Jurisdiction: Wisconsin
Court: Wisconsin Supreme Court
Decision Date: 3/6/2003
Case Title: Deminsky vs Arlington Plastics, Image Plastics,
2003 WI 15; 259 Wis.2d 587; 657 N.W. 2d 411.
This is a Wisconsin Supreme Court decision, and is mandatory authority in Wisconsin.
Insurance Issues:
- Equipment Seller’s Indemnity Agreement, in favor of the Seller, can be very broad.
- How to properly draft these Indemnity Agreements, per the Court.
- If you buy something, you better read the entire contract for Indemnification requirements.
- Tenders of defense to Buyer from the Seller.
- Improper use of equipment, and injuries resulting from that improper use.
Legal Issue:
Was the Sellers indemnification agreement contained in its sales contract for a piece of equipment enforceable against the Buyer?
Also:
- Choice of Law Clauses in a Contract-WI Uniform Commercial Code §401.105(1) (1995-96). Note: §401.301 (1) in 2011-12.
- Conspicuous Standards in a Sales Contract–WI U.C.C. §401.201 (10) (1995-96). Note: §401.201 (2) (f) in 2011-12. There are now some guidelines regarding all CAPS, contrasting font, color and size that sets off, or calls attention to, the language in question.
- Unconscionable Clauses in Contracts–WI U.C.C. §402.302 (1995-96). Unchanged in 2011-12.
Resolution:
The Wisconsin Supreme Court found that the indemnification agreement on the back of the Seller’s contract was enforceable against Buyer even to the extent of potential claims of improper design.
Facts of the Case:
Image Plastics is a Wisconsin corporation that recycles and reprocesses plastic. They were looking to purchase a machine that could grind and process plastic snow fence.
Image shopped around and eventually purchased a used machine from Arlington Plastic in Illinois. Arlington Plastic is an Illinois corporation.
The owner of Image drove to Arlington Plastic, inspected, and tested the machine. A sales order form was signed by Image. It was one-page, front and back, with the terms and conditions listed on the back of the order. The owner of Arlington admitted that he never verbally discussed the back of the sales order with Image. The owner of Image admitted that he was aware that there were “Terms and Conditions” on the back of the form, but he did NOT read it.
The owner of Image signed the front page directly below the following warning about the terms and conditions located on the back of the form:
We offer to purchaser the following articles for the purchase price specified above and subject to the terms and conditions set forth on the reverse side of this Agreement and Offer. This Agreement shall become effective upon, but not until, execution by ARLINGTON PLASTICS MACHINERY, INC. and PURCHASER. The terms and conditions on the reverse side are part of this agreement as effectively as though they precede the signature of the purchaser.
AGREED
The back of the sales agreement contained the following, relevant language:
WE [Arlington] ACCEPT YOUR ORDER ONLY ON THE EXPRESS CONDITION THAT YOU ASSENT TO THE TERMS CONTAINED BELOW AND YOUR ACCEPTANCE AND RECEIPT OF THE GOODS SHIPPED HEREUNDER SHALL CONSITUTE ASSENT TO SUCH TERMS.
….
3 – BUYER’S INDEMNITY OF ARLINGTON.
A. WARNING…Seller will not be responsible for any loss or injury resulting from defects in the items sold or from the subsequent use of the items. Buyer expressly agrees as a condition of the purchase of these items that it will indemnify and hold Seller harmless from any and all claims that may hereafter at any time be asserted by any subsequent owner or user of the items sold hereunder or asserted by any agent or employee of such user or by any third party arising from any purported defect in the items or by reason of the use of these items. Purchaser agrees to assume all responsibility in connection with the goods upon delivery thereof to the customer or to a common carrier.
B. HAZARDS LIABILITY – Purchaser shall indemnify and hold harmless Seller...from and against any and all losses, expenses, demands, and claims made against Seller…by Buyer, any agent, servant, or employee of Buyer, any subsequent Purchasers…because of injury or illness (including death)…actual or alleged whether caused by the sole negligence of Seller, the concurrent negligence of Seller with Buyer, any agent, servant, or employee of Buyer, any subsequent Purchasers…resulting from, or in any way connected with the operation, maintenance, possession, use, transportation, or disposition of the Articles…Buyer agrees to defend any suit action or cause of action brought against Seller, its agents, servants, or employees based on any such alleged injury, illness, or damage and to pay all damages, costs and expenses including attorney’s fees in connection therewith or resulting therefrom.
Arlington did NOT provide an owner’s manual or any training in the proper use of the machine to Image. There was NO sign on the machine warning the user that the guards should not be removed.
When employees of Image used the machine to grind plastic snow fence, they found that it repeatedly clogged. They had to remove a metal guard box to unclog it. The employees found this process inconvenient and time-consuming. Sometimes operators used the machine with the guard off. Some employees even refused to use the machine because they felt it was too dangerous.
The Plaintiff, an employee of Image, seriously injured his right arm and hand when his sweatshirt sleeve got stuck in the machine. He was operating it without the guard in place.
The injured employee of Image Plastics filed suit against Arlington alleging that Arlington:
- Altered a guard on the grinder or caused the guard to be altered;
- Negligently designed, installed, and constructed the guard;
- Allowed the grinder to be sold in such condition; and
- Negligence.
Arlington tendered the defense of the lawsuit to Image based on the indemnification clause found in the Sales Agreement.
The Wisconsin Supreme Court reviewed the contract and found that the clauses were enforceable. Image argued that the contract violated Wisconsin law, and that Wisconsin Law should apply. The Plaintiff argued that the contract specified that Illinois Law should apply.
Choice of Law Provisions in a Contract:
Wisconsin Uniform Commercial Code (UCC) 401.105(1) (1995-96) allows parties the freedom to stipulate which State’s law will apply to a contract’s interpretation. The Court reviewed Illinois and Wisconsin law and applied Wisconsin Law. The Court concluded that Wisconsin and Illinois law would have come to the same resolution.
Buyer’s Indemnification for Product Design and Manufacture:
Image argued that the Arlington has a non-delegable duty to produce a safe product. Therefore, the indemnification agreement is unenforceable.
The Wisconsin Supreme Court rejected this argument. They noted that there is a non-delegable duty to design and manufacture a safe product. However, the Court also recognized that, if properly done, contracting parties can shift the financial burden of potential liability amongst themselves.
Were the terms of Contract Commercially Unreasonable?
The Court found that Image had other choices in the marketplace, and that Image purchased from Arlington because they were the closest and the cheapest. If Image found the terms of the agreement unacceptable, they could have gone to another seller.
Please note that if Arlington was the only choice in the marketplace for this grinder, the Court could have found the indemnification agreement commercially unreasonable, and therefore, unenforceable.
Was the Indemnity Agreement Unconscionable because the terms were Inconspicuous?
Image argued that the indemnification agreement was unconscionable because its terms were inconspicuous. In other words, the indemnification agreement was not open and obvious, and therefore it is unfair to now force the Buyer to defend the Seller.
The Court again rejected Image’s argument. They noted that the agreement was one page, front to back. The front page clearly referenced the terms and conditions on the back page.
Further, key terms were in bold and CAPITAL LETTERS, such as “3 – BUYERS INDEMNITY OF ARLINGTON”
The Court concluded that this Indemnification agreement was valid and enforceable. The rest of the Court’s decision dealt with the enforceability of a release and assignment of claim from Image to the injured employee.
This material is for informational purposes only and not for the purpose of providing legal advice. R&R Insurance Services, Inc. is not a law firm. You should contact your attorney to obtain advice with respect to any issue or problem specific to your business. The information contained in this document is intentionally condensed and is a summary of court findings.
