Understanding the equitable remedies of contribution and indemnity in construction law
Vol. 77, No. 1 / Jan. - Feb. 2021
Robert T. Plunkert
Robert T. Plunkert is a 2009 graduate of Saint Louis University School of Law and the managing principal of Pitzer Snodgrass, P.C., in St. Louis. Nicholas P. Meriage, a 2013 graduate of University of Missouri – Columbia School of Law, is principal attorney at Pitzer Snodgrass, P.C. and contributed to this article. The author specially thanks Gary E. Snodgrass for continuing to discuss and challenge misconceptions of contribution and indemnity.
In construction litigation, understanding third-party practice is vital to the practitioner. When a project goes wrong, it is important to determine from whom your client can recover, and who can recover from your client. Interestingly, this line of case law is not as straightforward as one might expect. This article will explore recurring issues surrounding contribution and indemnity under Missouri law.
Statutory Right to Contribution Among Joint Tortfeasors
Missouri common law, derived from Anglo-American common law, did not initially recognize a right of contribution between tortfeasors2 as a result of “the principle embodied in the maxim ex turpi causa non oritur actio (out of an immoral or illegal consideration an action does not arise).”3 The underlying assumption was by relieving a person committing a tortious act from full responsibility, courts would encourage these acts.4 In 1855, Missouri “relaxed the common law ban on contribution in tort actions” by statute.5 The statute, currently codified as § 537.060, RSMo (2016),6 states, inter alia:
Contribution between tort-feasors--release of one or more, effect. Defendants in a judgment founded on an action for the redress of a private wrong shall be subject to contribution, and all other consequences of such judgment, in the same manner and to the same extent as defendants in a judgment in an action founded on contract.7
In Missouri Pac. R. Co. v. Whitehead & Kales Co., the Supreme Court of Missouri “reconstruct[ed]” the contribution doctrine in light of the “economic and commercial environment vastly apart from the quiescent era of the 1850s.”8 The Missouri Pac. Court set aside the previous distinction between “active” and “passive” negligence and held joint tort liability should be assessed based on relative fault, regardless of whether defendants were named by the plaintiff directly.9 “Negligence is negligence,” but the statute does not appear to have altered the common law prohibition against contribution among intentional tortfeasors.10
Missouri’s statutory recognition of contribution among tortfeasors represented a change in public policy “‘to avoid the injustices flowing from adherence to the rule of no contribution,’”11 which would potentially entail one tortfeasor escaping liability altogether while another takes on the full responsibility of a plaintiff’s loss.
Equitable Contribution Among Joint Debtors
Though legislation was necessary to change the way courts treated contribution among tortfeasors, the common law has historically allowed a debtor to receive contribution from a co-debtor.12 This can be traced to the equitable roots of contribution itself, as “[t]he doctrine of contribution is not founded on contract, but is based on the principle that equality of burden as to a common right is equity, and that wherever there is a common right the burden is also common.”13 Notice § 537.060 refers to “an action founded on contract.”14 An explanation for this is “. . . the courts recognized this equitable obligation between parties as ground for holding that there was an implied contract between them to pay their share and ruled that the right of contribution might be enforced by the action of assumpsit.”15
Section 537.060 and Missouri Pacific did not extinguish the cause of action for equitable contribution, “but simply created concurrent jurisdiction in both law and equity for contribution claims . . . Any subsequent legal remedy created by statute or devised by courts under the legal theory of an implied contract is additional to the original equitable remedy and does not preclude it.”16 Therefore, it is by operation of common law that contribution claims “between co-debtors may be brought as either an equitable or a legal action.”17 In sum, the doctrine of contribution in equity is to be applied “when one is compelled to pay more than his share of a common obligation that several persons are obligated to discharge.”18
Apportioning Responsibility by Contribution or Comparative Fault Among a Tortfeasor and a Party in Breach of Contract
The U.S. District Court for the Western District of Missouri has refused to allow a contribution action for a breach of contract claim.19 Other jurisdictions have held similarly.20
The Supreme Court of Missouri adoption of the Uniform Comparative Fault Act in Gustafson v. Benda lends insight to this interpretation.21 The Uniform Comparative Fault Act’s definition of “fault” is:
(c) “Fault” includes acts or omissions that are in any measure negligent or reckless toward the person or property of the actor or others, or that subject a person to strict tort liability. The term also includes breach of warranty, unreasonable assumption of risk not constituting and enforceable express consent, measure of a product for which the defendant otherwise would be liable, and unreasonable failure to avoid an injury or to mitigate damages. Legal requirements of causal relation apply both to fault as the basis for liability and to contributory fault.22
“It is well settled that contributory negligence is no defense to a breach of contract action[,]” though it is relevant when the mitigation of damages is at issue.23 Gustafson and the Uniform Comparative Fault Act support this “apples and oranges” approach regarding contribution among a tortfeasors and a party in breach of contract, as the coverage of comparative fault is not intended to apply to “actions that are fully contractual in their gravamen and in which the plaintiff is suing solely because he did not recover what he contracted to receive.”24 After all, a contractual obligation may be the source of a duty, and the failure to perform that obligation may not necessarily be an independent tort in the absence of the contract.25
The interpretation of § 537.060 supports the argument that common law’s prohibition of applying contribution to a tortfeasor has not been changed by statute where the parties are a mix of tortfeasors and “breachers” of contract, as there is no joint tortfeasor.26 However, the public policy behind § 537.060 may support a more expansive view with respect to equitable apportionment among defendants when theories of liability may, for at least one defendant, leave the realm of torts.
“‘Indemnity’ is the shifting of responsibility from one party to another.”27 The Missouri Court of Appeals has summarized: “If the plaintiff seeks reimbursement from the defendant for amounts the plaintiff paid in discharging a liability to a third party, the claim is for ‘indemnity,’ irrespective of whether the plaintiff calls it something else.”28
Express Contractual Indemnity
Traditionally, the elements of a breach of contract action are (1) contract formation; (2) plaintiff performance; (3) breach by the defendant; and (4) damages.29 “The rules applicable to the construction of contracts apply generally to indemnification agreements.”30 There are two kinds of indemnity contracts: those against loss and those against liability.31 As with any contract, special attention should be given to the terms.32
Implied Contractual Indemnity/Implied-in-Fact Indemnity
In American Nat. Property and Cas. Co. v. Ensz & Jester, P.C., the Missouri Court of Appeals explained:
Implied-in-fact contractual indemnity stems from the existence of a binding contract between two parties that necessarily implied the right of indemnification. 41 Am.Jur.2d Indemnity § 20 (2005). The party asserting such indemnity must show that the parties to the contract “intended the indemnitor to be responsible for the loss.” Developments in Indemnity Law, 79 Mass. L.Rev. at 53 (emphasis added). Thus, a claim of implied-in-fact indemnity asserts a contractual right to indemnity, even though no express contract for indemnity exists. Wells Dairy, 762 N.W.2d at 470.
Common Law Indemnity/Non-Contractual Indemnity/Equitable Indemnity
Under this theory, “the intention of the parties is irrelevant.”33 The law imposes indemnity due to the relationship of the parties.34 A party asserting equitable indemnity is not asserting that a contractual right to indemnity exists; rather such a party is asserting that, given the special nature of the case’s circumstances, equity demands that one party indemnify the other.35 However, under § 537.060, “noncontractual indemnity ” refers to indemnity “between joint tort-feasors culpably negligent, having no legal relationship to each other and does not include indemnity which comes about by reason of contract, or by reason of vicarious liability.” Noncontractual indemnity as defined in § 537.060 is dischargeable in the event of a good faith settlement pursuant to § 537.060.36
To establish a claim for traditional non-contractual indemnity, which is also referred to as common law indemnity or equitable indemnity, the plaintiff must show: (1) the discharge of an obligation by the plaintiff; (2) the obligation discharged by the plaintiff is identical and co-extensive to an obligation owed by the defendant; (3) the discharge of the obligation by the plaintiff is under such circumstances that the obligation should have been discharged by the defendant; and (4) defendant will be unjustly enriched if the defendant does not reimburse the plaintiff to the extent that the defendant’s liability has been discharged.37
A Court’s Inherent Equitable Power
The terms contribution and indemnity are often used interchangeably, but contribution “distributes the loss among the tortfeasors by requiring each to pay his proportionate share” where indemnity “shifts the entire loss from one tortfeasor who has been compelled to pay it to the shoulders of another who should bear it instead.”38 To further confuse the matter, contribution and indemnity are sometimes applied inconsistently between tortfeasors and parties allegedly in breach of contract. Muddying the waters of these distinct legal terms can lead to inconsistent results.
One Missouri decision appears to embrace the use of equity in adopting principles of apportionment based on fault instead of contract (whether in contract breach or tort).In City of St. Joseph v. Kaw Valley Tunneling, Inc., the Missouri Court of Appeals-Western District found Kaw Valley could be awarded indemnity from the city for a portion of the verdict for damages caused to a building during the construction of a sewer line.39 Kaw Valley contracted with the city to provide construction services for the repair and replacement of a sewer line.40 The city was responsible to ensure soil conditions were appropriate for the construction.41 When the owner’s building was damaged by soil subsidence, the owner successfully sued the city for negligence and Kaw Valley for breach of contract as a third-party beneficiary to the contract between the city and Kaw Valley.42 The damages awarded against Kaw Valley totaled $86,524.46, and the damages against the city totaled $30,450.00.43 Kaw Valley subsequently claimed the equitable remedy of implied indemnity from the city.44 In response, the city argued the duty to indemnify only exists when the duty discharged is identical to the duty owed and that the duty it owed was a duty in tort while Kaw Valley owed a contractual duty.45 The court held Kaw Valley was not entitled to indemnity from the city for the entire judgment against it; however, Kaw Valley was entitled to indemnity for damages proximately caused by the city’s negligence.46 The Kaw Valley Tunneling court stated:
While Kaw is contractually liable to Power Company for all damages ($86,524.46), Kaw’s payment of any of those damages caused by city’s negligence would indeed result in a discharge of city’s obligation to Power Company. Thus, Kaw is entitled to indemnity as to those damages proximately caused by city’s negligence because to that extent Kaw’s contractual duty and city’s tortious duty overlap and are identical. Kaw is not, however, entitled to indemnity for any damages beyond those which were caused by city’s negligence. Those damages are to be borne by Kaw Valley because of Kaw’s contractual duties. In other words, to the extent that Kaw Valley’s liability was based not on the city’s negligence, but on its broader contractual obligation to repair and replace, no right of indemnification should inure.47
The equitable use of indemnity seen in Kaw Valley Tunneling appears similar to the application of equitable contribution. Kaw Valley Tunneling could be interpreted narrowly and limited to fact patterns where a third-party beneficiary was damaged by the wrongdoing of parties to a contract – or it could be interpreted broadly to ensure any contract “breacher” answers for its share of the loss.
The import of Kaw Valley Tunneling has not been expanded, limited, or otherwise clarified to this extent. The practitioner should therefore be familiar with Kaw Valley Tunneling when representing a defendant in a breach of contract action. With the economic loss doctrine48 in mind, the separate methods of indemnity should be considered, including the court’s inherent equitable powers, when determining potential causes of action to raise against the third-party defendant.
The construction law practitioner frequently encounters the statutory right to contribution and contractual right to indemnity. However, understanding the nuances accompanying a court’s inherent equitable powers in contribution and indemnity can greatly assist the practitioner in representing clients with multiple parties responsible for a loss and determining the appropriate mechanism for obtaining relief to the fullest extent of the law.
1 Robert T. Plunkert is a 2009 graduate of Saint Louis University School of Law and the managing principal of Pitzer Snodgrass, P.C., in St. Louis.Nicholas P. Meriage, a 2013 graduate of University of Missouri – Columbia School of Law, is principal attorney at Pitzer Snodgrass, P.C. and contributed to this article. The author specially thanks Gary E. Snodgrass for continuing to discuss and challenge misconceptions of contribution and indemnity.
2 See Missouri Pac. R. Co. v. Whitehead & Kales Co., 566 S.W.2d 466, 469 (Mo. banc 1978) (liability on each tortfeasor to be made proportionate to its negligence); see also Gustafson v. Benda, 661 S.W.2d 11, 15 (Mo. banc 1983) (adopting comparative fault); Gramex Corp. v. Green Supply, Inc., 89 S.W.3d 432, 440 (Mo. banc 2002).
3 Missouri Pac., 566 S.W.2d at 469 (citing Merryweather v. Nixan, 8 D. & E. 186, 101 Eng. Rep. 1337 (K.B. 1799)).
4 Hammons v. Ehney, 924 S.W.2d 843, 847 (Mo banc. 1996) (citing Missouri Pac., 566 S.W.2d at 268, 473).
5 Missouri Pac., 566 S.W.2d. at 473.
6 All statutory citations are to RSMo 2016, unless otherwise noted.
7 See Missouri Pac., 566 S.W.2d at 473.
9 Id. at 474.
10 Id. at 472. Common law did not recognize contribution among intentional joint tortfeasors. See id. at 469; see also Porter v. Crawford & Co., 611 S.W.2d 265, 273 (Mo. App. W.D. 1980) (citing Missouri Pac., 566 S.W.2d at 469); Callahan v. Cardinal Glennon Children’s Hosp., 901 S.W.2d 270, 273 (Mo. App. E.D. 1995) (further statutory history).
11 Missouri Pac., 566 S.W.2d at 472 (citing Julius M. Friedrich, The Joint Tort-Feasor in Missouri, 25 Wash. U.L.Q. 572, 573 (1940)).
12 Hammons, 924 S.W.2d at 847 (citing Missouri Pac., 566 S.W.2d at 268, 473).
13 Mo. Dist. Tel. Co. v. Sw. Bell Tel. Co., 93 S.W.2d at 23 (internal citation omitted).
14 See Ch. 51, Section 8, RSMo (1855) (described as “[c]ontribution allowed defendants in actions for the redress of private wrongs,” stating, “Defendants in a judgment founded on an action for the redress of a private wrong, shall be subject to contribution and all other consequences of such judgment, in the same manner and to the same extent as defendants in a judgment in an action founded on contract.”).
15 Mo. Dist. Tel. Co. v. Sw. Bell Tel. Co., 93 S.W.2d 19, 28 (Mo. banc 1936) Id. at 714 (J. Gantt, concurring) (internal citation omitted).
16 Hammons, 924 S.W.2d at 847–48.
17 Id. at 847.
18 Tindall v. Holder, 892 S.W.2d 314, 323 (Mo. App. S.D. 1994).
19 Tiffany Indus., Inc. v. Harbor Ins. Co., 536 F. Supp. 432, 434 (W.D. Mo. 1982); see also Missouri Pac. R. Co. v. Whitehead & Kales Co., 566 S.W.2d 466, 468 (Mo. banc 1978) (“It should be borne in mind that the right to non-contractual indemnity presupposes actionable negligence of both parties toward a third party.”).
20 See, e.g., Mortg. Contracting Servs., LLC v. J & S Prop. Servs. LLC, No. 8:17-cv-1566-T-36CPT, 2018 U.S. Dist. LEXIS 109967, at *20 (M.D. Fla. July 2, 2018) (“Accordingly, MCS cannot maintain a claim for contribution for the breach of contract claim in the Underlying Lawsuit because the breach of contract claim is not a tort claim.”); Wells Fargo Fin. Leasing, Inc. v. Tulley Auto. Grp., Inc., No. 16-cv-218-LM, 2017 U.S. Dist. LEXIS 141624, at *10 (D.N.H. Sep. 1, 2017) (finding no support from New Hampshire or New Jersey law recognizing contribution for a breach of contract action); Maxwell v. Phillips, No. 1:06CV00510, 2007 U.S. Dist. LEXIS 54013, 2007 WL 2156337, at *8 (M.D.N.C. July 25, 2007) (citing Holland v. Edgerton, 355 S.E.2d 514, 517 (N.C. Ct. App. 1987) (“a defendant is not entitled to contribution for a claim against him in contract.”)); Wagner-Meinert, Inc. v. EDA Controls Corp., No. 06-3777, 2007 U.S. App. LEXIS 4879, 2007 WL 579668, at *3 (6th Cir. 2007) (“‘contribution’ for breach of contract does not come within the coverage of Ohio’s contribution statute, as the District Court found, nor does the claim attempt to state how any ‘common [tort] liability’ should be apportioned.”); Bd. of Educ. v. Sargent, Webster, 517 N.E.2d 1360, 1361 (N.Y. 1987); Pyramid Condo. Ass’n v. Morgan, 606 F. Supp. 592, 600 (D. Md. 1985); Best v. Yerkes, 77 N.W.2d 23, 27 (Iowa 1956).
21 661 S.W.2d 11, 20 (Mo. banc 1983).
23 A.G. Edwards & Sons, Inc. v. Drew, 978 S.W.2d 386, 391 (Mo. App. E.D. 1998).
24 Gustafson, 661 S.W.2d at 19 (quoting Unif. Comparative Fault Act § 1).
25 State ex rel. William Ranni Assocs., Inc. v. Hartenbach, 742 S.W.2d 134, 140 (Mo. banc 1987).
26 See Flenner v. Southwest M. R. Co., 290 S.W.78, 79 (Mo. App. 1926) (the earlier statute “by its own terms applies only after judgment has been rendered against two or more joint tort-feasors”); but see State ex rel. Green v. Kimberlin, 517. S.W.2d 124, 127 (Mo. banc 1974) (Mo. Sup. Ct. R. 52.11 does not require the third-party claims against the third-party defendant to be based on the same theory of recovery as the original plaintiff’s, but “[w]hat is required is merely that the claim asserted, if proved, would transfer the liability asserted against the defendant/third party plaintiff to the third-party defendant. . . .What is determinative is whether the facts set forth in the third-party petition constitute a basis for a theory by which the third-party defendant would be liable to the third-party plaintiff if such third-party plaintiff is found to be liable to the original plaintiff. If the liability of the third-party defendant is not dependent on the liability of the third-party plaintiff, the claim would not come within the provision or Rule 52.11.”)(internal citations omitted). Courts have cited to and relied upon the use of “tort-feasor” in the title when interpreting the whole statute. See Peltzman v. Beachner, 900 S.W.2d 677, 679 (Mo. App. W.D. 1995); see also Gurley v. Mo. Bd. Of Private Investigator Examiners, 361 S.W.3d 406 (413 (Mo. banc 2012) (“the title of a statute is necessarily a part thereof and is to be considered in construction. . .”). However, the initial act did not reference the term “joint-tortfeasor,” but merely to private wrongs. Ch. 51, Section 8, RSMo (1855). The Supreme Court of Missouri interpreted that statute in a matter regarding trespass as follows: “We think the statute is general in its nature, and applies to all judgments of this character.” Brewster v. Gauss, 37 Mo. 518, 519 (Mo. 1866). In any event, if the statute was not intended to be confined to apply to joint-tortfeasors only, then arguably it could have applied to a mix of tortfeasors and “breachers” of contract.
27 American Nat. Property and Cas. Co. v. Ensz & Jester, P.C., 358 S.W.3d 75, 81 (Mo. App. W.D. 2011) (internal citation omitted).
28 Id. (internal citations omitted).
29 Educap, Inc. v. Smith, 362 S.W.3d 451, 455–56 (Mo. App. S.D. 2012).
30 Burns & McDonnell Engineering Co., Inc. v. Torson Const. Co., Inc., 834 S.W.2d 755, 757–58 (Mo. App. W.D. 1992).
31 Id. (discussing difference between loss and liability, including intermixed clauses).
32 Certain promises to indemnify may violate public policy. See Section 434.100 (anti-indemnification statute); Purcell Tire & Rubber Co. v. Exec. Beechcraft, Inc., 59 S.W.3d 505, 510–11 (Mo. banc 2001) (provisions involving sophisticated parties); Alack v. Vic Tanny Intern. of Missouri, Inc., 923 S.W.2d 330, 337–38 (Mo. banc 1996) (provisions involving an unsophisticated party).
33 Id. at 84.
36 Id. at 85.
37 Beeler v. Martin, 306 S.W.3d 108, 111 (Mo. App. W.D. 2010).
38 Safeway Stores, Inc. v. City of Raytown, 633 S.W.2d 727, 729 n.3 (Mo. banc 1982).
39 660 S.W.2d 26, 28 (Mo. App. W.D. 1983).
42 Id. at 28–29.
43 Id. at 29.
44 Id. at 29–30.
45 Id. at 30.
46 Id. at 31.
47 Id. Note that the city conceded Kaw was “entitled to indemnity for any amounts Kaw would be required to pay to Power Company due to Kaw’s contractual duty which are the result of city’s negligence.”
48 See Autry Morlan Chevrolet, Cadillac, Inc. v. RJF Agencies, Inc., 332 S.W.3d 184, 192 (Mo. App. S.D. 2010), for a discussion of the economic loss doctrine.