Spence Brothers v. Kirby Steel Inc
332083
| Mich. Ct. App. | Mar 14, 2017Background
- Spence Brothers (general contractor) contracted Kirby Steel (subcontractor) for structural work on a University of Michigan project; subcontract required Kirby to obtain comprehensive liability insurance naming Spence as an "endorsed named insured" and to defend and indemnify Spence.
- Kirby obtained a certificate naming Spence as an "additional insured," but not as an endorsed named insured as the subcontract required.
- A Kirby employee, William Burtch, was injured on site and sued Spence; Kirby’s insurer refused to defend/indemnify Spence based on Spence being listed only as an additional insured.
- Spence sued Kirby for breach of the subcontract (failure to procure required insurance and to indemnify/defend). Kirby moved to compel arbitration under paragraph 22 of the subcontract.
- The trial court denied Kirby’s motion to compel arbitration, granted Spence summary disposition, and entered judgment awarding Spence and its insurer $127,823.88.
- On appeal, the Court of Appeals reversed, holding the subcontract’s broad arbitration clause required arbitration of the breach-of-contract dispute and remanded to order arbitration.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the dispute must be submitted to arbitration under the subcontract’s arbitration clause | Spence argued arbitration was unnecessary or premature because the duty to indemnify was not in dispute and underlying tort liability was unresolved | Kirby argued paragraph 22 unambiguously required arbitration of “all claims, disputes, and other matters…arising out of, or relating to” the subcontract, including this breach claim | Court held the arbitration clause was broad and unambiguous; the breach-of-contract claim was arbitrable and the trial court erred in denying arbitration |
| Whether extrinsic issues (underlying negligence/liability) can defeat arbitration | Spence contended the unresolved negligence action and questions of fault made arbitration premature | Kirby asserted arbitrability depends only on the contract language; underlying tort issues do not exempt the breach claim from arbitration | Court held courts should not consider extrinsic issues beyond whether arbitration applies; such concerns do not exempt the dispute from arbitration |
| Whether paragraph 14 (indemnity exception for sole negligence) excludes the dispute from arbitration | Spence relied on paragraph 14’s sole-negligence exception to argue arbitration shouldn’t proceed until liability is resolved | Kirby maintained paragraph 14 does not carve out an exception to paragraph 22’s arbitration requirement | Court held paragraph 14 did not modify or exempt disputes from the arbitration clause; the exception did not preclude arbitration |
| Proper remedy when arbitration clause applies but trial court proceeded to judgment | Spence sought enforcement of judgment and summary disposition on merits | Kirby sought dismissal and compelled arbitration under the subcontract | Court reversed the trial court’s summary disposition and judgment, ordered dismissal and remand to compel arbitration; Kirby awarded costs as prevailing party |
Key Cases Cited
- Altobelli v Hartmann, 499 Mich 284 (discussing contract interpretation principles for arbitration clauses)
- Fromm v MEEMIC Ins Co, 264 Mich App 302 (existence and enforceability of arbitration agreements are judicial questions)
- In re Nestorovski Estate, 283 Mich App 177 (three-part test for arbitrability)
- Bayati v Bayati, 264 Mich App 595 (agreements to arbitrate must be enforced according to their terms)
- City of Huntington Woods v Ajax Paving Indus, 196 Mich App 71 (resolving doubts about arbitrability in favor of arbitration)
- Kaleva-Norman-Dickson Sch Dist No 6 v Kaleva-Norman-Dickson Sch Teachers’ Assoc, 393 Mich 583 (substantive correctness is for arbitrator once arbitrability is established)