Martin County Coal Corporation v. Universal Underwriters Ins.

RECOMMENDED FOR FULL-TEXT PUBLICATION

Pursuant to Sixth Circuit I.O.P. 32.1(b)

File Name: 13a0236p.06

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

_________________

X

Plaintiff-Appellant/Cross-Appellee, -

MARTIN COUNTY COAL CORPORATION,

-

-

-

Nos. 11-5773/5793

v.

,

>

-

-

UNIVERSAL UNDERWRITERS INSURANCE

Defendant-Appellee/Cross-Appellant. N-

COMPANY,

Appeal from the United States District Court

for the Eastern District of Kentucky at Pikeville.

No. 7:08-cv-93—Amul R. Thapar, District Judge.

Argued: October 12, 2012

Decided and Filed: August 16, 2013

Before: KEITH, MARTIN, and ROGERS, Circuit Judges

_________________

COUNSEL

ARGUED: Judd R. Uhl, MANNION GRAY CO., L.P.A., Fort Wright, Kentucky, for

Appellant/Cross-Appellee. Robert E. Stopher, BOEHL, STOPHER & GRAVES, LLP,

Louisville, Kentucky, for Appellee/Cross-Appellant. ON BRIEF: Judd R. Uhl,

MANNION GRAY CO., L.P.A., Fort Wright, Kentucky, for Appellant/Cross-Appellee.

Robert E. Stopher, Robert D. Bobrow, BOEHL, STOPHER & GRAVES, LLP,

Louisville, Kentucky, for Appellee/Cross-Appellant.

MARTIN, J., delivered the opinion of the court, in which KEITH, J., joined.

ROGERS (15–18), delivered a separate dissenting opinion.

_________________

OPINION

_________________

BOYCE F. MARTIN, JR., Circuit Judge. The legal issue in this case is whether

an insurance company, Universal, must indemnify its insured, Crum Motor Sales, against

a settlement that Crum Motor Sales entered into with a third party, Martin County Coal

1

Nos. 11-5773/5793 Martin Cnty. Coal Corp. v. Univ.Underwriters Ins. Co. Page 2

Corporation, to settle a personal-injury lawsuit that Crum Motor Sales and one of its

employees, Philip Crum, brought against Martin County Coal for injuries Crum suffered

while on Martin County Coal’s premises. We agree with the district court that Universal

does not have any duty to indemnify Martin County Coal, standing in Crum Motor

Sales’ shoes, because Crum Motor Sales proffered enough evidence in its summary-

judgment motion on the indemnity issue to show that Crum Motor Sales was not actually

legally liable to Martin County Coal in the personal-injury case. Crum Motor Sales was

not actually legally liable to Martin County Coal because the basis of its supposed

liability—an indemnification agreement that Martin County Coal and Crum Motor Sales

entered into in 1997—was unenforceable because it was against public policy for two

reasons. The first reason is that the 1997 indemnification agreement was the product of

a significant disparity in bargaining power between Martin County Coal and Crum

Motor Sales. The second, and related, reason is that the 1997 indemnification agreement

shifted liability for compliance with at least one mining-safety statute away from Martin

County Coal and onto Crum Motor Sales. We therefore AFFIRM the district court’s

judgment.

In 1997, Crum Motor Sales agreed to service Martin County Coal’s light-duty

vehicles, such as pick-up trucks. At the time, Crum Motor Sales was a Kentucky-based

company with five to nine employees. It was on the brink of insolvency. Martin County

Coal, also a Kentucky-based company, was a wholly owned subsidiary of the A.T.

Massey Coal Company, Inc., a Virginia-based corporation publicly traded on the New

York Stock Exchange. The agreement allowed Crum Motor Sales to enter Martin

County Coal’s property to service its vehicles. Under the agreement, Crum Motor Sales’

employees would pick up Martin County Coal’s vehicles either at the coal mine’s guard

gate or office, or elsewhere on the premises, and return them there after Crum Motor

Sales had completed the repairs.

But because Crum Motor Sales’ employees would have to enter Martin County

Coal’s mining site to retrieve the vehicles to be repaired, Martin County Coal also

required Crum Motor Sales to enter into an indemnification agreement in 1997. The

Nos. 11-5773/5793 Martin Cnty. Coal Corp. v. Univ.Underwriters Ins. Co. Page 3

parties did not bargain over the indemnification agreement’s terms; Crum Motor Sales

agreed to the terms that Martin County Coal put forth. According to this indemnity

agreement, Crum Motor Sales agreed to “release, indemnify, defend and hold harmless

Martin County Coal” over “any and all liabilities, demands, losses, claims and damages

of any kind” caused by the acts or omissions of any of Crum Motor Sales’ employees

while on Martin County Coal’s premises, and with respect to injuries or damages to

Crum Motor Sales or its employees caused by Crum Motor Sales’ performance of work

or service. The indemnity agreement also required Crum Motor Sales to provide Martin

County Coal with proof of insurance coverage for workers’ compensation, commercial

general liability, employer’s liability, and automobile liability “in amounts reasonably

acceptable to Martin County [Coal].” Crum Motor Sales got coverage from Universal.

The coverage was effective from September 2000 to September 2001—the period during

which Philip Crum was injured.

When Philip Crum, a forty-year-old single man and father of two dependent

children, as well as an officer and employee of Crum Motor Sales, arrived at the entrance

to Martin County Coal on the morning of January 19, 2001 to pick up a Martin County

Coal vehicle for repair, he certainly did not know that he would spend the rest of the year

in hospitals and rehabilitation centers. Crum asked David Canterbury, a Martin County

Coal employee, if he could ride with him to the mine site to get a Ford pickup truck to

take in for service. Canterbury agreed, and Crum got in on the passenger side of the

1997 Chevrolet 2500 series pick-up truck. Canterbury drove the truck across the mine

property for almost eight miles along a company haul road.

Suddenly, near the area of Maynard Fork, as the Chevy ascended the last hill to

the highwall miner pit, a boulder—measuring about three-and-a-half feet in

girth—trundled down the slope on the right side of the road. The boulder gained enough

momentum to clear a thirty-foot highwall before it struck the top of the pick-up truck’s

cab—directly above where Crum was seated. Canterbury would later state that he had

no warning before the boulder hit. After impact, the pick-up truck rolled backwards

before coming to a stop. The boulder was so heavy that Canterbury and another Martin

Nos. 11-5773/5793 Martin Cnty. Coal Corp. v. Univ.Underwriters Ins. Co. Page 4

County Coal employee could not move it from the truck cab, nor could they extract

Philip Crum. It took a Caterpillar 988 loader and boom truck to remove the boulder and

to pull the cab of the truck up and away from Crum so that he could be extricated. Crum

emerged with broken bones—a left tibia, a fibula, and a right femur, as well as a

fractured pelvis. He also sustained a concussion. Philip Crum spent the rest of 2001 in

hospitals and rehabilitation centers, finally returning home to Inez, Kentucky on

December 31, 2001.

Both a Kentucky and a federal mine-regulatory agency investigated the accident.

A federal mine-safety regulation imposed on Martin County Coal a duty to “strip[]”

“[l]oose hazardous material . . . for a safe distance from the top of pit or highwalls” and

otherwise secure “loose unconsolidated material.” 30 C.F.R. § 77.1001. The Mine

Safety and Health Administration of the United States Department of Labor issued

Martin County Coal a citation, having found that “[l]oose unconsilidated [sic] rock and

dirt was present above the roadway leading to the Maynard Fork workings in the area

where [the accident] occurred from falling rock.” The citation also stated that “[t]his

condition existed for a distance of [about] 150–200 feet.” Whoever filled out the citation

form checked a box indicating that Martin County Coal’s negligence was “moderate.”

An administrative law judge of the Federal Mine Safety and Health Review Commission

approved a settlement in which Martin County Coal agreed to pay a civil penalty of

$6,000 “for the alleged violation of mine safety regulations.” Sec’y of Labor, Mine

Safety & Health Admin. v. Martin Cnty. Coal Corp., 2002 WL 31056752

(F.M.S.H.R.C.).

Then, in 2002, both Philip Crum and Crum Motor Sales sued Martin County Coal

in Kentucky state court in Martin County. In their complaint, they alleged that Martin

County Coal and its employees were negligent and grossly negligent in maintaining its

mining operations. They alleged that Martin County Coal and its employees allowed the

slope above the roadway where the accident occurred to become unstable, which caused

the boulder to roll down the slope and crash into the pick-up truck, injuring Crum.

Philip Crum sought damages for his injuries, and Crum Motor Sales sought

Nos. 11-5773/5793 Martin Cnty. Coal Corp. v. Univ.Underwriters Ins. Co. Page 5

consequential damages, presumably in the form of lost income, stemming from Philip

Crum’s injuries and his inability to work. But in answering the complaint, Martin

County Coal counterclaimed against Crum Motor Sales. The counterclaim asserted that

neither Crum nor Crum Motor Sales could recover from Martin County Coal because

Crum Motor Sales had entered into the 1997 indemnification agreement requiring Crum

Motor Sales to “indemnify, defend and hold harmless” Martin County Coal from any

claims that either Crum Motor Sales or its employees might bring against Martin County

Coal.

Faced with Martin County Coal’s counterclaim asserting that Crum Motor Sales

would have to defend Martin County Coal against Philip Crum’s lawsuit, Crum Motor

Sales asked its insurer, Universal, to defend it in the counterclaim. Universal declined

to do so, asserting that exclusions C and D of its policy with Crum Motor Sales applied.

Martin County Coal entered into mediation with Philip Crum and Crum Motor Sales.

Both Martin County Coal and Crum Motor Sales invited Universal to attend mediation,

but Universal declined.

In 2008, after mediation, Crum Motor Sales and Martin County Coal then

entered into a settlement agreement. Martin County Coal agreed—without admitting

liability for the accident—to pay $3,650,000 to Philip Crum and Crum Motor Sales. In

consideration for paying this amount, Crum Motor Sales agreed to do two things. First,

it agreed to enter into an “agreed judgment” in Kentucky state court in Martin County

on Martin County Coal’s counterclaim, then still pending. The agreed judgment would

be against Crum Motor Sales and in favor of Martin County Coal for $3,650,000 (plus

costs and attorneys’ fees) pursuant to the 1997 indemnification agreement. In other

words, Crum Motor Sales agreed that the 1997 indemnification agreement made Crum

Motor Sales liable to indemnify Martin County Coal against the $3.65 million

settlement. Second, Crum Motor Sales agreed to assign to Martin County Coal any

rights that Crum Motor Sales might have to recover money from Universal for Crum’s

injuries. In exchange, Martin County Coal agreed not to enforce the agreed judgment

Nos. 11-5773/5793 Martin Cnty. Coal Corp. v. Univ.Underwriters Ins. Co. Page 6

against Crum Motor Sales. Martin County Coal also agreed to assume all risks

associated with the assignment.

Later in 2008, Martin County Coal—now standing in the shoes of Crum Motor

Sales—sued Universal, Crum Motor Sales’ insurer, in Kentucky state court seeking the

amount of Martin County Coal’s settlement with Crum Motor Sales. Universal removed

the case to federal court because of the diversity of the parties. The first question in the

case was whether Universal had a duty to defend Crum Motor Sales. The district court

held that, because Crum Motor Sales’ dispute with Martin County Coal might have come

within the coverage of Universal’s policy, Universal did have a duty to defend Crum

Motor Sales. Ultimately, Universal moved for summary judgment, arguing that it could

avoid paying for Crum Motor Sales’ settlement with Martin County Coal because Crum

Motor Sales was not actually liable to Martin County Coal. The district court granted

the motion because Martin County Coal failed to support its arguments with record

evidence. Martin County Coal appealed, and Universal filed a protective cross-appeal.

We review de novo a district court’s grant of summary judgment. EEOC v.

Prevo’s Family Mkt., Inc., 135 F.3d 1089, 1093 (6th Cir. 1998). Summary judgment is

proper if there is no genuine issue as to any material fact and the moving party is entitled

to judgment as a matter of law. Id. The party moving for summary judgment bears the

burden of demonstrating that there is an absence of evidence to support the nonmoving

party’s case. Id. Once the moving party satisfies its burden, the burden shifts to the

nonmoving party to set forth specific facts showing a triable issue. Mosholder v.

Barnhardt, 679 F.3d 443, 448–49 (6th Cir. 2012) (citing Matsushita Elec. Indus. Co. v.

Zenith Radio Corp., 475 U.S. 574 (1986); Fed. R. Civ. P. 56(e)). The court must

determine either whether the evidence—viewed in the light most favorable to the

nonmoving party—presents a sufficient disagreement to require submission to the fact-

finder, or whether the evidence is so one-sided that the moving party must prevail as a

matter of law. Prevo’s Family Mkt., Inc., 135 F.3d at 1093 (citing Anderson v. Liberty

Lobby, Inc., 477 U.S. 242, 251–52 (1986)).

Nos. 11-5773/5793 Martin Cnty. Coal Corp. v. Univ.Underwriters Ins. Co. Page 7

On appeal, Martin County Coal argues that the district court erred in its June 1,

2011 order and opinion granting summary judgment to Universal and holding that

Universal did not owe indemnity to Martin County Coal standing in the shoes of Crum

Motor Sales. The district court held that Universal did not owe indemnity to Martin

County Coal because Crum Motor Sales was not actually legally liable to Martin County

Coal. Martin County Coal argues that Kentucky law does not require insureds, like

Crum Motor Sales to prove that they were actually legally liable for a settlement before

compelling an insurer, like Universal, to indemnify the insured against the settlement.

Martin County Coal is wrong. Under Kentucky law, an insured who has paid a

settlement to a third party must prove that it could have been legally compelled to pay

the settlement before the insured can get indemnity from its insurer. The duty to

indemnify, under Kentucky law, “only arises when there is an actual basis for the

insured’s liability to a third party.” Travelers Prop. Cas. Co. of Am. v. Hillerich &

Bradsby Co., Inc., 598 F.3d 257, 269 (6th Cir. 2010) (citing James Graham Bround

Found, Inc. v. St. Paul Fire & Marine Ins. Co., 814 S.W.2d 273, 279–80 (Ky. 1991); Ky.

Sch. Bds. Ins. Trust v. State Farm Mut. Ins., 907 F. Supp. 1036, 1038 (E.D.Ky. 1995)).

Stated differently, if an insured settles with a third party, but the insured would not have

been actually legally liable to the third party, then the insurer does not have to indemnify

the insured for having paid a settlement to the third party. Kentucky School Boards

Insurance Trust v. State Farm Mutual Insurance, 907 F.Supp. 1036 (E.D. Ky. 1995), and

Barnes v. Pennsylvania Casualty Company, 208 S.W.2d 314 (Ky. 1948) illustrate

Kentucky’s actual-legal-liability rule.

In Kentucky School Boards, the Halls, a mother and her son, were struck by a car

right after the son got off a school bus at a school-bus stop in Knott County, Kentucky.

Ky. Sch. Bds., 907 F. Supp. at 1037. The mother died, and her son was seriously injured.

Id. The Halls filed a personal-injury action against the car’s driver and the Knott County

Board of Education. Id. The School Board had two insurance policies covering its

vehicles: a general liability insurance policy with the Kentucky School Boards Insurance

Trust and an automobile liability insurance policy with State Farm. Id. State Farm

Nos. 11-5773/5793 Martin Cnty. Coal Corp. v. Univ.Underwriters Ins. Co. Page 8

denied that its policy covered the accident and refused to defend the School Board. Id.

But the Trust did defend the School Board, and, without State Farm’s consent, paid a

settlement to the Halls. Id. Then, the Trust sued State Farm to recover all or part of the

settlement amount as well as the costs of defending the School Board. Id.

The district court stated the rule that, under Kentucky law, the Trust, if it were

to assert the School Board’s rights against State Farm under the insurance contract,

would have to present evidence of negligence and causation. Id. at 1037–38 (citing

Barnes, 208 S.W.2d at 315; Royal Indem. Co. v. May & Ball, 300 S.W. 347 (Ky. 1927);

Interstate Cas. Co. v. Wallins Creek Coal Co., 176 S.W. 217 (Ky. 1915)). Applying

Barnes, the district court in Kentucky School Boards Insurance Trust explained that “for

[the Trust] to succeed on its subrogated claim, it “must show that the School Board had

a legally enforceable claim against State Farm. That is, there must have been liability

of the School Board to the Halls in the antecedent [personal-injury] case and such

liability must have been covered by the State Farm policy.” Id. at 1038 (footnote

omitted).

In Barnes, one of Barnes’ dump trucks collided with a bus. Barnes, 208 S.W.2d

at 314. Barnes paid the bus’s owners $800 to settle the matter. Id. Barnes then sued

Pennsylvania Casualty Company for reimbursement of the $800. Id. The court did not

even reach the question of whether or not Pennsylvania Casualty Company’s insurance

contract with Barnes “covered the dump truck . . . because its liability under that contract

was conditioned upon the negligence of [Barnes], his agents or servants, in operating the

truck.” Id. at 315. The court stated the rule that “the liability imposed by law upon the

insured is only that caused by his negligence.” Id. (internal quotation marks omitted).

So, “[i]f the accident was not the result of the negligence of [Barnes], his agents or

servants, then the law imposes no liability upon him, and in turn, his insurance carrier

is not liable.” Id. Accordingly, “before [Pennsylvania Casualty Company] can be held

liable under the contract of insurance it must be established that the accident was the

result of [Barnes’] negligence.” Id. (citing Royal Indem., 300 S.W. at 349). In Barnes,

the court observed, Barnes failed to introduce any evidence to show that the accident

Nos. 11-5773/5793 Martin Cnty. Coal Corp. v. Univ.Underwriters Ins. Co. Page 9

between his dump truck and the bus resulted from the dump truck’s driver’s negligence.

Id. The driver of the dump truck (Barnes’ son) did not testify, nor did the bus’s driver

nor any other eyewitness. Id.

Here, the actual-legal-liability rule was incorporated into Crum Motor Sales’

policy with Universal. The policy expressly provided that Universal would only be

liable to indemnify Crum Motor Sales for “sums [Crum Motor Sales] legally must pay

as damages.” (emphasis added). Stated differently, Universal’s duty to indemnify Crum

Motor Sales was contingent upon Crum Motor Sales’ actual liability to a third party such

as Martin County Coal.

But Crum Motor Sales was not actually legally liable to Martin County Coal

because the basis of this liability—the 1997 indemnity agreement between Martin

County Coal and Crum Motor Sales—violates public policy and so is unenforceable.

Under Kentucky state law, “[a]s a general rule, a party cannot contract away liability for

damages caused by that party’s failure to comply with a duty imposed by a safety

statute.” Cumberland Valley Contractors, Inc. v. Bell Cnty. Coal Corp., 238 S.W.3d

644, 646 (Ky. 2007). Common sense tells us that the rationale behind this rule is that

exculpatory contracts—like the 1997 indemnification agreement—allow a party like

Martin County Coal to avoid liability for its own negligence, which reduces its incentive

to comply with safety statutes. Kentucky law disfavors such exculpatory agreements;

while “[a]n exculpatory contract for exemption from future liability for negligence,

whether ordinary or gross, is not invalid per se . . . such contracts are disfavored[.]” Id.

at 649 (quoting Hargis v. Baize, 168 S.W.3d 36, 47 (Ky. 2005)).

Here, the 1997 indemnification agreement allows Martin County Coal to escape

liability for damages caused by Martin County Coal’s violation of a safety statute,

30 C.F.R. § 77.1001, which imposed on Martin County Coal a duty to “strip[]” “[l]oose

hazardous material . . . for a safe distance from the top of pit or highwalls” and otherwise

secure “loose unconsolidated material.” 30 C.F.R. § 77.1001. On appeal, Martin

County Coal has not argued that the district court erred by holding that Martin County

Coal sought to enforce its 1997 indemnity agreement against Crum Motor Sales to avoid

Nos. 11-5773/5793 Martin Cnty. Coal Corp. v. Univ.Underwriters Ins. Co. Page 10

damages resulting from Martin County Coal’s violation of this safety regulation. Indeed,

the effect of the 1997 indemnification agreement is to shift liability imposed on it by

30 C.F.R. section 77.1001 to Crum Motor Sales, and by extension, to Universal. But

Martin County Coal cannot do that. The rule of Cumberland Valley Contractors applies

to this case: “‘[a] party cannot contract away liability for damages caused by that party’s

failure to comply with a duty imposed by a safety statute.’” Cumberland Valley

Contractors, 238 S.W.3d at 651 (quoting Hargis, 168 S.W.3d at 47). Martin County

Coal cannot contract away liability for damages caused by its failure to comply with a

duty imposed by a safety statute.

Furthermore, when Kentucky “courts have invalidated exculpatory clauses based

upon a breach of a statutory duty or breach of a duty to the public at large, those

agreements involved a major disparity in bargaining power between the parties.” Id. at

653. As an example, the Kentucky Supreme Court looked at Hargis, in which a

“significant disparity in bargaining positions existed between the two parties to that

contract.” Id. In Hargis, “[t]he plaintiff’s decedent was an individual truck driver who

worked as an independent contractor with the defendant owner of several sawmills.” Id.

(citing Hargis, 168 S.W.3d at 39). The Court further observed that “[p]resumably, the

plaintiff’s decedent in Hargis was required to sign the release at issue before he could

deliver logs to the defendant’s sawmill and, therefore, was ‘compelled to submit to the

stipulation.’” Id.

The Kentucky Supreme Court distinguished Hargis from the facts in Cumberland

Valley Contractors, because, in Cumberland Valley Contractors, “sophisticated

corporate entities negotiated the allocation of a jointly shared risk and expressly

incorporated that risk allocation into a contract that neither of them was compelled to

enter into to obtain a necessity, such as medical care or personal employment.” Id. The

Kentucky Supreme Court found “no suggestion that [Bell County Coal and Cumberland

Valley Contractors] were not on ‘a footing of equality[.]’” Id. at 654 (quoting D.H.

Davis Coal Co. v. Polland, 62 N.E. 492, 495–96 (Ind. 1902)).

Nos. 11-5773/5793 Martin Cnty. Coal Corp. v. Univ.Underwriters Ins. Co. Page 11

Rather, because Bell County Coal and Cumberland Valley Contractors were

dealing at arm’s length and upon an equal footing, the effect of the exculpatory clause

in that case was not so much that Bell County Coal contracted against its own negligence

as that Cumberland Valley Contractors agreed to alone bear all risks. Id. (quoting Jones

v. Hanna, 814 S.W.2d 287, 289 (Ky. Ct. App. 1991)) (quotation marks omitted).

Cumberland Valley received consideration for agreeing to bear the risks of flooding, and

so the Court could not “‘see that the public [was] in any wise affected by such a

contract[.]’” Id. (quoting Greenwich Ins. Co. v. Louisville & Nashville R.R. Co., 66 S.W.

411 (Ky. 1902)). So, “[g]iven that the [exculpatory clause] was negotiated as part of an

arm’s-length transaction between two business corporations with presumably equal

bargaining power,” the Court found “no compelling reason to disturb their written

contract.” Id.

As the Kentucky Supreme Court has more recently held, indemnification

provisions “applied to defend against the indemnitee’s own negligence, are not against

public policy generally, but they are when agreed to by a party in a clearly inferior

bargaining position.” Speedway Superamerica, LLC v. Erwin, 250 S.W.3d 339, 344 (Ky.

2008).

Here, Crum Motor Sales was in a clearly inferior bargaining position in relation

to Martin County Coal. Crum Motor Sales is the independent contractor in Hargis, not

the sophisticated mining entity in Cumberland Valley Contractors. At the time of

entering into the 1997 indemnification agreement, Martin County Coal was a wholly

owned subsidiary of an out-of-state corporation, the A.T. Massey Coal Company, Inc.,

listed on the New York Stock Exchange. Crum Motor Sales was a nearly insolvent

mom-and-pop wholly in-state company with fewer than ten employees. We therefore

disagree with Martin County Coal’s assertion that Crum Motor Sales “was a

sophisticated business entity.” There was a major disparity in bargaining power between

Martin County Coal and Crum Motor Sales.

We infer that this disparity in bargaining power existed because Martin County

Coal required that Crum Motor Sales sign the indemnity agreement, without bargaining

Nos. 11-5773/5793 Martin Cnty. Coal Corp. v. Univ.Underwriters Ins. Co. Page 12

over it, before it would allow it to perform any work. Just as the sawmill owner in

Hargis required the plaintiff’s decedent to release from liability the sawmill owner

before entering the premises, so did Martin County Coal require Crum Motor Sales to

sign the 1997 indemnification agreement before entering Martin County Coal’s premises

to perform repair work. Testimony in the record of Martin County Coal’s former

president and Massey Energy’s former corporate counsel shows that Martin County Coal

simply required the indemnity agreement and did not allow negotiations over its terms.

Dennis Hatfield, Martin County Coal’s president from 1994 to 2001, who

testified on behalf of Martin County Coal pursuant to Federal Rule of Civil Procedure

30(b)(6), stated that Martin County Coal, during the time of his presidency, required, as

a company policy, vendors coming on the property to provide services both to have

insurance and to sign an indemnification agreement. When asked whether anyone who

wanted to enter Martin County Coal’s property was able to persuade the company to

modify or vary the terms of the release, Hatfield responded no, and that the

1997 indemnification agreement was a “standard agreement” which Martin County Coal

“required of all parties.”

Another Rule 30(b)(6) witness, John Poma, who served as corporate counsel for

Massey Energy Company, Martin County Coal’s parent company, testified that the

1997 indemnification agreement “was a requirement for work to be done for the property

at Martin County or any of our other subsidiaries[,]” and that Crum Motor Sales “just

needed to agree that they were going to come onto our property, that if anything

happened they would agree to indemnify and hold us harmless.” Poma further testified

that the 1997 indemnification agreement was not customized in any way, other than the

entering of the names Martin County Coal and Crum Motor Sales. Poma said that “[t]he

communications with any of our customers coming onto [the] property would be if

you’re going to come onto [the] property, you need to sign the agreement as a

requirement of doing business.”

And, in answering interrogatories in Philip Crum’s personal injury case, Crum

Motor Sales wrote that no negotiations were conducted for the 1997 indemnification

Nos. 11-5773/5793 Martin Cnty. Coal Corp. v. Univ.Underwriters Ins. Co. Page 13

agreement, which Martin County Coal required Crum Motor Sales to accept before it

could conduct business with Martin County Coal.

So, contrary to Martin County Coal’s assertion in its brief, there is evidence in

the record that Martin County Coal forced Crum Motor Sales to enter into the 1997

indemnity agreement to get Martin County Coal’s business. The 1997 indemnification

agreement was a take-it-or-leave-it contract.

Because the 1997 indemnification agreement was bargained by parties in clearly

unequal positions, and because it effectively contracted away liability for damages

caused by Martin County Coal’s failure to comply with a duty imposed by a federal

mine-safety regulation, the 1997 indemnification is, under Kentucky law, void as against

public policy.

Therefore, Crum Motor Sales was not actually legally liable to Martin County

Coal on Martin County Coal’s contractual-indemnity counterclaim in the underlying

case. As a result, the indemnity claim that Crum Motor Sales assigned to Martin County

Coal—and which Martin County Coal is now asserting against Universal—fails as a

matter of law. Crum Motor Sales was not actually legally liable for the $3.65 million

that it agreed to pay Martin County Coal under the settlement and agreed judgment.

Universal has filed a protective cross-appeal of the district court’s January 4,

2010 order granting summary judgment against it and in favor of Martin County Coal

and holding that Universal owed Crum Motor Sales a duty to defend it against Martin

County Coal’s counterclaim in Kentucky state court based on the 1997 indemnification

agreement. We have allowed parties to bring protective cross-appeals to be considered

in the event that the appellant, here Martin County Coal, succeeds in its own appeal.

Rice v. Ohio Dep’t of Transp., 14 F.3d 1133 (6th Cir. 1994); Avery Prods. Corp. v.

Morgan Adhesives Co., 496 F.2d 254 (6th Cir. 1974). As we have said, “[a] protective

cross-appeal differs from a cross-appeal because the protective cross-appellant is not

necessarily dissatisfied with the judgment. Appellate courts generally allow protective

cross-appeals but do not consider them unless it is appropriate to do so after the

disposition of the appeal.” Anderson v. Roberson, 90 F. App’x 886, 888 (6th Cir.

Nos. 11-5773/5793 Martin Cnty. Coal Corp. v. Univ.Underwriters Ins. Co. Page 14

2004)(unpublished) (internal quotations and citations omitted) (quoting Hartman v.

Duffey, 19 F.3d 1459, 1465 (D.C. Cir. 1994)).

Here, because we affirm the district court’s June 1, 2011 order, and agree that

Crum Motor Sales was not actually liable to Martin County Coal so that Universal had

no duty to indemnify Martin County Coal standing in the shoes of Crum Motor Sales,

we need not address Universal’s protective cross appeal of the district court’s January

4, 2010 order concluding that Universal breached its duty to defend Crum Motor Sales.

For the foregoing reasons, we AFFIRM the district court’s judgment.

Nos. 11-5773/5793 Martin Cnty. Coal Corp. v. Univ.Underwriters Ins. Co. Page 15

________________

DISSENT

________________

ROGERS, J., Circuit Judge, dissenting. This case involves a contractor’s

agreement with a mine operator to indemnify for, and obtain insurance covering, injury

to the contractor’s employees while on the mine operator’s land. A terrible accident

resulting from a regulatory violation by the mine operator gravely injured an employee

of the contractor. The employee has been compensated with $3.6 million from the mine

operator. The contractor, it turns out, had complied with its contractual obligation and

obtained the insurance. The issue on appeal is whether the mining company, having paid

the compensation, can ultimately recover over on the insurance that it successfully

required the contractor to obtain. There is nothing in Kentucky public policy that

prohibits such an indemnity resulting from a contract between two employers, where the

arrangement could in no way have led to the employee’s not recovering. This is not a

case where the mine contractually required the employee to bear the risk as a condition

of employment, in which case there might have been no recovery absent a public policy

against such a contract. To extend this public policy to invalidate contracts requiring

that other parties obtain insurance is not consistent with the very idea that entities can

obtain insurance covering liability for their own negligence. The winner on this appeal

is not the small company that faithfully obtained the insurance that it contracted to

obtain, but the insurance company that will not have to pay for losses that it accepted

premiums to cover. I therefore respectfully dissent.

For the reasons given by the district court, Universal owed Crum Motor Sales a

contractual duty to defend, which it breached. Moreover, I agree with the majority that

Universal should not have to pay if Crum Motor Sales had no obligation to indemnify

Martin County Coal. Under Kentucky law and the facts of this case, however, Crum

Motor Sales did have such an obligation.

Kentucky law generally counsels against invalidating contracts. It is true that an

agreement that exempts a party from liability for future negligence is “disfavored and

Nos. 11-5773/5793 Martin Cnty. Coal Corp. v. Univ.Underwriters Ins. Co. Page 16

. . . strictly construed against the [party] relying upon [it].” Hargis v. Baize, 168 S.W.3d

36, 47 (Ky. 2005); see also Cumberland Valley Contractors, Inc. v. Bell Cnty. Coal

Corp., 238 S.W.3d 644, 650 (Ky. 2007). Such contracts must be unmistakably clear as

to the liabilities released and assumed, and the contract may be relied upon only for

harms that were “clearly within the contemplation of the [parties].” Hargis, 168 S.W.3d

at 47.

But there is of course no contract in this case that exempts Martin County Coal

from liability. The injured employee received $3.6 million and the resolution of this

appeal in no way affects that payment one way or another. The plaintiff in Hargis was

an individual, although to be sure he was an independent contractor for workers’

compensation purposes. The release in Hargis made clear that the lumber company that

caused his injury was forever held harmless for any bodily injury sustained by an

individual worker. Id. at 46-47. This is a classic exemption from liability and precisely

the type of pre-injury release that courts often invalidate as against public policy.

Indeed, the commentary to the Restatement (Second) of Torts, § 496B, relied upon by

Hargis, 168 S.W.2d at 47, states:

Where the defendant and the plaintiff are employer and employee, and

the agreement relates to injury to the employee in the course of his

employment, the courts are generally agreed that it will not be given

effect. The basis for such a result usually is stated to be the disparity in

bargaining power and the economic necessity which forces the employee

to accept the employer’s terms, with the general policy of the law which

protects him against the employer’s negligence and against unreasonable

contracts of employment.

Restatement (Second) of Torts § 496B cmt.f (1965). It was a small jump for the

Kentucky Supreme Court to extend this widely accepted public policy doctrine to

individuals who work for employers but who are technically independent contractors.

In each case, without the public policy exception there would be no recovery for the

negligence—an untoward result.

This public policy does not logically extend to prohibiting an employer from

obtaining insurance to cover its liability for negligence. That would be an absurd

Nos. 11-5773/5793 Martin Cnty. Coal Corp. v. Univ.Underwriters Ins. Co. Page 17

reading of Hargis. Indeed, public policy arguably supports obtaining insurance, so that

injured workers get compensation. The coal mining company in this case insisted that

a contracting company obtain insurance so as to indemnify the mining company for the

compensation that it must pay to the individual. This is a commercial transaction

designed to shift the cost of insurance, not a release to avoid compensation to the injured

worker. Particularly in this case, where the contractor was able to obtain the insurance

as part of its cost of doing business, it makes no sense to say that public policy protects

the contractor’s insurance company from liability.

This reasoning is supported a fortiori by the Kentucky Supreme Court’s later

case of Cumberland Valley Contractors, Inc. v. Bell County Coal Corp., 238 S.W.3d 644

(Ky. 2007). That case involved economic harm resulting to a mine operator from the

landowner’s violation of a safety regulation. The court upheld as valid an exculpatory

clause in the mining contract. The case in other words involved no liability to the

injured party, not who was going to have to pay or who was going to have to obtain

insurance. The court still held that the exculpatory clause was enforceable. To

invalidate a contractual provision, the court required a major disparity in bargaining

power. The court distinguished the situation in Hargis where “[t]he plaintiff’s decedent

was an individual truck driver who worked as an independent contractor with the

defendant owner of several sawmills,” from that in Cumberland Valley, in which

“sophisticated corporate entities negotiated the allocation of a jointly shared risk,” and

neither party “was compelled to enter into [a contract] to obtain a necessity, such as

medical care or personal employment.” Id. at 653. I do not assume that a family-run,

rural business is of necessity one that must be viewed as unsophisticated, but even if so,

Crum Motor Sales was clearly not an individual and there was no necessity such as

“medical care or personal employment.” Thus even if the contractual provision in this

case could be described as an exculpatory clause, which it could not, the instant case

appears much closer to Cumberland Valley than to Hargis.

But the contract was not an “exculpatory clause.” It was an insurance obligation

clause, not exculpating the coal operator, but agreeing to obtain insurance to indemnify

Nos. 11-5773/5793 Martin Cnty. Coal Corp. v. Univ.Underwriters Ins. Co. Page 18

him. And despite any asserted lack of sophistication, Crum Motor Sales was able to

obtain the required insurance from Universal, an entity that in turn certainly does not

lack in sophistication.

The later decision of the Court of Appeals of Kentucky in Speedway

Superamerica, LLC v. Erwin, 250 S.W.3d 339 (Ky. Ct. App. 2008), is like Hargis and

similarly does not support Universal. The court in Speedway invalidated an

indemnification provision signed by a 55-year-old man with an eighth grade education

who was injured at work. Id. at 340. The court said the provision was analytically

indistinguishable from an exculpatory, pre-injury release. Id. at 341. As in Hargis, but

unlike in the instant case, validating the contractual provision would have precluded

recovery by the injured individual.

There is little harm to the public where these risks are adequately insured against.

Here, Crum Motor Sales was required to provide the insurance for mine-site accidents

befalling its own employees, and Crum Motor Sales did indeed procure such insurance.

A fair resolution of this case would require Universal to accept responsibility under its

policy, and public policy certainly does not preclude it. I would reverse and remand.

Finally, I would dismiss the cross-appeal for lack of appellate jurisdiction.

Parties may not cross-appeal judgments where they seek no change to the judgment

appealed from. See Wheeler v. City of Lansing, 660 F.3d 931, 939–40 (6th Cir. 2011).

Counsel for Universal may of course defend their favorable judgment on grounds

rejected by the district court, but they are not entitled under the appellate rules to file an

extra brief to do so. Treating Universal’s arguments on cross-appeal as arguments

supporting affirmance on grounds rejected by the district court, I would reject those

arguments for the reasons given by the district court.