In Riva v. Ashland, Inc., 2013 WL 1222393 (D. Mass. Mar. 26, 2013), over 250 residences, 20 businesses and one school were damaged by an explosion at a plant that was jointly operated by a paint manufacturer and printing ink manufacturer. The explosion occurred after defendant, a chemical manufacturer, delivered several thousand gallons of flammable chemicals to the facility. A class action complaint on behalf of all persons and entities who sustained damages or injuries from the explosion was filed against the paint and ink manufacturers, but not the chemical manufacturer. In connection with the eventual settlement of that class action, all plaintiffs gave a full release to the paint and ink manufacturers and some plaintiffs agreed to indemnify the manufacturers from third-party claims for indemnity or contribution that might be asserted by any non-settling party, such as defendant, against whom any indemnifying plaintiff asserted a claim.
Thereafter, two individuals and one insurer -- some of whom had provided indemnity under the settlement agreement and some of whom had not -- filed a new putative class action against defendant, which in turn promptly filed a thirdparty complaint against the paint and ink manufacturers for indemnification under the terms of defendant’s sales contracts. The court denied class certification in this second action, however, because the named plaintiffs’ interests were not sufficiently aligned with the rest of the class due to the potential for a conflict to arise from application of the settlement agreement’s indemnification provision to some but not all class members (see April 2012 Foley Hoag Product Liability Update).
A few days later, two new complaints were filed against defendant for damages arising out of the explosion, one by a group of plaintiffs with no indemnity obligations under the settlement agreement and another by plaintiffs who had agreed to indemnity. In both actions, plaintiffs sought recovery solely for damages arising out of defendant’s actions alone, specifically excluding recovery for claims arising out of the ink manufacturer’s conduct. In all three actions, defendant filed third-party claims for contractual indemnity and contribution against the ink manufacturer and then moved both for a declaratory judgment on those claims and summary judgment against plaintiffs’ claims. The ink manufacturer, in turn, answered the third-party complaints and asserted its own claim for contractual indemnity against all plaintiffs that were indemnitors under the settlement agreement. These plaintiffs, contending that the right to control the ink manufacturer’s defense against the chemical manufacturer’s third-party claims was theirs alone, demanded that the ink manufacturer withdraw its answer and allow them to assume the defense, arguing that refusal to do so would waive the right to indemnification under the settlement agreement. When the ink manufacturer refused, the indemnitor plaintiffs counterclaimed for a declaratory judgment that they owed no indemnity obligations, breach of the settlement agreement and violation of Mass. Gen. L. ch. 93A (the Massachusetts unfair and deceptive practices statute), and moved for judgment on the pleadings on each counterclaim.
First, the court held that the terms of the sales contracts between the chemical and ink manufacturers would require the latter to indemnify the former against any judgment on plaintiffs’ claims, as the indemnity obligation covered all claims “arising out of [the ink manufacturer]’s use, storage, handling or resale of the [chemicals].” Even though plaintiffs’ complaint purported to exclude any claims arising out of the ink manufacturer’s conduct, the court held the indemnification provision nevertheless applied because if the parties had intended to limit indemnity coverage to claims arising out of the ink manufacturer’s negligence alone, they could have used qualifying terms such as “sole” or “exclusive” to describe the ink manufacturer’s indemnifiable conduct. In spite of this conclusion, however, the court declined to issue a declaratory judgment that defendant was entitled to indemnity on the ground that the requested relief would be premature because under Ohio law, which governed the sales contracts, the duty to indemnify arises only after liability has been determined in the underlying action.
For similar reasons, the court denied defendant’s motions for summary judgment on plaintiffs’ claims, in which defendant had argued it could not be liable to plaintiffs as a matter of Ohio law, on account of the sales contract’s indemnification provisions and the doctrines of circular indemnity and circuity of action. Under those doctrines, a plaintiff may not “proceed against itself” in actions like this one where the cost of any resulting judgment ultimately would be borne by plaintiff itself because of its indemnity obligations. Because determination of the ink manufacturer’s duty to indemnify was premature, so too was the related inquiry of the applicability of the doctrine of circular indemnity.
Turning to the indemnitor plaintiffs’ counterclaims against the ink manufacturer for a judgment relieving them of their settlement agreement indemnity obligations, the court first held that, under Massachusetts law, plaintiffs’ contractual duty to defend the ink manufacturer against third-party claims included a right to control the defense. This was especially appropriate here where, due to the settlement agreement’s indemnity provisions, the indemnitor plaintiffs had a stronger incentive to defend the ink manufacturer against defendant’s indemnification claims than the manufacturer itself. Because the general rule is that an indemnitee’s failure to allow the indemnitor to take charge of the defense relieves the indemnitor of its indemnity obligation, and the ink manufacturer offered no justification for its refusal of the indemnitor plaintiffs’ offer to defend, the court granted their motion for judgment on the pleadings.