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