PACIFIC GAS AND ELECTRIC COMPANY v. THOMAS DRAYAGE RIGGING COMPANY (1967)

For Opinion on Hearing See 69 Cal.Rptr. 561, 442 P.2d 641

We are called upon to interpret the indemnity provision in a “Contract For Performance of Work,” prepared in printed form by the legal staff of respondent, Pacific Gas and Electric Company, a corporation.   It is drawn so as to be adaptable to any type of work to be performed for respondent by an independent contractor.

The subject contract, as filled in and signed, shows that on July 11, 1960 the parties agreed that, for the sum of $625, appellant was to furnish the labor and equipment (crane) to remove and replace the upper metal cover of respondent's steam turbine.

While the cover was being replaced, some four months after it was removed, it stuck and damaged the exposed motor of the turbine.   Respondent recovered a money judgment against appellant for such damages, based upon said indemnity provision.

A second court alleging negligence was dismissed by respondent during trial.   Thus, liability was imposed upon appellant without fault or negligence upon its part.

 No extrinsic evidence was admitted at the trial as to the meaning of the indemnity provision and we must therefore make a determination of the proper interpretation thereof, independent of that made by the trial court.   (Parsons v. Bristol Development Co., 62 Cal.2d 861, 866, 44 Cal.Rptr. 767, 402 P.2d 839.)

 As noted above, respondent prepared, drafted and printed the instant contract.  “The rule that any ambiguities caused by the draftsman of the contract must be resolved against that party [citations], applies with peculiar force in the case of the contract of adhesion.   Here the party of superior bargaining power not only prescribes the words of the instrument but the party who subscribes to it lacks the economic strength to change such language.   Hence any ambiguity in the contract should be resolved against the draftsman, and questions of doubtful interpretation should be construed in favor of the subscribing party.”  (Neal v. State Farm Ins. Co., 188 Cal.App.2d 690, 695, 10 Cal.Rptr. 781, 784.)

The indemnity clause is as follows:

“Contractor shall indemnify Company, its officers, agents, and employees, against all loss, damage, expense and liability resulting from injury to or death of person or injury to property, arising out of or in any way connected with the performance of this contract.   Contractor shall, on Company's request, defend any suit asserting a claim covered by this indemnity.   Contractor shall pay any costs that may be incurred by Company in enforcing this indemnity.”

The term “indemnity” has a distinct meaning in the law of contracts.   It is defined in Civil Code section 2772 as follows:  “Indemnity is a contract by which one engages to save another from a legal consequence of the conduct of one of the parties, or of some other person.”  (Emphasis added.)

A “legal consequence” is one imposed by law.   In the instant case the law imposed no legal consequence or obligation upon respondent as the result of the damage to its turbine.   In other words, respondent did not incur any legal liability for the damage done to its own property.   Thus, there was no “legal consequence” from which appellant was obligated to “save' respondent.

As stated in Somers v. United States F. & G. Co., 191 Cal. 542, 547, 217 P. 746, 749, “ * * * in indemnity contracts the engagement is to make good and save another from loss upon some obligation which he has incurred or is about to incur to a third person * * *.”  (Emphasis added.)

 It is clear that the subject indemnity provision was drafted for the sole purpose of protecting the “Company” from all third party claims made against it and that respondent did not look to this provision to insure its own property.

In providing that appellant was required to “defend any suit asserting a claim covered by this indemnity,” it is clear that the draftsman had in mind only suits against respondent by third parties.  (Emphasis added.)

The coverage under the indemnity provision is limited to three things and these are united in one phrase, namely:  “injury to [person] or death of person or injury to property.”

Obviously, the first two items in such coverage apply only to third parties and the grouping of the third item with the other two creates an ambiguity or uncertainty as to whether it also applies only to third parties.

This ambiguity should be resolved against the draftsman, particularly where it could be easily avoided by adding, after the word “property,” the phrase, “including the Company's” or “excluding the Company's.”

Resolving all doubts against the drafter of the within adhesion contract, as we should, it is our opinion that it was intended that the indemnity clause therein should apply one to third party claims based upon “injury to or death of person or injury to property, arising out of or in any way connected with the performance of this contract.”

There is no indication in the contract that there was any intention to extend the indemnity coverage beyond the “indemnity” defined by Civil Code section 2772.

We therefore reject the trial court's interpretation for the reasons stated above.   This makes it unnecessary to discuss the other points raised by appellant.

Judgment reversed.