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Indemnification Clause Does Not Protect Railroad From $16 Million Judgment

Indemnification is an important concept in personal injury law. Basically, if A indemnifies B, and C sues B for negligence and wins, B can then sue A to recover some or all of the cost of paying the damage award to C. Business contracts often contain indemnification clauses to address potential personal injury lawsuits arising from the relationship.

CSX Transportation, Inc. v. General Mills, Inc.

Here is a recent example of how courts apply Georgia law to indemnification clauses. This dispute involved an alleged breach of contract. The parties were CSX Transportation, the railroad company, and cereal manufacturer General Mills, which operates a plant in Newton County. General Mills hired CSX to construct a private “sidetrack” connecting its plant with CSX’s main railroad line. Under the agreement, General Mills had the right to handle some of the “switching” operations—the process of moving and connecting railroad cars to a train—independent of CSX. Accordingly, the contract contained an indemnification clause whereby General Mills “assume[d] all risk of loss, damage, cost, liability, judgment and expense (including attorneys’ fees) in connection with any personal injury” arising from any switching it oversaw.

This clause became an issue after CSX was held liable for an accident on the General Mills’ sidetrack. In 2005, CSX delivered a rail car containing grain to the General Mills plant. Two General Mills employees then performed a switching operation to move the car. In the process, the rail car rolled away and crashed into two other rail cars. One of the employees was seriously injured to the point where he lost the use of his legs.

The employee sued CSX for negligence. Following two jury trials and a settlement conference, CSX ended up paying the employee $16 million in damages. Notably, the second jury found CSX was “100% liable” for the accident.

CSX then sued General Mills, arguing the latter was contractually obligated to indemnify the former for the $16 million judgment paid to the employee. General Mills disagreed and moved to dismiss the lawsuit. And, in a judgment entered on February 3 of this year, U.S. District Judge Thomas W. Thrash, Jr., of Atlanta sided with General Mills.

Judge Thrash explained the indemnification clause at issue did not require General Mills to pay a judgment arising from CSX’s own negligence. Under Georgia law, “for a contract to provide for indemnification for losses stemming from the indemnitee’s negligence, the contract must meet a heightened specificity requirement.” In other words, unless the contract expressly said General Mills was liable for CSX’s negligence, it could not be held responsible. Even though the indemnification clause states General Mills indemnified CSX for “all” risks arising from its switching operations, Judge Thrash said that did not meet Georgia’s “heightened specificity” requirement.

Now, had both CSX and General Mills been at fault—and General Mills was never a defendant in the employee’s personal injury lawsuit—the indemnification clause would have allowed CSX to seek full indemnification from General Mills. But, again, Judge Thrash said Georgia law was clear that, given CSX had been found “100% liable” for the accident, General Mills was under no obligation to indemnify it.