It has long been the law in Washington that contracting parties are free to draft contractual indemnity agreements to allocate risk arising from performance of the work, and Courts will generally enforce those agreements as written. This well-settled principle was recently reaffirmed in King County v. CPM Development Corp., dba ICON Materials[1] a decision from Division I of the Washington Court of Appeals, wherein one party to an indemnity agreement attempted to evade its contractual obligations by arguing that certain common law indemnity principles supersede the written terms. This appeal followed a multi-week jury trial from which the client and Ahlers Cressman and Sleight legal team, including Lindsay Watkins, Klien Hilliard, and Christina Granquist, obtained a seven-figure judgment in the client’s favor, including an award of all attorneys’ fees and costs.
ICON was the general contractor on a Vashon Island Highway Pavement project for King County. Part of the work on the project involved hauling away and disposing of ground milled asphalt (the “millings”) at King County-approved sites. ICON and D&R Excavating Inc., (“D&R”) executed a subcontract for D&R to perform that work. The subcontract incorporated the contract between ICON and King County, including the obligation to stockpile millings only at approved sites. D&R, however, did not obtain the requisite approvals from King County, and placed the millings at various sites on the Island, including locations that King County explicitly rejected.
Notwithstanding numerous stop work orders, demands, and directives from the County threatening D&R, D&R’s owners, and ICON with assessment of civil penalties, liquidated damages, and other consequences for the improper stockpiling and placement of millings, and ICON’s repeated notices and demands to D&R requesting that D&R take action to remove the millings or resolve the matter with King County, D&R did nothing. Eventually, ICON had no choice but to terminate its contract with D&R and take over D&R’s work, a decision that D&R never protested. ICON was able to, at considerable expense, remediate several of the properties on which D&R improperly stockpiled millings.
It is in precisely these kinds of circumstances that contractual indemnity provisions are important. The subcontract included a comprehensive indemnity provision in which D&R agreed it would defend, indemnify, and hold ICON harmless for any losses, costs, claims, demands, penalties, damages, expenses, or liabilities arising in connection with D&R’s work and to the extent of D&R’s default. Consistent with the subcontract, ICON tendered defense and indemnity to D&R. However, D&R refused the tender.
In the lawsuit that followed, ICON successfully moved for partial summary judgment on its claim that D&R breached the indemnity provision of the Subcontract. Eventually, a jury entered a verdict against D&R awarding ICON the full amount of damages it incurred in remediating the properties, plus its attorneys’ fees and costs.
D&R then appealed, arguing that the court erred in ruling that D&R breached the indemnity provision as a matter of law. Relying on common law principles typically used in the tort context, D&R contended that the plain language of the provision has no effect and is not triggered unless the indemnitee (ICON) first proves that it was actually liable to a third party (King County). D&R asserted this argument despite the fact that the subcontract does not have any such requirement and that the protections ICON negotiated in that indemnity provision were clearly applicable.
The Court was unconvinced by D&R’s arguments, holding that the indemnity provision was drafted to allow ICON to recover its damages arising from D&R’s work and default regardless of whether actual liability to a third party was proven. The Court declined D&R’s invitation to totally restructure the terms of the indemnity provision and inject conditions on ICON’s rights that were contrary to the plain language. Although the common law principles on which D&R relied might apply where there is no contractual indemnity agreement, they were inapplicable here, where the parties bargained for and negotiated the scope of D&R’s indemnity obligations. In so holding, the Court was in good company, relying on a multitude of prior decisions that consistently enforce contractual indemnity agreements as written. Notably, the Court recognized that “Washington law has long recognized that common law defenses cannot defeat the express language of a contractual indemnification provision. To hold otherwise ‘would frustrate the reasonable expectations of the contracting parties and thus interfere with their freedom to contract.’” Id. (internal citations omitted) (quoting Stocker v. Shell Oil Co., 105 Wn.2d 546, 549-50, 716 P.2d 306 (1986)).
D&R appealed this decision to the Supreme Court, but the Supreme Court declined to hear the issue. Ahlers Cressman and Sleight lawyers Lindsay Watkins, Margarita Kutsin, and Larry Glosser handled the appeal.
Commentary:
This Court’s decision emphasizes the critical nature of contractual indemnity provisions as a method for allocating risk arising from work performed by the contracting parties. Accordingly, parties to a contract containing an indemnity provision should take care to carefully evaluate the provision and to understand the scope and terms under which a duty to indemnify, defend, and hold harmless might arise. Given the consistent approach by Washington courts to enforce indemnity provisions as written, parties seeking to avoid an obligation clearly spelled out in the contract are unlikely to find refuge in the common law.
[1] King County v. CPM Dev. Corp., dba ICON Materials, No. 83596-3-I (Wash. Ct. App. Feb. 6, 2023) (unpublished) https://www.courts.wa.gov/opinions/pdf/835963.pdf.