Court allows relief under Crime Victims Statute

Jennifer Nelson
January 1, 2008
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Contract provisions that exempt a party from liability under the Indiana Crime Victims Statute are void when the party violates public policy, the Indiana Court of Appeals ruled Friday.

In The State Group Industrial (USA) Unlimited v. Murphy & Associates Industrial Services, No. 82A04-0703-CV-158, State Group appealed the trial court judgment denying the company's request for relief under Indiana Code 34-24-3-1, the Crime Victims Statute. The trial court awarded State Group actual damages, but denied relief under the statute based on a contract provision between State Group and Murphy & Associates (M&A).

M&A prepared an estimate for State Group regarding supplying materials for a control system project in Texas in which State Group was the prime contractor. The project aimed to ensure the safety of a community's drinking water. At a meeting between the two companies, M&A confirmed that salinity probes, which are necessary components for the control system, would be part of the contract and M&A would provide engineering for the start-up process.

Once M&A began submitting invoices to State Group for payment, there were discrepancies between the invoices and the original contract. The two companies did not discuss changing the terms of the contract and M&A misrepresented to State Group that it had paid for materials in full and no other party had claim on the materials for the control system.

State Group paid the invoices in full, but did not receive the salinity probes and necessary cabling. State Group was forced to hire a replacement subcontractor to obtain the materials, including necessary software, which M&A was supposed to provide. M&A filed a complaint against State Group alleging breach of contract. State Group counterclaimed, saying that M&A breached the contract. State Group also claimed fraud, and sought damages under the Crime Victims Statute.

The trial court found M&A breached the contract and knowingly made numerous false or misleading statements, and awarded State Group actual damages.

The trial court concluded M&A violated I.C. 35-43-5-3, committing deception, which allowed State Group to bring an action under the Crime Victims Statute. The issue of whether a contract provision can exempt a party from liability under this statute for violating public policy is something Indiana hasn't ruled on, wrote Judge Margret Robb. Other states have ruled that a party may not contract against liability for intentional tortuous acts.

Other states' courts have ruled public policy violations are not included in contract liability protection clauses when the conduct is intentional, a matter of gross negligence, or willful and wanton misconduct. The Indiana appellate court is more likely to hold an exculpatory clause to be against public policy when it affects public interest in utilities, she wrote in a footnote.

Recovery under the Crime Victims Statute is not based on breach of contract, but must be predicated on an independent tort, wrote Judge Robb. Under Indiana law, a contract may release a party from liability for damages caused by its own negligence, but these clauses must specifically and explicitly refer to the negligence of the party seeking release from liability, Avant v. Cmty. Hosp., 826 N.E.2d 7, 10 (Ind. Ct. App. 2005).

Release from liability cannot happen if the contract provisions are phrased in general terms. The indemnification clause in the contract between State Group and M&A was not specific, as it did not refer to the criminal or fraudulent conduct on the part of M&A, thus M&A was not protected from liability under the Crime Victims Statute.

The appellate court remanded the case to the trial court with instructions that it exercise its discretion in determining whether to award damages and the amount of any damages.

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