By Aileen Leipprandt

The Court of Appeals recently enforced an arbitration agreement between a contractor and its subcontractor in a dispute involving indemnity and insurance coverage for a claim by subcontractor’s injured worker. (Spence Bros. v Kirby Steel, March 2017). In this case, the general contractor, Spence Brothers, was the project manager overseeing the University of Michigan’s expansion of the Crisler Arena. Spence subcontracted with Kirby Steel to provide structural and metal work. Spence’s letter accepting Kirby’s proposal directed Kirby to list Spence as an additional insured. The parties’ subcontract contained a standard indemnity clause requiring Kirby to defend and indemnify Spence against all losses. The subcontract also required that Kirby’s insurance policy name Spence as a named insured.

During the project, an employee of Kirby suffered injuries when he fell from a ladder. The employee sued Spence Brothers. Spence demanded that Kirby defend and indemnify Spence, but Kirby’s insurer refused such coverage because Spence was only an additional insured under its policy. Spence then sued Kirby for breach of the subcontract for failing to name Spence as a named insured and for failing to defend Spence. Kirby asked the trial court to dismiss Spence’s claim because the subcontract required arbitration. The trial court refused Kirby’s request and instead granted summary disposition in favor of Spence, ruling that Kirby breached its insurance coverage and indemnification obligations under the subcontract.

Kirby appealed arguing that the trial court made a mistake by ignoring the plain terms of the arbitration provision. The Court of Appeals agreed with Kirby, reversed the lower court’s ruling, and ordered the matter to arbitration. The appellate court observed that the subcontract unambiguously required arbitration of all claims and disputes related to the subcontract. This broad language clearly reflected the parties’ shared intention to submit any matters related to the subcontract to arbitration.

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