The [District] shall defend, indemnify and save harmless the [City], its officers, agents and employees from any and all claims, demands, damages, costs, expenses or liability arising out of this agreement or occasioned by the performance or attempted performance of the provisions hereof except those arising from the negligence or willful misconduct of the [City].

The contract also attached and incorporated by reference a two-page document setting forth the insurance requirements imposed on the City by the District. It stated:

The [City] shall provide a signed original evidence of coverage form for the term of the agreement protecting the legal liability of the [District] . . . from occurrences related to operations under the contract.

Among the several types of coverage that had to be maintained (and adequately evidenced) by the City was workers' compensation coverage for the City's employees. The contract allowed the City to provide evidence of coverage by means of a certificate of insurance from an insurance company, or alternatively, by evidence of self-insurance if the City "is self-insured and acceptable evidence of self-insurance has been approved by California Fair Services Authority."

The City was required to make sure that the specified insurance coverage, including workers' compensation, remained in effect at all times during the term of the contract. If the City failed to maintain the required coverage, the District could declare the City to be in material breach and terminate the contract, or obtain substitute coverage and charge the premiums to the City.

Further, the City's insurance coverage was to be "primary" over any separate coverage available to the District.

The City elected to meet the insurance requirements specified in the contract through self-insurance, and it provided a certificate of self-insurance to the District that confirmed the existence of self-insurance coverage for workers' compensation, general liability, and automobile liability, among other types of coverage.

In October 2012, while performing policing duties under the contract, two police officers were injured when attempting to restrain a patron at the Big Fresno Fair who allegedly had become unruly and was acting in a threatening manner. As a result of the injuries they sustained, the two police officers required medical treatment, which triggered the payment of workers' compensation benefits to the police officers by the City. The total amount paid by the City as workers' compensation benefits for the two police officers was $176,669.05.

The City sued the District for breach of contract. The complaint alleged that the District had breached the contract because it had refused to indemnify the City, as required under the contract's indemnification provision, for amounts the City was required to pay the two officers as workers' compensation benefits.

The City and the District moved for summary judgment.

The trial court granted the District's motion. It agreed with the District that the insurance requirements in its agreement with the City allocated the risk of loss for workers' compensation benefits to the City, and that the more specific insurance requirement controlled over the more general indemnification provision. Thus, the trial court held that the District had not breached the indemnity provision in the parties' contract.

The City appealed. It asserted that even though it specifically was required to provide insurance coverage for workers' compensation claims, the indemnification provision applied to its payment of workers' compensation benefits to the two injured officers.

The District responded that the City's position did not make sense, asking: "Why would the parties agree that the City should be the party to maintain coverage for certain types of losses, but then, if the City elected to be self-insured turn around and require the [District] to indemnify the City for those same losses?"

The Appellate Court's Decision

The appellate court affirmed.

In its decision, the appellate court summarized the two contract provisions at issue. With respect to the insurance of risks, the appellate court explained, the contract specifically required the City to maintain certain insurance coverages (including workers' compensation) for the purpose of "protecting the legal liability" of the District. The required insurance coverages had to remain in effect during the entire term of the contract and a failure to have them in place would give the District the right to declare a material breach or to obtain substitute insurance coverage and deduct premiums from any sums due to the City. Further, the insurance coverages provided by the City had to be primary over other coverage.

With respect to indemnification, the appellate court added, the contract contained a broad indemnification provision in favor of the City. The indemnification provision generally provided that the District had to indemnify the City for all claims, expenses, or liability arising out of or occasioned by the performance of the contract by the City.

According to the appellate court, the "most reasonable way to harmonize the two provisions" was to recognize, as the trial court had, that the insurance requirements placed the risk of loss on the City for claims covered by the agreed-upon insurance coverage (such as payment of workers' compensation benefits), while the indemnification provision required the District to indemnify the City for all other (e.g., uninsured or uncovered) losses that might arise out of the provision of services under the contract, excepting those relating to the City's own negligence or willful misconduct.

This interpretation, the appellate court found, was "a reasonable reconciliation of the two contrasting provisions" in a manner that gave "meaningful effect to both, while avoiding any absurd or unreasonable results."

Moreover, the appellate court continued, to the extent that the two provisions were in conflict, the "more specific insurance requirements" controlled over the "more general indemnification provision."

The appellate court rejected the City's argument that because the bulk of the risks associated with the performance of the services under the contract were protected against though the City's maintenance of insurance coverage, and because the indemnification provision excluded the City's negligence or willful misconduct, it was unlikely that the indemnification provision would ever apply. The appellate court declared that although the indemnification provision, acting as a sort of catch-all provision with respect to uninsured or uncovered losses, potentially might "only apply in rare circumstances," that did not render it "inoperative or superfluous."

The appellate court concluded that the trial court's interpretation of the contract was correct and, therefore, that the District had not breached the indemnification provision of the contract.

The case is City of Fresno v. 21st District Agricultural Ass'n, No. F073957 (Cal. Ct.App. Feb. 28, 2018). Attorneys involved include: Parker, Kern, Nard & Wenzel and Eric V. Grijalva for Plaintiff and Appellant; Murphy, Campbell, Alliston & Quinn, George E. Murphy and Suzanne M. Nicholson for Defendant and Respondent.