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No Duty to Indemnify Claims Barred by Statute of Limitations

March 11, 2013

In Big Dutchman Inc. v. Midwest Livestock Systems Inc., Case No. 1:12-cv-288 (Quist, J.), the court addressed whether a settlement agreement required indemnification of claims that were barred by the statute of limitations. Defendant Midwest purchased a number of cage systems used to house chickens from Big Dutchman in the late 1990s/early 2000s. These cage systems were installed by Midwest at Midwest’s customers’ facilities. Issues arose with the cage brackets prematurely rusting. Big Dutchman and Midwest entered an indemnification agreement in 2006 under which Midwest agreed to indemnify Big Dutchman for certain customer claims for rusting brackets.

In 2011 two customers of Midwest started complaining about rust issues with the cages’ legs and cross-arms. Big Dutchman demanded indemnification from Midwest. Midwest refused to provide indemnification, asserting that the indemnification agreement only covered claims for rusting brackets, not rusting in other areas of the cages. Big Dutchman proceeded to settle the claims by these two Midwest customers.

After a discussion of whether the rust claims fell within the scope of the indemnification agreement, the court examined whether Midwest had any liability for the settlements that Big Dutchman entered into with these two customers.  The court concluded that Big Dutchman’s settlements were unreasonable as a matter of law because both Big Dutchman and Midwest had a complete defense to any lawsuit by the customers under the applicable statute of limitations. Because the cages were installed in the late 1990s/early 2000s, the statute of limitations for any claim by those customers had long expired.

The court held that “when the indemnitee has an absolute defense to the claim, any settlement will be deemed unreasonable as a matter of law.” Op. at 10 (citation omitted). Because there was no potential exposure to Big Dutchman, any settlement by Big Dutchman was deemed unreasonable as a matter of law and was not subject to indemnification by Midwest.

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