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IN John Caruso v. OMNI Hotels Management Corporation, d/b/a OMNI Hotel, Ultimate Parking, LLCno. 21-1745, United States Court of Appeals, First Circuit (March 2, 2023) The First Circuit decided, citing insurance law, an indemnity agreement between a hotel and its valet operator, following a suit for damages for a trip and fall.
FACTS
While staying at the Omni Hotel in Providence, Rhode Island, John Caruso was injured when he tripped and fell on the curb that separates the hotel’s valet driveway from its main entrance. Caruso sued both the hotel’s valet operator and the hotel’s owner, Omni Hotels Management Corp. (“Omni”), and blamed their accident on their allegedly negligent maintenance of the premises and the allegedly dangerous driveway edge. After the valet operator, Ultimate, settled the case with Caruso for itself and Omni, Omni sought indemnification from Ultimate for its attorneys’ fees.
The district court granted summary judgment for Ultimate on Omni’s cross-claim for damages, finding that neither the parties’ contractual agreement nor Rhode Island common law entitled Omni to such relief.
Caruso’s accident occurred in May 2016, and his lawsuit alleged that Ultimate had “negligently parked the vehicle within and up against the boundary of the service circle,” thereby causing or contributing to his “trip and fall and serious personal injury.”
Ultimate operates the hotel’s valet and parking services pursuant to a contract with Omni that includes provisions in which the two companies agreed to defend and indemnify each other under certain circumstances.
Both defendants moved for summary judgment on Caruso’s claims, but the district court denied the motions on the grounds that a trier of fact needed to determine “whether either or both [d]efendants were negligent and if any negligence was a proximate cause of [p]the plaintiff’s damages.”
The district court’s compensation decision
The district court ruled that the contractual exclusion for a “claim [that] “arising out of” Omni’s negligence, willful acts, or misconduct” was triggered by Caruso’s claim that Omni’s negligence contributed to his fall and injuries. The court also dismissed Omni’s common law damages claim.
ANALYSIS
Omni challenged the district court’s damages award and the court’s earlier denial of its motion for summary judgment regarding Caruso’s negligence claim. Omni further argued that although it is not entitled to contractual relief, customary damages apply here because “Caruso alleges[ed] active negligence on Ultimate’s part and only passive negligence at Omni’s.”
Rhode Island courts have long treated tort provisions as “valid if sufficiently specific,” but have said that such provisions “must be construed strictly against the party asserting a contractual right to relief.”
“Arises from” vs “caused by”
The district court rejected Omni’s argument that a judicial finding of negligence on Omni’s part is required before indemnification is excluded.
The First Circuit disagreed that Rhode Island law makes the distinction in terminology relied upon by the district court. Rhode Island cases reveal that state courts would view “arising from” used in the concession agreement as largely synonymous with “caused by.”
The notion that “arising out of” can be used synonymously with “caused by” is also reflected in cases dealing with indemnification provisions in insurance – another context where one party (the insurer) is usually charged with the duty to defend and indemnify the other party (the insured) based on an underlying negligence claim.
The expression “arises from” indicates a wider spectrum of causation than the concept of proximate causation in tort law. But such variations in the breadth of causation do not matter in this case, where the debate is about the need for a finding of negligence versus allegations of negligence. The First Circuit held that the Rhode Island Supreme Court should treat the concession agreement’s reference to an injury “arising out of” a negligent act no differently than a provision referring to an injury “caused by” a negligent act. “Arises from” in the relevant phrase in the Concession Agreement has substantially the same meaning as “caused by.”
The compensation obligation
It would not make sense for the Concession Agreement to relieve Ultimate of its contractual liability for its own actions based on third-party allegations against Omni that are, in fact, worthless. The concept of compensation is based on the theory that the person who has been exposed to liability solely as a result of another’s wrongful act should be able to recover from that party.
Only the tortfeasor’s “sole negligence” would preclude indemnification.
In a business contract, “the agreement to defend and indemnify . . . is secondary to the principal purpose of the contract.” The pleadings’ test for insurance coverage also recognizes the unequal bargaining power that often exists in that context, another contrast to commercial agreements entered into between two business entities.
Ultimate’s obligation to indemnify Omni for “expenses and judgments of all kinds”—except for claims involving Omni’s own negligence—specifically refers to the obligation to retain counsel and provide a defense. The obligation to indemnify Omni is suspended only if Omni actually bears some responsibility for the third party’s alleged damage – a finding that has not been made so far in the dispute.
Ultimate waived any argument against Omni’s theory that it is entitled to indemnification because no fact finder could attribute Caruso’s case to the negligence of Omni.
The First Circuit granted summary judgment for Ultimate on Omni’s contractual cross-claim for indemnification and remanded the case to the district court with instructions to enter judgment for Omni on that claim following such procedure as the court deems appropriate to determine the amount owed to Omni.
Like an insurance promise to indemnify, the agreement between Ultimate and Omni contained a promise by Ultimate to indemnify Omni if its actions resulted in Omni being sued. Because Omni did nothing to cause Caruso’s injury, it was entitled to relief regardless of the fact that Caruso alleged, but did not adduce evidence to prove, that Omni was negligent or contributed to his injury. The use of the language “arises from” was logically found to be synonymous with “caused by” and Ultimate (or its insurer) was obligated to defend and indemnify Omni.
(c) 2023 Barry Zalma & ClaimSchool, Inc.
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Barry Zalma, Esq., CFE, now limits his practice to serving as an insurance consultant specializing in insurance coverage, insurance claims management, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims attorney and more than 54 years in the insurance industry. He can be reached at http://www.zalma.com and zalma@zalma.com
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