*1 Plaintiff-Respondent-Petitioner, Todd Deminsky,
v. Corpora Plastics Machinery, Locator Omega Alpha Company, tion, Conair, Plastics Company, Insurance Inc., Steadfast Defendants, Inc. and Federated Mutual Image Plastics, Company, Defendants-Appellants-P Insurance †
etitioners. Supreme Court argument September No. 01-0242. Oral 2002.—Decided March 15WI 411.) (Also reported in 657 N.W.2d 5-9-03. † Motion for reconsideration denied *4 defendants-appellants-petitioners, For there by were Hanson, briefs Laura J. Katherine A. McBride Meagher Minneapolis, P.L.L.P, & Geer Minnesota, argument and oral Laura J. Hanson. *5 plaintiff-respondent-petitioner, there were For the by Richie, & and Wickstrom P Richie briefs John by argument John P. Wachs, Claire, and oral LLP, Eau Richie. In a WILCOX, this case we review E J. JON Deminsky appeals,
published v. of the decision court Arlington Machinery, App 287, 249 2001 WI Plastics and 331, which reversed 2d 638 N.W.2d Wis. summary judgment Barron order of the remanded a Judge. County Two Court, Brunner, R. Circuit Edward presented must First, court. we issues are this agreement indemnity valid an is determine whether presented. circumstances and enforceable under the provision Second, valid, if we decide the must by a extent to agreement an indemnitor is bound settlement which plaintiff in- and the reached between the demnitee before trial. Deminsky plaintiff case, 2. The this Todd
(Deminsky), Arlington Machinery, Inc. Plastics sued injured using grinding (Arlington) when he was while Arlington Deminsky's employer, machine sold Deminsky Image (Image). learned Plastics, Inc. When agreement indemnification there between Arlington Image for the of the and the contract sale impleaded machine, insurer, and its Federated he (Federated).1 Deminsky Company Mutual Insurance agreement. Arlington and then reached settlement judgment approved stipulated and The court circuit agreement judgment against Arlington. entered The appellant-petitioners, We will refer to Federated, Image, except necessary separately it is as where Federated, identify Image, Deminsky are parties. only and all named as parties to this review. others caption participating. defendants in the are not assigned Arlington's indemnification claims to Demin- sky. Deminsky complaint amended his to include an *6 against Image. parties indemnification claim Both then summary judgment. moved for The circuit court granted Deminsky's summary judgment motion for and judgment awarded him the full amount of the ordered against Arlington, plus Image ap- interest and costs. pealed. appeals upheld The court the circuit court's finding indemnity agreement that the valid, but finding reversed Image and remanded the case, that should stipulation not be bound the terms of the by Deminsky Arlington. reached and The court of appeals Image believed should be afforded a full trial on damages. agree the issues of and We that the indemnity provision in the sales contract between Im- age Arlington agree and Image is valid. We also that may not be bound to the terms of the settlement agreement, scope but find that of the remand Image rejected should be limited because the tender of the defense. Accordingly, holding affirm we of the appeals
court of and remand the case to the circuit court for a limited court trial on the issue of whether agreement the settlement reached is reasonable and product not the of fraud or collusion. If the circuit court agreement finds that the settlement is reasonable and there judgment was no collusion, fraud or then the against Image will However, stand. if the circuit court agreement finds that the settlement was unreasonable parties or involved fraud or collusion, then the will be position they any back to the were before settlement agreement Deminsky Arling- was reached between and parties ton. That means that the will be headed for a Arlington's liability damages. trial on and Unlike be- though, Image fore, will have the benefit of this court's agreement indemnity opinion in its and know that binding upon Arlington them. and is valid contract with HH agree parties purposes review, this 4. For following corporation facts. Wisconsin plastic. reprocesses recycles In one of that up plastic grind Image's it to snow customers asked fencing. However, had machine suitable no Gregory Image, purpose. Harm, owner of such a The expensive and machines too determined that new were appropriate machine. Harm used decided to seek president Plas- Clarke, the contacted John corporation buys Machinery, an tics Illinois *7 processing equipment. Arlington plastics sells used pur- suppliers. the had the of available closest prior equipment occasions. chased from might Harm he had a machine that Clarke told work. Elk November Harm drove to 5. On Village, at Illinois, to meet with Clarke
Grove Arlington's plant inspect He took and the machine. along fencing him to with test on some of snow gave inspecting Harm machine, After machine. agreeing purchase order, the ma- Clarke a verbal type chine. then had an administrative assistant Clarke containing up purchase price and the sales order Arlington's sales orders other terms of sale. While may typically customers, Clarke have are mailed to given paperwork while there. Harm the he was Neither exactly or how sales Clarke nor Harm recall when order was transmitted. page,
¶ 6. The order sales form was one front and back, with the terms and conditions listed on the back purposes of the order. For review, this the relevant language included: [Arlington]
... WE ACCEPT YOUR ORDER ONLY THE ON EXPRESS CONDITION THAT YOU AS- SENT TO THE TERMS CONTAINED BELOW AND YOUR ACCEPTANCE AND RECEIPT OF THE GOODS SHIPPED HEREUNDER SHALL CONSTI- TUTE ASSENT TO SUCH TERMS.
-3 BUYER S INDEMNITY OF ARLINGTON. A. WARNING ... Seller will not responsible any be injury loss or resulting from defects in the items sold or from the subsequent Buyer use the items. expressly agrees as a purchase condition of the of these items that indemnify it will and hold Seller any harmless from may all any claims that hereafter by at time be asserted any subsequent owner or user of the items sold here- under by any agent or asserted employee or of such by any user or party arising third any purported from defect the items or reason of the use these items. agrees Purchaser responsibility assume all goods upon delivery connection with the thereof to the customer or to a common carrier.
B. HAZARDS indemnify LIABILITY —Purchaser shall and hold harmless Seller ... against any from and losses, expenses, demands, all against and claims made *8 by Buyer, servant, Seller any agent, ... employee or of Buyer, any subsequent injury Purchasers .. . because of death) (including or illness alleged . .. actual or negligence Seller, whether caused the sole of the negligence concurrent of Buyer, any agent, Seller with servant, employee Buyer, any or of subsequent Pur- resulting from, chasers ... any way or in connected use, maintenance, operation, possession, the with Buyer of Articles ... disposition the transportation, or of action any action or cause agrees to defend suit Seller, servants, employ- against agents, or brought its illness, damage alleged injury, or any based on such ees costs, including expenses and pay damages, to all and resulting or attorney's fees in connection therewith therefrom. he Harm never Clarke admits that and ver- 7. included the indemnity language discussed the
bally have that Harm would been order, but he testified sales over, it, and return a to look the order sign instructed Clarke filled out "Estimate signed copy Arlington. have the ma- and Order" on November 3rd Repair to. cleaned, Monday, and tested. Novem- painted, chine On behalf 6, 1995, Harm the contract on of signed ber Arlington. faxed and the contract back signed he contract, but did Harm did not read the back the that "Terms and over the contract and was aware flip from prior were on the back the form Conditions" Harm Arlington. signed with experience purchasing warning about the terms directly form below the form: back of purchaser following articles for offer to
We subject and the terms price specified above purchase this conditions on the side of set forth reverse Agreement Agreement shall become and Offer. This until, by ARLING- upon, not execution effective but MACHINERY, AND PUR- TON INC. PLASTICS side The the reverse CHASER. terms conditions on they effectively though part agreement are of this as as signature purchaser. precede the AGREED In late paid transported owed for the then
$10,000 grinder. Image *9 grinder recycling plant the Lake, to its in Rice Wiscon- recycle plastic fencing, In sin. order to the snow it had pieces. purpose be cut into small That was the of the grinder. Arlington give Image not did an instruction warnings regarding proper manual or use. There was sign warning no guards the machine the user that the grinder
should be not removed. The had a problem clogging guard with and a metal box had to be unclog Employees unbolted and in removed order to it. process time-consuming.
found the inconvenient and grinder clogged repeatedly, operators Because the guard used machine with off least some at of the employees operate time. Some even refused they dangerous. machine, because felt it was too September ¶ Deminsky 9. On 18, 1996, Todd was seriously injured right got when his hand and arm caught gears grinding in the of the machine after his sweatshirt operating in sleeve stuck the machine while he was guard place
it. The was not on the machine at time. May Deminsky brought 10. In suit
against Arlington, alleging grinder that the was unrea- sonably dangerous and defective at the time that Ar- lington Image. Deminsky Arling- sold it to claimed that 1) guard grinder ton: altered a on the or caused the 2) guard designed, negligently to be altered; installed, 3) guard; grinder and constructed the allowed Deminsky be sold in such condition. also claimed that Arlington negligent. Through discovery, Deminsky
¶ 11. learned that there was an indemnification in the clause contract Arlington between for the sale of the ma- Deminsky complaint, adding chine. filed amended liability insurer, and its Mutual Federated Insur- Company, ance as defendants the case. 4, 1999, counsel for In a letter dated June in this case the defense of Arlington tendered *10 Feder- the indemnification clause. based on Image a In Image Arlington. to both reply
ated wrote a Image: 15, 1999, Federated informed July dated letter in- Arlington's for defense costs pay Federated will Deminsky litigation under a in the reservation curred rights. of under indemnity agreement is valid
... If the lan- law, purchase indemnification order applicable as of an "insured contract" guage meets definition general liability term is defined Federated's policy. a obligation provide Arlington . Image's
. . Deminsky lawsuit is the claims of the against defense policy. covered under the Federated Arlington's costs pay . . will defense . Federated litigation Federated's only at conclusion .... made defense pay Arlington's for costs decision to because, both rights a under under reservation law, indemnity provision Illinois Wisconsin and public policy .... may prove against and void invalid as invalid it is determined the contract is In the event law, refuse to or Federated will under Wisconsin Illinois indemnity clause as the pay Arlington's defense costs "insured longer no constitute an contract." would Complaint and Mr. respect to Amended With Image Plastics, Fed- Deminsky's against claims direct complete erated will defend Plastics under rights reservation of .... We will you contact shortly regarding assigning counsel to you defend on the Complaint.2 Amended August 13. On 9, 1999, and Federated separate
filed complaint, deny- answers to the amended ing liability Deminsky injuries. for his On that same day, Deminsky Arlington assign- entered into an agreement, "Stipulation ment and indemnification Entry Judgment." Arlington stipulated that it did not potential maintain insurance and that it faced liability given against agree- the claims made it. The 1) ment also included statements that there awas deposition testimony regarding conflict in whether the grinder safety had an interlock device when *11 2) Image; disputed sold it to the evidence "creates for 3) exposure liability"; Arling- substantial to ton anticipated has "neither the assets or the cash flow to defend this case," thus, and "the defense costs alone put Arlington bankruptcy." would agreement into The Deminsky's injuries damages, noted and and set out the agreement Deminsky Arlington. Arlington between and entry judg- withdrew its answer and consented to against $1,475 ment it in the amount of million, with- out costs. This amount $25,000 is less than Federated's Arlington assigned Deminsky million limits. $1.5 "any to currently may and all claims it has or have the [or] indemnity against any future, for contribution, . . . person entity." Deminsky agreed other or not to execute judgment against Arlington. Image was not in- any part agreement volved in of the settlement or the subsequent judgment ruling against Arlington.
2 copy A of this letter was also sent Arlington's to counsel. Deminsky complaint again amended his against Image. indemnity Sub- claim include the summary parties squently, for filed cross-motions judgment. court 13, 2000, the circuit On December Deminsky against Image judgment for the entered plus Arlington judgment, interest of the full amount appeals upheld Image appealed. The costs. court and indemnity provision ruling that circuit court's enforceable, remanded but reversed and was valid and oppor- circuit court to allow the case to the tunity damages. Both and for a full trial on Deminsky appeal this court. and now II. grant summary judgment ¶ 15. We review a using applied in as the circuit court same standards Verdoljak making initial v. Mosinee its determination. Paper Corp., 624, 630, 547 N.W.2d 200 Wis. 2d (1996). Summary plead judgment appropriate "ifthe is depositions, interrogatories, ings, ad answers any, together affidavits, if file, missions on with the any genuine as to material show that there no issue moving party judgment is entitled to a fact that the 802.08(2) (1995-96). § of law." Stat. as matter Wis. dispute, remain in court material facts this Where no party judgment as a which is entitled to determines Engelke, Doyle 2d matter of law. See v. Wis. *12 (1998). 245 de 283, 580 We review these issues N.W.2d novo, to the decision. without deference trial court's Godfrey, 56, 2d 180 51, Lucas v. 161 467 N.W.2d Wis. (Ct. 1991). ques App. Interpretation of a contract is a Yauger v. tion of court de novo. law which this reviews Skiing Inc., Enter., 2d 557 60 Wis. N.W.2d 206 (1996).
HH I—II—I presented As noted, there are two issues for this court to review. The issue is the first whether court appeals finding indemnity provision of erred the that Arlington Image in the sales contract between and Image indemnity valid and enforceable. provision claims that the against policy public is void as and unconscio- parties longer nable. The no contest the creation of the including Image contract, when the contract between and arose for the sale of the machine and appeals what its terms were. The of court that stated timing agreement whatever the reached, the the indemnity provision part of was Since the contract.3 parties longer dispute no what the terms of the contract only were, take we now the issues of whether the provision spe- is valid and claims, enforceable. cifically, indemnity that the contract is void because the public by policy delegating clause violates egable duty the nondel- produce product safe and is unconscio- conspicuousness nable because of lack of notice and indemnity clause. begin by examining question ¶ 17. We applies agreement. which state law to this contractual parties agree The that the Code Uniform Commercial (Code) governs them, between transaction that adopted both Wisconsin and Illinois have the Code. Deminsky argues that because the contract contains a provision specifying choice of law the contract subject law, Code, would be under Illinois Illinois validity law should be used to determine the of the argument, At oral counsel and Federated was asked specifically argument whether the "there is no contract" was, reply settled court of appeals, counsel's "That's correct." *13 argues Image, the hand, that on the other
contract.4 public policies of clause fundamental Wisconsin violates liability in manufacturers strict that established products law cases, and therefore Wisconsin apply. should 401.105(1) (1995-96) § al- Stat. 18. Wisconsin may agree parties that law of to a
lows that contract jurisdiction apply particular will to that contractual a Inc., relationship.5 Studios, In Bush v. National School recognized though, while this court Wisconsin stipulate applicable parties law to allows the freedom stipulations not be "at a would allowed contract, in such policies expense important public of a whose state applicable parties if the choice of law law be would disregarded." provision 2d 407 139 Wis. were (1987). petitioner in The Bush was N.W.2d 883 photographer portrait who was terminated student corporation employment he with which had photographer alleg- sued, The Id. at 637-40. contract. ing, among things, that violated other the termination provisions listed the "Terms and Condi One of the with - contract "10 MISCELLA tions" on the back states: relating action to the NEOUS. contract and all causes of This according to the laws of the State of sale is to be construed Illinois." 401.105(1) § provides, part: Stat. Wisconsin relevant 411; application parties' power of chs. 401 Territorial (1) applicable [W]hen choose law. ... a transaction bears relation to and also to another state or nation
reasonable this state parties may agree state that the law either of this or of such govern rights other nation their and duties. state or shall are to subsequent All references to Wisconsin Statutes have the 1995-96 version unless otherwise indicated. There however, statute; changes no to this the contract been material at issue in this case created (WFDL). Dealership the Wisconsin Fair Law Id. at 640. *14 although parties agreed This court held that the that apply Minnesota law would to the contract, because the Legislature Wisconsin declared the WFDL fundamental policy explicitly prohibited protections from being provision varied contract, the choice of law could not be enforced. Id. 641-42, at 644-45. Minnesota -may protection law have had some for unfair termina equivalent tion of franchises, but it did not have an Fair ("[The Dealership petitioner] Law. Id. at 641 in fact concedes that Minnesota and Wisconsin law are not co-extensive."). pro Bush, Unlike however, where the "highly tection from another state's law was debatable," protection equal. case, this should be Illinois employs recognized the Code, and Illinois has the rule liability products liability of strict cases. See Chi cago Security Steel Rule and Die Fabricators Co. v.ADT (Ill. Systems, App. Inc., 763 839, N.E.2d 843-44 Ct. 2002) (discussing Supreme adoption the Illinois Court's prod of the rule of strict in tort for defective (Second) provisions ucts, based on the of Restatement § (1965), policy of Torts 402A acceptance and the reasons for rule). adopted
of such a Wisconsin the rule liability Dippel of strict Sciano, v. 443, 37 Wis. 2d (1967). 459, 155 N.W.2d55 indemnity 19. Both states also allow contracts Freislinger
that cover the indemnitee's own conduct. v. (7th 1996) Propane Co., Emro 99 1412, F.3d 1420 Cir. (stating, require indemnity "Illinois law does not con- express provision providing tracts to contain an for the coverage negligence of the indemnitee's own in order enforceable"); Dykstra for them to be v. Arthur G. Co., McKee & 100 Wis. 2d 124-25, 301 N.W.2d201 (1981) (confirming indemnity that "an contract which agreed indemnify party against negligence its own [it against policy, public would not be so but
is not construed] apparent that such result was it is unless intended").6 clearly argues Deminsky if even Wisconsin law that provision applied We case, in this is enforceable.
agree
the decision whether
and conclude
provision
under the law of
would be the same
is valid
Accordingly,
apply
See
law.
either state.
we
Wisconsin
Sharp
Corp.,
¶ 17,
2d
595 N.W.2d
v. Case
Wis.
(1999) ("If
same,
laws
the two states are
law.").
apply
we
Wisconsin
*15
Image's
claim
in-
that the
We first address
duty
demnity provision
nondelegable
effects a shift of
product. Dippel,
produce
this
exam-
In
court
to
a safe
liability
adopted
ined and
the rule of strict
dangerous
for the seller
unreasonably
products as
in Re-
of
found
(Second)
§
2d at
402A. 37
statement
Torts
Wis.
Arlington
Image argues
allow
to rid
450-59.
that
responsibility
liability arising
of the financial
itself
essentially
products
from the
that
it sells
releases
duty
product.
create a safe
We
from the
recognized
disagree.
has
that
the rule of
Wisconsin
duty
design
liability
tort
means that the
strict
may
delegated.
product
not
manufacture a safe
be
Corp.,
683,
2d
280
Shawver
90 Wis.
v. Roberts
("One
(1979)
unreasonably
an
who markets
226
N.W.2d
expect
dangerous product
not
others
entitled to
that
Co.,
Mfg.
v.
Tank and
See also Owens Midwest
549 N.E.2d
(Ill.
1989)
law,
App.
(holding
Ct.
that under
Illinois
party
agreement
indemnifying
not be construed
as
will
liability
agree
against
language
its
strict
unless the
of an
own
result).
clearly
for such a
parties'
ment
shows the
intent
safe.")-
will make
However,
it
as this court recognized Dykstra,
"to recite this maxim
...
is not
explanatory
its meaning."
Ahern in this [nondelegable case contends that duty] that means the ultimate financial for damages by occasioned the violation of the place safe statute must upon party rest who place violates the safe contends, statute. Ahern therefore, that the financial McKee, exoneration of who had statutory place safe duty, public violates policy. conclude, however, We shifting this responsibility through either prin- ciples of common indemnity law or contractual indem- nity is not by what is meant the statement that the duties under place the safe statute are nondel- egable. ...
All that is meant the statement that duties under place the safe statute nondelegable are is that person who has that duty cannot assert that another to *16 allegedly delegated whom he has duty the is to be substituted primary as the defendant in his stead for a place provisions. violation of safe any Under circum- stance, it is the owner employer or the who must to the injured party. answer Whether that owner is to be financially made by whole another source prin- from ciples law or entirely question. contract is an different added). Id. at 131-32 (emphasis
605 true for the non- is that the same 22. We hold reasonably design duty delegable manufacture to agreements to product. held that has This court safe negligence against indemnify party must be own its long met, strictly standard as that construed, but so 134-35; agreements 124-26, Id. at are valid. such" Inc., 444, 2d Sons, 89 Wis. & J.H. Barrons v. Findorff County, (1979); Portage Bialas v. 827 452, 278 N.W.2d (1975); Warner, Time 912, 236 N.W.2d 910, 2d 70 Wis. App Co., 2001 WI Marine Ins. Paul Fire and v. St. Inc. 640. The N.W.2d ¶¶ 2d 19-23, 247 Wis. indemnify Image obligates expressly agreement to here Arlington's own Arlington, created even for Indemnity negligence the machine. with or defects potential merely provisions financial burden shift Image attempt liability. Arlington to substitute did not product. producing responsible It party a safe for as Image to take with Rather, it contracted not. could where arise if situation should financial burden designed negligent Arlington or claimed someone dangerous product. unreasonably indemnity Image's suggestion, Contrary worry-free Arlington with agreements not leave do indemnity agreement Arlington's liability. respect to its pay. Image good Image If, if is unable no does it with coverage example, and went had no insurance for Arlington bankrupt, have liable still been would Judgment," Entry "Stipulation Deminsky. for In deposition acknowledged Arlington that conflicts exposure testimony to liabil- created "substantial taken provided Arlington ity" had not and that for agree- Arlington's under the indemnification defense acknowledged that a verdict also ment. "certainly bankrupt Deminsky defendant." would *17 agreement Arlington Thus, the settlement offered way company litigation that the could survive the stay in business. despite indemnity agree-
¶ 24. Given fact that Arlington financially ments, could have been liable to Deminsky, disagree Image's we with contention that manufacturers and sellers such as would design products. no have incentive and create safe Dykstra, disallowing agree- Further, as noted in such suggests against public policy ments it is for a party against negligence. to insure its own 100 Wis. 2d (citing Boden, at 133-34 F. Robert The Problem of Indemnity Marq. Statute, Under the Place L. 40 Safe (1957)). policies Rev. 366-67 The behind strict liability support indemnity, particu- the allowance of larly under circumstances such as those in this case. Strict was intended to make it for an easier injured party language to recover. The in the used (Third) § Liability Restatement of Torts: Products (1998) interpretation. lends credence to this Section 18 states: "Disclaimers and limitations of remedies product by product distributors, sellers or other waivers purchasers, exculpations, and other similar contractual written, oral or do not bar or reduce otherwise valid against products liability claims sellers or other dis- products persons." tributors of new for harm to Restate- (Third) (1998). § Liability ment of Torts: Products major concern, then, stated, The as is whether the injured party indemnity agreement can recover. The destroy Deminsky's here does not decrease or chance to Arlington's alleged fragile recover. In fact, because of Deminsky's recovery financial situation, chances of full respon- are if better fulfilled and its insurer are *18 agreement. indemnification Comment a under the sible agreements § supports that such the view to 18 further are allowed: liability tort products contract a. of defenses Effects A commercial seller or persons. harm to
claims for product permitted of a is not distributor new other through limiting persons for harm to avoid It governing product. the sale of a is terms in a contract ordinary or consumer presumed product that the user bargaining power to information and lacks sufficient rights to re- a fair contractual limitation of execute in this Section is intended to con- Nothing cover .... chain distribu- parties within the commercial strain indemnity agreements inter se contracting tion from or save harmless clauses. added.) (Emphasis expressed Again, concern in this section 25. injured parties. here involv- fairness to The situation
is ing a commercial contract between two businesses equal bargaining power different. is not is much "ordinary and do not an consumer" and we cannot presume lacks sufficient informa- that such business bargaining power to "execute a fair contractual tion or policy rights such, the limitation of to recover." Id. As public safety consumers' health and concerns toward indemnity agreements. dampened are not such Image's claim that next address We Image argues indemnity agreement is unconscionable. commercially agreement are that the terms of the term, lacked of the unreasonable, notice inconspicuous. disagree and there- that the term is We provision not unconscionable. fore conclude that is Unconscionability ¶ 27. is defined in Wis. Stat. Unconscionability generally § recog 402.302.7 has been meaningful nized there choice on where absence part party, together of one with contract terms that unreasonably party. are favorable to the other Discount Co., Fabric House v. Wisconsin Tel. 117 Wis. 2d (1984). procedural There are both 345 N.W.2d417 and substantive factors. Id. at 602. Procedural uncon- scionability requires consideration of factors bear ing meeting minds; on a of the while substantive unconscionability "pertains to the reasonableness of the *19 Id.; contract terms themselves." v. Leasefirst Hartford Drugs, Inc., 83, 89-90, Rexall 168 2d 483 Wis. N.W.2d (Ct. 1992). App. Fabric, In 585 Discount we held that unconscionability question requires balancing a approach. tip 2d at "To the scales in favor 117 Wis. 602. unconscionability requires quantum of a certain of procedural plus quantum a certain of substantive un- conscionability."Id. find that the facts in this case do We finding support any procedural not or substantive unconscionability. § Stat. 402.302 states: Wisconsin (1) Unconscionable contract or clause. If the court as a matter any the contract or clause of the contract to have been of law finds may
unconscionable at the time it was made the court refuse to contract, may it .the remainder of the enforce the or enforce clause, may contract without or it so limit the the unconscionable any application any unconscionable clause as to avoid uncon- scionable result. (2) appears it or to the court that When is claimed any may parties be unconscionable the contract or clause thereof opportunity present evidence as shall be afforded a reasonable setting, purpose and effect to aid the court in
to its commercial making the determination. Yauger, exculpatory ¶ In we held that contract unmistakably signer provisions inform the must "clearly rights being are waived and the form must what signer unequivocally to the the na- and communicate being signed." significance ture and of the document pass in 2d at 86-87. Weheld that order to such Wis. exculpatory conspicuous. test, terms must be Id. indemnity parties contracts in which at 87. Because agree indemnify for the indemnitee's the indemnitee negligence exculpatory contracts, are, own strictly like to be conspicuous-
construed, now hold that the we 401.201(10) required in are ness standards Wis. Stat. indemnity contracts.8 provisions ¶ 29. find that the form and at issue We satisfy conspicuousness requirement. First, here page, not an form was one front back. This was Directly space Harm onerous form. signed above where one-paragraph warning his name was a there were terms and conditions on the back to which signer Right paragraph the right would be held. after the signature,
above Harm's the word "AGREED"was placed capital indemnity provision letters. The separate paragraph contained in a numbered on the heading paragraph of the form. The back has - capital print: INDEM- letters and bold "3 BUYER'S *20 8 401.201(10) § Wisconsin Stat. states: (10) "Conspicuous": conspicuous A term or clause is when it person against operate is that a it so written reasonable whom is to (as: ought printed heading capitals A to have noticed it. LADING) conspicuous. BILL NON-NEGOTIABLE OF is Lan- guage body "conspicuous" larger in the of a if it form is is or contrasting type telegram any other or color. But in a stated term "conspicuous". "conspicuous" Whether a term or clause is or not is for decision the court.
610
addition,
ARLINGTON." In
on the back of
NITY OF
warning
top
page is another
in all
the form at the
of the
stating
buyer
capital
that the
shall be held to all
letters
included terms and conditions.
policy may
put
¶ 30.
the best
be to
indem
While
nity language
page
every
contract,
on the front
of a
always
page.
thing
Here,
fit on the front
does not
purposes,
one-page
practical
however, for all
we have
merely
flip
piece
contract. The reader
has to
over the
paper
contract,
read a
to read the terms. Failure to
setting,
particularly in a commercial contract
is not an
obligations
person
of the
excuse that relieves
from the
dealings
"Men,
other,
contract.
in their
with each
can
eyes
knowledge equally
not close their
to the means
they
accessible to themselves and those with whom
from the
deal, and then ask courts to relieve them
vigilance." Nauga,
consequences of
lack of
Inc. v.
their
Co., Inc.,
306, 314-15,
216
2d
Milwaukee
Wis.
Westel
(Ct.
1998)
App.
(quoting
this court's
576 N.W.2d
Carney-Rutter Agency v. Central
decision in
Office
(1953)).
Bldgs.,
244, 252-253,
this We indemnity clause is valid and enforceable. the
IV in case The second issue that arises this 33. agreement reached the extent to which the settlement may binding by Deminsky Arlington upon and be Image. Image argues it had no information that because partici- potential opportunity settlement, no to about negotiations, opportunity pate in and no the settlement agreement dispute reached, it should be allowed damages. a full trial on the issues of adopt Arlington law and asserts that we should Illinois Image find that is bound to the terms of the settlement agreement. appeals, Unlike the court of which found Image trial, receive a full we find that should carry refusing Image responsibility for does some by Arlington. However, defend the action tendered to it circumstances case, this did because under the negotiations progress were in not know that settlement validity dispute opportunity and had no agreement, we remand the action to the settlement to the court. circuit court for limited trial only against Deminsky originally filed suit May deposition Febrary on 1998. At his Greg he aware of the Harm testified that language contract and had con- indemnification regarding potential Insurance tacted Federated Arlington formally liability. 4, 1999, tendered On June Image. Deminsky complaint amended his the defense to naming Image Federated as 30, 1999, on June directly him additional defendants who were liable to agreement. July under the indemnification On or about stating 15, 1999, Federated sent a letter that it would Deminsky litigation pay Arlington's in the defense costs rights, under a reservation of because it believed indemnity may clause not be enforceable. Federated acknowledged, however, that if the contract was valid applicable indemnity language law, under then the meets the definition of an "insured contract" and the Arlington's policy covers defense costs. The letter to you the statement, ended with "Wewill contact shortly assigning you regarding counsel to defend *23 Complaint." the Amended August
¶ 9, 1999, 35. On and Federated separate complaint. to filed answers the amended Also August Deminsky "Stipu- and filed the Entry Judgment" Deminsky for lation of with the court. agreed judgment against Arlington; not to execute Arlington assigned rights indemnity rather, all to under Deminsky, attempt the contract to who then could to Image. August judge collect from On 1999, the accepted stipulation hearing the without and entered judgment against Arlington. stipu- The amount of the judgment $1,475 dollars, lated million without Deminsky complaint costs. amended his a second time assignment rights regarding to include the in- agreement. knowledge demnification had no negotiations opportunity the settlement and had no dispute During subsequent the terms of the settlement. proceedings, Image Deminsky both moved sum- mary judgment. judge granted summary judgment The Deminsky judgment in favor of and entered in the full Deminsky/Arlington plus settlement, amount of the interest and costs. judgment in the was entered Wis- 36. Since Deminsky brought action, in which his
consin court
settlement and
the issue deals with Wisconsin's
because
judgment procedures,
appropriate
we find it
to use
has handled an issue
However,
law.
Illinois
Wisconsin
exactly
Finch
like the one
this case. See N.E.
almost
(Ill. 1977).
Co.,
such,
As
Co. v. Mahon
cause amicable settlements between supported. should be policy Finch, Id. In the court noted that the encouraging settlements should be furthered avoiding rules which allow "a defendant no alternative litigate question plaintiff a but to of his preserve prospec- in order his cause action over agree. Finch, tive indemnitor." Id. In the court of We appeals prospective noted that a indemnitor has defeating principal direct interest action for may indemnity sought. which be Id. at 163. supports findings. ¶ 40. Wisconsin caselaw such Blaha, In Illinois Central Railroad Co. v. this court party, potential indemnitor, found that when a such as a pending they directly is notified of a in which are suit party interested, that diligence protecting
must exercise reasonable their interests; doing they wilfully if instead of so shut eyes knowledge they their to the means of which know efficiently, they are at hand to enable them to act subsequently cannot be allowed to turn around and consequences evade the which their own conduct and negligence superinduced. have (1958) Blaha, 638, 644, 2d Wis. N.W.2d 197 (citations omitted). context, In the insurance this .court *25 coverage found that when is not determined before has liability provide trial, "the insurer must a defense regard damages." its insured with New Security Ins., house v. Citizens Mut. 176 Wis. 2d (1993). The an 836, 501 N.W.2d court noted that " company insurance that refuses to defend does so 'at peril.1" case, its own proposed Id. at 835. In that the court approach for an
that best insurance com pany coverage which contests is to defend under a rights. Id. at reservation 837. suggested
¶
Here,
41.
Federated
that
it would
rights.
problem,
defend under a reservation of
The
however,
that the letter
action taken.
was
last
nothing
Federated and
did
further to act. In
rejected
effect, the tender
left to
was
party's
Blaha,
in
defend on its own. As
when a
conduct
leads an indemnitee to conclude that the defendant is
ignoring
responsibility
claim,
some
must fall to the
potential indemnitor.
would not allow new circumstances rejected party case, where a has the tender those this of a defense and not asserted fraud or collusion. 370 However, the circumstances N.E.2d at 163. we believe allowing Image opportunity an of this case warrant might agreement it be heard on whether the which by fraud or be bound is unreasonable or infected timing case has collusion. The of the settlement this having effectively prevented Image oppor- from such tunity. where, at least one case in a 43. Wisconsin has rejected setting, an indemnitor has
contractual Blaha, 2d at 643-49. In tender of a defense. See 3 Wis. although Blaha, held the indemnitee this court *26 formally over the de- demanded the indemnitor take begin, only days set to the five before trial was fense could not claim insufficient notice because indemnitor liability. disregarded potential Id. at indemnitor the the potential There, the indemnitor was aware 643-44. injury, the was informed about the the circumstances of poten- board discussed its contract, and the defendant's liability. given that, The court found tial Id. at 642-43. responsibility had a facts, these the indemnitor diligence protecting their inter- "exercise reasonable Although Id. at 644. the formal tender of defense ests." only days trial, the in Blaha was made five before indemnitor there was made aware its direct interest arrangement in the case because of the indemnification simply disregarded tender, well before that formal Although Id. at The same is true here. case. 644-45. the formal tender of defense was made June accident, of the was aware the circumstances agreement was made aware of the indemnification at by February 1999, least and had contacted Federated liability. regarding potential such, As must be rejected responsibility held to have some when it tender has of the defense. As this court stated: "Consid- ering all the information defendant had which with respect long [ ] to the claim before the trial of the action grew, ample opportunity into it there was which prepare for a It own choice not defense. was defendant's opportunity." to avail itself of that Id. at 646. Blaha, However, 44. unlike communication regarding negotiations here the settlement was com- pletely Blaha, absent. In after a trial in which the liable, indemnitee found the indemnitee informed was judgment. of the Id. at The indem- indemnitor judgment, appealed appeal nitee and while was pending, it notified the indemnitor that settlement being contemplated. ignored was Id. The indemnitor notice, and the matter was settled. Id. The court held that the indemnitor was bound the settlement agreement, because the trial court allowed indem- opportunity nitor an fraud, show that there was unlitigated incompetency defense, or in the defense, and the indemnitor failed to There, do so. Id. at 647-48. jury. too, all the Here, issues were tried to a Id. however, any settlement was reached before trial occurred. Im- age any not informed that settlement was contem- *27 plated, very and the settlement reached the same day Image and Federated filed their answers to the complaint. Although Image responsible amended is provide defense, its failure to Image we cannot conclude that by is bound a settlement reached under circum- presented stances such as those in this case.
¶
Barrons,
In
this court noted that
in the
given
option
situation where
approving
indemnitor is
of
taking
or
settlement
over the defense of an
only
potential
action, the indemnitee need
show
liabil-
ity and that
the settlement reached was reasonable.
Barrons,
what we in have this case. We believe that the Finch analysis appropriate present is the most for the circum- However, case, stances. in this unlike Finch and the Image kept cases, other was not informed of the settle- negotiations. troubling timing ment More of the is arrangement. Arlington formally settlement tendered Image Image responded the defense to in June 1999. mid-July beginning August, very and near the on the day Image when and Federated were due to file answers complaint, Arlington Deminsky to the amended and stipulations forwarded to the Further, the were settled. hearing approved judge and without without trial knowledge Image having any of the events. These facts Image equitable settle- to bind to the do not make it agreement. have Both Wisconsin and Illinois ment binding agreements. exceptions Finch, In allowed for may parties dispute example, a settlement show- for ing liability potential or that there was no Finch, fraud or collusion. involved settlement at 163. N.E.2d Image is not entitled to a 47. We conclude that just damages liability because, as the trial on
full rejected Image Finch, the tender of the indemnitor opportunity to However, because had no defense. dispute agreement approve reached or the settlement negotiations proceeding, even and was unaware were timing negotiations planning or either due to the settling part parties, hold that of the we hearing the reason- to a limited to the court on entitled agreement. of the settlement Under circum- ableness indemnitor is entitled to these, stances such as produce evidence that the settlement was unreason- including the indemnitee faced no able, evidence that settling potential parties or that were *28 in fraud or collusion. involved earlier, noted if the circuit court finds As Arling- agreement that the settlement reached between Deminsky free of or ton and is reasonable and collusion following Blaha, Finch and fraud, then cases such as originally judgment in the amount of the settlement by the other assessed the circuit court will stand. On that hand, if the circuit court finds the settlement example, if, reached is for the circuit unreasonable — potential liability faced no court finds —or 620 parties collusion, involved fraud or then the are back to they agreement where were before settlement litigation case, reached. In this would be headed for Arlington's damages. a trial Now, and how- given opinion, Image ever, the benefit of this will know indemnity agreement binding upon that is valid and them. Although appeals extensively
¶ 49. the court of analyzes preclusion, the law of issue conclude, we as it ultimately preclusion applicable did, that issue is not "actually this case because this action was never liti (Second) gated." § Judgments See Restatement 27 (1982).9 (Sec § d to Comment 27 of the Restatement ond) Judgments, actually states that an issue is litigated "properly by raised, when an issue is pleadings otherwise, or is submitted determina provides tion, and is determined." The Comment may an issue submitted and determined be on a motion summary judgment, dismiss, a motion for a motion equivalents, judg verdict, for a or directed their or a ment entered on a verdict. A the one settlement such as qualify. in this case does not As noted in Michelle T. v. attempts preclusion gen Crazier, to invoke issue have erally by requirements designed "been conditioned protect against unfairly disadvantaging parties." T., 681, 687, Michelle 173 Wis. 2d 495 327 N.W.2d (1993). preclusion put Here, invocation of issue would (Second) (1982): § Judgments Restatement actually litigated When an issue of fact or law is and deter- judgment,
mined a valid and final the determination judgment, in a essential to determination is conclusive subsequent parties, action between the on the or a whether same different claim. *29 disadvantage Image circumstances under at a severe court the outcome. This could not control Image where promote an outcome. such declines indemnity- find that the ¶ conclusion, In we 50. Image agreement valid and is between agreement. Regarding may Deminsky enforce the circumstances find that the settlement issue, second we challenge opportunity an not allow here did agree- validity of the settlement the reasonableness and holdings Accordingly, of the court we affirm the ment. modify judgment appeals, that to the extent but regarding the the court remand for a limited trial to we Image re- Because of the settlement. reasonableness jected on remand defense, of the the burden the tender agree- upon that the fall to show settlement will Arlington faced unreasonable, ment reached was agreement liability, potential involved or that no or collusion. fraud appeals
By the court of the Court.—The decision of remanded. affirmed, modified, as and the cause ABRAHAMSON,CHIEF JUS- 51. SHIRLEY S. analysis agree legal (concurring). I both the with TICE majority opinion. separately remedy I write of the Sykes's agree concern that I also with Justice because provided with sufficient the circuit court has not been hearing conducting guidance remand. the limited many re- context, In states the insurance quire an insured and that a settlement between wrongfully injured party, has refused after the insurer good and entered into faith defend, be reasonable *30 in order to bind the insurer.1 Guidance can be taken setting parameters from these cases in for the remand in the case at hand. proving
¶ 53. The typi- burden of reasonableness cally injured party, falls on the insured or the whoever payment seeks determining from the insurer. In whether a settlement reasonable, the court should variety including consider a of factors, but not limited damage to the injured sustained, the likelihood that the party establishing would have succeeded in liability defendant's trial,2 at and whether the amount policy strength settled for exceeds the limits.3 Thus the injured party's of the case is a fact that is considered in determining reasonableness. adopted objective 54. Minnesota courts have measuring
standard for
the reasonableness of a settle-
reasonably prudent person
ment: whether a
in the
position
insured's
would have settled for the
amount
question
considering
[injured
after
"the merits of the
party's]
bearing
liability
claim, the evidence
on
1 14 Lee R. Russ &
Couch on Insur
Segalla,
Thomas F.
(3d
ance 202:9
2002) (Reasonableness
§
ed. 1999 & Supp.
of
It).
Settlement
and Good Faith in Making
Goodwin,
Britton,
Black
Inc.,
v.
Loomis &
damages, going of to trial."4 and the risks agree- of the however, the reasonableness settlement very conducting by trial "is not determined ment by the settlement."5 obviated proving collusion, 55. The burden fraud or typically some contrast, falls on the insurer. While proven that collusion should be courts maintain placed convincing evidence, the same burden clear plaintiff prevail trial a claim in a civil on fraud,6 others have determined settlements this heightened scrutiny and thus the burden sort deserve *31 be on the insurer should lowered.7 reason for a lesser burden on the in 56. The especially present the is a is where settlement surer agreement in the settlement includes "covenant" which rights assignment of the insured's to collect his exchange policy in for a not to the claimant covenant to " against policyholder.8 judgment 'With execute the personal exposure the has no incentive to no insured damages' or and 'the insured's best contest 4 Co., Home N.W.2d Coop. Brownsdale Assoc. v. Ins. 473 (Minn. 1991). 339, App. 342 Ct. 5 Co., Alton Co. M.A.I. 279 M. Johnson v. 463 N.W.2d 1990). (Minn.
6 Shimanski, 175, 184, 124 2d Lundin v. Wis. 368 N.W.2d (1985) ("[T]he party alleging fraud has the burden of 676 evidence."). convincing clear proving elements 7 (10th Hempel, Appx. Cont'l 4 Fed. Cir. Cas. v. 2001) (citing Schmidt, Setup, R. The Bad Stephen Faith Tort (1994)). cited unpublished, & Ins. L.J. 705 While this case is as authority pursuant App. to U.S. Ct. of 10th Cir. Rule persuasive 36.3. 8 Hempel, Appx. 4 Fed. at 716. For discussion of covenant 1; Stephen agreements generally, Segalla, supra see note Russ & (1994). Schmidt, Setup, R. The Bad Faith 29 Tort & L.J. 705 Ins. by agreeing damages any are interests served to long agreement requires as amount as the the insured "9 personally responsible damages.1 not will be for those circumstances, Under these the traditional collusion inquiry inappropriate; is courts should instead assess purpose [of the settlement for indications that "the injure settlement] , is to of an interests absent or nonparticipating party."10 recognize agreements
¶ 57. IWhile that covenant inherently as such the one at issue in are this case suspicious, I conclude that there is no reason to lessen Image prove the burden on or fraud collusion. On remand, there are two issues that must be ad- (1) dressed: reasonable; whether settlement is (2) whether the settlement is the result fraud or prove Therefore, collusion. the burden on only necessary already or fraud collusion will be if it has been determined that the settlement is reasonable. unlikely aWhere settlement is it reasonable, to be the subject of either or Moreover, fraud collusion. if it is certainly unlikely reasonable, it is to have been done for purpose injuring the indemnitor's interests. Thus, settlement, the face aof reasonable high proving should be held a standard of fraud or *32 collusion. foregoing
¶ 58. For the concur. reason, I 9 Hempel, 4 (quoting Pruyn Agric. v. Ins. Appx. Fed. at 716 (Ct. 1995)). Co., 42 Cal. Rptr. App. 2d 305 10 Id. The Schmidt, Setup, Bad Faith (citing Tort & Ins. (1994)). L.J. 727-28 Some of the include indicators "unrea sonableness, concealment, secretiveness, misrepresentation, of negotiations damages, attempts lack serious on to affect the insured, coverage, profit attempts insurance to the to harm the interest of the insurer." (concurring). agree
¶ I SYKES, S. J. 59. DIANE analysis regarding majority's the first the of issue with indemnity agreement enforce- is valid and the whether majority's agree I much of the discussion also with able. regarding indem- as the second issue whether of judgment $1,475 million entered is bound the nitor by stipulation Arlington, Image's indemnitee, between knowledge plaintiff, Deminsky, Image's without and the agree, participation. however, I do with the not or may judgment majority's that the conclusion ultimate Accordingly, against Image/Federated. I be enforceable majority to the limitations the has cannot subscribe placed scope the of remand this the nature case. stipu- majority
¶ the 60. The has concluded that may upon Image/Federated, judgment binding lated provided be determination that it reasonable there is a Majority procured without fraud or collusion. and was majority hearing op., ¶ remands for "a limited 48. The the on the reasonableness the settlement court op., hearing agreement." Majority in- This can 47. potential that the indemnitee faced no clude "evidence liability settling parties were involved in or that the majority Majority op., The fraud or cbllusion." say inquiry will not this "reasonableness" does whether majority damages. Also, include the the does issue specify scope inquiry of the "reasonableness" as not degree extent of it relates potential the evaluation of or recovery comparative or or under majority Finally, contributory negligence principles. govern identify does not the standards that should or circuit evaluation of the issues of fraud court's collusion. majority limited-inquiry ap- adopts
¶ 61. The this judg- determining enforceability proach *33 by applying explicitly ment several cases it acknowl- edges readily distinguishable are from the circum- majority op., major- stances this case. See 46. The ity initially concludes that this case is Finch, unlike Blaha, Newhouse, timing Barrons, because the stipulated judgment suspect and because it was Image's entered knowledge. into without or Federated's agree. Id. I ¶ 62. In N.E. Finch Co., Co. v. R.C. McMahon 370 (Ill. 1977),
N.E.2d the settlement enforced against the indemnitor occurred after the indemnitor had refused the tender of defense and when trial on the underlying injured party action between the and the indemnitee was imminent. That is not the here, case entry stipulated where judgment the settlement and occurred a mere three and one-half weeks after the rejected, day Image/Feder- tender was and on the that responsively plead Deminsky's ated was to complaint amended indemnity agreement, long any on the before trial. any
¶ 63. In event, Finch is an Illinois case. The majority agree, concluded, has I that Wisconsin law applies, question presented because the is the enforce- ability judgment against person of a Wisconsin anot party it, to which concerns Wisconsin settlement and
judgment Majority op., rules. Nevertheless, majority heavily concluding relies most on Finch in stipulated judgment may against be enforceable Image/Federated. Majority op., ¶¶ 36, 46.
¶ 64. In Illinois Central Blaha, Railroad Co. v. (1958), Wis. 2d 89 N.W.2d197 the indemnitor had knowledge full underlying of the circumstances of the claim, as well as the indemnitee's claims for indemnifi- long cation before trial, and received the formal tender days yet of defense five before the trial, scheduled did *34 nothing protect As interests. its or its indemnitee's to appeals "the 'settlement'... noted, here the court of enforced] [sought was a discounted sum to be for larger judgment, pending appeal had of a which jury verdict, on a and the settlement been entered by actually paid Demin the indemnitee." amount was Machinery, App sky Arlington 287, WI 2001 v. Plastics ¶ 2d 638 331. Under those 41, 441, 249 Wis. N.W.2d prior held that the circumstances, the court Blaha damages, judgment and since was conclusive fully tried, and the indemnitor those had been issues responsible compromised judgment would be by proof that or obtained absent it was unreasonable Blaha, by Here, 2d at 648-49. fraud or faith. 3 Wis. bad looming; stipu no trial held or was contrast, was indemnity shortly judgment after the lated was entered Image/Federated alleged, against and with claim was any any notice, well interests the indem- out before being adjudicated or been nitee were at risk of against had trial. it at Security
¶ Insur 65. Newhouse v. Citizens Mutual (1993), ance, 1 a suit 824, 2d 501 N.W.2d 176 Wis. company alleging against breach of the an insurance duty coverage. faith denial of This is defend bad indemnity dispute. not an It is a claim on insurance ap clause in commercial The court of transaction. inject "decline[d] peals wisely into this the law case govern developed in Wisconsin to the duties has by companies to their insureds." Dem owed insurance insky, App ¶ 43. court follow 2001 WI This should import appeals' law the court of lead not insurance duties into this context. Finally, majority properly notes the 66.
myriad and Barrons v. distinctions between this case Sons, Inc., & 89 2d N.W.2d J.H. Wis. Findorff (1979). rejected There, the indemnitor the tender of kept fully proceedings defense, but was advised of the negotiations, given and settlement and in fact was opportunity approve the settlement. Id. at 447-48. $1,475 stipulated Here, judg- contrast, the million (just limits) shy ment policy of Federated's million $1.5 rejected was entered into within a few short weeks of the secretly, any Image/Federated. tender, without notice to Despite distinguishing characteristics of majority cases, these majority most which the notes, the applies holdings. Majority nevertheless their *35 op., ¶¶ distinguishable, 36, 40, they 45. If the cases are apply, apply do not and we should not them. majority
¶ 68. The also concludes, as did the court appeals, preclusion apply. Major that issue does not ity op., agree. ¶ 49. I judgment This was a confessed "Arlington's liability and damages Deminsky's and the amount of 'actually litigated,'
were never which is a prerequisite precluding being issues from 'reliti- . " gated.' Deminsky, App WI 39 preclusion apply, If issue does not then the stipulated judgment operate preclude cannot Image/Federated litigating liability damages; from stipulated judgment that is, the cannot be enforced against Image/Federated. holdings Unless, is, applied. Again, in distinguishes majority the cases cited above are applies these cases but nevertheless join them. I cannot this conclusion. I would affirm the appeals court of on all issues, and remand the matter damages, for hearing trial on not the limited specified by majority. to the court ¶ 70. I am authorized to state that Justice ANN joins concurring opinion. WALSH BRADLEY this