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    The United States Court of Appeals for the Fourth Circuit vacated and remanded a district court decision regarding indemnification rights under an agreement between CSX Transportation and Crislip Motor Lodge. The district court held that CSX was not entitled to indemnification because it failed to provide reasonable notice to Crislip and its insurer, State Farm, of a personal injury lawsuit filed against CSX. The Court of Appeals found that while the notice was not reasonable, this simply changes the standard of proof CSX must meet in its indemnification action from potential liability to actual liability, rather than barring the action. The case was remanded for further proceedings consistent with the application of the actual liability standard of proof.

    Original Description:

    Filed: 1997-07-08 Precedential Status: Non-Precedential Docket: 96-1951

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    The United States Court of Appeals for the Fourth Circuit vacated and remanded a district court decision regarding indemnification rights under an agreement between CSX Transportation and Crislip Motor Lodge. The district court held that CSX was not entitled to indemnification because it failed to provide reasonable notice to Crislip and its insurer, State Farm, of a personal injury lawsuit filed against CSX. The Court of Appeals found that while the notice was not reasonable, this simply changes the standard of proof CSX must meet in its indemnification action from potential liability to actual liability, rather than barring the action. The case was remanded for further proceedings consistent with the application of the actual liability standard of proof.

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    CSX Transportation v. Crislip Motor Lodge, 4th Cir. (1997)

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    The United States Court of Appeals for the Fourth Circuit vacated and remanded a district court decision regarding indemnification rights under an agreement between CSX Transportation and Crislip Motor Lodge. The district court held that CSX was not entitled to indemnification because it failed to provide reasonable notice to Crislip and its insurer, State Farm, of a personal injury lawsuit filed against CSX. The Court of Appeals found that while the notice was not reasonable, this simply changes the standard of proof CSX must meet in its indemnification action from potential liability to actual liability, rather than barring the action. The case was remanded for further proceedings consistent with the application of the actual liability standard of proof.

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    of 10

    UNPUBLISHED

    UNITED STATES COURT OF APPEALS


    FOR THE FOURTH CIRCUIT
    CSX TRANSPORTATION,
    INCORPORATED,
    Plaintiff-Appellant,
    v.
    No. 96-1951
    CRISLIP MOTOR LODGE,
    INCORPORATED; STATE FARM FIRE AND
    CASUALTY COMPANY,
    Defendants-Appellees.
    Appeal from the United States District Court
    for the Northern District of West Virginia, at Clarksburg.
    William M. Kidd, Senior District Judge.
    (CA-94-106-1, CA-93-157-1)
    Argued: June 5, 1997
    Decided: July 8, 1997
    Before RUSSELL, HAMILTON, and MOTZ,
    Circuit Judges.
    _________________________________________________________________
    Vacated and remanded for further proceedings by unpublished per
    curiam opinion.
    _________________________________________________________________
    COUNSEL
    ARGUED: Ransom J. Davis, DANEKER, MCINTIRE & DAVIS,
    P.C., Baltimore, Maryland, for Appellant. Beth Ann Raffle, STEPTOE & JOHNSON, Morgantown, West Virginia, for Appellees. ON

    BRIEF: Jeffrey P. Buhrman, DANEKER, MCINTIRE & DAVIS,


    P.C., Baltimore, Maryland, for Appellant. Susan S. Brewer, STEPTOE & JOHNSON, Morgantown, West Virginia, for Appellees.
    _________________________________________________________________
    Unpublished opinions are not binding precedent in this circuit. See
    Local Rule 36(c).
    _________________________________________________________________
    OPINION
    PER CURIAM:
    The issues presented in this diversity action concern the
    respective
    rights and obligations of the appellees, Crislip Motor Lodge, Inc.
    (Crislip) and State Farm Fire & Casualty Company (State Farm), and
    the appellant, CSX Transportation, Inc. (CSXT), pursuant to an
    indemnification provision of a standard lodging agreement (the
    Agreement) entered into by Crislip and CSXT. The district court
    held
    that CSXT was not entitled to indemnification pursuant to the
    Agreement and entered judgment in favor of Crislip and State Farm. For
    reasons that follow, we vacate that judgment and remand for further
    proceedings.
    I
    On October 1, 1988, Crislip and CSXT entered into the Agreement,
    wherein Crislip agreed to provide lodging to CSXT's employees. The
    Agreement further provided that Crislip would:
    indemnify, save harmless and defend [CSXT], its servants,
    agents and employees, from and against all claims for loss
    or damage to property within or part of [Crislip Motor
    Lodge] and all injury to or death of any persons . . . in, on
    or about the [Crislip Motor Lodge] premises, arising out of,
    relating to or occurring in connection with the subject matter
    of and services provided by and performed under this
    2

    Agreement, whether the result of the sole or contributory


    negligence of [CSXT] or otherwise.
    (J.A. 4). The Agreement also required Crislip to procure and
    maintain
    liability insurance covering liability assumed by it under the
    Agreement in the amount of not less than one-million dollars.
    On November 11, 1988, James Chambers, a railroad brakeman for
    CSXT, stayed at Crislip in Grafton, West Virginia, pursuant to the
    terms of the Agreement. That evening, a Crislip employee spraypainted a model car in a utility room located beneath Chambers'
    room. Later that evening, Chambers, having been overwhelmed by
    noxious fumes, complained to two Crislip employees about the
    fumes. The following morning, Chambers complained to Crislip
    employees that he suffered a sore throat and a cough as a result of
    inhaling the fumes.
    On November 13, 1988, Chambers filed an injury report with
    CSXT, claiming that the inhalation of the fumes at Crislip caused
    him
    to suffer respiratory injuries. As a result of his injuries,
    Chambers
    missed over five months of work.
    On May 16, 1989, CSXT notified Crislip that Chambers had made
    a claim against it and, in accordance with the terms of the
    Agreement,
    tendered the claim to Crislip. In turn, Crislip notified its
    insurer, State
    Farm, of the claim. On November 20, 1989, State Farm notified
    CSXT that it "accepted the tender of this claim and will be
    handling
    it to its conclusion." (J.A. 21).
    After investigation, on August 31, 1990, State Farm informed
    Chambers that it could find no causal connection between his
    claimed
    injuries and his subsequent diagnosis, but invited Chambers to
    submit
    additional supporting information and to submit to an independent
    medical examination at State Farm's expense. 1 Chambers declined.
    Accordingly, on November 27, 1990, State Farm notified Chambers
    and CSXT that it was denying the claim because there was no causal
    connection between Chambers' claimed injuries and his subsequent
    _________________________________________________________________
    1 Through its investigation, State Farm determined that Chambers'
    respiratory injuries were caused by years of exposure to diesel-fuel
    fumes.
    3

    diagnosis. On that same day, State Farm closed its file on


    Chambers'
    claim.
    On April 26, 1991, Chambers filed an action under the Federal
    Employers' Liability Act (FELA), 45 U.S.C. 51 et seq., against
    CSXT based upon his exposure to the fumes at Crislip. The action
    was filed in the United States District Court for the Southern
    District
    of West Virginia, but was subsequently transferred to the District
    of
    Maryland. When CSXT was served with Chambers' FELA action, it
    did not notify Crislip or State Farm nor demand that Crislip or
    State
    Farm provide a defense pursuant to the indemnity clause of the
    Agreement. Instead, CSXT took control of its defense.
    The FELA action was set for trial on September 20, 1993. On September 3, 1993, seventeen days before trial, CSXT informed State
    Farm of Chambers' FELA action and the trial date, and sought to
    invoke its rights under the indemnity clause of the Agreement.
    On September 9, 1993, State Farm authorized CSXT to settle
    Chambers' FELA action for $25,000. When Chambers demanded
    $50,000, State Farm withdrew its authorization to settle and did
    not
    participate in the defense of Chambers' FELA action. Shortly
    thereafter, CSXT settled Chambers' FELA action for $50,000.
    On October 18, 1993, Crislip and State Farm filed a declaratory
    judgment action in the United States District Court for the
    Northern
    District of West Virginia to resolve the disputed liability of
    Crislip
    and State Farm to CSXT under the indemnity clause of the Agreement. CSXT filed a mirror-image declaratory judgment action in the
    United States District Court for the District of Maryland. These
    cases
    were consolidated for disposition in the United States District
    Court
    for the Northern District of West Virginia.
    The parties below filed cross-motions for summary judgment. On
    May 30, 1996, the district court granted Crislip and State Farm's
    motion for summary judgment and denied CSXT's motion. The district court held that CSXT was not entitled to indemnity under the
    indemnity clause of the Agreement because CSXT breached the
    Agreement when it failed to provide reasonable notice to Crislip
    and
    State Farm of Chambers' FELA action. CSXT noted a timely appeal.
    4

    II
    CSXT argues that the district court erred when it granted summary
    judgment in favor of Crislip and State Farm because its failure to
    provide reasonable notice of Chambers' FELA action to Crislip and
    State
    Farm is no bar to recovery under the indemnity clause of the Agreement. We agree.
    The parties agree that West Virginia law applies in this case.
    Under
    West Virginia law, when an indemnitor is provided reasonable notice
    of a claim that is covered by the indemnity agreement and is
    afforded
    an opportunity to defend the claim but declines to do so, the
    indemnitor is bound by the judgment against the indemnitee if it was
    rendered
    without collusion on the part of the indemnitee. See Vankirk v.
    Green
    Constr. Co., 466 S.E.2d 782 (W. Va. 1995). In the event of a
    settlement before judgment under these conditions, the indemnitor will be
    held liable if the indemnitee demonstrates in the indemnity action
    that
    the original claim was covered by the indemnity agreement, that he
    was exposed to liability which could reasonably be expected to lead
    to an adverse judgment, and that the amount of his settlement was
    reasonable. See Valloric v. Dravo Corp., 357 S.E.2d 207, 214 (W.
    Va.
    1987). This latter burden of proof is known as the"potential
    liability"
    standard.
    In contrast, when the indemnitor is not notified of the underlying
    action, given an opportunity to defend, and/or given an opportunity
    to participate in settlement negotiations, the indemnitee must
    prove in
    the indemnity action that he was actually liable to the plaintiff.
    See
    id. at 208, 213; Hill v. Joseph T. Ryerson & Son, Inc., 268 S.E.2d
    296,
    301-02 (W. Va. 1980). This heavier burden of proof is known as the
    "actual liability" standard.
    In this case, we are dealing with an indemnity action in which the
    underlying claim was settled before judgment. Therefore, CSXT's
    burden of proof under the indemnity clause of the Agreement turns
    on the type of notice it provided to Crislip and State Farm. If
    CSXT
    provided reasonable notice of Chambers' FELA action, the "potential
    liability" standard applies. If CSXT did not provide reasonable

    notice,
    the "actual liability" applies.
    5

    The question of what constitutes reasonable notice need not be


    decided by this court. On appeal, CSXT expressly"does not argue"
    that its notice to Crislip and State Farm was reasonable as a
    matter
    of law. See Appellant's Brief at 16 n.1. Accordingly, CSXT must
    proceed under the "actual liability" standard on remand. 2
    The district court in this case concluded that CSXT's failure to
    provide reasonable notice of Chambers' FELA claim barred CSXT's
    indemnity action under the Agreement. The district court erred in
    reaching its conclusion because the question of reasonable notice
    simply altered CSXT's burden of proof in the indemnity action. The
    judgment of the district court is, therefore, vacated and the case
    is
    remanded for further proceedings consistent with this opinion. 3
    VACATED AND REMANDED FOR FURTHER PROCEEDINGS

    _________________________________________________________________
    2 CSXT also argues that Crislip and State Farm waived their rights
    to
    defend Chambers' FELA action and to complain that the notice
    provided
    was unreasonable because State Farm authorized CSXT, one week
    before Chambers' FELA trial date, to settle Chambers' FELA action
    for
    $25,000. This argument has no merit. Suffice it to say that we find
    it difficult to comprehend how CSXT can argue to this court that Crislip
    and
    State Farm, when blind-sided with only two weeks' notice of a
    trial,
    somehow waived their rights under the Agreement by failing to make

    immediate evaluations and strategic decisions which they should


    have
    had over two years to consider.
    3 We express no opinion on whether CSXT is entitled to any
    attorney's
    fees for the defense of Chambers' FELA action. This issue is
    premature
    for us to address, as it will only arise if CSXT prevails under the
    "actual
    liability" standard on remand.
    6

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