The United States District Court recently issued a decision finding a company using a temporary staffing company had lost its additional insured status and indemnity rights when it signed a one-page pricing agreement at the end of three-year staffing agreement. When the staffing company’s commercial liability insurer refused to defend a subsequent bodily injury claim by a temporary employee supplied by the staffing company, the company sued the insurer claiming the one-page pricing agreement was a continuation of the earlier staffing agreement and that it had a right to defense and indemnity.
In a March 31, 2019, decision, North Coast Sea-Foods Corp. v. Philadelphia Indemnity Insurance Company, (“North Coast” and “Philadelphia,” respectively) Federal District Court Judge Allison Burroughs ruled that North Coast was bound by the limited terms of the pricing agreement it had signed which did not grant an indemnity to North Coast or require that the staffing company add North Coast as an additional insured.
North Coast enters into a detailed temporary staffing agreement with a three-year term
North Coast is Massachusetts seafood wholesaler generating over a $300 million per year in sales. In the ordinary course of its business, North Coast uses employee leasing companies for its temporary staffing need. In the ordinary course of business, North Coast had master written agreements with staffing agencies specifying the terms and conditions of the temporary staffing. These agreements, according to North Coast, would have rates that would change periodically.
In 2009, North Coast entered into a seven-page “Temporary Staffing Services Agreement” (“the 2009 agreement”) with Diamond Staffing Services, Inc. (“Diamond”) for temporary staffing. The 2009 agreement had a number of provisions including specific provisions relating to liability insurance, worker’s compensation, additional insured and indemnity including:
- One million dollars per occurrence of liability coverage for Diamond, its agents and employees with North Coast “named as an additional insured on the commercial general liability insurance policy;”
- Workers’ compensation coverage for Diamond’s temporary laborers;
- A provision Diamond would “Unconditionally indemnify, hold harmless, protect and defend [North Coast]… against any and all claims, demands, damages, injuries, deaths, actions, costs and expenses and all other consequences of any sort, regarding any claim by any [Diamond] employee related to arising out of any workplace injury.”
The first page of the 2009 agreement stated: “This term of this Agreement shall commence on March 8, 2009, and will continue in effect until March 3, 2012.
The seventh and final page of the 2009 agreement designated as “Attachment A” had the percentage markup above cost Diamond would charge North Coast for temporary employees and day laborers. in addition to the payments to the temporary employees, Diamond would provide to North Coast.
The seventh page also contained the statement that “Terms will remain in effect for a period of 3 years beginning on the date this Agreement is signed.”
When the 2009 agreement expired in March of 2012, North Coast and Diamond signed on March 9, 2012, a document which was drafted by Diamond and consisted solely of a one-page document that mainly focused on rates and costs.
The 2012 document had all of the terms of Attachment A of the 2009 agreement. However, it did not have anything similar to the first six pages of the 2009 agreement. The 2012 had nothing identifying it as an attachment or extension of the 2009 agreement. The 2012 document did not reference in any way to the 2009 agreement. While the 2012 document did state that Diamond would maintain “General liability insurance; worker’s compensation insurance and be responsible for unemployment benefits,” there were no provisions providing Diamond would indemnify North Coast or add North Coast to its CGL policy as an additional insured.
Temp working for North Coast files a bodily injury claim
Leased employees and temporary employees provided by staffing companies can cause companies using them an insurance headache and, in some cases, an uncovered risk potential.
In the first instance, the staffing companies provide the workers’ compensation coverage for the workers they supply. If one of the workers is injured while assigned to one of the staffing company’s client companies by the negligence of the client company’s employees, the client company is open to a lawsuit. In Massachusetts, the exemption from tort liability only applies to the company providing the workers’ compensation coverage which in this case is the staffing company.
On July 11, 2012. a temporary employee provided by Diamond to North Coast, Antonio Pereira, alleged that he was struck on the head by a large plastic bin that fell from a forklift being operated by a North Coast employee. Mr. Pereira sent a demand letter through an attorney alleging that he had suffered serious injuries as a result of the negligence of North Coast’s forklift operator.
On July 1, 2015, Mr. Pereira sued North Coast and its forklift operator for negligence. Mr. Pereira’s wife joined in the suit alleging a loss of consortium.
While all of the agreements between North Coast and Diamond required Diamond maintain workers’ compensation insurance, there was no mention or requirement of Diamond providing an “alternate employer endorsement” in any of its workers’ compensation policies. If Diamond had obtained this endorsement naming North Coast named an additional employer to its workers’ compensation policy, North Coast would likely have been immune from common-law liability under the Workers’ Compensation Act for the negligence claim filed by Mr. Pereira and his wife.
North Coast tender to Philadelphia rejected based on 2012 one-page agreement
The CGL insurer for Diamond was Philadelphia. North Coast tendered the defense and indemnity of the Pereira to Philadelphia claiming the indemnity terms of the 2009 agreement were in full force and effect when Mr. Pereira’s alleged injury occurred.
Philadelphia rejected the tender stating that the March 9, 2012, one-page document between North Coast and Diamond was a stand-alone agreement containing no indemnity provision and no requirement that Diamond name North Coast as an additional insured on its commercial general liability insurance. Philadelphia emphasized that the 2009 agreement had expired by its terms before Mr. Pereira’s alleged injury.
North Coast sues claiming 2012 document only adjusted rates and extended the prior agreement
After several additional rounds of letter writing, North Coast settled the Pereira claim and filed suit against Philadelphia in Suffolk Superior Court claiming a right to indemnity under the terms of the 2009 agreement as modified by the 2012 document.
Philadelphia, as a foreign insurer, removed North Coast’s suit to the federal district court sitting in Boston under that court’s diversity jurisdiction.
After some discovery, the parties cross-moved for summary judgment asserting that no materials facts were in dispute regarding the contracts and documents and that the court should rule on matter.
Court finds North Coast in signing the one-page rate sheet made a new and limited contract
Before the court on summary judgment, North Coast argued that the Attachment A to the 2009 agreement contemplated an extension of that agreement beyond March, 2012, because it stated, “If you choose to terminate our business relationship following the full length of the term of agreement, a [30] day written notice is required at which time all outstanding invoices must be paid in full.”
North Coast argued that this created an ambiguity as to the intent of the parties and the court could look at the extrinsic evidence showing North Coast’s and Diamond’s true intent in signing the 2012 rate sheet.
The court, however, found that North Coast had failed to identify any ambiguity in the language of the 2012 agreement, short as it was. Although the 2012 agreement primarily related to the timing of the payment of outstanding invoices, its terms were not inconsistent with the 2009 agreement terminating in March of 2012.[pullquote]North Coast and Diamond might have presumed that it was more of an updated rate sheet than an entirely new contract. Judge Burroughs[/pullquote]
North Coast also attempted to introduce its customary practices in dealing with staffing companies to have an initial agreement that applied throughout the business relationship, but which had rates changing periodically. The court rejected this evidence as being “Insufficient to overcome the express terms of the 2009 agreement, which provide that the agreement expired on March 3, 2012.”
The final argument by North Coast was that there were several critical terms missing from the 2012 agreement that indicated an intention on the part of the parties to adopt the terms of the 2009 agreement. However, the court found that the indemnity provision of the 2009 agreement was not an essential term the court could find was necessary to make a valid contract. Instead, the court found that the provisions of the 2012 agreement seemed to narrow the insurance provisions of the original 2009 agreement, and intentionally omit the indemnity obligations.
In conclusion, the court stated, “Finally, it is difficult to see how the 2009 and 2012 insurance provisions could both be given effect, which suggests that the parties intended the 2012 agreement to supplant, rather than augment the 2009 agreement.”
Based upon the failure of the parties to clarify what on its face was a sufficient contract, the court ruled that it could not look at the intent of the parties and supplement the 2012 agreement with any non-essential terms and there was no ambiguity on the face of the contract.
Accordingly, the judge ruled against North Coast and in favor of Philadelphia stating:
Although the format and other aspects of the 2012 Agreement imply that North Coast and Diamond might have presumed that it was more of an updated rate sheet than an entirely new contract, the Court is unable, under the circumstances, to look to the intent of the parties and supplement the 2012 Agreement with a non-essential term where there is no ambiguity on the face of the contract.”
No appeal filed by North Coast
Judgment entered for Philadelphia on April 1, 2019. North Coast had thirty days in which to appeal. Since North Coast filed no notice of appeal by May 1, 2019, this case is over.
