author: STREIT, Justice. NEUMAN, Justice

text:
    RACING ASSOCIATION OF CENTRAL IOWA, Iowa Greyhound Association, Dubuque Racing Association, Ltd., and Iowa West Racing Association, Appellants, v. Michael FITZGERALD, Treasurer, State of Iowa, Appellee.
    No. 01-0011.
    Supreme Court of Iowa.
    June 12, 2002.
    Rehearing Denied Aug. 6, 2002.
    As Amended Sept. 6, 2002.

      Mark McCormick, Thomas L. Flynn, and Edward M. Mansfield of Belin, Lam-son, McCormick, Zumbach and Flynn, P.C., Des Moines, for appellant Racing Association of Central Iowa.
    Gerald Crawford and Brad Schroeder of the Crawford Law Firm, Des Moines, for appellant Iowa Greyhound Association.
    Stephen C. Krumpe of O’Connor & Thomas, P.C., Dubuque, for appellant Du-buque Racing Association, Inc.
    Lawrence P. McLellan of Sullivan & Ward, P.C., Des Moines, for appellant Iowa West Racing Association.
    Thomas J. Miller, Attorney General, and Jeffrey D. Farrell and Jean M. Davis, Assistant Attorneys General, for appellee.
   STREIT, Justice.

Iowa racetracks challenge legislation that significantly increased the tax on racetracks, but not on riverboats. The district court upheld the unequal taxing scheme finding the state has a legitimate interest in promoting the riverboat industry and the economy of river towns. Because we find no rational basis exists for this differential tax treatment, we affirm in part, reverse in part, and remand.

I. Background and Facts

The Racing Association of Central Iowa operates Prairie Meadows Racetrack and Casino in Altoona, Iowa. Dubuque Racing Association and Iowa West Racing Association operate racetracks in Dubuque and Council Bluffs, Iowa, respectively. Iowa Greyhound Association is an organization of greyhound owners that races at Du-buque Greyhound Park in Dubuque and at Bluffs Run in Council Bluffs. The Racetracks sued the Treasurer of the State of Iowa (the “State”), asserting the wagering tax rate on racetracks is a violation of their equal protection rights under both the Federal Constitution and the Iowa Constitution.

Iowa authorizes two types of gambling establishments. Appellants are members of the first class of establishment — the racetrack — and are authorized by statute to conduct two types of gambling. They may engage in wagering on dog or horse races pursuant to Iowa Code section 99D.11 (1999). Racetracks accept wagers on live races at the track or on simultaneous telecast races approved by the Iowa Racing and Gaming Commission. Racetracks may operate slot machines, but they may not operate other games of chance or video machines. Iowa Code § 99F.1(9).

The second type of gambling establishment is excursion gambling boats (“riverboats”). Riverboats may not offer wagering on dog or horse races, but may offer a larger variety of other gambling games, including table games, video machines, and slots. Id.

The issue in this case centers around the differential tax rate based on gross receipts generated at racetracks and riverboats. In 1994, the Iowa legislature enacted legislation designed to alleviate the stress put on the Iowa riverboat and racetrack industries, as both were losing significant revenue. This legislation permitted racetracks to operate slot machines and eliminated the wager and loss limits to assist in increasing revenue. Iowa Code §§ 99F.4A, 99F.2. Finally, the legislature adopted a higher wagering tax rate on racetracks. Iowa Code § 99F.11(1).

The riverboats are taxed

at the rate of five percent on the first one million dollars of adjusted gross receipts, at the rate of ten percent on the next two million dollars of adjusted gross receipts, and at the rate of twenty percent on any amount of adjusted gross receipts over three million dollars.

Id. § 99F.11. The tax rate for racetracks is considerably higher than for riverboats. Beginning on January 1, 1997, the legislature set a rate of twenty-two percent on adjusted gross receipts over three million dollars from gambling games at racetracks. Id. This rate was set to increase by two percent each calendar year until the rate reaches thirty-six percent. Id. Racetracks are currently being taxed at thirty-two percent.

The Racetracks filed a petition in equity challenging the constitutionality of the differential tax imposed on racetracks. Specifically, they argue the taxing statute violates the equal protection clauses of the state the federal constitutions. The State filed a motion for summary judgment and the Racetracks filed a cross-motion for summary judgment. The district court denied the Racetracks’ cross-motion for summary judgment concluding they failed to negate every conceivable basis for upholding the taxing statute. Because the court found a rational basis upon which to uphold the constitutionality of the statute, it granted this part of the State’s motion for summary judgment. However, it denied the State’s motion asserting the court did not have authority to grant injunctive relief because it is not vested with power to determine the appropriate tax rate. The Racetracks appeal.

II. Scope of Review

We review the grant or denial of a motion for summary judgment for correction of errors at law. Grovijohn v. Virjon, Inc., 643 N.W.2d 200, 202 (Iowa 2002) (citations omitted). Summary judgment is appropriate “when the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law.” Iowa R. Civ. P. 1.981(3) (2002). The party moving for summary judgment must show no genuine issues of material fact exist. Wright v. Am. Cyanamid Co., 599 N.W.2d 668, 670 (Iowa 1999). We will view the record in the light most favorable to the non-moving party. Kelly v. Iowa Mut. Ins. Co., 620 N.W.2d 637, 641 (Iowa 2000).

III. The Merits

The Racetracks argue the trial court erred in holding the tax statute was constitutional. They argue the justifications given by the State and the district court in support of the statute do not satisfy the rational basis test. The State responds arguing racetracks and riverboats are dissimilar classes of activities which may be treated differently. However, if we find they are members of the same class, the State contends there is a legitimate state interest in treating racetracks differently than riverboats. In any event, the State argues the court is without authority to set the tax rate so it may not grant injunctive relief. We address each of these arguments in turn.

A. Constitutionality of the Tax Statute

The Racetracks argue the thirty-six percent tax imposed in Iowa Code section 99F.11 is unique, discriminatory, and confiscatory. In so arguing, the Racetracks cite the Equal Protection Clauses of both the federal and state constitutions. Before we begin our analysis of this issue, we briefly address the significance of invoking both the state and federal constitutions.

The federal Equal Protection Clause prohibits states from “deny[ing] ... any person within its jurisdiction the equal protection of the laws.” U.S. Const, amend XIV, § 1. The state Equal Protection Clause prohibits laws that “grant to any citizen, or class of citizens, privileges or immunities, which upon the same terms shall not equally belong to all citizens.” Iowa Const, art. I, § 6. We have said Iowa courts are to “apply the same analysis in considering the state equal protection claims as ... in considering the federal equal protection claim.” In re Morrow, 616 N.W.2d 544, 547 (Iowa 2000) (quoting State v. Ceaser, 585 N.W.2d 192, 196 (Iowa 1998)). With this principle in mind, we turn to the Racetracks’ equal protection argument.

We begin our discussion with the presumption Iowa Code section 99F.11 is constitutional. State v. Keene, 629 N.W.2d 360, 364 (Iowa 2001). The Racetracks have a heavy burden of proving beyond a reasonable doubt the statute is unconstitutional. Id. Specifically to overcome the presumption of legislative constitutionality, they must negate every reasonable basis upon which to uphold the statute. Id. We have said before the legislature acts with broad authority in the realm of taxation. Hearst Corp. v. Iowa Dep’t of Revenue & Fin., 461 N.W.2d 295, 305 (Iowa 1990). Despite this broad authority, rational basis review of a taxing scheme is not tantamount to no judicial review. Even in the area of taxation, the legislature must not act in a wholly arbitrary manner in classifying persons or otherwise engage in invidious discrimination. Great Atl. & Pac. Tea Co. v. Valentine, 12 F.Supp. 760, 765 (S.D.Iowa 1935); Fed. Land Bank of Omaha v. Arnold, 426 N.W.2d 153, 156 (Iowa 1988).

1. Are Racetracks and Riverboats Similarly Situated?

The first step in our constitutional analysis is to determine whether racetracks and riverboats are similarly situated plaintiffs singled out for differential treatment. The State suggests racetracks and riverboats are not within the same class of activities for purposes of equal protection. We disagree. While it is true some differences exist between the two gaming facilities, a “ ‘mere difference is not enough.’ It must be relevant or pertinent as well as rational.” Deadwood, Inc. v. North Carolina Dep’t of Revenue, 557 S.E.2d 596, 599 (N.C.Ct.App.2001) (citation omitted). Here, the State does nothing more than cite to mere differences. See, e.g., Bierkamp v. Rogers, 293 N.W.2d 577, 585 (Iowa 1980) (where passengers of automobiles were treated differently than passengers in other conveyances, the court found a violation of equal protection); Gleason v. City of Davenport, 275 N.W.2d 431, 435 (Iowa 1979) (though not the same, the court found an equal protection violation where charter cities were treated differently than other cities because no “special or unique needs” of charter cities justified the differential treatment). We find none of the differences sufficiently compelling to find racetracks and riverboats are not of the same class.

The State contends riverboats and racetracks are different classes simply because one is land-based whereas the other floats on water. At first blush, this is an appealing argument. However, in reality the essence of the differential treatment is not rooted in the dissimilar scenery surrounding the main activity at both facilities. Rather, the heart of the tax statute is in its disparate treatment of the main activity taking place at both riverboats and racetracks. That is, the essence of the tax is that it treats racetrack slot machines differently than riverboat slot machines. Where the same activity is being taxed at significantly different rates, a mere difference in location is not sufficient to uphold the discriminatory tax.

Both facilities exist for the purpose of operating gambling games. The bulk of both entities’ revenue is from slot machines. For example, from July 1, 1998 through June 30, 1999, Prairie Meadows’ adjusted gross revenue and its slot revenue were identical because the horse tracks have no net revenue. During this same time period, the Miss Marquette riverboat had adjusted gross income of over $32 million, almost $27 million of which came from slot revenue. If the bulk of their revenue was not based on slot machines, but rather we were called upon to determine whether horse revenue is different from gambling table revenue, our conclusion may be different. However, because most of the entities’ revenue is derived from the same source, it is of little consequence that there are other different types of gambling games available at racetracks and riverboats. More importantly, both facilities are authorized to operate within the same gaming industry. Both operate slot machines that are the primary revenue-making vehicle for both facilities. Racetracks and riverboats serve gambling games to the same group of consumers. Both gaming facilities are equally important to the State in terms of revenue production. We conclude racetracks and riverboats are of the same class for purposes of this equal protection challenge. If the taxing statute treats them differently and there is no rational basis for such differential treatment, the statute violates equal protection.

2. Does the Statute Have a Rational Basis?

Having concluded racetracks and riverboats are similarly situated, we must determine whether the differential tax is rationally related to a legitimate government interest. Equal protection requires the same treatment for similarly situated individuals. Bowers, 638 N.W.2d at 689. “ ‘If people are not similarly situated, their dissimilar treatment does not violate equal protection.’ ” Id. (quoting In re Morrow, 616 N.W.2d at 548). Because the classification of persons in this case involves neither a suspect class, nor a fundamental right, we need only find the legislature had a rational basis. Id. In reviewing an equal protection challenge, we first examine “the legitimacy of the end to be achieved; we then scrutinize the means used to achieve that end.” Arnold, 426 N.W.2d at 156. To satisfy the rational basis standard, the classification of persons must be reasonable and operate equally upon all within the class. Id. The Racetracks can overcome the presumption of constitutionality only by showing the statute is patently arbitrary and bears no rational relationship to a legitimate governmental interest. Bowers, 638 N.W.2d at 689.

Overriding this entire issue is the fact that the 1994 legislation was designed to save the racetracks and riverboats from financial distress. The racing industry in Iowa initially saw some success. However, as time passed, the racetracks quickly began to lose significant revenue. Likewise, the riverboats’ initial success was soon followed by financial problems stemming from competition from other states. The primary reason the legislature authorized racetracks to operate slots was to provide them with increased revenue. Without revenue from the slot machines, the Racetracks’ future was in question.

In determining whether the tax statute is constitutional, we must consider whether the asserted purpose behind this tax could have been the genuine goal of the legislation. See Nordlinger v. Hahn, 505 U.S. 1, 15-16, 112 S.Ct. 2326, 2334-35, 120 L.Ed.2d 1, 15-16 (1992). The very same legislation designed to help the racetracks recover from economic distress also increased the tax on racetrack slots at a rate eighty percent higher than the tax imposed on riverboat slots. Though the State contends the stated purpose behind the racetracks is to encourage economic development and promote agriculture, this differential tax is contrary to such alleged intent. Moreover, any stated benefit from the 1994 legislation is substantially jeopardized by the new tax rate imposed on the racetracks. We “need not in equal protection cases accept at face value assertions of legislative purposes, when ... the asserted purpose could not have been a goal of the legislation.” Weinberger v. Wiesenfeld, 420 U.S. 636, 648 n. 16, 95 S.Ct. 1225, 1233 n. 16, 43 L.Ed.2d 514, 525 n. 16 (1975). We now turn to the effect the differential taxing scheme has on both racetracks and riverboats.

Overall, the differential tax treats racetrack slot machines significantly differently than riverboat slot machines despite the fact slots make up the substantial portion of both gaming facilities’ revenue. The direct result of the tax is that Racetracks must pay drastically more additional tax than riverboats are required to pay. As the tax rate increases, each of the racetracks has been and will continue to be forced to pay increasingly significant additional tax on gross receipts. For example, if Prairie Meadows’ revenue remains the same as it was in 1999, it will pay almost $44 million dollars more in taxes for the years 2000-2002 than it would if it were a riverboat. The Dubuque Racing Association will pay an extra $9 million in taxes and the Iowa West Racing Association is expected to pay an additional $36 million dollars in taxes for these tax years. It is undisputed that because both racetracks and riverboats conduct gambling games, the two facilities are in direct competition. As a result of the differential tax rate, riverboats have a competitive advantage over racetracks.

Because the differential taxing scheme forces racetracks to pay eighty percent more taxes than they would as riverboats, the tax frustrates the racetracks’ responsibility to distribute money to local government and charitable organizations. The racetracks are statutorily required to distribute profits “for educational, civic, public, charitable, patriotic, or religious uses.” Iowa Code § 99F.6(4)(a). The thirty-six percent tax rate makes it difficult, if not impossible, for the racetracks to continue to make such societal contributions. When the gaming tax reaches thirty-six percent in 2003, many of the racetracks will have little, if any, profit. Without these grants and charitable gifts, many Iowa communities and charitable organizations will suffer.

Similarly, this taxing scheme frustrates the racetracks’ ability to contribute to the overall economy of this state. The racetrack industry is responsible for employing hundreds of Iowans. It also supports the horse industry by distributing millions of dollars to purse supplements. The differential tax takes away the money racetracks need to accomplish these legislatively mandated goals. Overall, the effect of the tax is contrary to the legislative purpose of promoting agriculture and economic development.

A comparable situation is found in the dog-racing industry. The legislature stated the pari-mutuel dog racing industry is designed for “the development and promotion of Iowa greyhound racing dogs in this state.” Id. § 99F.6(4)(b). The viability of pari-mutuel dog racetracks is completely dependent on slot revenue. A certain percentage of the dog tracks’ adjusted gross receipts must be used to supplement purses of live dog races. Id. § 99D.12. Given these facts the differential tax scheme frustrates the alleged purposes behind allowing racetracks to operate. Though allegedly the legislation including the differential tax was designed to help the racetracks, eventually the thirty-six percent tax on gross receipts will seriously jeopardize the racetracks’ viability.

Given the above facts, the inescapable conclusion is the differential tax is not rationally related to the main purpose of the legislation or to the intent behind authorizing racetracks to operate in this state. The stated purpose was allegedly to save the racetracks from economic distress. There can be no rational reason for this differential tax, unless the reason for it was to drive the racetracks out of business, thereby helping the riverboat industry. Unless we recognize the desire to discriminately tax one business for the purpose of supporting another similarly situated business as a legitimate government interest, we can find no other basis for upholding this law. When the stated purpose is not true or somehow misleading, we cannot find it was the real reason behind the legislation. If the offered purpose is not the genuine reason supporting the law, it likewise cannot be characterized as a rational reason. In the case before us, because the stated purpose of the legislation is frustrated by the legislation itself, it is impossible to conclude the legislature actually had its alleged purpose in mind when enacting this taxing statute.

The State appears to suggest a reason for the tax is the pure fact that the market will allow it — that the racetracks can bear a higher tax than the riverboats. Even if this is true, it is not a rational basis for upholding the discriminatory tax. Though revenue production may be a legitimate state interest, this goal is not rationally served by a taxing scheme that discriminates against certain slot machines simply because of their geography. “[A] revenue measure based on gross receipts must apply equally to all for the privilege of doing the same act.” Finlayson v. Conner, 167 So.2d 569, 572 (Fla.1964); see also Tweel v. West Virginia Racing Comm’n, 138 W.Va. 531, 76 S.E.2d 874, 879 (W.Va.1953) (statute must apply equally to those of the same class and each member of the class permitted to engage in such business must be treated substantially alike). If the legislature wants to increase state revenue, then it must tax racetracks and riverboats equally at a rate they both can bear.

The State made other contentions not accepted by the trial court. We likewise find them unconvincing. None of the other justifications offered by the State in an effort to support the constitutionality of this tax scheme are rationally related to a legitimate state interest. Each justification ignores the plain fact that this differential tax completely defeats the alleged purpose of the 1994 legislation. The thirty-six percent tax rate does nothing to further the economic viability of the racetracks. Moreover, we are not persuaded that our state riverboat history can only be promoted through such favoritism as taxing racetracks at an eighty percent higher rate than riverboats. The State can make riverboats more competitive with other states without penalizing racetracks through a thirty-six percent tax on gross receipts. At a minimum, the tax frustrates the legislative purpose in permitting racetracks to operate. The legislation goes even further, however, by disabling an industry it was allegedly designed to aid.

In sum, no legitimate reason has ever been offered for the differential tax rate. We can find no rational connection between the discriminatory tax and the alleged intent of promoting riverboat history. The reason for the tax is not that racetracks and riverboats are different. It is not that the two entities operate slightly different types of gambling games. We cannot justify this tax based on the fact racetracks operate on land whereas riverboats operate on water. And the tax is not designed to force the racetracks to make up for past tax breaks. Rather, it appears the purpose behind this discriminatory legislation was simply to allow the state to collect increased revenue from racetrack slots’ despite the fact they, like the riverboats, derive most of their revenue from slot machines. Where an additional tax based on gross receipts is imposed on only one member of the same class, purely for tax revenue purposes, the tax violates the federal and state equal protection clauses. See Volusia County Kennel Club v. Haggard, 73 So.2d 884, 890 (Fla.1954). We conclude the tax rate imposed upon the Racetracks is unconstitutional. We reverse and remand.

B. Remedy for Constitutional Violation

The State argues Iowa courts do not have the power to invalidate unconstitutional statutory schemes because this is strictly a legislative function. The district court found this argument to be “wholly without merit.” Taken to its logical extreme, the State’s argument means the legislature could pass any type of taxing scheme it desires, including unconstitutional ones, because it is immune from judicial review. This outcome is clearly not supported by case law as both state and federal courts have reviewed the constitutionality of particular taxing schemes. See, e.g., South Cent. Bell Tel. Co. v. Alabama, 526 U.S. 160, 119 S.Ct. 1180, 143 L.Ed.2d 258 (1999); Hearst Corp., 461 N.W.2d at 295; Atchison, Topeka & Sante Fe Ry. v. Bair, 338 N.W.2d 338 (Iowa 1983). We conclude the district court correctly denied the State’s motion for summary judgment on this issue. We affirm.

IV. Conclusion

The fact remains that the Racetracks are burdened with a significant tax which the riverboats are not required to bear. We can find no rational reason for treating racetrack slot machines differently than riverboat slot machines. Because we are obligated to preserve as much of a statute as possible within constitutional restraints, we only declare unconstitutional that portion of the statute that imposes the discriminatory tax upon racetracks. See Clark v. Miller, 503 N.W.2d 422, 425 (Iowa 1993). The second sentence of the first paragraph of Iowa Code section 99F.11 shall be stricken and what remains is the same twenty percent tax on gross receipts over three million dollars for both racetracks and riverboats. Because we find the Racetracks satisfied their heavy burden to prove the tax scheme in Iowa Code section 99F.11 is not rationally related to a legitimate state interest, summary judgment should not have been granted. We therefore reverse. We also conclude the district court properly denied the State’s motion for summary judgment based on the State’s assertion the court does not have authority to grant relief in this case. We remand for determination of appropriate relief.

AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.

All justices concur except NEUMAN, CARTER, and CADY, JJ., who dissent.

NEUMAN, Justice

(dissenting).

I respectfully dissent. One slot machine may be the same as the next. But the legislature was looking at the bigger picture, and so must we.

Under the guise of entertainment and economic development, the State permits gaming corporations to lawfully part their customers from their money. Quite a lot of that money — thankfully—returns to the State in the form of tax receipts. The question is whether that taxing scheme, which differentiates between gaming on riverboats and gaming at racetracks, bears a rational relationship to a legitimate state interest. I think it does. At least the challengers here have not convinced me beyond a reasonable doubt that it does not.

Riverboats are not the same as racetracks. From an entertainment perspective, they speak to different cultural traditions — river lore versus agriculture. The majority questions these distinctions once gaming is attached to the enterprise. But there is no constitutional impediment to a legislature favoring diversity in cultural attractions for its citizens and tourists. And, rightly or wrongly, a legislative majority could rationally determine that a riverboat casino holds more romantic tourist appeal than a casino stuck in a dog track.

To advance these policy decisions, a reasonable legislature would also want to recognize a very pragmatic distinction between the two gambling venues: riverboats are mobile, racetracks are not. If the economic climate turns unfavorable here, a riverboat merely unties its lines and sails elsewhere. So it is not unreasonable for the legislature to create economic incentives to develop or retain riverboat gambling while maintaining the status quo with respect to other forms of the sport.

In short, there are a number of rational reasons why the legislature might tax land-based casinos differently from river-based ones. They are different enterprises. We might not agree with the legislature’s rationale; we might think the tracks should enjoy a more competitive playing field or that gambling is a bad idea all the way around. But our views on the matter are irrelevant. Our concern is limited to finding a rational basis for the taxing scheme that passes constitutional muster. Because such a rational basis exists here, I would affirm the district court’s rejection of the appellants’ constitutional challenge.

CARTER and CADY, JJ., join this dissent.

      . All of the plaintiffs shall be referred to hereinafter as the "Racetracks.”

      . A state representative from a riverboat county offered the original proposed amendment, H-5391 which proposed a forty percent gross-receipts tax on gambling games at racetracks. There was no stated reason for imposing the higher tax rate on racetracks.

      . From July 1, 1998 through June 30, 1999, Bluffs Run's adjusted gross revenue was over $110 million, $109 million of which came from slot revenue; and Dubuque had the same in adjusted gross revenue as it did from slot revenue. In total, all of the Iowa racetracks combined had over $281 million adjusted gross revenue, over $280 million of which came from slot revenue. In comparison, during the same fiscal year, Diamond Jo had over $44 million in adjusted gross revenue, over $36 million of which came from slot revenue; Mississippi Belle II had over $27 million adjusted gross revenue, over $25 million of which came from slot revenue; Catfish Bend had over $28 million adjusted gross revenue, over $23 million of which came from slot revenue; and Belle of Sioux City had over $25 million adjusted gross revenue, almost $19 million of which came from slot revenue. The riverboats had a total of over $513 million adjusted gross revenue, over $418 million of which came from slot revenue.

      . For instance, in 1989 the Waterloo racetrack realized a profit of almost $29 million dollars. However, by 1993, the revenue at this racetrack steeply declined to nearly $13 million. The racetracks at Council Bluffs and Dubuque saw similar fates. Council Bluffs started with an annual revenue of over $105 million but showed an annual revenue in 1993 of little more than $42 million. In 1989, Dubuque's racetrack made over $65 million, but the annual revenue figures in 1993 were just over $7 million. Finally, the racetrack in Altoona began with almost $38 million in revenue, but by the end of 1993 realized only $5 million.


source: Caselaw Access Project

author: CADY, Justice.

license: Public Domain

text:
    McNALLY & NIMERGOOD, United National Insurance Company, and Assicurazioni Generali S.P.A., Appellants, v. NEUMANN-KIEWIT CONSTRUCTORS, INC., Appellee.
    No. 00-0550.
    Supreme Court of Iowa.
    July 17, 2002.

      William J. Koehn and Debra Recten-baugh Pettit of Davis, Brown, Koehn, Shors & Roberts, P.C., Des Moines, for appellants.
    Jeffrey L. Goodman and Kurt S. Peterson of Pingel & Templer, P.C., West Des Moines, for appellee.
   CADY, Justice.

The primary issue we confront in this case is whether a settlement by a lessor of a personal injury action by an employee of the lessee based solely on allegations of the lessor’s own negligence precludes recovery in a subsequent action by the lessor for contractual indemnification against the lessee. We conclude the settlement precludes indemnification under the facts of this case. We affirm the order by the district court granting summary judgment.

I. Background Facts and Proceedings.

The facts of this case date back to 1994 when Neumann-Kiewit Constructors, Inc. (Neumann), a joint venture formed by Neumann Brothers, Inc. and Kiewit Construction Company for the purpose of constructing the Employers Mutual Casualty Insurance Company building in downtown Des Moines, leased a 150-ton crawler crane from McNally & Nimergood (McNally). McNally is a Michigan corporation, and Neumann needed the crane to assist in the construction of the building. The lease was a “bare rental,” which meant the crane was leased without an operator.

The terms of the lease were developed by the parties through an exchange of their respective form agreements. McNally initiated the process when it sent Neu-mann its form lease agreement. The lease required Neumann to pay McNally $6000 a month for the use of the crane, and covered a twelve-month period. McNally was authorized to adjust the monthly payments if Neumann did not need the crane for the full twelve months. The agreement also included the following provisions:

C. ... Lessee shall be responsible for normal maintenance and for repair of any damage incurred....
D. INSURANCE AND LIABILITY OF LEASEE: ... Lessee assumes full responsibility for and indemnifies Lessor against and will protect and save Lessor against harm from any and all loss, liability, damage, and expense in connection with any injury or claim of injury of Lessee’s employees and will save Lessor harmless from any and all loss, liability, damage, and expense to other persons or any property arising from or in connection with the use or operation of the leased equipment....

The McNally lease agreement was dated August 25, 1994. It was signed by an authorized representative of McNally.

After receiving the McNally lease agreement, Neumann sent McNally its own form rental agreement. Like the McNally lease, the lease rate was $6000 a month, but the term was designated to be between ten and twelve months, with no adjustments in the monthly rate. The rental agreement also included the following provisions:

[B.] (iii) DAMAGES. Lessee shall be liable for any and all damage to any persons or property while said equipment is in Lessee’s possession, except for damage caused by defects in the equipment.
G. ATTORNEY’S FEES. In the event either party institutes suit in court against the other party in connection with any dispute or matter arising under this Agreement, the prevailing party shall be entitled to recover a reasonable attorney’s fee in addition to any other relief granted by the court.
H. FULL AGREEMENT. The agreement constitutes the full and complete understanding between the parties ....

The agreement also required Neumann to inspect and examine and replace or repair the crane if not found in good condition. It further required Neumann to keep the crane in good repair. '

The unsigned rental agreement included a one-page attachment containing additional provisions. These documents were sent with a cover letter to McNally stating, “Enclosed is our rental agreement and attachments.” The letter requested McNally to “sign both the rental agreement and attachments and return them to us for final execution.” The lease agreement was also enclosed with the letter. It contained several handwritten changes made by Neumann. Like the rental agreement, the lease agreement was not signed by Neumann.

An authorized representative of McNally signed the rental agreement and returned the documents to Neumann. An authorized representative of Neumann then signed the rental agreement. Neumann, however, did not sign the lease agreement.

The crane was subsequently delivered by McNally to the construction site of the Employers’ Mutual Insurance Company building in Des Moines. On November 28, 1994, William Lawson, Jr., an employee of Neumann, was seriously injured while erecting a tower crane needed to construct the building. The accident occurred when Lawson’s arm was pinched between an erected section of the tower crane and another section of the tower crane that was being hoisted into place with the crawler crane.

Lawson brought an action against Neu-mann and McNally for the injuries he sustained. He claimed Neumann was negligent in failing to inspect the crawler crane, failing to maintain and service the crane, and failing to properly operate the crane. Lawson claimed McNally was negligent in failing to inspect the crawler crane prior to its delivery, failing to properly maintain the crane prior to its delivery, and delivering a crane with a defective pump.

However, McNally asserted as an affirmative defense that Neumann was negligent and that the negligence of Neumann was a superceding cause of Lawson’s injury. The district court subsequently dismissed the action against Neumann. It determined that recovery against Neu-mann was limited to workers’ compensation benefits. The case proceeded to trial against McNally.

After four days of trial, Lawson and McNally settled the claim for $499,000. The settlement agreement released McNally from liability, but did not release Neumann. No liability was admitted by McNally and McNally did not give up any subsequent remedies.

Following the settlement, McNally made repeated demands on Neumann for indemnification under the lease agreement. After Neumann declined to reimburse McNally for the settlement, McNally filed an action against Neumann for indemnification. The petition was filed on August 25,1998.

McNally claimed both the rental agreement and the lease agreement combined to form the terms of the parties’ complete agreement, which included the duty of Neumann to provide indemnification. McNally claimed indemnification was also provided under the damage clause in the rental agreement based on the language that made Neumann “liable for any and all damage to any persons or property while said equipment is in Lessee’s possession, except for damage caused by defects in the equipment.” It claimed indemnification was required by the lease agreement under the “INSURANCE AND LIABILITY OF LESSEE” clause providing that Neu-mann assume “full responsibility for and indemnifies Lessor against and will protect and save Lessor against harm from any and all loss, liability, damage, and expense in connection with any injury or claim of injury of Lessee’s employees.” In addition to the expressed contractual obligations for indemnification, McNally claimed the duties under both agreements requiring Neumann to inspect, maintain and repair the crane also formed the basis for implied indemnification.

On October 12, 1999, Neumann moved for summary judgment. It asserted the agreement between the parties was limited to the terms of the signed rental agreement, which excluded indemnification for damages caused by defects in the equipment and was not broad enough to require indemnification for McNally’s own acts of negligence.

The district court granted summary judgment. It found the parties’ agreement was confined to the rental agreement under the integration clause. It determined this agreement did not provide for indemnification for McNally’s own negligence. The district court also awarded Neumann attorney fees for defending the indemnification claim of $77,828.50.

McNally appeals. It claims summary judgment was improper because a factual dispute exists over the scope of the parties’ written agreement. Additionally, McNally asserts that it does not seek indemnification for liability based on its own negligence or for any defect in the crane which existed prior to delivery, but seeks indemnification based on the breach of Neu-mann’s contractual promise to indemnify it for Neumann’s own acts of negligence. McNally claims both the expressed and implied contracts require Neumann to indemnify it for the settlement it paid to Lawson as long as it can show Neumann was negligent and that Neumann’s negligence was a cause of the injury. McNally argues that it is entitled to a trial to make this showing. It also argues the trial court abused its discretion in awarding the amount of attorney fees to Neumann for defending the action.

II. Standard of Review.

We review the grant of a summary judgment motion for errors at law. McComas-Lacina Constr. Co. v. Able Constructors, 641 N.W.2d 841, 843 (Iowa 2002). In reviewing the district court’s decision, we consider the evidence presented in a “light most favorable to the party opposing the motion....” Id. We will uphold the grant of summary judgment if the district court correctly applied the law to find a lack of a genuine issue of material fact. Id. We review an award of attorney fees for an abuse of discretion. Olson v. Nieman’s, Ltd., 579 N.W.2d 299, 316 (Iowa 1998).

III. Indemnification.

“Indemnification is a form of restitution .... ” Iowa Elec. Light & Power Co. v. Gen. Elec. Co., 352 N.W.2d 231, 236 (Iowa 1984). It can be implied by law in tort claims to shift liability for an obligation to the party who should bear ultimate responsibility for it under principles of equity, or it can be based on contract. See Hansen v. Anderson, Wilmarth & Van Der Maaten, 630 N.W.2d 818, 823 (Iowa 2001); Farmers Coop. Co. v. Stockdales’ Corp., 366 N.W.2d 184, 186 (Iowa 1985). In the absence of a duty imposed by law to indemnify another, there is no right to indemnification unless derived from a contract. See Haynes v. Kleinewefers & Lembo Corp., 921 F.2d 453, 456 (2d Cir.1990). In this case, the grounds for indemnification asserted by McNally are limited to contract. It asserts a contract for indemnification was implied by the parties in its written rental and lease agreements, as well as expressed. We first consider the claim of express contract for indemnification.

IV.Express Contract for Indemnification.

Under a contract for indemnification, “one party (the indemnitor) promises to hold another party (the indemni-tee ) harmless for loss or damage of some kind....” II E. Allan Farnsworth, Farns-worth on Contracts § 6.3, at 108 (2d ed.1998). The indemnitor “promises to indemnify ... [the] indemnitee against liability of [the] indemnitee to a third person, or against loss resulting from [the] liability.” 42 C.J.S. Indemnity § 2, at 72 (1991). Generally, no particular language is required to support indemnification, and a written agreement can be established without specifically expressing the obligation as indemnification. See Jenckes v. Rice, 119 Iowa 451, 452-53, 93 N.W. 384, 385 (1903); see also Royal Ins. Co. of Am. v. Whitaker Contracting Corp., 242 F.3d 1035, 1041 (11th Cir.2001) (particular language not required as long as intent is clear). An indemnification agreement is created when the words used express an intention by one party to reimburse or hold the other party harmless for any loss, damage, or liability. Robert -L. Meyers III & Debra A. Perelman, Symposium, Risk Allocation Through Indemnity Obligations in Construction Contracts, 40 S.C. L.Rev. 989, 990 (1989) [hereinafter Meyers & Perelman], Intent is the controlling consideration. See Bunce v. Skyline Harvestore Sys., Inc., 348 N.W.2d 248, 250 (Iowa 1984); Meyers & Perelman, 40 S.C. L.Rev. at 989. Indemnification is commonly utilized in construction contracts and rental agreements, as well as many other relationships where one party engages in an act at the request of the other or for the benefit of the other, or allows a party to use property belonging to the other. See Meyers & Perelman, 40 S.C. L.Rev. at 990-91; 42 C.J.S. Indemnity §§ 1, 2, at 72.

A contract for indemnification is generally subject to the same rules of formation, validity and construction as other contracts. Evans v. Howard R. Green Co., 231 N.W.2d 907, 916 (Iowa 1975). However, we have crafted a special rule of construction for indemnification contracts when the contract is claimed to relieve the indemnitee from liability for its own negligence. This rule provides that indemnification contracts will not be construed to permit an indemnitee to recover for its own negligence unless the intention of the parties is clearly and unambiguously expressed. See McComas-Lacina Constr. Co., 641 N.W.2d at 845; Sears, Roebuck & Co. v. Poling, 248 Iowa 582, 588, 81 N.W.2d 462, 465 (1957). It is also the prevailing rule in other jurisdictions. United States v. Seckinger, 397 U.S. 203, 211, 90 S.Ct. 880, 885, 25 L.Ed.2d 224, 233 (1970). The traditional reluctance of courts to allow the burden of one who is negligent to be transferred to another who is not at fault, especially where there is a disparity in the bargaining power and economic resources of the parties, can be traced to public policy considerations. Id. at 212, 90 S.Ct. at 885, 25 L.Ed.2d at 233. Thus, indemnification contracts claimed to contain these provisions are construed more strictly than other contracts. Exide Corp. v. Millwright Riggers, Inc., 727 N.E.2d 473, 482 (Ind.Ct.App.2000); Amoco Prod. Co. v. EM Nominee P’ship, 2 P.3d 534, 541 (Wyo.2000).

This principle of construction must be considered in this case because the legal claims for damages paid by McNally in settlement were based solely on the allegations of its own negligence. Neumann claims our strict rule of construction does not allow the contract to be interpreted to require it to indemnify McNally for its own negligence.

For purposes of summary adjudication, we will consider the indemnification clauses in both the lease agreement and the rental agreement together. The lease agreement was broad and all-inclusive. It provided for indemnification for all damage claims “arising from or in connection with the use or operation of the [crane].” The rental agreement also broadly encompassed liability for all damage “while [the crane was] in [the] Lessee’s possession,” but specifically excluded “damage caused by defects in the equipment.”

Since the time we first recognized our rule of construction against indemnification for the indemnitee’s own negligence unless the intention to do so is clearly and unequivocally expressed, we have tended to apply the rule by distinguishing contracts permitting indemnification for the indem-nitee’s own negligence from those that do not by looking for specific language in the contract addressing the fault or negligence of the indemnitee. See Employers Mut. Cas. Co. v. Chicago & N.W. Transp. Co., 521 N.W.2d 692, 694 (Iowa 1994) (indemnitor agrees to indemnify the railroad “ ‘from any and all claims ... even though the operation of the Railway Company’s railroad may have caused or contributed thereto’ ”); Thornton v. Guthrie County Rural Elec. Coop. Ass’n, 467 N.W.2d 574, 576-77 (Iowa 1991) (indemnification imposed “‘regardless of whether [damages were] caused in part by [the indemni-tee]’ ”); Payne Plumbing & Heating Co. v. Bob McKiness Excavating & Grading, Inc., 382 N.W.2d 156, 160 (Iowa 1986) (in-demnitor agreed to indemnify indemnitee “ ‘regardless of whether or not [damage] is caused in part by [the indemnitee] ’ ”). Thus, we have permitted indemnity based on the indemnitee’s own negligence when the indemnitee’s own negligence is specifically addressed in the indemnification agreement. On the other hand, general indemnity language in a contract has been deemed insufficient to impose indemnity for the indemnitee’s own negligence. See Trushcheff v. Abell-Howe Co., 239 N.W.2d 116, 134 (Iowa 1976) (“‘Sub-Contractor will indemnify ... the General Contractor and the Owner from and against ... all claims ...’” caused by or growing out of “ ‘the work to be performed under this contract regardless of whether such claim is alleged to be caused ... by negligence ... of the Sub-Contractor... Evans, 231 N.W.2d at 915-16 (“ ‘In the event of any suit against the Owner ... on account of any ... act or omission of the Contractor, the Contractor ... shall pay ... any judgments ... or settlements.’ ”).

However, the distinction between contracts that explicitly mention the indemnitee’s own fault or negligence and those that do not was never intended to create a fixed limitation on our rule of construction. We have long recognized that indemnity contracts do not need to expressly state that the indemnitee will be indemnified for its own negligence if the clear intent of the contractual language provides for such indemnification. See Weik v. Ace Rents Inc., 249 Iowa 510, 515, 87 N.W.2d 314, 317-18 (1958). More recently, we emphasized that “the contract need not expressly relieve the indemnitee of its own negligence if the words of the agreement clearly import that intent.” Herter v. Ringland-Johnson-Crowley Co., 492 N.W.2d 672, 674 (Iowa 1992). Thus, our rule of construction does not actually require the contract to specifically mention the indemnitee’s negligence or fault as long as this intention is otherwise clearly expressed by other words of the agreement. See id. Moreover, our tendency to find general, all-inclusive indemnification contracts to be insufficient to create indemnity for an indemnitee’s own negligence is only a guideline, not a strict principle. See Evans, 231 N.W.2d at 916 (broad and all-inclusive language is generally insufficient to show intent to indemnify for an indemnitee’s own negligence). To hold otherwise would, in effect, mean that the contract would need to contain a specific reference to the indemnitee’s own negligence before such indemnification would be permitted. See Hader v. St. Louis Southwestern Ry., 207 Ill.App.3d 1001-1012, 152 Ill.Dec. 859, 865-86, 566 N.E.2d 736, 742-43 (1991). This is not our rule. In fact, those justifications that helped establish our rule against indemnity for an indemnitee’s own negligence do not always reveal which party actually needs protection from its own bargain, at least in the type of commercial transaction at issue in this case where parties may freely choose to allocate risk arising from their transaction without regard to fault. See Reliance Ins. Co. of Ill., Inc. v. Richfield Hospitality Servs., Inc., 92 F.Supp.2d 1329, 1336 & n. 6 (N.D.Ga.2000). In each case, the intent of the parties will control as revealed by the language of the agreement, and we should not impose any special requirement that specific language be used to express that intent. Thus, even broad indemnity language may reveal an intent to indemnify an indemnitee for its own negligence. See id. at 1335-36; N.P.P. Contractors, Inc. v. John Canning & Co., 715 A.2d 139, 142 (D.C.1998).

Nevertheless, the rental agreement specifically addressed the issue of causation by excluding indemnification for “damage[s] caused by defects in the equipment.” Thus, even if the broad lease provisions were construed to provide for indemnification without regard to fault, the language in the rental agreement, which both parties agree was part of the contract, expressed the clear intention of the parties that Neumann would have no obligation to indemnify McNally if damage was the result of a defect in the crane. This specific clause trumps the general clause. The only purpose of this exclusion would be to express the intent for Neumann to be responsible for all damages, regardless of the cause, except those damages relating to a defect in the crane. Thus, the contract entered into by the parties expressed a clear intent for McNally to be indemnified for its own negligence, unless that negligence was based on or attributable to a defect in the crane. The defect exclusion would also apply to any negligence of McNally that was responsible for the existence of a defect, such as the failure to inspect the crane for defects prior to its delivery and a failure to maintain the crane free from defects prior to its delivery. In such instances, the defect remains the ultimate cause of the injury and makes the failure to inspect and maintain actionable.

Consequently, it is not important to our analysis to decide whether the indemnification clause was limited to the terms of the rental agreement or also included the terms of the lease agreement. Even assuming the district court improperly limited the contract to the terms of the rental agreement, the additional terms of the lease agreement do not impact the analysis. The parties contracted for indemnity under both agreements, but not. in the event the damage resulted from a defect in the crane.

V. Implied Contractual Indemnification.

McNally further claims there is an implied contract for indemnity based on the duties imposed on Neumann in the lease and rental agreements to maintain the crane in good condition and to notify McNally in the event the crane is not in good condition. McNally asserts the breach of these contractual duties by Neu-mann forms a basis for indemnification for the settlement amount paid to Lawson in this case.

Like other contracts, a contract for indemnification can be expressed or implied. It can be implied when the parties have entered into a contract that imposes an independent duty that implies a mutual intent to indemnify for liability or loss resulting from a breach of the duty. See Johnson v. Interstate Power Co., 481 N.W.2d 310, 319-20 (Iowa 1992); Woodruff Constr. Co. v. Barrick Roofers, Inc., 406 N.W.2d 783, 785 (Iowa 1987). Thus, we have held that a service contract or a sale and purchase contract alone is insufficient to imply indemnification for a loss. Johnson, 481 N.W.2d at 321; Woodruff Constr. Co., 406 N.W.2d at 787. However, the imposition of certain duties within a service or sales contract may imply an obligation for indemnification of a loss, such as the duty to inspect, perform necessary repairs, or install necessary safety devices. See Johnson, 481 N.W.2d at 319.

In this case, both the lease agreement and the rental agreement imposed inde-péndent duties on Neumann to maintain the crane in good condition, and the rental agreement additionally required Neumann to notify McNally of any damage to the crane. Considering the nature of the agreement, these are the types of duties that we have recognized can give rise to an implied obligation to indemnify for a loss. See id.

Notwithstanding, even if indemnification is implied by virtue of an independent duty imposed on Neumann under the lease or rental agreement, the terms of the implied agreement for indemnification would not include indemnification for the indemnitee’s own negligence, such as a defect in the crane. Consistent with the rule of construction for expressed contracts, there can be no indemnification based on the indemnitee’s own negligence absent a clear intent. See Herter, 492 N.W.2d at 674. Instead, implied indemnification only involves liability based on the breach of an independent duty by the in-demnitor. See Johnson, 481 N.W.2d at 819; Woodruff Constr. Co., 406 N.W.2d at 785-86. The indemnity that is implied is indemnity for the loss or liability incurred by one party to the contract as a result of the other party’s breach of a particular duty under the contract. Thus, a claim for indemnification based on a defect in the crane would be, like the express contract claim in this case, outside the scope of a claim for implied indemnification. It is unrelated to the breach of a duty by the indemnitee and does not express a clear intent to indemnify the indemnitee based on the imposition of liability for its own negligence.

VI. Settlement of Underlying Claim.

McNally argues that it does not seek indemnification based on any damages resulting from a defect in the crane. Instead, it argues that it has evidence to establish that the damages sustained by Lawson resulted from Neumann’s negligence in failing to properly maintain and operate the crane, which makes Neumann responsible for indemnification under the expressed agreement as well as its theory of implied indemnification. McNally asserts it is entitled to a trial to establish Neumann’s negligence and its responsibility for indemnification.

Before beginning our analysis of this claim, we acknowledge the complexity of the law of indemnification and the challenges that can confront judges and lawyers in its application to particular factual circumstances. See Woodruff Constr. Co., 406 N.W.2d at 785. Essentially, the historical complexity in this area of the law can be traced to the competing legal and equitable interests that give rise to the doctrine, as well as an array of public policy considerations. Indemnity is a mix of contract and tort law, together with an array of equitable considerations. Thus, specific rules applicable to contractual indemnification may not neatly apply to other types of indemnification, and vice versa. See Liberty Mut. Ins. Co. v. Pine Bluff Sand & Gravel Co., 89 F.3d 243, 247-48 (5th Cir.1996); E.L. White, Inc. v. City of Huntington Beach, 21 Cal.3d 497, 513, 146 Cal.Rptr. 614, 622, 579 P.2d 505, 510 (1978). Because of this, the basic concepts supporting indemnification must be placed at the forefront of our analysis, as well as the particular contract provisions at issue.

This case gives rise to two important and related concepts of indemnification. The first principle is that a party who seeks to establish a right to indemnity in an independent action must normally plead and prove it was liable to the injured party. Ke-Wash Co. v. Stauffer Chem. Co., 177 N.W.2d 5, 9-10 (Iowa 1970). The rationale for this rule is tied to the fundamental concept that indemnity involves the shifting of responsibility of liability for loss from one who is legally responsible to another. Id. at 10. Thus, if an indemnitee had no liability for the loss in the inception, then any payment made by the in-demnitee is considered purely voluntary and not subject to indemnification. See id. at 10-11. “Indemnity against loss[ ] does not cover loss[ ] for which [an] indemnitee is not liable to a third person.... ” 41 Am.Jur.2d Indemnity § 46, at 380 (1995).

The requirement to plead and prove liability established in Ke-Wash applies in independent actions for indemnity where the underlying claim for damages was settled without an adjudication of liability. Ke-Wash Co., 177 N.W.2d at 11-12. Normally, a judgment in the underlying action will establish the essential liability to pursue indemnification. On the other hand, a settlement does not constitute an adjudication of the issues of negligence with the injured party and does not, by itself, bar further adjudication on the merits of a claim against another party. See Brosamle v. Mapco Gas Prods. Inc., 427 N.W.2d 473, 475-76 (Iowa 1988); Buchhop v. Gen. Growth Props. & Gen. Growth Mgmt. Corp., 235 N.W.2d 301, 302 (Iowa 1975) (settlement of underlying claim for damages does not necessarily defeat right to indemnification). Thus, an indemnitee who settles the underlying claim must establish the existence of its liability to the injured party as an element of recovery for indemnification. Ke-Wash Co., 177 N.W.2d at 11. Additionally, the indemni-tee must establish the settlement was reasonable, and that the indemnitor had a duty to indemnify the indemnitee. Id.

The importance in this case of the rule that requires the indemnitee to be liable for the damages is brought to life by Neu-mann’s argument that proof by McNally that it was liable for the loss or damage will defeat the claim for indemnity because the duty to indemnify under both claims for indemnification asserted by McNally does not cover liability or loss attributable to a defect in the crane or McNally’s conduct relating to the defect. McNally responds that the rule requiring proof of liability is inapplicable to its claims of expressed or implied contractual indemnification and does not apply to claims for indemnity based solely upon Neumann’s own negligence.

We specifically indicated in Ke-Wash that the need for the indemnitee to prove its liability to the injured party does not apply “where there is an expressed agreement for indemnification providing otherwise.” Id. However, this exclusion was not intended as a blanket limitation for all claims based on expressed indemnification, but exists to recognize that express indemnification agreements can alter the common law rules on indemnity by calling for indemnification in the absence of underlying liability between the indemnitee and the injured party. See 42 C.J.S. Indemnity § 23(b), at 112 (rule that indemnity does not protect the indemnitee against loss through voluntary payments may be affected by the terms of the indemnification agreement). We specifically recognized this type of exclusion in Ke-Wash, where we cited Robert & Company Associates v. Pinkerton & Laws Co., 120 Ga.App. 29, 31-32, 169 S.E.2d 360, 362-63 (1969), as an example of the express agreement exception. See Ke-Wash Co., 177 N.W.2d at 11. In Pinkerton, the language of the express agreement revealed “it was the intention of the parties that Pinkerton should indemnify Robert <& Company Associates irrespective of whether any claim arose by reason of the negligence of Robert & Company Associates, or for any reasons.” Robert & Co. Assocs., 120 Ga.App. at 32, 169 S.E.2d at 363.

Thus, the express indemnification exception recognizes that contract law can alter the common law concepts of indemnification, and impose obligations not otherwise supported by those equitable principles that drive noncontractual indemnification. On the other hand, if an expressed agreement does not reveal an intent to alter the rule against voluntary payment, the fundamental rule of liability for loss to the injured party applies, and the claim for indemnity must be viewed in its traditional form as shifting liability for a loss from one person who is legally responsible to another person.

We have previously determined in this case that the only limitation placed in the indemnification agreement was liability or loss based on a defect in the crane. However, there is no further indication the parties intended to alter the concept of indemnification by . imposing a duty on Neumann to reimburse McNally in the event McNally paid for the damages to an injured person when it was not liable to the injured person for the damages.

Alternatively, McNally argues that the Ke-Wash rule against voluntary payments is a product of tort-based indemnification and was never intended to apply to implied contractual claims for indemnification, such as those claimed in this case. Thus, McNally argues that the rule in Ke-Wash does not apply to claims for implied indemnification based on the breach of independent duty arising from a contract.

We agree with McNally that the rule against voluntary payment established in Ke-Wash arose from a tort-based claim for indemnity. See Ke-Wash Co., 177 N.W.2d at 7-8. In Ke-Wash, a distributor of a defective product that caused damage to a consumer claimed its liability was secondary to the primary liability of the manufacturer. Id. at 7. We recognize vicarious liability to be one of the circumstances supporting a claim for indemnification based in tort. Hansen, 630 N.W.2d at 823. This type of claim is not contractual in nature, but is founded on the principles of equity derived from the vicarious aspect of the liability. Thus, we must determine if the Ke-Wash rule should be confined to the circumstances from which it arose. In fact, McNally suggests that the rule must be restricted to tort-based claims for indemnity because it would otherwise create an irreconcilable conflict with the claim for implied indemnity based on a breach of an independent duty recognized in Woodruff. This conflict is traced to the condition imposed in Woodruff that indemnification will only be implied when the indemnitee did not negligently contribute to the hazard. Woodruff Constr. Co., 406 N.W.2d at 786. McNally argues that one rule of implied indemnity cannot require an indemnitee to establish its own negligence while another rule of implied indemnity prohibits indemnity when the indemnitee is negligent. McNally further asserts the conflict offends public policy because an indemnitee of an employer would never be able to settle with an injured employee of the employer.

We think the apparent conflict is resolved by recognizing that the implied indemnification adopted in Woodruff is not a broad concept. Instead, it is viewed as a remedy in those situations in which a breach of a duty imposed under a contract between the two parties caused injury to a third party for which the nonbreaching party was not primarily liable, but only secondarily liable. See id. at 785-86. We, of course, recognize indemnity based on vicarious or derivative liability in a tort setting, but a separate remedy is necessary when the source of the duty arises from a contract instead of tort and equitable principles. Thus, while the concept of shifting responsibility for loss from one who is secondarily liable to one who is primarily liable remains the same, the different source of the duty requires different theories of recovery.

Accordingly, we discern no inconsistency between the general rule against voluntary payments recognized in Ke-Wash and the rule limiting the implied indemnification concept recognized in Woodruff to indemnitees who did not aid in creating the hazard. An indemnitee can be liable to the injured party by operation of legal principles, yet not actually contribute to the hazard which caused the injury. In truth, we would create an inconsistency in our law if we adopted McNally’s argument. We conclude the rule expressed in Ke-Wash applies to McNally’s claim for implied indemnification asserted in this case.

The second rule that comes into play in this case is that a claim for contractual indemnity must be covered by the contract. See Ke-Wash Co., 177 N.W.2d at 11 (there must be “a duty on the part of the indemnitor to indemnify [an] indemnitee”). This rule seems simple enough, but it expresses an important fundamental principle, again based largely on the idea that indemnification involves reimbursement for liability or loss from one person to another. Absent specific provisions otherwise, an indemnitee must show the circumstance of the original claim asserted by the injured party that resulted in the liability or the loss by the indemni-tee was covered by the contract of indemnification. See Consolidated Rail Corp. v. Ford Motor Co., 751 F.Supp. 674, 676 (E.D.Mich.1990). In other words, the underlying action by the injured party must include a claim within the scope of the indemnification agreement. See Hoffman Constr. Co. of Alaska v. U.S. Fabrication & Erection, Inc., 32 P.3d 346, 352 (Ala.2001). This concept is consistent with our general rule that an indemnitee must show actual liability to recover against an indemnitor, and distinguishes indemnification contracts from other types of contracts to pay. See Dana Corp. v. Fireman’s Fund Ins. Co., 169 F.Supp.2d 732, 737-38 (N.D.Ohio 1999). See generally 41 Am.Jur.2d Indemnity § 4, at 349-50; 42 C.J.S. Indemnity § 4, at 76-77.

We have previously determined that the indemnification agreement in this case does not alter the requirement for McNally to show that it was liable to the injured party. Yet, the only limitation upon the shifting of liability from McNally to Neumann was that the injury resulted from a defect in the crane. In that situation, Neumann had no duty to indemnify McNally because it was not covered in the agreement. Conversely, any other circumstances were covered. Thus, to recover under the agreement, McNally would only be required to show its liability is not based upon a defect in the crane prior to delivery. If McNally was liable for other reasons, including Neumann’s negligence, Neumann would have a duty to indemnify under the contract.

Generally, issues of liability presented in an indemnification action are not suitable for summary adjudication without a prior judicial determination of the issues. When an indemnitee settles the underlying action for damages, a subsequent action for indemnification normally requires a judicial determination of the issues raised in the case. However, the need for a hearing will ultimately depend upon the terms of the indemnification agreement and the scope of the allegations of the underlying claim by the injured party.

In this case, the underlying claim that gave rise to McNally’s liability or loss was restricted to allegations of McNally’s own negligence. Moreover, those allegations of negligence were not covered under the indemnification contract. The indemnification contract specifically excluded liability based on defect. Thus, any liability that could have been imposed on McNally in the underlying action could only have been based on a de-feet in the crane, which was a noncovered claim. Therefore, it is not enough that Neumann may have been negligent and that its negligence was covered under the agreement. Instead, McNally must show the loss it suffered or the liability it incurred was covered. Neumann’s negligence could not have been the basis for McNally’s liability under the allegations of the underlying action, and an indemnitee cannot transform the underlying claim by the injured party into a different lawsuit by making allegations of negligence against the indemnitor in a subsequent action for indemnity. When the underlying litigation settled by a potential indem-nitee was limited to allegations of the in-demnitee’s own negligence not covered under the indemnification agreement, there can be no claim for indemnity because the amount paid in the settlement could only have been the result of the indemnitee’s own noncovered negligence. See Olin Corp. v. Yeargin Inc., 146 F.3d 398, 405 (6th Cir.1998) (no indemnification when settlement by indemnitee only pertains to its own liability); Fifield v. S. Hill Ltd. P’ship, 20 F.Supp.2d 366, 371-72 (D.Conn.1998) (when lawsuit by injured party is based solely upon independent negligence of the indemnitee, no contractual indemnification is available); Gray v. Cleaning Sys. & Suppliers, Inc., 834 F.Supp. 123, 127-28 (S.D.N.Y.1993) (contract for indemnification that excludes liability based on indemnitee’s own negligence is not applicable when indemnitee can only be liable to the injured employee of the indemnitor in the underlying action for damages if indemnitee was negligent).

We emphasize that the settlement of the underlying case by an indemnitee does not always constitute a waiver of the right to seek indemnification. See Liberty Mut. Ins. Co., 89 F.3d at 248. Certainly, a n indemnitee should not lose any right to indemnification by settling the underlying claim rather than contesting it. Heckart v. Viking Exploration, Inc., 673 F.2d 309, 313 (10th Cir.1982). Yet, McNally is not denied indemnification in this case because it settled the underlying claim, but because the circumstances of the underlying claim were not covered by the indemnification agreement. In each case, the right to pursue an independent action for indemnification following a settlement will depend upon whether the circumstances of the indemnitee’s liability for damages were covered in the agreement.

VII. Attorney Fees.

Finally, we address McNally’s contention that the district court abused its discretion in setting the amount of attorney fees for Neumann in defending the action. The contract for indemnification in this case permitted Neumann to obtain reasonable attorney fees to compensate for the costs expended in defending the action for indemnification brought by McNally. Neumann initially requested $90,466.76 in attorney fees and $11,544.32 in additional expenditures. In exercising its discretion, the district court reduced the attorney-fee claim to $77,828.50 and rejected the claim for other expenses. Because we find the district court acted within its discretion in setting the amount of attorney fees to Neumann, we affirm the award of attorney fees by the district court.

VIII. Conclusion.

We conclude the settlement by an in-demnitee of an underlying claim for damages based solely on the negligence of the indemnitee precludes indemnification under a contract that does not cover loss based on the indemnitee’s own negligence. The district court properly granted summary judgment.

AFFIRMED.

      . Tort-based indemnity has been recognized in Iowa under four circumstances. They are: vicarious liability, liability based on conduct directed by the indemnitor, liability based on the breach of an independent duly of care owed by the indemnitor, and liability based on the failure of the indemnitor to discover or prevent misconduct. Hansen, 630 N.W.2d at 823; Farmers Coop. Co., 366 N.W.2d at 186; C.F. Sales, Inc. v. Amfert, Inc., 344 N.W.2d 543, 553-54 (Iowa 1983).

      . We have previously indicated that indemnification implied from the breach of an independent duty expressed in a contract is in the nature of a contract implied by law. See Woodruff Constr. Co., 406 N.W.2d at 785. However, we recognize that the claim could properly be considered to be implied in fact. The claim is implied by the parties from the duty of care imposed in the contract. In any event, the implied indemnification we recognized in Woodruff is a contract-based right, based both on the intent of the parties and the underlying contract. See id. The intent to indemnify is implied from the underlying contractual duty. See id. Thus, the implied indemnification recognized in Woodruff cannot exist in the absence of a contract imposing a duty. Id. The underlying contract is never implied, only the intent to indemnify.


author: CARTER, Justice.

text:
    CITY OF DES MOINES, Appellee, v. CIVIL SERVICE COMMISSION OF THE CITY OF DES MOINES, Appellant, Kenneth Danley, Intervenor.
    No. 01-0682.
    Supreme Court of Iowa.
    July 17, 2002.
    Hugh J. Cain and Anne L. Clark of Hopkins & Huebner, P.C., Des Moines, for appellant.
    Carol J. Moser, Assistant City Attorney, Des Moines, for appellee.
    Patrick J. Hopkins of Gaudineer & Com-ito, L.L.P., West Des Moines, for interve-nor, Kenneth Danley.
   CARTER, Justice.

The Civil Service Commission of the City of Des Moines (commission) appeals from a judgment in a certiorari action declaring that the commission was without jurisdiction to consider an appeal pending before it on behalf of intervenor, Kenneth Danley. It was the conclusion of the district court that a mere adjustment of office and vehicle assignments and travel opportunities did not constitute a demotion so as to fall within the jurisdiction of the civil service commission. After reviewing the record and considering the arguments presented, we conclude that that issue involves a decision on the merits of the employee’s appeal and is not jurisdictional. Consequently, we reverse the judgment of the district court.

Intervenor, Kenneth Danley, joined the Des Moines Fire Department as a fire fighter in July 1973. During his more than twenty-six years of service with the department, he rose to the rank of deputy fire marshal. Danley’s duties included managing and administering the Fire Prevention Bureau and handling special-projects assigned by the fire chief.

On January 11, 1999, Danley was appointed the fire department’s representative to the Permit and Development Center of the City of Des Moines’s Community Development Center. In that position, Danley handled issues related to contractors’ compliance with the Municipal Fire Code. Danley worked in this capacity until March 22, 1999, when he was demoted to the position of fire fighter.

Danley filed a timely appeal to the commission, challenging his demotion. A specification of charges was filed on April 9, 1999. However, before the commission considered the charges, the city reinstated Danley to the title of deputy fire marshal, including restoration of the salary lost during the period of demotion.

The city moved to dismiss the appeal to the commission on the basis that Danley’s reinstatement mooted the issues being pursued. Danley filed a resistance to the motion, contending there were additional issues to be resolved beyond mere title and salary. He contended that he continued to suffer a de facto demotion because of loss of accoutrements that had accompanied the deputy fire marshal position.

The civil service commission sought the advice of outside counsel to determine whether it had jurisdiction to address the claims involving loss of job accoutrements. Outside counsel advised the commission that it did have jurisdiction to consider those matters. The commission then denied the motion to dismiss.

After the commission denied its motion, the city filed a petition for certiorari challenging the commission’s jurisdiction and obtained a stay of the proceedings before the commission while the certiorari action was being considered in the district court. Following a hearing, the district court sustained the writ of certiorari and ordered the commission to dismiss Danley’s appeal for lack of jurisdiction. The commission has appealed from that order. Other matters relevant to the decision on appeal will be discussed in our consideration of the legal issues presented.

In holding that the commission was without jurisdiction to consider Danley’s claims, the district court did not dispute his contention that changes in employment hierarchy through a revision of duties or authority may be akin to a demotion under the civil service laws. The court of appeals reached that conclusion in Helgevold v. Civil Service Commission, 367 N.W.2d 257, 261 (Iowa Ct.App.1985), and it has been a conclusion reached by courts in other jurisdictions. This is consistent with our broad pronouncement in Misbach v. Civil Service Commission, 230 Iowa 323, 326, 297 N.W. 284, 286 (1941), that “[i]n appeal cases the Commission has jurisdiction to hear and determine all matters involving the rights of civil service employees, and may affirm, modify or reverse any case on its merits.”

In Chiero v. Bureau of Motor Vehicles, 55 Ohio Misc. 22, 381 N.E.2d 219 (Ohio Ct. Common Pleas 1977), a civil service employee appealed a job transfer. The transfer was found to be invalid, and following his return to his former position of supervisor, the court found that he was a supervisor in title only and had neither the duties, responsibilities, nor authority of a supervisor. The court stated:

An appointing authority may not give lip service to the law by transferring a classified employee to a new position with a job title and description which purports to conform ... which, in fact, and in practice is a reduction in position.

Chiero, 381 N.E.2d at 220-21.

Similarly, in Reed v. City Council, 60 Cal.App.2d 628, 141 P.2d 459 (1943), the court stated:

It is conceded by the parties ... that the salaries of the two positions are the same; but demotion means something more than a reduction in salary. To demote is to reduce to a lower rank or grade, and there may be a demotion in the type of position though salary may remain the same.

Reed, 141 P.2d at 463. This court has recognized that changes that place an employee in a different hierarchical position with respect to other employees may be reviewed by the civil service commission. Brightman v. Civil Serv. Comm’n, 171 N.W.2d 612, 617-18 (Iowa 1969) (concluding that there was a narrow factual issue concerning whether the employees were demoted when salaries of other employees were increased).

The district court concluded that, notwithstanding the fact that a certain level of hierarchical change or loss of accoutrements could amount to a demotion, such was not the case with the city’s treatment of Danley. The court concluded that the changes in Danley’s employment setting involved “relatively minor items,” which did not constitute a demotion. The determination of whether a withdrawal of perquisites is tantamount to a demotion involves an element of animus. Although the city urges that the withdrawal of privileges in Danley’s case was the result of administrative and budgetary concerns and not a disciplinary sanction, this involves an issue of disputed fact.

Assuming that the facts of the present case would show that Danley is entitled to no relief under the civil service laws, we believe that this is a question that the commission has jurisdiction to resolve. It is an issue that goes to the merits of the dispute rather than a matter affecting the commission’s jurisdiction. If the commission ultimately resolves.the matter in a manner the city concludes is contrary to law, the city’s remedy is to pursue the de novo judicial review provided in Iowa Code section 400.27, rather than to collaterally attack the commission proceeding.

We have considered all issues presented and conclude that the judgment of the district court should be reversed. The case is remanded to that court for an order reinstating the proceeding before the civil service commission.

REVERSED AND REMANDED.