Nova Research, Inc. v. Penske Truck Leasing Co.

Dissenting Opinion by BATTAGLIA, J., which BELL, C.J. and GREENE, J. join. I respectfully dissent. ⁴⁶² In the present case, the Circuit Court for Prince George’s County found that, although Nova Research, Inc., (“Nova”) breached the terms of a rental agreement and must indemnify Penske Truck Leasing, LLP, (“Penske”) for “any claims arising out of said loss,” that Nova is not responsible for attorney’s fees that Penske incurred while establishing the right to indemnity, under the American Rule. 1 Penske appealed to the Court of Special Appeals, arguing, in part, that cases involving attorneys fees under contracts of indemnity are one of the exceptions to the American Rule and that court, in an unreported opinion, agreed with Penske that it was entitled to reasonable attorney’s fees. Although the majority agrees with the Circuit Court’s rationale, I agree with that portion of the unreported opinion of the Court of Special Appeals authored by Judge Sally E. Adkins, then writing for that court, which, relative to the question at bar, stated: The principle underlying the “contract exception” to the American Rule regarding attorney’s fees is that, “when the defendant has breached a specific [contractual] duty to protect the plaintiff from litigation expenses, the defendant is necessarily liable for those expenses, including attorney’s fees.” 1 Dan B. Dobbs, Dobbs Law of Remedies § 3.10(3), at 401 (2d ed. 1993). In appropriate cases, the plaintiff may recover for expenses incurred in litigating with third parties or the indemnitor.

See id.; Jones v. Calvin B. Taylor Banking Co., 253 Md. 430, 441-42 [ 253 A.2d 742 ] (1969) (bank could recover fees incurred to litigate claim against bankrupt debtor, from officers of debtor who indemnified bank against loss arising from dealings with debtor). In determining whether the defendant has agreed to accept the financial burden of the plaintiffs litigation expenses, explicit language stating that the duty to indemnify encompasses attorney’s fees is helpful, but not essential. See Dobbs, supra, at 402; cf., e.g., Overmyer v. Lawyers Title ⁴⁶³ Ins. Corp., 32 Md.App. 177, 187 [ 359 A.2d 260 ] (1976) (agreement stated that the “ ‘hold harmless’ proviso embraced ... attorney’s fees”), cert. denied, 278 Md. 730 (1976), cert. denied, 429 U.S. 1123 , 97 S.Ct. 1159 [ 51 L.Ed.2d 573 ] (1977).

Due to the inherent nature of such agreements, indemnity and hold harmless clauses are typically construed as an undertaking to pay attorney’s fees. In Jones v. Calvin B. Taylor Banking Co., 253 Md. at 411 [441]-42 [ 253 A.2d 742 ], the Court of Appeals recognized that, “ ‘[a]s a general rule, and unless the indemnity contract provides otherwise, an indemnitee is entitled to recover, as part of the damages, reasonable attorneys’ fees[.]’ ” (Emphasis added and citation omitted.) Similarly, in Atlantic Contracting & Material Co. v. Ulico Cas. Co., 389[380] Md. 285, 302[, 844 A.2d 460 ] (2003[2004]), an indemnity contract providing that the covered “Loss” included “all damages, costs, charges, and expenses of any kind, sustained ... as a result of ... the enforcement of this agreement” was construed to cover attorney’s fees. 2 See generally 42 C.J.S. Indemnity 20 (“As a general rule, an indemnitee is entitled to recover, as a part of the damages, reasonable attorney fees, and reasonable and proper legal costs and expenses, even though not expressly mentioned[.]”). There are sound policy and practice reasons for interpreting an indemnity agreement to cover attorney’s fees, even with ⁴⁶⁴ out explicit mention of such fees.

At its essence, an agreement to indemnify means that one of the parties will protect the other from litigation costs or claims brought by third persons as well as from claims between themselves. That is, A contracts to indemnify B and to hold B harmless in the event of claims arising out of their contract. If B permits A to use B’s premises, B wants protection against liability arising out of that use, so B gives permission only if A agrees to indemnify B for any expenses incurred. The same indemnity right might be implied in fact or imposed by law, but when it is established by contract, the contract controls, so that attorney fees are awarded under such contracts with no difficulty.

Dobbs, supra, at 403 (footnote omitted). Here, we have a similar scenario. Penske agreed to let Nova use its tractor-trailer in exchange for Nova’s promise to indemnify and hold Penske harmless against any and all “loss, liability, and expense” occurring “as a result of bodily injury, death or property damage caused by or arising out of the ownership, maintenance, use or operation of Vehicle.” In addition, Nova promised to restrict its use of the tractor-trailer to “regular employees” and intrastate travel, and to indemnify Penske for expense[s] caused or arising out of [Nova’s] failure to comply with the[se] terms[.]” In the first appeal, we recognized that, as a result of the fatal accident, Nova, Fireman’s, and Penske litigated in Texas over who would be responsible for tort claims made by the Haley family. Specifically, Penske was hauled into a Texas court to defend itself against Fireman’s suit for declaratory judgment that Penske was obligated, under the supplemental insurance terms in the rental agreements, to provide $500,000 of primary insurance coverage to Nova and Fireman’s, and that neither Nova nor Fireman’s had “any duty to indemnify Penske for a judgment, if any, or defend in any lawsuit, related to this claim[.]” Penske’s defenses to that claim were that Nova’s material breach of the rental agreements negated any coverage duty ⁴⁶⁵ it might have had to Nova, and that Nova and Fireman’s 3 are obligated to indemnify Penske against the costs of having to mount such a defense.

Instead of pursuing these defenses in Texas, however, Penske secured a forum non conveniens dismissal of the Texas coverage suit, then filed this declaratory judgment action seeking to adjudicate the same breach and indemnification