Nevada Supreme Court Narrowly Construes Indemnity Clause in Subcontractor Agreement

By Jerry Carter.  The Nevada Supreme Court recently decided a significant contract case against a general contractor that sought indemnity from its subcontractor.  The case is United Rentals Highway Technologies, Inc. v. Wells Cargo, Inc., 128 Nev. Adv. Op. 59 (December 6, 2012) (“United Rentals“).

A general contractor, Wells Cargo, Inc. (“Wells Cargo”), hired United Rentals Highway Technologies, Inc. (“United Rentals”) to perform traffic control on a road improvement project.  In the subcontract agreement, which was drafted by Wells Cargo, United Rentals agreed to indemnify, defend and hold Wells Cargo harmless from and against all claims pertaining or allegedly pertaining to the performance of the subcontract and involving personal injury “to the extent caused in whole or in part by the negligent acts or omissions or other fault of the Subcontractor.”

During construction, a motorcyclist named Kodera claimed she sustained serious injuries when she hit an unmarked bump in the road and lost control of her motorcycle.  When the motorcyclist sued Wells Cargo and United Rentals, Wells Cargo demanded that United Rentals indemnify and defend Wells Cargo.  Wells Cargo’s demand went unheeded.  Subsequently, Wells Cargo paid its insurance policy limits of $1,000,000 to settle the motorcyclist’s claim against Wells Cargo.  Wells Cargo continued to seek reimbursement from United Rentals for its legal fees and settlement payment.  United Rentals elected to go to trial.  The jury determined that United Rentals was negligent but did not cause the motorcyclist’s injuries.  Nevertheless, Wells Cargo obtained a judgment of indemnity and defense costs against United Rentals based upon the jury finding that United Rentals was negligent.

On appeal, the Nevada Supreme Court reversed Wells Cargo’s judgment against United  Rentals.  Strictly construing the contractual indemnification clause, the Court adopted the holding of other courts that have concluded “that limiting a duty to indemnify ‘to the extent’ that an injury is ‘caused’ by the indemnitor requires a determination of the indemnitor’s degree of fault and invokes the duty only to the extent that the indemnitor is negligent.”  Thus, the Nevada Supreme Court rejected any duty by United Rentals to indemnify, stating:

“[T]he ‘to the extent caused’ language in an indemnification clause must be strictly construed as limiting an indemnitor’s liability to cover the indemnitee’s losses only to the extent the injuries were caused by the indemnitor.  As such, we conclude that this contract’s indemnification provision limits United Rentals’ duty to indemnify  only to the extent that United Rentals caused Kodera’s accident.  Since the jury found that united Rentals’ negligence was not the proximate cause of Kodera’s accident, and thus it was zero percent liable for negligence, we conclude that Wells Cargo was entitled to zero indemnification.  Thus, the district court erred in determining that United Rentals was required to indemnify Wells Cargo for any portion of the $1,000,000 settlement.”

The Nevada Supreme Court reached a similar result with respect to the asserted duty to defend.  The Court stated:

Here, there is no clear and explicit language in the contract which directs United Rentals to defend Wells Cargo in claims where its own negligence is asserted.  When the contractual language that does exist is strictly construed, United rentals’ duty to defend Wells Cargo is limited ‘to the extent’ that United Rentals’ ‘caused’ Kodera’s accident.  thus, because the jury found that United rentals’ negligence was not the proximate cause of Kodera’s accident, United Rentals did not have a duty to defend Wells Cargo.”

A contractor facing a claim for personal injury or property damage needs a defense from the moment a claim is made.  Under the holding of United Rentals, it will be difficult, if not impossible, for a contractor to obtain a defense from a co-defendant until after the trial has occurred and the parties’ relative liability has been determined.  In view of the high costs of taking a tort claim to trial, such a defense is likely to be too little too late.  As a practical matter, the best way for a contractor to obtain protection against liability for personal injury or property damage is to purchase its own liability insurance and then provide prompt notice to the insurer when a claim is made.  Even being named as an additional insured on another party’s liability insurance policy is some times not enough to secure an appropriate defense.