Cunningham v. Goettl Air Conditioning Inc
In Cunningham v. Goettl Air Conditioning Inc.,194 Ariz. 236, 240, P 19, 980 P.2d 489, 493 (1999), there was an indemnity clause in a lease agreement. Id. at 237, P 1, 980 P.2d at 490.
The clause required Goettl, the tenant, to indemnify and hold harmless WSI, the landlord. Id.
WSI was sued in tort following an injury on the property. Id. WSI tendered the defense to Goettl, which tender was declined. Id. at 237-38, P 3, 980 P.2d at 490-91.
WSI and the tort claimant then entered into a stipulated judgment with a covenant not to execute against WSI. Id. at 238, P 5, 980 P.2d at 491.
In determining the validity of the agreement, the court set forth that "because section 57 of the Restatement directly addresses the issue before us, we look to the Restatement to determine the effect on Goettl of the judgment against WSI, its indemnitee." Id. at 239, P 14, 980 P.2d at 492.
As that section holds, if the indemnitor was "given reasonable notice of the action and an opportunity to assume or participate in its defense," it is then "estopped from disputing the existence and extent of the indemnitee's liability to the injured person." Restatement (Second) of Judgments 57(1).
When the indemnitee defends the action "with due diligence and reasonable prudence," the indemnitor is "precluded from relitigating issues determined in the action against the indemnitee." Id.
In Cunningham, our supreme court discussed when a stipulated judgment in favor of a third person and against an indemnitee could bind the indemnitor.
Applying Restatement (Second) of Judgments 57 (1982), the court held that when an indemnity obligation exists, an indemnitor will be barred from disputing the existence and extent of its indemnitee's liability to a third person if the indemnitor had reasonable notice of the third person's action, refused to assume or participate in the indemnitee's defense and the indemnitee defended the action with due diligence and reasonable prudence. 194 Ariz. at 240, P 19, 980 P.2d at 493.
The indemnitor will also be barred from relitigating issues determined in the action against the indemnitee. Id.