“Caused by” is Synonymous with “Arises From"

Barry Zalma

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In John Caruso v. OMNI Hotels Management Corporation, d/b/a OMNI Hotel, Ultimate Parking, LLC, No. 21-1745, United States Court of Appeals, First Circuit (March 2, 2023) the First Circuit Resolved, with reference to insurance law, an indemnification agreement between a hotel and its valet operator, after 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”), blaming his accident on their allegedly negligent maintenance of the premises and the allegedly dangerous driveway curb. After the valet operator, Ultimate, settled the case with Caruso on behalf of itself and Omni, Omni sought indemnification from Ultimate for its attorney’s fees.

The district court granted summary judgment for Ultimate on Omni’s indemnification crossclaims, holding 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 suit alleged that Ultimate had “negligently parked vehicles within and up against the curbing of the valet circle” and thereby caused, or contributed to causing, him “to trip and fall and sustain serious personal injuries.”

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 in certain circumstances.

Both defendants moved for summary judgment on Caruso’s claims, but the district court denied the motions on the ground that a factfinder needed to decide “whether either or both [d]efendants were negligent and whether any negligence was a proximate cause of the [p]laintiff’s injuries.”

The District Court’s Indemnification Decision

The district court ruled that the contractual exclusion for a “claim [that] ‘arises from’ Omni’s negligence, intentional acts, or misconduct” was triggered by Caruso’s allegation that Omni’s negligence contributed to his fall and injuries. The court also rejected Omni’s common-law indemnification claim.

ANALYSIS

Omni challenged the district court’s indemnification rulings and the court’s earlier denial of its motion for summary judgment on Caruso’s negligence claims. Omni further claimed that, even if it is not entitled to contractual indemnification, common-law indemnification applies here because “Caruso alleg[ed] active negligence on Ultimate’s part and only passive negligence on Omni’s.”

Rhode Island courts have long treated indemnity provisions as “valid if sufficiently specific,” but have directed that such provisions “are to be ‘strictly construed against the party alleging a contractual right of indemnification.'”

“Arises from” vs. “Caused by”

The district court rejected Omni’s argument that a judicial determination of negligence on the part of Omni is required before indemnification is precluded.

The First Circuit disagreed that Rhode Island law draws the distinction in terminology on which the district court relied. Rhode Island cases reveal that the state’s courts would view “arising from” as used in the Concession Agreement as largely synonymous with “caused by.”

The view that “arising from” may be used synonymously with “caused by” also is reflected in cases addressing indemnification provisions in insurance policies – another context in which one party (the insurer) typically is assigned the obligation to defend and indemnify the other party (the insured) based on an underlying negligence claim.

The expression “arising out of” indicates a wider range of causation than the concept of proximate causation in tort law. But such variations in the breadth of causation play no role in this case, where the debate concerns the need for a finding of negligence versus allegations of negligence. The First Circuit opined that the Rhode Island Supreme Court would treat the Concession Agreement’s reference to an injury that “arises from” a negligent act no differently from a provision referring to an injury that is “caused by” a negligent act. “Arises from” in the pertinent phrase of the Concession Agreement carries materially the same meaning as “caused by.”

The Indemnification Obligation

It would make no sense for the Concession Agreement to excuse Ultimate from its contractual responsibility for its own actions based on third-party allegations against Omni that, as a factual matter, are meritless. The concept of indemnity is based upon the theory that one who has been exposed to liability solely as the result of a wrongful act of another should be able to recover from that party.

Only the indemnitee’s “sole negligence” would negate indemnification.

In a business contract, “the agreement to defend and indemnify . . . is incidental to the main purpose of the agreement.” The pleadings test for insurance coverage also recognizes the unequal bargaining power that often exists in that context, another contrast with commercial agreements executed between two business entities.

Ultimate’s obligation to indemnify Omni for “expenses and judgments of every kind whatsoever” – with the exception for claims involving Omni’s own negligence – and then refers specifically to the obligation to employ counsel and provide a defense. The commitment to indemnify Omni is negated only if Omni in fact bears some culpability for the third party’s alleged harm – a finding that to this point in the litigation has not been made.

Ultimate waived any argument against Omni’s theory that it is entitled to indemnification because no factfinder could attribute Caruso’s fall to negligence by Omni.

The First Circuit vacated the summary judgment for Ultimate on Omni’s contractual crossclaim for indemnification and remanded the case to the district court with instructions to enter judgment for Omni on that claim after whatever proceedings the court deems appropriate to determine the amount due to Omni.

ZALMA OPINION

Like an insurance policy’s promise to indemnify, the agreement between Ultimate and Omni contained a promise from Ultimate to indemnify Omni if its actions caused Omni to be sued. Since Omni did nothing to cause Caruso’s injury it was entitled to indemnification regardless of the fact that Caruso alleged, but did not produce evidence to prove, that Omni was negligent or contributed to his injury. The use of 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 service as an insurance consultant specializing in insurance coverage, insurance claims handling, 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 handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and [email protected]

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Barry Zalma, Esq., CFE, is available at http://www.zalma.com and [email protected]

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