Like most businesses, your business likely enters contracts with other businesses. Some of these may be service contracts for drivers or other employees. Do you know if these contracts contain indemnity clauses? If so, do you know the exact terms of those clauses? Thanks to a new decision from the Virginia Supreme Court, the language of an indemnity clause in a contract may allow you to be held harmless by the other contracting party – even if that party’s employee sues you!
The Virginia Supreme Court recently decided the case of Dominion Nuclear Conn. Inc. v. Securitas Security Servs. USA Inc. In this case, a Securitas employee, a contractor of Dominion, slipped and fell while working as a security guard at a Dominion plant in Connecticut. The security guard was working pursuant to a service contract between the two companies. The guard filed suit against Dominion, and Dominion, in responding to the lawsuit, asserted that the guard was comparatively responsible and/or at fault. Dominion further demanded legal defense and indemnity pursuant to the contract between the companies.
Here is the indemnity clause from the contract:
To the extent arising from the negligence, gross negligence, or willful misconduct of Securitas . . . or employees of Securitas, Securitas agrees to indemnify, defend, and hold harmless Dominion, Dominion’s Affiliates (defined below), and each of their respective directors, officers, employees, contractors, and agents (each an “Indemnitee”) from and against any and all claims, demands, lawsuits, or other proceedings brought or threatened by any party, including but not limited to an Indemnitee, Securitas, . . . and employees of Securitas (each, a “Claim”), and to pay all of each Indemnitee’s costs in connection with any Claim, including but not limited to, any judgment, amounts paid in settlement, fines, penalties, forfeitures, and expenses (including reasonable attorneys’ fees through final appeal), whether at law, in equity, or administrative in nature, in any manner arising out of or in connection with: (a) this Agreement; (b) Securitas’s breach of this Agreement; (c) personal injury or death; (d) property damage; or (e) violation of law. Securitas will not be liable under this Indemnity Article for any injuries, deaths, or damage to the extent that they are caused by an Indemnitee’s gross negligence or willful misconduct.
After Securitas refused Dominion’s demand for indemnity, Dominion sued Securitas for breach of contract. The circuit court found that the indemnity provision did not apply to the guard’s lawsuit because it did not allege that Dominion was liable for the negligence of Securitas or its employees. The Virginia Supreme Court disagreed and found the guard’s lawsuit did fall within the indemnity provision.
The Court pointed to the broad language that the clause applied “to the extent” a claim “arises from the negligence, [etc.]” of Securitas or its employees. It also referenced the second sentence of the clause that provides that “Securitas will not be liable . . . for any injuries, deaths, or damage to the extent that they are caused by an Indemnitee’s gross negligence or willful misconduct.” The Court determined that this second sentence proves that claims arising out of Dominion’s conduct are contemplated by the first sentence. Furthermore, allegations of Dominion’s ordinary negligence are within the covered risks of the first sentence of the clause.
Importantly, the Court found that the guard’s lawsuit satisfied the “to the extent” qualifier because Dominion responded to the complaint asserting that the guard was comparatively at fault for the accident. The Court determined that given the affirmative defense by Dominion, the suit implicates her negligence as a Securitas employee. Because this negligence is implicated, Securitas’s duty to defend is triggered, as well as the duty to indemnify (depending on the outcome of the litigation).
Justice Kelsey filed a dissenting opinion disagreeing with the majority’s determination. He believed that the indemnity provision could only be triggered by what was set out in the guard’s complaint. Because the complaint did not allege any negligence against the guard or Securitas, there was nothing to trigger the indemnity provision. Lastly, he believed the majority was incorrect because the clause mentions a claim, not an affirmative defense to a claim, and, while the accident may have arisen because of Securitas’s negligence (through its employee), the claim focused solely on allegations against Dominion.
While this case may not catch one’s eye immediately, the Court’s holding could have significant impact in interpreting the language of indemnity clauses. For all parties that have entered indemnity agreements, it is important to note the specific language of those clauses and what impact some of those phrases may have. Here, the company defending against a negligence suit was allowed to indemnify the plaintiff’s employer because it properly noted the employee’s potential negligence in its affirmative defenses. As such, Securitas must potentially compensate Dominion for a loss that arose from a lawsuit by one of its own employees against Dominion. This result is certainly favorable for tort defendants that have an indemnity contract with a party on the other side of the litigation.