65 J. Kan. Bar Assn. September, 36 (1996). EXPRESS COTRACTS OF INDEMNITY.

• Author: Richard J. Lind

Kansas Bar Journals

Volume 65.

65 J. Kan. Bar Assn. September, 36 (1996).

EXPRESS COTRACTS OF INDEMNITY

Journal of the Kansas Bar AssociationSeptember, 1996EXPRESS COTRACTS OF INDEMNITYRichard J. LindCopyright (c) 1996 by the Kansas Bar Association; Richard J. Lind

Introduction

There are two traditional situations in which claims of indemnity have been allowed in Kansas. The first occurs when there is an express contract of indemnity, such as a "hold harmless agreement." [FN1] Hold harmless agreements are contracts that typically contain exculpatory clauses in which one party agrees to hold the other without responsibility for damage or other liability arising out of the transaction involved. [FN2] The second type involves implied indemnity. A contract of indemnity may be implied when one is compelled to pay what another party ought to pay. This may arise in a case of implied or constructive liability when one personally without fault is made to pay for the tortious acts of another (e.g., liability of a principal in respondeat superior for the acts of an agent or employee). [FN3]

The scope of this article is limited to express contracts of indemnity, and shall exclude coverage of contracts of guaranty, insurance or suretyship. Its purpose is to provide the practitioner with a general overview of the Kansas case law on the subject, and the basic legal principles derived from this body of law.

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1. Early case law - The railroads

   Several early Kansas cases involving railroad companies are the genesis of the common law that formulated principles still used by Kansas courts in interpreting express contracts of indemnity. The facts of each case typically involve attempts made by the railroad companies to avoid liability by the use of exculpatory language in a written contract. The cases and contracts can both be divided into two categories: (i) exemption from liability for injuries to employees, [FN4] and (ii) exemption from liability for damage to property. [FN5] The Kansas Supreme Court found that the employee contracts violated the public policy of the state, and were therefore void and unenforceable, while the property contracts did not violate public policy and were determined to be valid.

   1. Exemption from liability for injuries to employees

      Prior to a statutory enactment in 1874, the common law of this state protected an employer from liability for an employee's injury caused by the negligence of a co-employee, with the exception of instances where the employer was found to have some degree of fault or negligence in the selection or retention of the co-employee. [FN6] In 1874, the state legislature changed the common law rule by the adoption of a statute [FN7] that made railroad companies liable for an injury to an employee caused by the negligence of a co-employee, without regard to the negligence of the company in selecting or retaining the co-employee. The railroad companies, however, attempted to avoid liability by requiring employees to enter into employment contracts that released the railroads from the statutorily imposed liability.

      In K. P. Rly. Co. v. Peavey, [FN8] an employee of the railroad company entered into a contract of employment that released the railroad company from "all liability and responsibility whatsoever on account of any and every personal injury which I may receive . . . by reason of any . . . negligent act . . . of any other employees of said company . . . " [FN9] During the course of employment, the employee had attempted to fasten together two railroad cars. An engineer of the railroad company, however, negligently moved a railroad car causing one of the employee's hands to become caught and mangled between the two railroad cars.

      Finding the employment contract to be void, the Kansas Supreme Court stated that "[W]e do not think a railroad company can contract in advance for the release of the statute liability. It is a familiar principle of law that a contract made in violation of the statute is void, and also that agreements contrary to the policy of statutes are equally void." [FN10] The underlying rationale of the court was that the state had such a significant interest in the physical well-being of its citizens, that the legislature had the power to enact statutes for their protection. [FN11] Therefore, the protection provided by the state for the safety of its citizens was considered a matter of public concern, [FN12] and it was held against public policy for the court to sanction contracts providing for the release of statutorily imposed liability, especially when the "unequal situation" of the employee and the employer was considered. [FN13] The court further considered the statute to be a state police power regulation, with its object being the good of the public as well as that of the employee. The court held that such a protection to the public could not be waived by the employee, and if in order to effectuate that object there had to be the enforced protection of the employee, then the employee must submit to such enforced protection for the public good. [FN14]

   2. Exemption from liability for damage to property

      The early Kansas case law made a distinction between a railroad's duty to the public and its freedom of contract in non-public operations. In Grain Co. v. Railway Co., [FN15] the grain company sued to recover for damage to its grain elevator that was caused by the negligent operation of the railroad's train. The railroad had leased to the grain company a portion of its right-of-way for the purpose of constructing a grain elevator. The lease contained an exculpatory clause which provided that:

      [L]essee should assume all risk of loss, damage, or destruction to the elevator buildings or contents from causes incident to or arising from the movement of locomotives, trains of cars, misplaced switches, or in any other respect from the operation of the railroad, whether the same resulted from negligence of the railway company or its employees. [FN16] The sole question in the case was whether the exculpatory provision of the lease exempting the railroad from liability was valid. The grain company sought to avoid the effect of the provision on the ground that it was against public policy and therefore invalid. The grain company argued that the "erection of elevators along its right-of-way is something which becomes necessary to every railway in order that it may furnish adequate facilities to the public . . . " [FN17]

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      The court rejected the argument of the grain company that the exculpatory clause was in violation of public policy. [FN18] The court acknowledged that although the public may have had an interest in a grain elevator being conveniently located within railroad right-of-way, it was of no public concern who should be responsible for the loss or damage to the property placed at that location. [FN19] The court further determined that "No one had the right to put a . . . building upon the land of the railroad . . . without its consent; and the railroad was under no obligation to the public . . . " to permit the grain company to do so. [FN20]

      Grain Co. and its progeny [FN21] are still good law in Kansas. [FN22] Railroads may therefore continue to rely upon exculpatory provisions contained within express contracts of indemnity when the public is not involved and the provisions neither violate a Kansas statute nor are contrary to public policy. [FN23]

2. Exemption from Liability for the Consequences of Negligence

   1. Contracts which do not violate public policy

      The principles established by the early railroad cases continue to be adhered to by Kansas courts and have found their way into more recent case law. For example, leases voluntarily entered into by parties standing on equal footing, which include exculpatory clauses for the exemption of liability for acts of negligence, have been enforced in this state when found not to be in violation of public policy. [FN24] In Talley v. Skelly Oil Co., [FN25] the plaintiff, Talley, operated a service station, having subleased the station from the defendant oil company. The printed lease form contained an exculpatory clause which stated:

      Lessee . . . agrees to indemnify, protect and save harmless Lessor . . . from any and all claims . . . for any loss, damage . . . to property . . . and to persons . . . in connection with Lessee's . . . use and occupancy of said premises . . . whether due to negligence of . . . Lessor . . . [FN26] Talley brought an action against the oil company and others to recover damages for personal injuries he suffered. The oil company argued that the exculpatory clause in its lease with Talley was a valid defense to Talley's claim. Talley maintained that the exculpatory clause was unenforceable and void as against public policy. The Kansas Supreme Court disagreed with Talley, holding instead that the exculpatory clause in the lease was enforceable between the private parties [FN27] because it was voluntarily entered into on equal footing, [FN28] and no public policy was violated since the clause did not contravene any Kansas statute. [FN29]

      In another case, Mid-America Sprayers, Inc. v. United States Fire Ins. Co., [FN30] the plaintiff (Mid-America) and thirdparty

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      defendant (Pratt & Whitney) executed a property rental agreement for the lease of an aircraft engine manufactured by Pratt & Whitney. The agreement of the parties contained an exculpatory provision that stated:

      Lessee [Mid-America]...