Before the Superior Court, Barqawi argued that the state Supreme Court took the position that an agreement to indemnify has to be expressed in unequivocal terms in Perry v. Payne, 66 A. 553 (1907) and reinforced that rule in Ruzzi v. Butler Petroleum Co., 588 A.2d 1 (1991).
The Perry rule, Cavanaugh said, holds that if two parties want to include a provision in their indemnity agreement that covers losses resulting from the indemnitee’s own negligence, they have to do so in the clear language of the agreement.
Cavanaugh said the high court did, in fact, approve the Perry rule in Ruzzi. He said the cases provided “logical bookends” to the many federal and state court decisions that have tried to answer the question of when one party has to answer for another party’s responsibility.
The Superior Court agreed with the Perry-Ruzzi focus on the clear unambiguous language of an indemnity obligation.
“This standard recognizes that the parties are free to reach their own contract terms and to assume whatever burdens or risks their respective bargaining resources dictate,” Cavanaugh wrote.
“The insistence on clear statement of their undertaking by the parties allows the courts to decide indemnity and cost of defense issues promptly and based upon the agreement reached by the parties. It avoids the delays and uncertainties inherent in an equitable outcome-based determination which is influenced by the relative obligations which are fixed by the results of the underlying litigation.”
Based on the language of Barqawi’s contract with Atlantic, the court said it could not hold that Atlantic was entitled to indemnity for a negligence charge.
The relevant provisions of the contract held that Barqawi only had to indemnify Atlantic for personal injury, death, damage to property, clean-up costs or fines arising out of his occupancy of the store.
“The background is that Atlantic was haled into court together with store operator Barqawi and perpetrator Perry on a claim of joint, several and individual liability for injuries to the plaintiff,” Cavanaugh said. “Insofar as indemnity for defense expenses based upon the above stated provisions and under the Perry-Ruzzi rule, it cannot be said that Atlantic is entitled to indemnity where it is charged with negligence since the provisions do not so provide.”
“Clearly the indemnity portions of the commitment speak to the responsibilities of the indemnitor-franchisee-lessee-Barqawi and does not allude to the right of Atlantic to recover even if a responsible party.”
Allocatur Petition
Atlantic’s attorney, William J. Taylor of Saul Ewing Remick & Saul in Philadelphia, says in the petition that traditionally the state Supreme Court has separated agreements that require indemnification for the indemnitor’s negligence from those requiring indemnification for the indemnitee’s negligence. Those that require indemnification for the indemnitor’s own negligence are generally favored, he argues.
“The reason for this dichotomy is clear: indemnity provisions that require the indemnitor to indemnify the indemnitee for claims arising out of the indemnitor’s negligence embrace the underlying purpose of tort law; that is, to place responsibility at the feet of the wrongdoer, and are viewed favorably; whereas, those requiring indemnity for the indemnitee’s negligence violate the foundation of tort law,” Taylor wrote.
Taylor claims his point is best illustrated in Burke v. Koch Industries, a 1990 Eastern District decision. The clause at issue in that case required the indemnitor to indemnify the indemnitee for claims arising out of the indemnitor’s negligence.
The Burke court said indemnification agreements in which the indemnitor is to indemnify against the negligence of the indemnitee contravene public policy, violating the “hallmark of tort law” that an individual must bear the burden for his or her own negligence.
Agreements that require indemnity for the indemnitor’s negligence obligate a lesser degree of specificity since they mirror the goals of tort law, the Burke court found.
“Thus, the indemnity provision will be enforced if it mentions indemnification and, second, if it specifically states that indemnification is for the negligence of the indemnitor,” Taylor wrote in the petition.
Perry focused on agreements that require indemnity for injuries arising out of the indemnitees’ own negligence. That is what separated it from Atlantic’s case, Taylor says.
“Instantly, the trial court held as a matter of law that Atlantic was not negligent. Clearly, then, Atlantic, the indemnitee, is not seeking to be indemnified for its own negligence. This fact was unnoticed by the majority of the Superior Court…,” he said. “When deciding the enforceability of the indemnity provision, it is imperative that the tribunal understand whether indemnity is being sought for the negligence of the indemnitor or the indemnitee.”
Superior Court Judge John Hester apparently agreed with that position in his dissenting opinion in which he said the Perry rule was inapplicable since Atlantic was not attempting to recover for its own negligence.
The majority stretched the Perry rule beyond its limits, Taylor argues.
“Atlantic has found no decision in this commonwealth holding that an indemnity clause requiring indemnity for a non negligent indemnitee is unenforceable when the provision specifically states that the indemnitor will indemnify the indemnitee for the indemnitor’s negligence,” Taylor said.
Even if Perry were the proper standard to apply, Taylor says, the Superior Court did so incorrectly.
“The specific terms of the indemnity provisions plainly reveal that the intent of Barqawi and Atlantic in entering into the agreement and lease was that Barqawi would defend Atlantic in precisely the circumstances here presented; where the injury arose out of Barqawi’s operation of the market and where Atlantic was not solely negligent,” he said.
“Thus, the indemnity provisions are enforceable under this court’s decision in Perry and other prior decisions of the Superior Court.”
When the Superior Court case was first decided, Barqawi’s attorney, Richard Hohn of Philadelphia’s Hohn & Scheurie, said he felt Cavanaugh referred to this area of law as “murky” because the state’s courts have not been consistent in their rulings.
“For the last 30 years a number of Superior Court decisions have enforced some of these provisions [in the Perry case] on a number of different legal bases in order to get to the most equitable result but the methods used by the various courts are frequently inconsistent,” he said.
“I believe that the cases referenced and others are inconsistent because everyone is aware of the 1907 Supreme Court decision of Perry v. Payne but very few indemnity agreements in Pennsylvania actually contain the specific language that would have passed muster under the standard.”
