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Palmer G. Lewis Co. v. Arco Chemical Co. (10/20/95), 904 P 2d 1221
NOTICE: This opinion is subject to formal
correction before publication in the Pacific
Reporter. Readers are requested to bring errors
to the attention of the Clerk of the Appellate
Courts, 303 K Street, Anchorage, Alaska 99501-2084
or call (907) 264-0607.
THE SUPREME COURT OF THE STATE OF ALASKA
PALMER G. LEWIS COMPANY, INC.; )
and PREMIER INDUSTRIES, INC. d/b/a ) Supreme Court Nos.
WESTERN INSULFOAM MANUFACTURING ) S-6034/6084
) Superior Court No.
v. ) 2BA-89-107 CI
ARCO CHEMICAL COMPANY, ) O P I N I O N
Appellee/Cross-Appellant. ) [No. 4274 - October
Appeal from the Superior Court of the
State of Alaska, Second Judicial
Charles R. Tunley, Judge.
Appearances: Thomas A. Matthews,
Matthews & Zahare, Anchorage, for
Appellants/Cross-Appellees. Sanford M.
Gibbs, Stone, Waller, Jenicek, Brown &
Gibbs, Anchorage, and Larry Espel,
Greene Espel, Minneapolis, Minnesota,
Before: Moore, Chief Justice,
Rabinowitz, Matthews and Compton,
Justices. [Eastaugh, Justice, not
The principal issue in this appeal is whether a
manufacturer which settles a products liability lawsuit is
entitled to implied indemnity (i.e., common law indemnity)
from one of its raw materials suppliers. This appeal also
raises the question of whether, and under what
circumstances, an express indemnification provision can
serve to shield a raw material supplier from a
manufacturer's claim for implied indemnity.
II. FACTS AND PROCEEDINGS
In 1987 the Wainwright/Alak School complex was
destroyed when children lit a fire under the raised
building, igniting exposed polystyrene insulation which had
been installed on the underside of the school structure.
Eventually, the insurers for the North Slope Borough and
North Slope Borough School District [the borough and the
district are hereinafter referred to as "NSB"] paid
approximately $14 million for the loss, and NSB filed a
subrogation action against Western Insulfoam Manufacturing
Company ("Western"), the manufacturer of the insulation,1
and Palmer G. Lewis Company ("Lewis"), the retailer, as well
as eleven other parties involved in the construction of the
school. NSB asserted claims against Western for the fire
loss based on strict liability, negligence, and breach of
warranty for selling an allegedly defective and unreasonably
dangerous product which was not fit for its intended use.
As to Lewis, NSB's sole claim was that it was strictly
liable for selling a defective and unreasonably dangerous
In tracing the chain of distribution, the record
shows that Western formed the insulation, trade named
"Insulfoam," by expanding and molding polystyrene beads
which were supplied to it by ARCO.2 Western then sold the
insulation, in final product form, to Lewis, which in turn
resold it to contractors, who used it to insulate the
underside of the school.
After ARCO rejected their tender of defense,
Western and Lewis filed a third-party complaint against ARCO
based on implied indemnity.3 In its answer, ARCO denied any
duty to indemnify Western and Lewis, and alleged numerous
In June 1992, Western and Lewis settled the
underlying subrogation action with NSB for $3.2 million.
The comprehensive agreement released Western from "any and
all" claims -- warranty, negligence, and strict liability --
and likewise, Lewis from any derivative strict liability
claims. Shortly thereafter, Western, Lewis and ARCO filed
cross-motions for summary judgment in the indemnity action.
The superior court denied Western and Lewis'
motion for summary judgment, holding that as third-party
plaintiffs, Western and Lewis must prove that ARCO's beads
were defective. The superior court simultaneously granted
ARCO's motion for summary judgment, holding that an express
indemnification provision between ARCO and Western was
applicable, thus shielding ARCO from any implied indemnity
claims that Western or Lewis could otherwise assert against
it. The superior court also awarded full attorney's fees to
ARCO against Western. Western and Lewis now appeal the
superior court's summary judgment orders, and ARCO cross-
appeals claiming that its summary judgment motion, though
properly granted, should have been granted on additional
grounds as well.
A. The Superior Court Did Not Err in Denying
Western's Motion for Summary Judgment Against
1. The Superior Court held that
Western failed to prove that ARCO's beads
Western argues that ARCO is automatically liable
as an indemnitor since Western settled the underlying
subrogation claim in good faith and since it had previously
tendered timely defense of this claim to ARCO.5 In essence,
Western asserts that based on our holding in Heritage v.
Pioneer Brokerage and Sales, Inc., 604 P.2d 1059 (Alaska
1984), its settlement conclusively establishes ARCO's status
as an implied indemnitor under the doctrine of strict
liability. ARCO counters that Western must prove, among
other things, that ARCO's beads were defective before it is
deemed an indemnitor under products liability law. Western
responds that requiring it to prove that the beads were
defective creates a perverse incentive for it, and other
manufacturers like it, to forego settlement of the
underlying claim, lose the case at trial, and then bind ARCO
as an indemnitor. Finally, Western contends that this
court's decisions in this area are "inconsistent" and
"conflicting" and "have led to much confusion."6
Western's apparent confusion probably stems from a
failure to appreciate the distinction between a manufacturer
and a retailer. In considering the parties' motions, the
superior court accurately summarized Alaska law:
The general rule of implied indemnity in
Alaska is that an innocent supplier of a
defective product who is liable on a
theory of strict liability is entitled
to indemnity from the manufacturer of
the defective product. Ross
Laboratories v. Thies, 725 P.2d 1076,
1081 (Alaska 1986); D.G. Shelter
Products Co. v. Moduline Industries,
Inc., 684 P.2d 839, 841 (Alaska 1984).
Even if no liability is found, the
innocent supplier may nonetheless be
entitled to indemnity from the
manufacturer for the attorney's fees and
costs in defending the action. Heritage
v. Pioneer Brokerage and Sales, Inc.,
604 P.2d 1059 (Alaska 1979). A supplier
entitled to indemnity may be a retailer,
a lessor, or even a manufacturer who
incorporates an already defective
component part into its product. See
Ross Laboratories, 725 P.2d at 1081
(retailer); Koehring Mfg. Co. v. Earth
Movers of Fairbanks, Inc., 763 P.2d 499
(Alaska 1988) (lessor); D.G. Shelter
Products, 684 P.2d at 840
(manufacturer). A party who is
independently negligent is completely
barred from recovery under the theory of
implied indemnity. Koehring Mfg., 763
P.2d at 504; Ross Laboratories, 725 P.2d
at 1081; Vertecs Corp. v. Reichhold
Chems., Inc., 661 P.2d 619, 626 (Alaska
Heritage stands for the following proposition: A
party is entitled to indemnity for its attorney's fees and
costs when it successfully defends an action if it would
have been entitled to indemnity had it lost the case after
trial. See Heritage, 604 P.2d at 1067. In footnote 27 of
Heritage we acknowledge another application of this same
principle: A party is entitled to indemnity when it settles
a case if it would have been entitled to indemnity had it
tried the case and lost. See id. While focusing on
footnote 27, Western apparently neglected footnote 25 of
Heritage which states that only the issue of attorney's fees
was before us on appeal. Id. That is, for purposes of
appeal, the underlying issue of the manufacturer's indemnity
liability had already been established, a situation quite
distinct from the case at bar.7
In this instance, if instead of settling, Western
had tried the case and lost, it would not have automatically
been entitled to indemnity from ARCO. Instead, it would
have had to prove that the beads ARCO supplied were
defective, and also would have had to prove causation,
before it was entitled to indemnity.
In applying Heritage, Western argues that its good
faith settlement with NSB should not preclude it from
seeking indemnity. Western is correct: its settlement does
not preclude it from seeking indemnity. However, its
settlement alone does not guarantee it is entitled to
Western additionally argues that ARCO's beads were
defective and that it merely expanded and shaped the beads
into insulation. In essence, Western's argument is
predicated on its assertion that ARCO was the manufacturer
of a defective product and Western merely resold ARCO's
product -- polystyrene beads -- much like an intermediary
does through the ordinary chain of distribution. Though in
some instances the demarcation between a "manufacturer" and
a "retailer" will undoubtedly be difficult to discern, this
case does not present such an instance. Western, through a
relatively complex procedure, processed, steamed, and molded
the beads supplied by ARCO into ready-cut pieces of
insulation.8 Consequently, Western is not automatically
entitled to indemnity from ARCO. However, it is not
automatically precluded either. In short, it must prove
that ARCO's beads were defective.9 See D.G. Shelter Prods.,
684 P.2d at 841.
2. ARCO Raised the Issue of Western's
The superior court alternatively held that even if
Western had proved that ARCO's beads were defective, summary
judgment in favor of Western was still inappropriate since
"ARCO ha[d] sufficiently raised the issue of Western['s] . .
. [independent] negligence." It is well established that
negligence is a complete bar to indemnification. Koehring,
763 P.2d at 503-04; see also Ross Labs., 725 P.2d at 1081.
Pursuant to Alaska Rule of Civil Procedure 8(c), ARCO
affirmatively pled the issue of Western's negligence and
presented evidence in support of its defense.10 As the
superior court correctly concluded, ARCO "has produced
evidence of negligence sufficient to overcome Western['s] .
. . motion." At trial, ARCO bears the burden of proving
B. The Superior Court Erred in Granting ARCO's Motion
for Summary Judgment Against Western.
The superior court granted ARCO's motion for
summary judgment against Western on one basis: it held that
an express indemnity provision between the parties barred
Western's claim for implied indemnity. The indemnity
provision was contained on the reverse side of purchase
order confirmations routinely sent by ARCO to Western after
Western had placed an order, but before the beads were sent.
The indemnity provision states:
18. INDEMNIFICATION - Buyer [Western]
agrees to defend, indemnify and save
harmless Seller [ARCO] from any and all
claims of whatsoever nature including
but not limited to injuries to Buyer's
or Seller's employees or to third
parties (including death), or for
damages to the property of Seller, or to
the property of Buyer, or of third
parties, caused by, arising directly or
indirectly from, or occurring in a) any
handling of said materials, including
but not limited to, unloading railroad
cars, tank cars, trucks, tank trucks,
barges, or in handling containers of
materials sold, and b) any use of said
Also of significance is the front side of each
purchase order confirmation form. In addition to containing
price and quantity information, it contains a proviso in
small print at the bottom of the page which reads:
ATTENTION: "This order is accepted by us subject to the
Terms and Conditions printed on the REVERSE SIDE OF THIS
SHEET and your acceptance of delivery of the material set
forth above constitutes acceptance of these Terms and
Conditions. THE WARRANTY SET FORTH ON THE REVERSE HEREOF IS
EXPRESSLY IN LIEU OF ANY OTHER EXPRESS OR IMPLIED WARRANTIES
INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS
FOR ANY PURPOSE AND ANY OTHER OBLIGATION ON THE PART OF
After determining that Washington law governed
interpretation of the transaction, the superior court
concluded that the express indemnity provision shielded ARCO
from Western's implied indemnity claim. Western claims on
appeal that the hold harmless indemnification provision was
a material alteration of the parties' agreement and thus is
not a term of the contract under the UCC. Though Western
did not raise this issue below, we nonetheless consider it
since, for reasons discussed below, it "involves a question
of law that is critical to a proper and just decision."
Vest v. First Nat'l Bank of Fairbanks, 659 P.2d 1233, 1234
n.2 (Alaska), aff'd on reh'g, 670 P.2d 707 (Alaska 1983).
Additionally, there is a strong argument that the superior
court's failure to consider the UCC issue constitutes plain
error. See Sea Lion Corp. v. Air Logistics of Alaska, Inc.,
787 P.2d 109, 115 (Alaska 1990).12
2. Choice of Law: Washington or
Before determining the legal effect of the express
indemnity provision at issue here, it is necessary to
resolve a choice of law question. In summarizing the
arguments below, the superior court stated:
The parties dispute whether Washington
law or Alaska law governs the validity
of the express indemnity clause.
Western . . . argues that Washington law
applies because that is the place of
negotiating, contracting, and
performance of the sales contract
containing the disputed clause. ARCO
argues that the issue is whether Western
. . . is entitled to implied indemnity
under Alaska's common law, which would
be analyzed under Alaska law.
When choice of law issues arise, we commonly refer
to the Restatement (Second) of Conflicts for guidance.13 In
this instance, application of Restatement principles leads
to the conclusion that Washington law controls.14 As the
Restatement directs, since ARCO's purchase order
confirmation form does not contain a choice of law
provision, section 188 of the Restatement governs. It
instructs that we look to the place of contracting,
negotiation, and performance of the contract, all of which
took place in Washington. Consequently, Washington law
governs disposition of this issue.
3. UCC Analysis: Was the
Indemnification Clause Contained in ARCO's
Purchase Order Confirmation Form Incorporated
into the Parties' Agreement Under UCC Section
Western claims, pursuant to section 2-207 of the
Uniform Commercial Code (UCC), that the indemnity provision
constituted a "material alteration" of the parties'
agreement and as such did not become a term of the parties'
contract. Section 2-207 of the UCC, as codified in Alaska
at AS 45.02.207 and Washington at Wash. Rev. Code 62A.2-
207 (1994), states:
(1) A definite and seasonable expression of acceptance or
a written confirmation which is sent within a reasonable
time operates as an acceptance even though it states terms
additional to or different from those offered or agreed
upon, unless acceptance is expressly made conditional on
assent to the additional or different terms.
(2) The additional terms are to be construed as proposals
for addition to the contract. Between merchants such terms
become part of the contract unless:
(a) the offer expressly limits acceptance to the terms
of the offer;
(b) they materially alter it; or
(c) notification of objection to them has already
been given or is given within a reasonable
time after notice of them is received.
(3) Conduct by both parties which recognizes the existence
of a contract is sufficient to establish a contract for sale
although the writings of the parties do not otherwise
establish a contract. In such case the terms of the
particular contract consist of those terms on which the
writings of the parties agree, together with any
supplementary terms incorporated under any other provisions
of this Act.
We must first determine whether the small proviso
contained on the front side of ARCO's confirmation form
converts an otherwise valid acceptance into a de facto
rejection and counteroffer.15 That is, if ARCO's purchase
order confirmation form operates as an acceptance, then the
indemnification clause becomes incorporated only if it is
not a "material alteration" of the parties' contract under
section 2-207(2)(b); if it operates as a counteroffer,
however, the relevant question becomes whether Western
accepted ARCO's counteroffer, and thus the accompanying
indemnification clause, when it accepted delivery of the
As previously observed, this issue must be
analyzed under Washington law. In Hartwig Farms, Inc. v.
Pacific Gamble Robinson Co., 625 P.2d 171 (Wash. App. 1981),
the court, without specifying what type of language
constitutes a counteroffer, addressed a situation similar to
the one now posed. In Hartwig Farms, the seller argued that
the buyer was bound by a warranty disclaimer clause
contained on an invoice delivered with the goods. The court
held that because the warranty disclaimer clause was a
"material alteration," a buyer does not assent to it by
merely accepting delivery of the goods. The court stated:
In Roto-Lith, Ltd. v. F.P. Bartlett &
Co., 297 F.2d 497 (1st Cir. 1962), the
court held the disclaimer on a sales
acknowledgement to be a material
alteration and an acceptance conditional
on the offeror's assent to the
additional term. The Roto-Lith court
also held a buyer, when he accepted
goods, became bound by the additional
terms set by the seller. This result
has not been followed by all courts and
we decline to follow it here.
Id. at 174.16
Thus, the court rendered moot any distinction
between a counteroffer and an acceptance. That is, the
court effectively held that when a buyer accepts delivery of
goods, it does not assent to a warranty disclaimer clause,
or any other clause which materially alters the contract,
even if the invoice containing the clause is characterized
as a counteroffer. In such cases the only relevant question
is whether the contested clause materially alters the
contract under section 2-207(2)(b).
Yet ARCO argues that Hartwig Farms is
distinguishable since it involved a warranty disclaimer
clause contained on an invoice sent with the shipment of
goods, whereas the instant case concerns an indemnification
clause contained on a confirmation sent some time before the
shipment of goods. However, we note that in Rottinghaus v.
Howell, 666 P.2d 899 (Wash. App.), review denied, 100 Wash.
2d 1016 (Wash. 1983), the same court subsequently held that
any distinction between an invoice and a confirmation is
irrelevant. The court stated, "[T]he fact that the
limitations appeared on written confirmations signed by the
parties rather than an invoice as in Hartwig or a label
attached to the container as in Dobias [v. Western Farmer's
Ass'n, 491 P.2d 1346 (Wash. App. 1971)] is irrelevant[.]"
Rottinghaus, 666 P.2d at 905. Consequently, under
Washington law, the express indemnity clause contained on
ARCO's purchase order confirmation form is enforceable only
if it does not constitute a material alteration of the
Generally, materiality is a question of fact.18
Comments four and five to section 2-207 provide that the
test for materiality is whether the newly introduced clause
would result in surprise or hardship to the non-assenting
party.19 In Washington, the burden of showing surprise is
placed on the party against whom the term would operate.20
However, courts have held that certain clauses are material
as a matter of law.
For instance, in Washington and elsewhere, clauses
such as those listed in Code comment four, like warranty
disclaimers, are routinely deemed material as a matter of
law.21 Similarly, though Washington courts have not had
occasion to address the issue, other courts commonly hold
that indemnification clauses like ARCO's are "material" as a
matter of law.22 Furthermore, we have found no case where an
indemnity clause was held to be "immaterial" under section 2-
207. These factors lead us to predict that Washington
courts would hold that ARCO's indemnity clause was a
material alteration of the parties' contract under section 2-
207(2)(b) of the UCC.23 Therefore, we hold that the clause
is unenforceable as a matter of law.
4. Alternative Basis for Incorporation
of the Indemnity Clause: Express Agreement.
Notwithstanding the above analysis, ARCO's
indemnity clause may be part of the parties' contract
provided they expressly agreed to it. That is, if the
indemnity provision was expressly agreed to by Western, and
thus the confirmation was merely a codification of the
parties' earlier agreement, the clause is binding and
section 2-207 analysis is unnecessary.24 Whether ARCO and
Western expressly agreed to the indemnity clause is a
The entirety of the evidence presented by ARCO
concerning the formation of its contract with Western
consisted of an affidavit by a former order clerk stating
that documents "acknowledging or confirming a customer's
order" were sent to Western. Even ARCO acknowledged the
absence of evidence concerning contract formation in its
briefing of the issue of waiver:
Had Western . . . raised the issue about its negotiations
with ARCO . . . or otherwise called attention to this issue,
ARCO . . . would have had the opportunity to conduct
discovery regarding the course of dealing and/or actual
negotiations between the parties. Since Western . . .
conceded that the indemnity provision was a part of the
contract, however, there was no need to try to develop such
Since there is an absence of evidence of an oral
agreement, it can not be determined whether the parties
expressly negotiated for and agreed to the indemnity clause.
Thus, we conclude that summary judgment on this alternative
theory is not appropriate.
C. The Superior Court Properly Denied ARCO's
Alternative Bases for Summary Judgment.
On cross-appeal, ARCO contends that it is entitled
to summary judgment for several additional reasons not
relied upon by the superior court. We now address these
1. Western Substantially "Altered" the
In its brief, ARCO argues that the superior court
failed to consider an alternate basis for granting summary
The trial court addressed the question of Western['s] . . .
negligence and held that ARCO . . . had raised evidence of
Western['s] . . . negligence sufficient to defeat
Western['s] . . . motion for summary judgment. However, the
trial court did not explicitly address the significance of
non-negligent "active participation" or "contribution."
. . . .
The "active participation" or "contribution" by Western . .
. in this case, even if such conduct does not constitute
negligence, should also bar any recovery by Western . . . .
Because Western . . . manufactured and marketed its
insulation board, Western . . . had to have "contributed to"
and "actively participated" in any alleged defect in the
"Insulfoam" that it sold.
(Emphasis added.) By stating as such, ARCO is asking us to
consider the significance of Western's material alteration
of the beads.
ARCO's assertion that Western actively
participated in or contributed to any alleged defect in the
Insulfoam by altering the beads is an affirmative defense.
As ARCO correctly notes, we have held that "[a]ctive
participation by the indemnitee in the indemnitor's wrong
may preclude recovery on an implied contract theory."
Kandik I, 795 P.2d at 804; see also D.G. Shelter Prods., 684
P.2d at 842. However, based on this premise, ARCO
mistakenly concludes that Western is precluded from seeking
As for whether Western's "material alteration" of
the beads precludes its claim for implied indemnity, the
Restatement (Second) of Torts is instructive. It states:
Further Processing or Substantial
Change. . . . It seems reasonably clear
that the mere fact that the product is
to undergo processing, or other
substantial change, will not in all
cases relieve the seller of liability
under the rule stated in this Section.
If, for example, raw coffee beans are
sold to a buyer who roasts and packs
them for sale to the ultimate consumer,
it cannot be supposed that the seller
will be relieved of all liability when
the raw beans are contaminated with
arsenic, or some other poison. . . . On
the other hand, the manufacturer of
pigiron, which is capable of a wide
variety of uses, is not so likely to be
held to strict liability when it turns
out to be unsuitable for the child's
tricycle into which it is finally made
by a remote buyer. The question is
essentially one of whether the
responsibility for discovery and
prevention of the dangerous defect is
shifted to the intermediate party who is
to make the changes. No doubt there
will be some situations, and some
defects, as to which the responsibility
will be shifted, and others in which it
Restatement (Second) of Torts 402A, cmt. p (1977).
Though the coffee bean example posed above does
not involve a design defect, whereas Western's allegation
does, the necessary analysis remains unchanged. "Material
alteration," per se, does not preclude indemnity. Instead,
the necessary focus is on the alleged defect and whether the
alteration actively contributed to it. Applied to this
case, if, as a result of Western's processing, the beads
became more flammable, and this increased flammability
played a role in causing the fire, then Western "actively
contributed" to the defect.
Though normally a question of fact, in this
instance ARCO has effectively conceded that Western did not
actively contribute to the alleged defect, the flammability
of the beads themselves. Rather, ARCO argues as follows:
ARCO['s] . . . defense is based upon the
proposition that Western . . .
manufactured an insulation product, not
that it altered the beads so as to
increase their flammability
characteristics. The flammability
characteristics of the beads have
virtually no bearing upon the
flammability characteristics of any
insulation board as installed or
maintained by the [underlying]
plaintiffs. The flammability
characteristics of the insulation board
depends upon the application of the
insulation board and the measures
employed by users such as the plaintiffs
to protect the insulation board from
In essence, ARCO is arguing that Western, either
through nonfeasance or malfeasance, caused the ultimate
harm. In so doing, ARCO is making two, somewhat implicit,
arguments. First, it is arguing that its beads were not
defective. That is, in the words of the Restatement, "The
seller is not liable when he delivers the product in a safe
condition, and subsequent mishandling or other causes make
it harmful by the time it is consumed." Restatement
(Second) of Torts 402A, cmt. g (1977). However, whether or
not ARCO's beads were defective when delivered is a
threshold inquiry, not an affirmative defense, which we
discuss in further detail infra, III(C)(2) & (C)(3).
Second, ARCO is arguing that, notwithstanding any
flammability defect in its beads, Western's subsequent
processing of the beads into insulation either caused or
contributed to the fire. That is, ARCO argues that
Western's marketing, labeling, and inadequate sheathing of
its insulation end product, rather than any inherent
flammability characteristic of the beads, caused or
contributed to the fire. As we stated in Kandik II, "A
traditional rule of indemnity, however, is that an
indemnitee is not entitled to recover if the indemnitee has
actively participated in the wrongful acts that caused the
damage." 823 P.2d 632, 638 (Alaska 1991).26
Whether or not Western's subsequent processing of
the beads, rather than the beads themselves, caused or
contributed to the damage -- the fire -- is a factual
inquiry. Since the record does not dispositively
demonstrate that it was Western's subsequent manufacturing
processes that caused or contributed to the fire, ARCO's
affirmative defense is not ripe for summary judgment.27
2. Who Has Burden of Proof?
ARCO argues that the burden of proof test
established by this court in Caterpillar Tractor Co. v.
Beck, 593 P.2d 871 (Alaska 1979), is inappropriate in this
case. Beck states:
We hold that the plaintiff need only
show that he was injured and that the
injury was proximately caused by the
product's design. The defendant may
then avoid liability for a defectively
designed product by proving by a
preponderance of the evidence that, "on
balance, the benefits of the challenged
design outweigh the risk of danger
inherent in such design."
Id. at 885 (quoting Barker v. Lull Engineering Co., Inc.,
573 P.2d 443, 458 (Cal. 1978)).
ARCO contends that Beck establishes the "burdens
of proof as between an ordinary consumer plaintiff and
manufacturer." Thus, "the rationale of that decision does
not apply to an implied indemnity claim by a manufacturer
against one of its raw material suppliers." The rationale
of Beck is clear. "Besides lessening the burdens of
plaintiff's prima facie case, this allocation puts the
burden of producing the relevant complex and technical
evidence on the party who has the most access to and is the
most familiar with such evidence." Id. at 886.
Contrary to ARCO's assertion, the rationale of
Beck does apply and the superior court correctly allocated
the burden of proof upon ARCO as the bead manufacturer. The
product in question in this case is ARCO's beads, not
Western's Insulfoam. Western must prove that the beads are
defective if it is to receive indemnity. Furthermore, in
accordance with the rationale of Beck, ARCO is the "party
who has the most access to and is the most familiar with"
the relevant evidence of the quality of the beads since it
ARCO contends that this case represents an
anomaly. It cites the fact that Western's officers were
active members of industry groups that conducted in-depth
studies regarding polystyrene beads.28 However, the Beck
standard for allocating burdens of proof nonetheless applies
in this case because, although Western may be "fully
knowledgeable about the combustion characteristics of
expandable polystyrene beads," ARCO is no less
3. Western Offered No Proof as to
As discussed in detail in section III(A), supra,
Western must prove that ARCO's beads were defective in order
to obtain indemnity. It was for this reason that the
superior court correctly denied Western's own motion for
summary judgment. In its cross-appeal, ARCO argues that
Western failed to offer any proof as to whether ARCO's beads
were defective. In support of this contention, ARCO quotes
the superior court's finding that Western "offered no proof
of defect in ARCO's product." The superior court, however,
made this finding in the context of considering Western's
motion for summary judgment. When it considered ARCO's
cross-motion for summary judgment, the superior court
Applying the above principles, Western .
. . need only show that its injury was
proximately caused by the product's
design; in other words, that it paid the
settlement due to the flammability
characteristics of the polystyrene
beads. . . . Proximate cause is a
question of fact which must be
established if Western . . . is to be
entitled to indemnity.
As there is a question of fact to [be]
established, such must be determined by
the trier of fact. Summary judgment
based upon ARCO's contention that
Western . . . has failed to prove the
polystyrene foam was defective is thus
(Citations omitted.) Thus, though Western did not offer
sufficient proof of defect to support its own motion for
summary judgment, it did offer sufficient proof of defect to
defeat ARCO's cross-motion for summary judgment.
4. Western as an "Innocent"
In its cross-appeal, ARCO misconstrues the meaning
and application of the word "innocent" as used in Fairbanks
North Star Borough v. Kandik Construction, 795 P.2d 793, 803
(Alaska 1990) (Kandik I) ("an innocent party who merely
passes on an already defective product in the stream of
commerce is entitled to implied noncontractual indemnity
from the product producer"), vacated in part on other
grounds, 823 P.2d 632 (Alaska 1991). ARCO argues that since
Western manufactured and marketed Insulfoam and altered the
component beads, it is not "innocent" and thus is precluded
from asserting its implied indemnity claim. However,
"innocent," as applied in these cases refers to the general
proposition that a party's own negligence bars a claim for
implied indemnity. As such, it provides for an affirmative
defense and does not preclude Western from asserting an
5. Western's Settlement Included
ARCO argues that Western should not be entitled to
recover implied indemnity since Western paid to settle a
negligence claim. ARCO argues that the settlement
establishes negligence on the part of Western, and thus bars
Western from seeking indemnification from ARCO. However,
ARCO's argument, an estoppel claim, is misguided. Western's
settlement offer with the NSB explicitly denies any fault.
It states, "Releasors understand that this settlement is in
compromise of a disputed claim and that the payment is not
to be construed as an admission of liability on the part of
the persons and entities hereby released . . . ." (Emphasis
added.) In short, Western's settlement agreement with the
NSB in no way establishes Western's liability.
D. Attorney's Fees.31
The superior court held that ARCO's express
indemnity provision controlled, and thus awarded full
attorney's fees to ARCO.32 Whether the award of attorney's
fees was proper is entirely dependent upon whether ARCO's
indemnity provision was part of the parties' agreement.
Since, for reasons discussed above, we have concluded that
the indemnity provision is unenforceable, the superior
court's award of attorney's fees must be set aside.
Western's motion for summary judgment was properly
denied because (1) It failed to prove that ARCO's beads were
defective; and (2) ARCO has sufficiently raised a genuine
issue of material fact as to Western's independent
negligence. ARCO's motion for summary judgment was
improperly granted since the express indemnity provision
relied upon is unenforceable. Furthermore, no alternative
ground advanced by ARCO in its cross-appeal supports summary
judgment. Accordingly, the judgment of the superior court
is AFFIRMED in part, REVERSED in part, and REMANDED for
further proceedings consistent with this opinion.
1Western is a division of Premier Industries, Inc.
2ARCO was not the sole supplier of insulation beads to
Western. In fact, during the relevant period, another
company, BASF, supplied approximately four times as many
beads as ARCO. However, Western's experts concluded that
ARCO was the "probable source" of the beads used in the
insulation that was installed at the Wainwright/Alak School.
ARCO contested the issue of causation below and raises it
again on cross-appeal.
3Specifically, in their complaint, Western and Lewis
[S]hould Defendants and Third-Party
Plaintiffs be found liable to the
Plaintiffs . . . for fire damage to the
school and its contents, Defendants and
Third-Party Plaintiffs are entitled to
indemnification from . . . ARCO . . . as
manufacturer of the polystyrene beads
from which Insulfoam is formed and
head of the product distribution
Additionally, because of [its] status as
the initial manufacturer of polystyrene
beads and head of the product
distribution chain of an allegedly
defective product, ARCO . . . [is]
required to reimburse Defendants and
Third-Party Plaintiffs for . . . full
indemnification for any reasonable
settlement figure that Defendants and
Third-Party Plaintiffs may have to pay
to protect themselves in this litiga
4In reviewing the appropriateness of summary judgment, this
court reviews the evidence and draws all reasonable
inferences of fact in the light most favorable to the non-
moving party. Wright v. State, 824 P.2d 718, 720 (Alaska
1992). Summary judgment will be upheld when the evidence
presents no genuine issue of material fact and the moving
party is entitled to judgment as a matter of law. Saddler
v. Alaska Marine Lines, Inc., 856 P.2d 784, 787 (Alaska
1993); see also Alaska R. Civ. P. 56(c).
5Since Lewis was fully indemnified by Western, Western is
the real party in interest. Neither Western nor Lewis
claims otherwise in this appeal. Consequently, for purposes
of discussion, Western is the sole third-party plaintiff.
6Western claims that Heritage v. Pioneer Brokerage & Sales,
Inc., 604 P.2d 1059 (Alaska 1979), and DG Shelter Prods. Co.
v. Moduline Indus., Inc., 684 P.2d 839 (Alaska 1984), are
7Similarly, in Vertecs Corp. v. Reichhold Chems., Inc., 661
P.2d 619 (Alaska 1983), we stated:
In Heritage, the duty to indemnify was
given; the question was whether that
included a duty to defend. . . . In the
present case, the question is whether a
duty to indemnify exists at all. Merely
because Heritage states that contractual
and implied indemnity should be treated
the same once a duty to indemnify exists
does not mean that language from a
contractual indemnity case may be
bootstrapped into providing a duty to
indemnify in a noncontractual situation.
Id. at 623 n.8 (emphasis in original).
8Western's 1975 annual report states:
Insulfoam EPS is manufactured in a two-stage
process from expanded polystyrene beads. In
the first stage, these small spheres are
subjected to high temperature steam, causing
the incorporated blowing agent to volatilize
and the individual beads to expand. The "pre-
puff" is allowed to stabilize and then fed
into a large closed mold. Steam is
reintroduced and the heat produces a
secondary expansion that fuses the beads into
a homogeneous block of expanded polystyrene.
The standard block is molded in width 2' to
4' and length 8' to 24' with any thickness
available up to 33".
9As for Western's claim that such a holding creates perverse
incentives, its fears are unjustified. Foregoing settlement
and intentionally losing its underlying case would not
necessarily bind ARCO as an indemnitor. Instead, Western
would have to prove that ARCO's beads were defective, as
well as defeat ARCO's numerous affirmative defenses, to
10ARCO's evidence, when viewed in the light most favorable to
it, indicates that Western may have been negligent in the
marketing, labeling, and coating of its end product.
11In considering Western's motion for summary judgment, the
superior court stated that Western "must still show that
ARCO supplied a defective product and that Western . . . was
not negligent." (Emphasis added.) Western correctly notes
that the superior court erred when it saddled Western with
the burden of proving an absence of negligence on its part.
As an affirmative defense, the burden rests with ARCO.
Koehring, 763 P.2d at 504, 508. However, this does not
alter the fact that ARCO sufficiently raised the issue of
Western's negligence so as to defeat Western's motion for
12To obtain summary judgment, ARCO must show the absence of
genuine issues of material fact and that it is entitled to
judgment as a matter of law. Alaska R. Civ. P. 56(c).
Thus, if ARCO did not show that Western expressly agreed to
the indemnification clause, discussed infra, III(B)(4), it
must demonstrate some legal basis why the clause became part
of the parties' contract. Section 2-207 of the UCC, as
discussed infra, is the only legal means by which an
additional clause contained in an acceptance or written
confirmation not previously expressly agreed to by the
parties can be incorporated.
13See, e.g., Ehredt v. DeHavilland Aircraft Co. of Canada,
Ltd., 705 P.2d 446, 453 (Alaska 1985); Hinchee v. Security
Nat'l Bank, 624 P.2d 821, 822 n.1 (Alaska 1981).
14Restatement (Second) Conflict of Laws 173, cmt. b (1988),
states, "The existence of a contractual right to indemnity,
and the rights created thereby, are determined by the law
selected by application of the rules of 187-188."
Accordingly, 188 states:
(1) The rights and duties of the parties
with respect to an issue in contract are
determined by the local law of the state
which, with respect to that issue, has the
most significant relationship to the
transaction and the parties . . . .
(2) In the absence of an effective choice of
law by the parties (see 187), the contacts
to be taken into account . . . to determine
the law applicable to an issue include:
(a) the place of contracting,
(b) the place of negotiation of the
(c) the place of performance,
(d) the location of the subject matter
of the contract, and
(e) the domicil, residence,
nationality, place of incorporation and place
of business of the parties.
These contacts are to be evaluated according
to their relative importance with respect to
the particular issue.
(3) If the place of negotiating the contract and
the place of performance are in the same state,
the local law of this state will usually be
applied . . . .
15See generally 1 James J. White & Robert S. Summers, Uniform
Commercial Code 1-3, at 40-42 (3d ed. 1988 & Supp. 1990)
[hereinafter White & Summers] (stating that in determining
whether a contested clause is incorporated into the parties'
agreement under section 2-207 of the UCC, a court must first
determine whether the invoice or confirmation containing the
clause operates as an acceptance or counteroffer; this
threshold characterization -- acceptance vs. counteroffer --
often controls whether a contested term is incorporated).
16In Roto-Lith the court held that a confirmation form such
as ARCO's operates as a counteroffer, and a buyer's
subsequent receipt of goods operates as an acceptance of the
counteroffer, including any contested terms. Roto-Lith, 297
F.2d at 500. Except in the First Circuit -- where Roto-Lith
liberally construes counteroffers -- confirmations such as
ARCO's are routinely held to operate as acceptances, rather
than counteroffers, and contested clauses thus incorporated
only if immaterial under section 2-207(2)(b). For example,
in Dorton v. Collins & Aikman Corp., 453 F.2d 1161 (6th Cir.
1972), the court held that a provision which stated, "The
acceptance of your order is subject to all the terms and
conditions on the face and reverse side hereof," was not
expressly conditional and thus operated as an acceptance
rather than a counteroffer. Significantly, the Dorton
proviso is almost identical to ARCO's. See generally White
& Summers at 41-42.
17Neither party disputes its status as a "merchant."
18Though neither Washington courts nor this court have
defined "materiality" in the context of section 2-207(2)(b),
other courts have. See Comark Merchandising, Inc. v.
Highland Group, Inc., 932 F.2d 1196, 1203 n.8 (7th Cir.
1991) ("'material alteration' is a question of fact to be
resolved by the circumstances of each particular case");
Trans-Aire Int'l, Inc. v. Northern Adhesive Co., Inc., 882
F.2d 1254, 1261 (7th Cir. 1989) ("Generally, whether an
additional term 'materially alters' a contract should not be
determined upon a summary judgment motion because the
inquiry is merely part of a process to ascertain parties'
bargaining intent."); Hatzlachh Supply Inc. v. Moishe's
Elecs., Inc., 828 F. Supp. 178, 183 (S.D.N.Y. 1993) ("modern
day approach favors a case-by-case materiality
determination"), order vacated on other grounds, 848 F.
Supp. 25 (S.D.N.Y. 1994), aff'd, 50 F.3d 4 (2d Cir. 1995).
19Comment four provides examples of terms that are material:
Examples of typical clauses which would
normally "materially alter" the contract
and so result in surprise or hardship if
incorporated without express awareness
by the other party are: a clause
negating such standard warranties as
that of merchantability of fitness for a
particular purpose in circumstances in
which either warranty normally attaches;
a clause requiring a guaranty of 90% or
100% of deliveries in a case such as a
contract by a cannery, where the usage
of the trade allows greater quantity
leeways; a clause reserving to the
seller the power to cancel upon the
buyer's failure to meet any invoice when
due; a clause requiring that complaints
be made in a time materially shorter
than customary or reasonable.
Comment five provides examples of terms that are not
Examples of clauses which involve no
element of unreasonable surprise and
are to be incorporated in the contract unless notice of
objection is seasonably given are: a clause setting forth
and perhaps enlarging slightly upon the seller's exemption
due to supervening causes beyond his control, similar to
those covered by the provision of this Article on merchant's
excuse by failure of presupposed conditions or a clause
fixing in advance any reasonable formula of proration under
such circumstances; a clause fixing a reasonable time for
complaints within customary limits, or in the case of a
purchase for sub-sale, providing for inspection by the
subpurchaser; a clause providing for interest on overdue
invoices or fixing the seller's standard credit terms where
they are within the range of trade practice and do not limit
any credit bargained for; a clause limiting the right of
rejection for defects which fall within the customary trade
tolerances for acceptance "with adjustment" or otherwise
limiting remedy in a reasonable manner (see Sections 2-718
UCC 2-207, cmts. 4 & 5 (1987).
20See Eskay Plastics, Ltd. v. Chappell, 660 P.2d 764, 767
(Wash. App. 1983) (holding "that the burden of proof of the
existence of these conditions rests on the party who will
21Rottinghaus, 666 P.2d at 905 ("Since the [warranty
disclaimers] materially alter the contracts, they may not be
treated as additional terms which became part of the
contracts and are therefore not enforceable."). Also note,
unlike the instant case, in Rottinghaus, the disputed clause
appeared on written
confirmations that were actually signed by both parties.
Nonetheless, the court held that, as a material alteration,
the clause was unenforceable. Id.
22See Union Carbide Corp. v. Oscar Mayer Foods Corp., 947
F.2d 1333, 1335 (7th Cir. 1991); Trans-Aire Int'l, 882 F.2d
at 1260-61; St. Charles Cable TV, Inc. v. Eagle Comtronics,
Inc., 687 F. Supp. 820, 827-28 (S.D.N.Y. 1988), aff'd, 895
F.2d 1410 (2d Cir. 1989); Charles J. King, Inc. v. Barge "LM-
10", 518 F. Supp. 1117, 1120-21 (S.D.N.Y. 1981); Maxon Corp.
v. Tyler Pipe Indus., Inc., 497 N.E.2d 570, 576-77 (Ind.
App. 1986); Brown Mach. v. Hercules, Inc., 770 S.W.2d 416,
421 (Mo. App. 1989); Resch v. Greenlee Bros. and Co., 381
N.W.2d 590, 593 (Wis. App. 1985).
23Cf. Sparling v. Hoffman Constr. Co., Inc., 864 F.2d 635,
641 (9th Cir. 1988) (court "assum[ed] [that] Washington
courts would accept the traditional view" when Washington
law was silent).
24Section 2-207 analysis is triggered only if the indemnity
clause was "additional to or different from" the term
originally agreed to. See, e.g., AS 45.02.207 and Wash.
Rev. Code 62A.2-207 (1994).
25We are not bound by the reasoning of the trial court and
thus are free to affirm a grant of summary judgment on
alternative grounds. Wright, 824 P.2d at 720. Any matter
appearing in the record will be considered in defense of the
judgment, even if not passed upon by the lower court. Id.
26See also Allison Steel Mfg. Co. v. Superior Court, 511 P.2d
198, 202-03 (Ariz. App. 1973) ("It is also true that the
retailer of the product, absent active participation in the
creation of the defects causing the injury, may seek
indemnity from the manufacturer whose processes created the
defect.") (emphasis added), quoted in Koehring, 763 P.2d at
504 n.7; cf. Hiller v. Kawasaki Motors Corp., U.S.A., 671
P.2d 369, 372 (Alaska 1983) ("A manufacturer, therefore, may
introduce evidence that its product was substantially
altered after leaving its possession, which evidence may
rebut or overcome the plaintiff's showing that his injuries
were a result of the product defect.") (emphasis added).
27See Prince v. Parachutes, Inc., 685 P.2d 83, 89 (Alaska
1984) (stating that though "there are multiple factors which
may have contributed to the accident[,] . . . we cannot as a
matter of law hold that [appellee's] alleged failure to warn
was not also a proximate cause of the accident").
Western . . . was fully knowledgeable
about the combustion characteristics of
both the expandable polystyrene beads
and its own Insulfoam insulation. That
knowledge [was] gained from Western['s]
. . . activities as a member of The
Society of Plastics Industry (SPI) and
as a sponsor of full scale flammability
29ARCO had representatives participating on the panels of
these same industry groups.
30ARCO is entitled to assert, and in fact has asserted, that
Western's independent negligence precludes indemnity. See,
note 10, supra. However, as the superior court correctly
stated when considering ARCO's cross-motion for summary
judgment, "[T]his is only evidence and issues of material
fact regarding alleged negligence must be determined by the
trier of fact. Summary judgment is inappropriate on th[is]
basis." Consequently, ARCO's evidence, though sufficient to
defeat Western's motion for summary judgment, was
insufficient to support its own motion for summary judgment.
See Lillegraven v. Tengs, 375 P.2d 139, 142 (Alaska 1962)
("Issues of negligence are ordinarily not susceptible of
summary adjudication, but should be resolved by trial in the
31"Review of attorney's fees based on indemnity is a question
of law which we may review de novo." Koehring, 763 P.2d at
509 (citations omitted).
32In Manson-Osberg Co. v. State, 552 P.2d 654 (Alaska 1976),
As to the matter of attorney's fees, we
find that there was no error in an award
of full attorney's fees in this matter.
While Civil Rule 82 would normally only
allow an award which would "partially
compensate" the prevailing party, we
hold that the "hold harmless" indemnity
clause should include the cost of
recovery on the clause itself, as a
matter of policy.
Id. at 660 (footnote omitted).