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A CAUTIONARY TALE OF UNEXPECTED CONTRACT LIABILITY
By Attorney Robert A. Mich, Jr.
April, 2017
A CAUTIONARY TALE OF UNEXPECTED CONTRACT LIABILITY
By Attorney Robert A. Mich, Jr.
April, 2017
Disclaimer: The information contained on this page is not legal advice. The information provided on this website is for general informational purposes and is not necessarily updated to account for changes in the law. You should consult with an attorney for legal advice regarding your individual circumstances.
Contractors sometimes sign a contract or proposal after only cursory review of the language in the document. The failure to carefully review all contract provisions may result in unanticipated liability for a contractor. The Wisconsin Court of Appeals recently decided a case in which a contractor was found to be liable for defending and indemnifying another party’s allegedly negligent conduct because the contractor had assumed that far-reaching liability under their contract.
In Cintas Corporation No. 2 v. Becker Property Services LLC, No. 2015AP2457, (Wis.
Ct. App. Apr. 11, 2017), a pipe connected to a fire suppression system for an apartment complex burst, causing nearby property damage. The parties that sustained property damage filed suit against Cintas, alleging that Cintas had failed to properly inspect and maintain the fire suppression system. Cintas then filed a third-party complaint against Becker, which is the property management company that had contracted with Cintas to provide those services, alleging that Becker had breached their contract by failing to defend and indemnify Cintas against the underlying claims.
The Cintas (“Seller”)– Becker (“Purchaser”) contract included the following provisions:
“Seller shall in no event be liable to Purchaser or any of its successors or assigns for any loss, claim, demand, liability, cost, damage, expense, loss of business profits, or any punitive, consequential, incidental or special damages, whether arising in tort, contract, warranty, strict liability or otherwise.”
“Seller shall not be liable for any claim in excess of the purchase price of the goods or services to which the claim relates, whether involving defective goods or negligent services otherwise arising in contract or tort, including strict liability and negligence.”
“Purchaser, at its own expense, shall defend, indemnify and hold harmless Seller from any claim, charge, liability, or damage arising out of any goods or services provided by Seller hereunder, including any failure of the goods or services to function as intended. Purchaser acknowledges that Seller shall have no liability or responsibility for any loss or damage to persons or property resulting from any fire or equipment malfunction.”
Cintas argued that this provision compelled Becker to defend Cintas against the plaintiffs’ claims. Becker argued that it had no obligation to defend or indemnify Cintas because indemnification agreements generally are not construed to cover an indemnitee for his own negligent acts absent a specific and express statement in the agreement to that effect.
The Wisconsin Supreme Court ruled in favor of Cintas. The Court concluded that based
on the aforementioned contract language, “the purpose and unmistakable intent of the parties in entering into the agreement with these terms was for no other reason than to indemnify Cintas for its own negligent acts.” The Court noted that this interpretation was also supported by another provision in the contract compelling Becker to obtain and maintain insurance coverage for losses or damages of any kind.
The lesson to take away from this case is that a contractor may be liable for damages
caused by the negligent acts or omissions of other parties, even if the contractor did not
participate in the wrongful actions, if they have assumed that liability by contract. Some
insurance policies contain an exclusion for liability assumed by contract, so taking on such liability should be done with extreme caution. Contractors are cautioned to carefully read and understand all provisions of a contract that may shift liability exposure before signing the contract. Contracts should also be reviewed to determine what insurance coverage is required under the contract, which may include adding one or more third parties as an additional insured to the contractor’s insurance coverage. To the extent a contractor has questions or concerns about proposed contract provisions that may significantly expand the contractor’s liability, a lawyer should be consulted.
In Cintas Corporation No. 2 v. Becker Property Services LLC, No. 2015AP2457, (Wis.
Ct. App. Apr. 11, 2017), a pipe connected to a fire suppression system for an apartment complex burst, causing nearby property damage. The parties that sustained property damage filed suit against Cintas, alleging that Cintas had failed to properly inspect and maintain the fire suppression system. Cintas then filed a third-party complaint against Becker, which is the property management company that had contracted with Cintas to provide those services, alleging that Becker had breached their contract by failing to defend and indemnify Cintas against the underlying claims.
The Cintas (“Seller”)– Becker (“Purchaser”) contract included the following provisions:
“Seller shall in no event be liable to Purchaser or any of its successors or assigns for any loss, claim, demand, liability, cost, damage, expense, loss of business profits, or any punitive, consequential, incidental or special damages, whether arising in tort, contract, warranty, strict liability or otherwise.”
“Seller shall not be liable for any claim in excess of the purchase price of the goods or services to which the claim relates, whether involving defective goods or negligent services otherwise arising in contract or tort, including strict liability and negligence.”
“Purchaser, at its own expense, shall defend, indemnify and hold harmless Seller from any claim, charge, liability, or damage arising out of any goods or services provided by Seller hereunder, including any failure of the goods or services to function as intended. Purchaser acknowledges that Seller shall have no liability or responsibility for any loss or damage to persons or property resulting from any fire or equipment malfunction.”
Cintas argued that this provision compelled Becker to defend Cintas against the plaintiffs’ claims. Becker argued that it had no obligation to defend or indemnify Cintas because indemnification agreements generally are not construed to cover an indemnitee for his own negligent acts absent a specific and express statement in the agreement to that effect.
The Wisconsin Supreme Court ruled in favor of Cintas. The Court concluded that based
on the aforementioned contract language, “the purpose and unmistakable intent of the parties in entering into the agreement with these terms was for no other reason than to indemnify Cintas for its own negligent acts.” The Court noted that this interpretation was also supported by another provision in the contract compelling Becker to obtain and maintain insurance coverage for losses or damages of any kind.
The lesson to take away from this case is that a contractor may be liable for damages
caused by the negligent acts or omissions of other parties, even if the contractor did not
participate in the wrongful actions, if they have assumed that liability by contract. Some
insurance policies contain an exclusion for liability assumed by contract, so taking on such liability should be done with extreme caution. Contractors are cautioned to carefully read and understand all provisions of a contract that may shift liability exposure before signing the contract. Contracts should also be reviewed to determine what insurance coverage is required under the contract, which may include adding one or more third parties as an additional insured to the contractor’s insurance coverage. To the extent a contractor has questions or concerns about proposed contract provisions that may significantly expand the contractor’s liability, a lawyer should be consulted.