In a case decided in December of 2015, the Michigan Court of Appeals handed down a decision regarding the breadth of an indemnity clause in a contract between the City of Grand Rapids and a downtown condominium complex on the east bank of the Grand River.
At issue in Plaza Towers Condominium Association v. City of Grand Rapids, were two related contracts between the City and the condominium complex, Plaza Towers. The first contract was for the development of the condo and required that the condo agree to indemnify the City for damages caused by the construction of a sewer that ran underneath where the condo was to be developed. The indemnity agreement was memorialized in a separate contract that referenced the development contract.
In the 1990s, the city began the construction of a pedestrian walkway along the river. In doing so, a breach was cut in the river’s floodwall. During the unusually heavy rains Grand Rapids experienced in 2013, river water flooded through the breach and caused significant damage to the condo complex. When Plaza Towers sued, the city claimed that the indemnity clause in the contracts with the developer bound the condo complex to hold it harmless for all property damage. Plaza Towers, on the other hand, argued that the indemnity clause only applied to property damages that related to the construction of the sewer. Because the damages at issue allegedly arose from the construction of the pedestrian walkway, and not the construction of the sewer, Plaza Towers argued that the indemnity clause did not apply.
In finding in favor of Plaza Towers, the Court of Appeals reiterated two principles of contract interpretation. It first stated that in a case where a contract references another agreement, the two documents must be read together to identify the parties’ intent. The court then invoked the legal doctrine of ejusdem generis (Latin for “of the same kind”). Under this doctrine, if a general term in a contract is followed by a specific term, the application of the general term is restricted to things of the same kind, class, character, or nature as the specific term.
In applying these two principles, the court first determined that, when reading the two contracts together, the intent of the indemnity clause was to only cover damage resulting from the city’s work on the sewer system. The court then determined that, under the doctrine of ejusdem generis, the general term of “any and all damages to physical improvements” was limited by the phrase “caused by…negligence in…reconstructing, replacing, repairing, maintaining, removing, or inspecting the sewer.” Thus, the indemnity clause was not deemed to hold the city harmless for damages that had nothing to do with the sewer.
The court’s reiteration of these principles serves as a reminder to choose the language of a contract carefully as well as being aware of the contractual agreements assigned by predecessors upon purchase of property.
This article was written by Tyler Kemper, law clerk.
