The United States District Court for the District of Massachusetts faced that question in 2010 and again in the Fall of last year. Both times the Court answered – No.
Federal courts have jurisdiction to decide disputes between parties of different states involving more than $75,000 in potential damages. In these “diversity of citizenship” actions, a federal court applies applicable state law to the dispute, and follows prior decisions of the state’s courts. If there are no controlling decisions, the federal court must predict what the state’s highest court would do under the facts of the case. In two such diversity cases, the United States District Court for the District of Massachusetts analyzed whether the Supreme Judicial Court would decide that it is against Massachusetts public policy for a party to be indemnified for its own gross negligence or reckless, willful or wanton conduct.
The first case involved the interpretation of indemnification provisions in a contract between CSX Transportation, Inc. (“CSX”) and the Massachusetts Bay Transportation Authority (“MBTA”). The agreement included broad indemnification provisions requiring the MBTA to indemnify CSX against liability arising out of injury to or death of any MBTA employee (including an employee of an MBTA contractor), irrespective of the negligence or fault of CSX. In 2003, Massachusetts Bay Commuter Railroad LLC (“MBCR”) was a MBTA contractor, responsible for operating the MBTA’s commuter rail services. In December of that year, a CSX freight train and struck and killed a MBCR employee while he was removing snow from the tracks during a storm. The employee’s estate brought a wrongful death lawsuit in Massachusetts state court against CSX and MBCR. CSX filed a federal district court lawsuit in Massachusetts seeking a declaration that pursuant to the agreement between CSX and the MBTA, the MBTA was required to indemnify CSX against any damages arising out of the wrongful death state court action. The MBTA countered that to the extent the accident and resulting damages were caused by CSX’s gross negligence, or reckless, willful or wanton conduct, it was against public policy to require the MBTA to indemnify CSX, regardless of the terms of the indemnity agreement. 1 .
Contracts that violate public policy are not enforceable. While the Massachusetts Appeals Court has held that it violates public policy to enforce an agreement which releases a person from his gross negligence, neither the Appeals Court nor Supreme Judicial Court has ruled on whether an agreement to indemnify a person against his own gross negligence is void because it violates Massachusetts public policy. In analyzing the Supreme Judicial Court’s comments and rulings in analogous cases, the Federal Court in the CSX case was convinced that the Supreme Judicial Court “would not enforce an indemnity agreement covering gross negligence.” 2 The CSX Court held that “it appears that Massachusetts courts will not enforce agreements releasing defendants from their own gross negligence and that is in effect what the indemnification here would do. Although CSX would still be liable in a technical sense, it would be saved from the true consequences of its gross negligence because the MBTA, rather than CSX, would be responsible for paying damages.” 3 The Court held that the indemnification provision was unenforceable under Massachusetts law to the extent it required the MBTA to indemnify CSX against grossly negligent, reckless, willful or wanton conduct. 4 .
The Massachusetts Federal District Court was again asked to interpret a broad indemnification clause against allegations of gross negligence. Richard Angelo was a member of USA Triathlon (“USAT”). As a condition of membership and to participating in USAT’s competitions, Mr. Angelo was required to execute a “Waiver and Release of Liability, Assumption of Risk and Indemnity Agreement”. In this agreement, Mr. Angelo agreed to indemnify USAT from any liability, claims and damages which arose out of his participation in USAT events, including claims caused by USAT’s own negligence. In 2012, while participating in a USAT triathlon, Mr. Angelo died during the swim portion of the competition. Mr. Angelo’s wife brought a wrongful death action against USAT alleging, among other things, gross negligence by USAT. While denying responsibility for Mr. Angelo’s death, USAT alleged that Mr. Angelo’s execution of the indemnity agreement obligated Mr. Angelo’s estate to indemnify USAT against the wrongful death claim. The Federal Court held that the indemnity agreement executed by Mr. Angelo was enforceable as to claims arising out of USAT’s ordinary negligence, but it was not enforceable as to any claims which may arise out of the gross negligence of USAT. Like the CSX Court, the Federal Court in Angelo v. USAT concluded that “Massachusetts courts would not enforce an indemnity provision insofar as it relieved a party from liability stemming from its own gross negligence.” 5 .
Broad indemnification clauses are common in construction contracts. Depending on the terms, indemnification could require a contractor or subcontractor to pay all damages incurred by another party because of their negligent conduct, even where the contractor or subcontractor is less at fault. Massachusetts courts have consistently upheld one-sided indemnification provisions on the theory that parties to a contract are free to assign the risk of liability among themselves. Indemnification terms in subcontracts are governed by G.L. c. 149, §29C. The statute prohibits contract provisions which require a subcontractor to indemnify anyone for personal injury or property damage not caused by that subcontractor. Indeed, such clauses are void and unenforceable under the law. Massachusetts courts, however, have defined “caused” very broadly to include any loss or damage arising out of the subcontractor’s work, thus limiting protection for subcontractors under G.L. c. 149, §29C.
The Massachusetts Federal District Court has on two occasions opined that indemnification terms which include claims arising out of grossly negligent conduct of the party seeking indemnity would be found in violation of Massachusetts public policy and thus not enforceable. It is unclear whether the Massachusetts Supreme Judicial Court would rule as the Federal District Court has predicted, including in a construction dispute involving a prime contractor’s contractual indemnity, or a subcontract indemnification clause which is otherwise governed by G.L. c. 149, §29C. In light of the Federal District Court rulings, however, an overly broad indemnification in a construction contract or subcontract may one day face judicial scrutiny in the form of public policy considerations in a case involving gross negligence or reckless, willful or wanton conduct. © 2015 .
Carolyn M. Francisco, Esquire
[email protected]
John M. Curran, Esquire
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Corwin & Corwin LLP
600 Unicorn Park Drive
Woburn, MA 01801
(617) 742-3420
www.corwinlaw.com.
1 “Negligence, without qualification and in its ordinary sense, is the failure of a responsible person, either by omission or by action, to exercise that degree of care, vigilance and forethought which, in the discharge of the duty then resting on him, the person of ordinary caution and prudence ought to exercise under the particular circumstances… Gross negligence is substantially and appreciably higher in magnitude than ordinary negligence. It is materially more want of care than constitutes simple inadvertence. It is an act or omission respecting legal duty of an aggravated character as distinguished from a mere failure to exercise ordinary care. It is very great negligence, or the absence of slight diligence, or the want of even scant care…” Altman v. Aronson, 231 Mass. 588, 591-592 (1919).
2 CSX Transportation, Inc. v. Massachusetts Bay Transportation Authority, 697 F. Supp. 2d 213, 227 (2010).
3 CSX Transportation, 697 F. Supp. 2d at 227-228 (2010). The Court also found that enforcing the indemnification provision would undermine the Massachusetts wrongful death statute under which punitive damages are awarded if the decedent’s death was caused by the gross negligence or malicious, willful, wanton or reckless conduct of the defendant. The statute aims to deter and punish such conduct. The goals of the statute would be undermined if a party could shift the costs of its own gross negligence to another through an indemnification agreement.
4 CSX Transportation, 697 F. Supp. 2d at 229 (2010). Although the agreement was freely bargained for by sophisticated parties, the Court held that “[e]ven sophisticated parties cannot contract around public policy.” Id..
5 Cheryl Angelo, Personal Representative of the Estate of Richard Angelo v. USA Triathlon, USDC No. 13-12177-LTS (September 18, 2014); Slip Op., 2014 WL 4716195.