate purposes, the indemnitor may wish to make the motion at the close of the indemnitee’s case in chief. It is unlikely that this motion will be granted for the same reason the court should not decide a motion for summary judgment until both sides have presented arguments. Because indemnity claims are uniquely weighted toward the law, the judge is likely to hear all sides before issuing JMOL. Mid-trial motions will be followed by the indemnitor’s presentation of witnesses for its case in chief. Again, for appellate purposes the indemnitee should renew its motion for JMOL and the indemnitor may make a similar motion. Especially if depositions are presented and the judge has not had time to review the transcripts, these motions will likely be denied. At this point, both sides may also choose to make brief closing arguments. CONCLUSION As the exposure in personal injury litigation increases due to health care costs, expert involvement, and other elements, claims managers have looked for risk transfer opportunities to soften the impact of settlement figures, attorney's fees and costs. Indemnity cross-claims and third-party claims continue to serve as a viable vehicle for this risk transfer. Mark Barrow is a founding member of Sweeny, Wingate & Barrow, P.A. and a former board member of <strong>USLAW</strong>. For 30 years, he has tried cases throughout South Carolina’s state and federal courts and has argued before the state appellate courts and the Fourth Circuit Court of Appeals. He maintains a diverse litigation practice. Ryan Holt joined Sweeny, Wingate & Barrow, P.A. after a clerkship on South Carolina's circuit court. He has tried cases in state and federal court and argued before the State's court of appeals. He practices mostly in the area of retail claims and has represented grocery stores, hotels, restaurants, shopping centers and other retailers.
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