Ellwood Consolidated Water Co. v. Johnson

420 F.2d 787

• Court: Court of Appeals for the Third Circuit
• Decided: February 2, 1970
• Docket: No. 17966
• Status: Published

Opinions

OPINION OF THE COURT

SEITZ, Circuit Judge.

This is an appeal from the denial by the district court of a claim for indemnity by third-party plaintiff Ellwood Consolidated Water Company (Water Company) against third-party defendant Bease-Johnson Company (Bease-John-son) in a Pennsylvania Wrongful Death and Survival action.

Bease-Johnson entered into a contract with the Water Company to paint its 60-foot water tower. The plaintiff's decedent William J. Lawless, an employee of Bease-Johnson, was killed while working on the tower. His death was caused by a fall from the upper part of a ladder constructed on the outside of the water tank.

After trial to a jury, decedent’s administrator was awarded $55,000. In answer to special interrogatories, the jury determined that negligence of the Water Company was a proximate cause of the accident. Its negligence consisted of its failure to comply with certain Pennsylvania Department of Labor and Industry regulations requiring that “Ladders over thirty feet in length shall be provided with cages or wells of adequate dimensions * *

Water Company, relying on the indemnity provision in the contract, seeks judgment on its third-party complaint against Bease-Johnson in the total amount of the $55,000 verdict. Bease-Johnson denies any liability as indem-nitor of Water Company. Both parties agreed at trial that the merits of the indemnity claim turns on the validity and applicability of the following contractual provisions:

“CONTRACTOR shall indemnify WATER COMPANY and carry insurance in accordance with the following provisions:

if 'X¹ -Jr *5fr

“CONTRACTOR agrees to indemnify, hold harmless and defend the WATER COMPANY from and against any and all liability for loss, damage or expense which WATER COMPANY may suffer or for which the WATER COMPANY may be held liable by reason of injury (including death) to any person or damage to any property arising out of or in any manner connected with the operations to be performed under this contract whether or not due in whole or in part to any act, omission, or negligence of the WATER COMPANY or any of its representatives or employees.”

The contract further provided that Bease-Johnson was not to commence any work under the contract until it had satisfied Water Company that it carried stated amounts of the following insurance: workmen’s compensation, unemployment, comprehensive general liability and property damage, and comprehensive automobile liability and property damage.

The district court held that the indemnity provision “is contrary to public policy and of no avail for the purpose of insulating [Water Company] from the consequences of its failure to comply with an express statutory enactment designed for the protection of human life.”

Water Company argues that we are required to hold the instant indemnity provision valid because of the Pennsylvania Supreme Court’s decision in Westinghouse Electric Co. v. Murphy, 425 Pa. 166, 228 A.2d 656 (1967). The facts here are similar to those in Westinghouse. Murphy, Inc., a painting and glazing business, contracted with Westinghouse to do certain maintenance work at one of Westinghouse’s plants. Because of Westinghouse’s negligence, an employee of Murphy was injured while engaged in the contract work at the plant. The contract contained a term providing that Murphy would indemnify Westinghouse against all claims by Murphy’s employees, whether or not caused by the negligence of Westinghouse. The court held this indemnity provision applicable and valid. It stated that “where clearly intended by the parties, such contracts [indemnifying one against his own negligence] have been enforced by this Court * * *. It would appear that such contracts are useful to parties involved in construction and similar activities as a means of allocating the responsibility of obtaining insurance * * * »

Bease-Johnson would distinguish Westinghouse on the ground that we are here dealing with a failure to comply with a statute designed to protect human life and thus the indemnity clause violates public policy.¹ In essence, it asks us to hold that Pennsylvania would apply the doctrine of Boyd v. Smith, 372 Pa. 306, 94 A.2d 44 (1953), involving an exculpatory clause, to cases involving indemnity clauses as well. In Boyd, the court held that an exculpatory clause in a lease did not insulate a landlord from liability caused by his failure to comply with a statute requiring fire escapes in certain dwellings. The court stated that, although exculpatory clauses are valid generally, “when the legislation in question is, as here, a police measure obviously intended for the protection of human life * * * public policy does not permit an individual to waive the protection which the statute is designed to afford him.”

Boyd dealt with exculpatory clauses but we are concerned with an indemnity agreement here. The difference between the two is manifest and significant. A valid exculpatory clause precludes recovery by the victim of the negligence. In contrast, a valid indemnity provision in no way affects the victim’s right of recovery. Rather, it merely determines who among the parties to the contract shall bear the ultimate cost of the victim’s claim. In this case were we to give effect to the indemnification provision, no waiver of the protection of the Department of Labor regulation would result. Indeed, it was the violation of the regulation which formed the basis of a substantial verdict and recovery against Water Company. We are satisfied that here, as in Westinghouse, the intended function of the indemnity provision was to allocate the burden of procuring insurance. This provision, in effect, requires Bease-Johnson to procure insurance to pay any claims arising out of the performance of the contract. Such a provision no more violates public policy than would an insurance policy taken out by Water Company to cover such claims. Indeed, the business reality probably was that the cost of this insurance was borne by Water Company when it paid the painting contract price. Thus, we do not think that Pennsylvania would extend the Boyd doctrine to limit the holding of the Westinghouse case.

Notwithstanding this analysis, Bease-Johnson asserts that we are compelled to follow the Boyd rationale. In support of this contention it argues that exculpatory clauses and indemnity clauses are treated the same under the law of Pennsylvania, citing Dilks v. Flohr Chevrolet, Inc., 411 Pa. 425, 192 A.2d 682 (1963). But in our view the Dilks case does not stand for so broad a proposition. The court there applied the general Pennsylvania rule that contracts limiting liability for negligence are not favored and are strictly construed against the party seeking their protection. Specifically, the court held that an exculpatory clause in a lease would not be construed to relieve a landlord from liability for his own negligence since such a limitation was not spelled out in unequivocal terms. In the course of its opinion, the court referred to a prior case which had construed an indemnity clause in a similar way and in a footnote stated that “there is such a substantial kinship between both types of contracts as to render decisions dealing with indemnity clauses applicable to decisions dealing with exculpatory clauses, and vice versa.” The Dilks opinion shows an awareness that indemnity and exculpatory clauses are sufficiently similar that the same rules of construction may often be used. However, Dilks clearly did not go so far as to say that the public policy considerations determinative of the legality of exculpatory clauses are necessarily determinative of the legality of indemnity clauses. We think that Pennsylvania would not apply the broad Dilks dictum to invalidate the indemnity clause here — particularly in light of the tolerant view of this type of indemnification Provision expressed in the later Westinghouse case.

Bease-Johnson further argues that the indemnity provision, even if valid, should not be construed to apply to these facts since Water Company’s failure to install proper safety devices on the ladder is “a situation pre-existing the contract.” It asserts that if the parties had desired the indemnification provision to cover “past” negligence, they should have specifically expressed that intent. On this point, Bease-Johnson relies primarily on Employers Liability Assurance Corp. v. Greenville Business Men’s Ass’n, 423 Pa. 288, 224 A.2d 620 (1966).² Employers held that an ambiguous exculpatory provision will not be construed to apply to subsequent damage caused by negligent acts committed before a lease was entered. Because of the very strong public policy against exculpatory provisions, the parties were presumed to have intended an immunity for only future negligent acts.

In our case we are dealing with an indemnity provision, and for the reasons already stated, we do not think that the Dilks dictum makes the Employers case applicable here. We are not convinced that the presumption used in Employers would be extended by the Pennsylvania courts to an indemnity provision such as we have before us. In any case, it is apparent that here the parties did intend indemnification for future injury caused by past negligent acts. The contract states that “It is understood that [BeaseJohnson] is familiar with all factors affecting the work.” 2³ Moreover, the contract specifically provides that BeaseJohnson could not commence any work until Water Company was shown that it carried sufficient comprehensive general liability and property damage insurance, comprehensive automobile liability and property damage insurance, unemployment insurance, and workmen’s compensation insurance. Thus it is clear that the parties intended to allocate the burden of obtaining insurance to cover liability for all accidents that might- occur in the performance of the contract. It would be straining belief to conclude that they intended a risk coverage so restricted as that now suggested by Bease-Johnson.

Looking to all the circumstances surrounding this provision, and recognizing that this is an indemnity and not an exculpatory provision, we conclude that Pennsylvania would hold that the parties intended Bease-Johnson to indemnify Water Company for the damages arising out of this accident even though the negligent condition existed prior to the execution of the indemnity provision.

The judgment of the district court will be reversed and the case remanded for proceedings consistent with this opinion.

1 . Apparently, it assumes that in Westinghouse there was no violation of public policy. The report of the case does not reveal what the negligence was.

2 . See also Kotwasinski v. Rasner, 436 Pa. 32, 258 A.2d 865 (1969).

3 . In contrast, the tenants in both Employers and Kotwasinski had no knowledge or reason to know of the defective conditions which subsequently caused the damage.