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Specialized Contracting, Inc., A North Dakota Corporation v. St. Paul Fire & Marine Ins. Company

December 18, 2012

SPECIALIZED CONTRACTING, INC., A NORTH DAKOTA CORPORATION,
PLAINTIFF
v.
ST. PAUL FIRE & MARINE INS. COMPANY, A FOREIGN INSURANCE COMPANY, DEFENDANT AND THIRD-PARTY PLAINTIFF
v.
CITY OF VALLEY CITY, A MUNICIPAL CORPORATION,
THIRD-PARTY DEFENDANT, THIRD-PARTY PLAINTIFF AND APPELLEE
v.
GEO E. HAGGART, INC., KADRMAS, LEE & JACKSON, INC., NORTH DAKOTA CORPORATIONS, THIRD-PARTY DEFENDANTS KADRMAS, LEE & JACKSON, INC., A NORTH DAKOTA CORPORATION, APPELLANT



Appeal from the District Court of Barnes County, Southeast Judicial District, the Honorable Jay A. Schmitz, Judge.

The opinion of the court was delivered by: Maring, Justice.

N.D. Supreme CourtSpecialized Contracting, Inc. v. St. Paul Fire & Marine Ins., 2012 ND 259 This opinion is subject to petition for rehearing. [Go to Documents]

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REVERSED AND REMANDED.

Opinion of the Court by Maring, Justice.

[¶1] Kadrmas, Lee & Jackson, Inc., ("KLJ") appeals from a district court judgment awarding the City of Valley City ("City") $32,696.63 for costs and expenses the City incurred defending itself in the underlying lawsuit and pursuing its indemnity claim against KLJ. We conclude KLJ did not have a duty to defend the City in the underlying action under the plain language of the parties' indemnity agreement. We reverse and remand.

I

[¶2] The City entered into a contract with KLJ to provide engineering services for a paving and sewer project. The City hired Geo. E. Haggart, Inc. ("Haggart"), to provide services as a general contractor for the project. The contract between the City and Haggart required Haggart to furnish all labor, materials, and equipment for the project. Haggart was required to provide a payment bond under the terms of its contract with the City, and St. Paul Fire & Marine Insurance Company ("St. Paul") was the surety under the bond. Specialized Contracting, Inc. ("SCI"), entered into a subcontract with Haggart to complete some of the work on the project.

[¶3] In 2007, SCI sued St. Paul for breach of its duties under the payment bond, seeking compensation for additional work SCI alleged it completed on the project for which Haggart refused to pay. SCI alleged it was entitled to additional compensation for the removal and replacement of concrete that KLJ, as the project engineer, rejected because of cracking and inadequate drainage. In 2009, St. Paul served a third-party complaint against the City for breach of contract and indemnity, alleging the concrete repair work was outside the scope of the City's contract with Haggart, the City was liable to Haggart for any additional compensation SCI was claiming against Haggart's payment bond if SCI established KLJ's decision to replace the concrete was beyond the scope of the contract, and the City was required to indemnify St. Paul for any judgments against it in favor of SCI arising from decisions made by KLJ. The City filed an answer to St. Paul's complaint and served a third-party complaint against Haggart and KLJ, alleging Haggart and KLJ had an obligation to defend and indemnify the City from all allegations and liability arising from SCI and St. Paul's claims and any damages were the direct and proximate result of Haggart and KLJ's negligence, malpractice, breach of contract, or breach of warranty.

[¶4] The City and KLJ moved for summary judgment seeking to be dismissed from the action. The court denied their motions. A jury trial was held. A special verdict form was used and the jury found SCI did not meet its burden of proof. The district court dismissed SCI's claims and a judgment was entered. The court ordered the City's duty to defend and indemnification claims against Haggart and KLJ were preserved.

[¶5] The City and KLJ each filed a memorandum on the remaining issues. After a hearing, the court entered an order identifying the remaining issues to be litigated, including whether KLJ had a duty to defend the City. The City filed a brief in support of its duty to defend claims, arguing its contract with KLJ included an indemnity provision that required KLJ to defend the City in the underlying action under the language of the agreement and N.D.C.C. § 22-02-07.

[¶6] After a hearing, the court ordered KLJ to pay the City's costs and expenses, including attorney's fees, incurred in defending against SCI and St. Paul's claims and in pursuing its indemnity claim against KLJ. The court applied N.D.C.C. § 22-02-07(4) and concluded KLJ had a statutory duty to defend the City. The court subsequently entered a judgment, ordering KLJ to pay the City $32,696.63 in costs, expenses, and attorney's fees.

II

[¶7] KLJ argues the district court erred in concluding it had a duty to defend the City under the indemnity provision in KLJ's contract with the City, which states:

Indemnification for Professional Services:

[KLJ] agrees to indemnify, save, and hold harmless the [City] from liability, including all costs, expenses, and reasonable attorneys' fees, which may arise out of or result from [KLJ's] negligent acts or omissions in rendering professional services under this agreement. [KLJ] shall ...


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