Kingston v. Markward & Karafilis, Inc
350 N.W.2d 842, 134 Mich. App. 164 (1984)
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Rule of Law:
A contractual right to indemnity may not be assigned to a third party if the assignment would materially increase the burden or risk imposed on the obligor (the party providing indemnity).
Facts:
- In February 1969, Chrysler Corporation hired W.J.C. Kaufmann Construction Co. (Kaufmann) to construct metal plate covers for an oil reservoir. The contract included a clause where Kaufmann agreed to indemnify Chrysler for personal injury claims related to its work.
- In March 1969, Chrysler hired Markward & Karafilis, Inc. (Markward) as the general contractor for an addition to the same building.
- On April 3, 1969, Chrysler sent a letter to Kaufmann informing it that its contract was being "assigned" to Markward, who would assume responsibility for coordination, although Chrysler would continue to make direct payments.
- Kaufmann completed its work on the reservoir plates in May 1969.
- In July 1969, Markward notified the project architect that the reservoir covers were not anchored and posed a danger, but Markward did not inform Kaufmann of this concern.
- In January 1970, the loose fit of the covers was noted at a construction meeting attended by Chrysler and Markward, but not by Kaufmann. No protective stops were ever added.
- On December 11, 1976, Charles G. Kingston, a Chrysler employee, was standing on one of the plate covers when it slipped, causing him to fall into the reservoir and die.
Procedural Posture:
- The estate of the decedent, Charles Kingston, filed a lawsuit in the trial court against Markward, Kaufmann, and the project architect.
- Markward filed a cross-claim against Kaufmann, seeking contractual indemnity based on the purported assignment of Kaufmann's contract from Chrysler.
- Following a trial, the jury returned a verdict in favor of the plaintiff for $3,000,000, holding Markward and Kaufmann jointly liable.
- On the cross-claim, the jury found in favor of Markward, awarding it total indemnity from Kaufmann.
- Kaufmann filed a motion for judgment notwithstanding the verdict (JNOV) on the indemnity claim, which the trial court denied.
- Kaufmann, as appellant, appealed the denial of its JNOV motion to the intermediate court of appeals. Markward, as appellee, also appealed on separate grounds.
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Issue:
Does the assignment of a contractual right to indemnity become void if the substitution of the assignee for the assignor as the indemnitee materially increases the risk that the indemnitor will be required to perform?
Opinions:
Majority - Shepherd, J.
Yes. An assignment of a contractual right is void if it materially increases the burden or risk imposed on the obligor. In this case, the assignment of Chrysler's right to indemnity from Kaufmann to Markward significantly increased Kaufmann's risk. As the property owner and decedent's employer, Chrysler's exposure to tort liability from its own employees was limited by workers' compensation laws, which provide an exclusive remedy. In contrast, Markward, as a general contractor, could be sued in tort by Chrysler's employees. Therefore, substituting Markward for Chrysler as the indemnitee transformed the indemnity promise from one covering a minimal risk into one covering a much greater and more foreseeable risk, rendering the assignment of the indemnity clause void.
Analysis:
This decision reinforces a critical limitation on the principle of free assignability of contract rights, as articulated in the Restatement (Second) of Contracts. It establishes that for aleatory or contingent obligations like indemnity, a court will scrutinize whether an assignment alters the fundamental risk profile the obligor originally agreed to undertake. The case provides a clear precedent that an assignment of an indemnity right is invalid if the assignee's position or relationship to potential claimants (e.g., not being protected by the workers' compensation bar) materially increases the indemnitor's exposure. This protects parties from being bound to insure against risks far greater than those contemplated in their original bargain.
