EDWARD G. SMITH, District Judge.
The parties in this case contracted to have the plaintiff design, install, and maintain a hydrogen compression, storage and dispensing system at the defendant's Louisiana facility. Tragically, an employee of the defendant was operating a hydrogen-powered lift truck at the Louisiana facility when it exploded, killing the employee and injuring three other employees. The injured employees and other representatives have now sued multiple defendants, including the plaintiff, in a Louisiana state court. This matter is now proceeding through discovery, with the defendant having intervened in the action.
The plaintiff brings the instant action to have the court determine that the defendant must defend it in the Louisiana action pursuant to a duty to defend provision in the parties' written agreement. The plaintiff also seeks compensation for its legal fees and costs that it has expended thus far to defend itself in the Louisiana action.
The parties have cross moved for summary judgment on whether the written agreement obligates the defendant to defend the plaintiff in the Louisiana action. For the reasons set forth below, the court finds that the parties' agreement clearly and unambiguously provides that the defendant shall defend the plaintiff in the Louisiana action where the allegations arise from or are in connection with the plaintiff's performance of the parties' agreement. Accordingly, the court will grant the plaintiff's motion for summary judgment, deny the defendant's cross-motion for summary judgment, and direct that the defendant defend the plaintiff in the Louisiana action. Additionally, as the parties' agreement only permits the recovery of reasonable legal fees, costs, and expenses, the court will also require the plaintiff to submit an itemized list of its fees, costs, and expenses defending the Louisiana action so far and will give the defendant an opportunity to object to those fees, costs, and expenses that it believes are unreasonable.
The plaintiff, Air Products and Chemicals, Inc. ("Air Products"), commenced this action by filing a complaint against the defendant, The Procter and Gamble Manufacturing Company ("P&G"), on November 13, 2018. Doc. No. 1. In the complaint, Air Products alleges that a tragic incident occurred in May 2018, wherein one P&G employee died, and three other P&G employees were injured, when a hydrogen-powered forklift exploded at a P&G plant in Pineville, Louisiana. See Compl. at ¶ 23, Doc. No. 1. At the time of the incident, P&G and Air Products were acting under an agreement through which Air Products, inter alia, provided P&G with gaseous hydrogen for P&G to use with its "hydrogen fueling activities for fuel cells for lift trucks" at P&G's Pineville, Louisiana facility. Id. at ¶¶ 1, 13, 14. In addition, pursuant to the agreement, Air Products "selected, installed, and maintains certain hydrogen fueling equipment . . . at P&G's facility including, among other things, a compression, storage, and dispensing system." Id. at ¶ 15.
The injured employees, the injured employees' family members, and the deceased employee's representatives filed a "Petition for Damages" in the 9th Judicial District in the State of Louisiana (the "Lott Matter"). See id. at ¶ 27. This petition named Air Products as a defendant and asserted five causes of action against it. See id. The causes of action relate to the hydrogen compression, storage, and dispensing equipment at the Pineville facility. See id. at ¶ 31.
After receiving notice of the "Petition for Damages," Air Products tendered the Lott Matter to P&G so it could indemnify, defend, and hold harmless Air Products pursuant to sections 9(a) and 9(d) of the parties' agreement. See id. at ¶¶ 18-20, 34. P&G has declined Air Products' tender of indemnification and defense in the Lott Matter. See id. at ¶ 35. As a result, Air Products has retained its own counsel and has incurred fees and costs to date in defending the Lott Matter. See id. at ¶ 36.
Air Products now asserts that P&G breached section 9 of the parties' agreement when it "refus[ed] Air Products['] tender of the defense of the Lott Matter.]" Id. at ¶ 43. Air Products seeks to have the court enter judgment in its favor and award it actual and compensatory damages arising from P&G's breach of the parties' agreement. Id. at 8.
P&G filed an answer and affirmative defenses to the complaint on December 18, 2018. Doc. No. 4. Shortly after answering the complaint, P&G moved to disqualify Air Products' counsel. Doc. No. 8. Air Products filed a response to the motion to disqualify on January 8, 2019, and P&G filed a reply to this response on January 15, 2019. Doc. Nos. 11, 12.
The undersigned held an initial pretrial conference with counsel on January 24, 2019, and held a follow-up telephone conference on February 1, 2019. During the telephone conference, the parties agreed that the court could deny the motion to disqualify. The court and the parties also discussed a schedule for the filing of motions for summary judgment. As such, the court entered an order on that same date which, inter alia, denied the motion to disqualify as moot and set a schedule for the filing and briefing of a motion for summary judgment. Order, Doc. No. 18.
The parties jointly requested that the court modify this scheduling order to permit P&G to also file a motion for summary judgment, and the court entered an order to this effect on February 22, 2019. Order, Doc. No. 20. On the same date, the parties filed their joint stipulation of material facts and Air Products filed its motion for summary judgment. Doc. Nos. 19, 21. P&G filed its cross-motion for summary judgment and opposition to Air Products' motion for summary judgment on March 15, 2019. Doc. No. 25.
The court entered an order on March 19, 2019, again modifying the briefing schedule at the parties' request. Order, Doc. No. 26. Air Products filed a response in opposition to P&G's motion for summary judgment and a reply to P&G's response in opposition to Air Products' motion on March 29, 2019. Doc. No. 27. P&G filed a reply to Air Products' response in opposition to its motion and a sur-reply to Air Products' reply brief on April 2, 2019. Doc. No. 28. Air Products then filed a sur-reply brief in opposition to P&G's motion for summary judgment. Doc. No. 29.
On April 11, 2019, the court heard oral argument on the cross-motions for summary judgment. After a telephone conference with the undersigned on May 2, 2019, the parties filed a supplemental stipulation of material facts. Doc. No. 34. The cross-motions are now ripe for disposition.
A district court "shall grant summary judgment if the movant shows that there is no genuine issue as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). Additionally, "[s]ummary judgment is appropriate when `the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.'" Wright v. Corning, 679 F.3d 101, 103 (3d Cir. 2012) (quoting Orsatti v. N.J. State Police, 71 F.3d 480, 482 (3d Cir. 1995)). An issue of fact is "genuine" if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc. 477 U.S. 242, 248 (1986). A fact is "material" if it "might affect the outcome of the suit under the governing law." Id.
The party moving for summary judgment has the initial burden "of informing the district court of the basis for its motion, and identifying those portions of the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986) (internal quotation marks omitted). Once the moving party has met this burden, the non-moving party must counter with "specific facts showing that there is a genuine issue for trial." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (internal quotation marks and citation omitted); see Fed. R. Civ. P. 56(c) (stating that "[a] party asserting that a fact . . . is genuinely disputed must support the assertion by . . . citing to particular parts of materials in the record . . .; or . . . [by] showing that the materials cited do not establish the absence . . . of a genuine dispute"). The non-movant must show more than the "mere existence of a scintilla of evidence" for elements on which the non-movant bears the burden of production. Anderson, 477 U.S. at 252.
Bare assertions, conclusory allegations, or suspicions are insufficient to defeat summary judgment. See Fireman's Ins. Co. v. DuFresne, 676 F.2d 965, 969 (3d Cir. 1982) (indicating that party opposing a motion for summary judgment may not "rely merely upon bare assertions, conclusory allegations or suspicions"); Ridgewood Bd. of Educ. v. N.E. for M.E., 172 F.3d 238, 252 (3d Cir. 1999) (explaining that "speculation and conclusory allegations" do not satisfy non-moving party's duty to "set forth specific facts showing that a genuine issue of material fact exists and that a reasonable factfinder could rule in its favor"). Additionally, the non-moving party "cannot rely on unsupported allegations, but must go beyond pleadings and provide some evidence that would show that there exists a genuine issue for trial." Jones v. United Parcel Serv., 214 F.3d 402, 407 (3d Cir. 2000). Thus, it is not enough to "merely [ ] restat[e] the allegations" in the complaint; instead, the non-moving party must "point to concrete evidence in the record that supports each and every essential element of his case." Jones v. Beard, 145 F. App'x 743, 745-46 (3d Cir. 2005) (citing Celotex, 477 U.S. at 322). Moreover, arguments included in briefs "are not evidence and cannot by themselves create a factual dispute sufficient to defeat a summary judgment motion." Jersey Cent. Power & Light Co. v. Twp. of Lacey, 772 F.2d 1103, 1109-10 (3d Cir. 1985).
"When considering whether there exist genuine issues of material fact, the court is required to examine the evidence of record in the light most favorable to the party opposing summary judgment, and resolve all reasonable inferences in that party's favor." Wishkin v. Potter, 476 F.3d 180, 184 (3d Cir. 2007). The court must decide "not whether . . . the evidence unmistakably favors one side or the other but whether a fair-minded jury could return a verdict for the plaintiff on the evidence presented." Anderson, 477 U.S. at 252. "Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no `genuine issue for trial'" and the court should grant summary judgment in favor of the moving party. Matsushita Elec. Indus. Co., 475 U.S. at 587 (citation omitted). Nonetheless, when one party's claims are "blatantly contradicted by the record, so that no reasonable jury could believe it," the court should not take those claims as true for the "purposes of ruling on a Motion for Summary Judgment." Scott v. Harris, 550 U.S. 372, 380 (2007).
The summary judgment standard is the same even when, as here, the parties have filed cross-motions for summary judgment. Erbe v. Conn. Gen. Life Ins. Co., Civ. A. No. 06-113, 2009 WL 605836, at *1 (W.D. Pa. Mar. 9, 2009) (citing Transguard Ins. Co. of Am., Inc. v. Hinchey, 464 F.Supp.2d 425, 430 (M.D. Pa. 2006)). "When confronted with cross-motions for summary judgment . . . `the court must rule on each party's motion on an individual and separate basis, determining, for each side, whether a judgment may be entered in accordance with the summary judgment standard.'" Id. (quoting Transguard, 464 F. Supp. 2d at 430).
Air Products and P&G entered into a Hydrogen Supply Agreement on March 20, 2012 (the "Agreement"), with the parties subsequently amending the Agreement, effective December 19, 2013. See Stipulation of Material Facts ("Stip.") at ¶ 1 and Ex. A ("Agreement"). The initial term of the Agreement commenced on March 20, 2012, and it would run for ten years from the "date of commissioning the Equipment."
The Agreement required Air Products to sell to P&G, and for P&G to purchase from Air Products, P&G's "entire purchase requirements of gaseous hydrogen . . . for [P&G's] activities with respect to its hydrogen fueling activities for fuel cells for lift trucks . . . carried out at [P&G's] Facility" located in Pineville, Louisiana. Agreement at 1. The Agreement stated that P&G "shall not permit (i) anyone other than its properly trained employees or invitees to carry out any hydrogen fueling activities using the Hydrogen provided hereunder and (ii) any vehicles other than those owned by [P&G] or its invitees to be fueled with such Hydrogen." Id. The Agreement also obligated Air Products to perform regular preventative maintenance on the equipment and provided that Air Products would perform any major maintenance at P&G's expense. Id. at 2. The Agreement further required Air Products to install equipment at the P&G facility that Air Products deemed appropriate to supply P&G's hydrogen requirements. Id. The parties have agreed that "the equipment comprising a system for hydrogen storage, dispensing and compression in use at P&G's Facility was the equipment installed by Air Products pursuant to the Agreement."
An attachment to the Agreement specifically identifies the equipment that Air Products would install, including (1) a hydrogen fuel station, including a gaseous hydrogen compressor system and storage vessels, (2) a gaseous hydrogen supply station, and (3) a liquid hydrogen supply system. Agreement, Attachment 2 at ECF p. 11. This attachment also indicates that "Air Products will design the equipment within their scope of supply to the following specifications and standard[,]" and then sets forth specifications relating to the "Hydrogen Demand," "Hydrogen Supply," "Hydrogen Compression System," "Dispensing and Vehicle Interface Requirements," and "Storage." Id. at ECF pp. 11-13. The attachment further discusses "DELIVERABLE AND DESIGN SERVICES," which "lists the complete scope of documentation deliverables and design services that [Air Products] will provide to [P&G] for the equipment items within Air Products' scope of supply." Id. at ECF p. 14. These "documentation deliverables and design services" include aspects relating to "General Design," "Civil/Structural," "Piping Design," "Instrumentation and Electrical Design," "Utilities Distribution System Design (Within Battery Limits)," and "Miscellaneous Activities." Id. at ECF pp. 14-17.
The Agreement contains provisions to limit each party's liability and require the indemnity and defense of certain identified claims. Id. at 5-6. The pertinent provisions relating to defense and indemnification are as follows:
Id. at 5-6.
The Agreement is "governed by and construed according to the laws of the Commonwealth of Pennsylvania without giving effect to its conflicts of laws provisions." Id. at 7. Regarding dispute resolution, the Agreement states as follows:
Id.
On August 28, 2018, Constance "Anne" Lott, Allegra Kendrick, Austin Kendrick, Charles Bailey, Jennifer Bailey, Vernon Meeks, Mikel Gray, and Jasmine Gray, filed a "Petition for Damages" in the 9th Judicial District Court in the Parish of Rapides, Louisiana. See Stip. at ¶¶ 3, 12 and Exs. B ("Pet. for Damages"), J. The petition identifies numerous defendants, including Air Products.
According to the allegations in the petition, on or about May 24, 2018, William Kendrick was working as an employee at P&G's facility in Pineville, Louisiana. See id. at 3. He was operating a lift truck when it suddenly exploded. See id. A hydrogen fuel cell power unit powered the lift truck, and the fuel cell "contained a hydrogen fuel tank known as a composite overwrapped pressure vessel." Id. at 4. Air Products "designed, researched, developed, tested, inspected, produced, manufactured, analyzed, merchandised, packaged, advertised, promoted, labeled, distributed, marketed, sold, maintained, and placed into the stream of commerce [the hydrogen compression, storage and dispensing system at the P&G facility.]" Id. The explosion killed Mr. Kendrick and caused the other plaintiffs, Charles Bailey, Vernon Meeks, and Mikel Gray, who were also P&G employees working near the forklift, to suffer serious bodily injuries. See id. at 3; see also Stip. at ¶ 5 ("The Petition alleges claims relating to injuries suffered by P&G employees William Kendrick, Charles Bailey, Vernon Meeks and Mikel Gray in a fork lift explosion on the floor of P&G's facility in Pineville, Louisiana.").
The Lott Matter plaintiffs assert multiple causes of action against Air Products. See id. at 17-21. Those causes of action include: (1) "Defect in Construction and/or Composition Under LA R.S. 9:2800.55;"
Air Products filed an answer and affirmative defenses to the petition. See Stip. at ¶ 4 and Ex. C ("Answer and Affirmative Defenses"). In its affirmative defenses, Air Products avers, inter alia, (1) it did not manufacture any product that caused the plaintiffs' injuries, and (2) it supplied hydrogen for use with P&G's fueling activities for fuel cells for lift trucks. Answer and Affirmative Defenses at 1. In the answer, Air Products admitted "that it installed a hydrogen compression, storage and dispensing system at the P&G facility." Id. at 7.
In a July 3, 2018 e-mail from Wesley J. Gralapp, Esquire to, among others, Thuy Taitt, Esquire of Air Products, he placed "all third parties on notice of the claims being made by Charles Bailey, Mikely Gray and Vernon Meeks and [his] representation of them." Stip. at ¶ 6 and Ex. D ("Gralapp Ltr."). Attorney Gralapp also indicated that his firm was "not representing these individuals in a worker's compensation claim nor a tort claim against their employer, P&G." Id. He further stated that "[w]e have no intention of slowing the process to transport and test the forklift but would like to be considered and notified of all testing with the right to have someone present to participate and observe." Id.
Attorney Taitt sent a letter dated July 10, 2018 to P&G and Andy Eckstein, Esquire, associate general counsel of The Procter & Gamble Company. See Stip. at ¶ 7 and Ex. E ("7-10-18 Taitt Ltr."). In the letter, Attorney Taitt references the May 24, 2018 incident at P&G's Pineville plant, and he notes that Air Products' "has expended significant resources in support of P&G's root cause investigation" and will "continue to cooperate with P&G as it evaluates potential causes of the Incident." 7-10-18 Taitt Ltr. at ECF p. 2. Attorney Taitt also discusses Attorney Gralapp's e-mail and points out that Attorney Gralapp did not provide "specific information regarding the nature of the claims he intended to pursue." Id. Attorney Taitt then informs P&G that
Id. The letter attaches a copy of the Agreement (with a reference in the letter to sections 9(a) and 9(d) of the Agreement), and Attorney Gralapp's July 3, 2018 e-mail. Id. at ECF p. 3.
Through a letter dated July 18, 2018 to Attorney Taitt, Attorney Eckstein states in relevant part as follows:
Stip. at ¶ 8 and Ex. F ("7-18-18 Eckstein Ltr."). Attorney Eckstein also "ask[ed]" Ms. Taitt to "confirm receipt of this letter and confirm Air Products' agreement that any indemnity determination is premature at this time while the root cause investigation continues." 7-18-18 Eckstein Ltr.
Via a letter dated August 31, 2018, to P&G and Attorney Eckstein, Attorney Taitt clarified Air Products' position by stating that Air Products "hereby tenders the above matter to P&G to indemnify, defend, and hold harmless Air Products pursuant to Sections 9(a) and 9(d) of the [Agreement]." Stip. at ¶ 9 and Ex. G ("8-31-18 Taitt Ltr."). Attorney Taitt further indicates that
Id. at ECF pp. 2-3. Attorney Tuitt then asks P&G and Attorney Eckstein to "confirm by September 7, 2018, your acceptance of this tender and please advise the name of counsel you will retain to defend Air Products in this matter on your account." Id. at ECF p. 3.
Through a September 6, 2018 letter from Erin Casey Hangartner, Esquire, counsel for P&G, to Attorney Tuitt, P&G "respectfully decline[d] the tender of indemnification and defense to Air Products." Stip. at ¶ 10 and Ex. H ("9-6-18 Hangartner Ltr."). Attorney Hangartner also stated as follows:
9-16-18 Hangartner Ltr. at ECF pp. 2-3 (internal footnotes omitted).
Through a letter dated September 13, 2018 to Attorney Hangartner, Attorney Taitt indicated that she had, after two telephone conferences, asked P&G to reconsider its position to not tender a defense to Air Products in the underlying state court matter. See Stip. at ¶ 11 and Ex. I ("9-13-18 Taitt Ltr."). According to the letter, P&G had reiterated its rejection of Air Products' tender. See 9-13-18 Taitt Ltr. at ECF pp. 3-4. Essentially, Attorney Taitt explained in the letter why P&G was obligated to defend and indemnify Air Products. See id. at ECF pp. 2-4. In addition, she requested that P&G refer the matter to a senior manager and that if P&G did not promptly act, Air Products would potentially take legal action to enforce its rights under the Agreement. See id. at ECF p. 4.
In the cross-motions for summary judgment, the parties are debating only whether P&G has a duty to defend Air Products in the Lott Matter based on section 9(d) of the Agreement. See Pl.'s Mem. at 11 ("[A]t this time Air Products is seeking only to enforce P&G's duty to defend Air Products in the Lott matter, and no claim for indemnity has yet been made in this case."); Def.'s Mem. at 1 (describing sole issue before court as "Whether Section 9(d) of the . . . Agreement. . . requires P&G to defend Air Products against claims based entirely upon Air Products' own acts and failures to act"). As such, the court must determine whether Section 9(d) imposes upon P&G a duty to defend Air Products and, if so, whether the allegations in the Lott Matter "aris[e] from or in connection with the performance of th[e] Agreement" so as to trigger P&G's duty to defend Air Products in the Lott Matter.
Air Products points out that in analyzing whether P&G has a duty to defend it in the Lott Matter, the court must look to the plaintiffs' allegations against it in that case. Pl.'s Mem. at 10-11. It asserts that the duty to defend is broader than the duty to indemnify and, as such, the court must determine whether the claims in the Lott Matter arguably fall within the scope of section 9(d). Id. at 11. With these concepts in mind, Air Products contends that P&G has a duty to defend it in the Lott Matter because (1) the underlying claims arise from bodily injuries to P&G employees, and (2) those injuries unambiguously arise from or are connected to Air Products' performance of the Agreement because they relate to the "hydrogen compression, storage and dispensing system" that Air Products selected, installed, and maintained at P&G's Louisiana facility. Id. at 11-12.
Concerning this latter point, Air Products points out that its performance under the Agreement included supplying hydrogen to P&G, providing P&G with an "off-the-shelf hydrogen and storage dispensing system," and "
Air Products further argues that the Perry-Ruzzi rule
Id. at 7.
Air Products also argues that even if Perry-Ruzzi applied to its claim for a defense by P&G in the Lott Matter, section 9(d) complies with the rule insofar as it clearly and unequivocally requires P&G to defend it in the Lott Matter. Pl.'s Mem. at 13-14. Concerning its argument that Perry-Ruzzi only applies to claims for indemnification, Air Products asserts that the Supreme Court of Pennsylvania declined to expand the rule to claims relating to a duty to defend. Pl.'s Reply at 5-6. In addition, the Perry-Ruzzi rule requires that "a party must clearly and unequivocally agree to indemnify another party for that party's negligence, and . . . the rule is satisfied by an express agreement that manifests the parties' intent." Pl.'s Opp'n at 13 (citations omitted). Air Products contends that section 9(d) of the Agreement satisfies this standard. Id. at 14.
In support of its own motion and in response to Air Products' motion, P&G argues that Pennsylvania and Third Circuit precedent requires the court to closely scrutinize the indemnity/defense language in section 9(d), especially since Air Products drafted the Agreement.
P&G argues that it has no duty to defend Air Products under the Agreement because, inter alia, it does not clearly and unequivocally oblige P&G to defend and indemnify Air Products from the Louisiana plaintiffs' claims. Id. at 9-16. In particular, P&G believes that section 9(d) uses "words of general import," which are insufficient under Perry-Ruzzi to create an obligation to defend an indemnitee for its own conduct. Id. at 10. P&G also notes that the Louisiana plaintiffs' claims relate to "alleged conduct that occurred before the hydrogen compression, storage and dispensing system had even left Air Products' exclusive possession and control." Id. (citations omitted). None of the claims pertain to Air Products' conduct at P&G's Louisiana facility. Id. at 11. As such, as the Agreement does not define "performance of the Agreement," (1) it is not clear and unequivocal that claims relating to Air Products' conduct that occurred before any equipment left its possession or control are claims "arising from or in connection with the performance of the Agreement," and (2) there is no indication that the parties intended for indemnification for "upstream products liability claims." Id. at 12. P&G also points out that the Agreement was not a contract for purchase of the equipment as title to the equipment remained with Air Products, or for "the research, development, design, and production of the hydrogen compression, storage and dispensing system." Def.'s Reply at 5-7 and n.3.
P&G also observes that if the parties intended to include a duty to defend and indemnify the other in connection with any incident involving the presence of hydrogen at the Louisiana facility, they could have used similar language to that in section 9(a) of the Agreement, which includes the phrase "arising out of the presence of use of hydrogen." Id. at 14. If the parties had used this language, P&G concedes that it would be required to defend and indemnify Air Products in the Lott Matter. Id. Accordingly, based on the above, P&G contends that the court must grant its motion for summary judgment and conclude that it has no duty to defend Air Products in the Lott Matter or pay for its defense fees and costs to date.
As resolution of the instant cross-motions requires interpretation of the Agreement, the court will set forth the applicable Pennsylvania law for this contract dispute.
Maule v. Philadelphia Media Holdings, LLC, Civ. A. No. 08-3357, 2010 WL 914926, at *10 (E.D. Pa. Mar. 15, 2010).
Jacobs Constructors, 264 F.3d at 371.
As the parties' arguments demonstrate, they disagree about whether the Perry-Ruzzi rule applies to a party's claim relating to a duty to defend. Despite the parties' claims that their respective positions are well-established in the applicable case law, very few cases have addressed similar circumstances and the arguments presented here. There is at least one Third Circuit decision applying the Perry-Ruzzi rule while analyzing whether a possible indemnitor owed a duty to defend to a possible indemnitee. See Jacobs Constructors, 264 F.3d at 373-74.
The Supreme Court of Pennsylvania seemingly determined that the Perry-Ruzzi rule does not apply to duty-to-defend claims in Mace v. Atlantic Refining Marketing Corp., 785 A.2d 491 (2001). In Mace, a franchise agreement and real estate lease required the franchisee to "indemnify and defend [the franchisor] from all personal injury lawsuits arising out of [the franchisee's] operation of the [franchise] store, unless the injury was caused solely by the negligence of [the franchisor]." 785 A.2d at 492-93. An individual who was severely beaten with an aluminum bat by an employee of the franchisee in the store's parking lot sued the employee assailant, the franchisee, and the franchisor, claiming that (1) the assailant committed the torts of assault and battery, (2) the franchisee (a) was vicariously liable as the assailant's employer, (b) had failed to provide a safe facility, and (c) had negligently hired, supervised, and trained the assailant, and (3) the franchisor was liable as the franchisor of the store and it had failed to properly supervise the franchise's operations. Id. at 493-94. The franchisor filed a cross-claim against the franchisee for contractual indemnity and breach of contract, asserting that the franchise agreement and lease obligated the franchisee to defend the franchisor against the victim's claims. Id. at 494.
The trial court granted the franchisor's motion for summary judgment and dismissed all claims against it (including cross-claims). Id. Although the franchisor continued prosecuting its cross-claims against the franchisee for defense costs and legal fees that it expended in defending itself in the underlying action, the trial court eventually dismissed the franchisor's cross-claims after concluding that the franchise agreement and lease did not oblige the franchisee to defend the franchisor in the personal injury action. Id. The franchisor appealed to the Superior Court, which affirmed the dismissal after applying the Perry-Ruzzi rule. Id. One judge on the panel dissented "taking the position that the Perry-Ruzzi rule was not applicable to the instant case because [the franchisor] was not attempting to recover for its own negligence." Id.
On appeal to the Pennsylvania Supreme Court, the franchisor asserted that Perry-Ruzzi did not apply and "when basic contract principles are applied to the Agreement and Lease, it is clear that [the franchisee] is responsible for paying the costs that [the franchisor] incurred in defending itself from the personal injury suit." Id. The Court agreed. Id.
The Court explained that the Perry-Ruzzi rule "is reserved only for instances where a party seeks indemnification for its own negligence." Id. at 495. The rule was therefore inapplicable to this case because the franchisor "[wa]s not seeking to relieve itself of responsibility for its own negligence." Id. Instead, the franchisor
Id. (internal quotation marks and citation omitted).
In reaching this conclusion, the Court specifically rejected the franchisee's invitation to expand the Perry-Ruzzi rule
Id. (internal footnote omitted). The Court further explained that "expanding the Perry-Ruzzi rule to encompass situations where a party is merely alleged to have been negligent would render indemnification meaningless, as even a completely frivolous negligence action filed against an indemnitee would automatically eradicate an otherwise valid indemnification provision." Id. at 496.
The Court then applied "general principles of contract interpretation to determine whether [the franchisee] had an obligation under the Agreement and Lease to defend [the franchisor] from the personal injury lawsuit." Id. Applying these principles, the Court determined that the franchise agreement and lease required the franchisee to defend the franchisor in the personal injury action and, as the franchisee failed to do this, the franchisor could recover the costs expended in defending the lawsuit. Id. at 496-97.
Recognizing that the facts of Mace are not analogous to those here, at a minimum there is a plausible argument that after Mace the Perry-Ruzzi rule does not apply to whether there is a duty to defend arising from an indemnification provision in an agreement.
Upon thoroughly reviewing the parties' submissions, the applicable law, and the Agreement, the court finds that section 9(d) of the Agreement clearly and unequivocally provides that, under the circumstances presented here, P&G has a duty to defend Air Products based upon Air Products' negligence or strict liability if the action involves claims for bodily injuries to P&G employees.
In addition, the court finds that at least one of the underlying claims in the Lott Matter at least potentially or arguably fits within the scope of P&G's duty to defend.
Further, at a minimum, the Louisiana plaintiffs allege that Air Products maintained the hydrogen compression, storage and dispensing system and was negligent in failing to properly maintain it, see Pet. for Damages at ¶¶ 34, 173(d), and part of its performance under the Agreement clearly involved maintaining the equipment for the system.
For the reasons set forth above, section 9(d) of the Agreement clearly and unambiguously imposes an obligation upon P&G to defend Air Products for, inter alia, claims for bodily injuries by P&G employees caused by the negligence or strict liability of Air Products. It appears that under Pennsylvania law following Mace, a contractual provision in the non-insurance context that includes an indemnification provision that contains a duty to defend is to be interpreted by general contact principles (including those relevant to indemnification claims). In addition, the court does not find the language "arising from or in connection with the performance of this Agreement" to be ambiguous simply because the Agreement does not define it; the scope of Air Products' "performance" under the Agreement is specifically set forth therein. Moreover, the facts and claims alleged by the Louisiana plaintiffs arise from or are in connection with Air Products' performance under the Agreement, which included, inter alia, selecting, designing, installing, and maintaining a hydrogen compression, storage and dispensing system for P&G's use at its Louisiana facility. Therefore, the Louisiana plaintiffs' claims at least arguably fall within the scope of P&G's duty to defend Air Products as provided for in the Agreement.
Accordingly, the court will grant Air Products' motion for summary judgment and deny P&G's cross-motion for summary judgment. The Agreement provides that Air Products is entitled to recover its reasonable legal costs, fees and expenses that it has incurred in defending the Louisiana action to date. The court will provide Air Products with 14 days to file a statement of these costs and expenses and the same period thereafter for P&G to respond to the extent that it believes that any claimed cost or expense is unreasonable.
The court will enter a separate order.
Perry v. Payne, 66 A. 553, 557 (Pa. 1907); see Ruzzi v. Butler Petroleum Co., 588 A.2d 1, 4 (Pa. 1991) ("The law has been well settled in this Commonwealth for 87 years that if parties intend to include within the scope of their indemnity agreement a provision that covers losses due to the indemnitee's own negligence, they must do so in clear and unequivocal language. No inference from words of general import can establish such indemnification."); see also Greer v. City of Philadelphia, 795 A.2d 376, 380 (Pa. 2002) ("Unless the language of the contract is clear and unambiguous . . . such that the contract puts it beyond doubt that the parties intended the interpretation that [the party seeking indemnification] advocates, we must opt for the interpretation that does not shoulder [the alleged indemnitor] with the fiscal responsibility for [the indemnitees'] negligence."); Topp Copy Prods., Inc. v. Singletary, 626 A.2d 98, 100 (Pa. 1993) ("[W]hen interpreting the validity and enforceability of indemnity clauses [Pennsylvania law does] not recognize as effective an agreement concerning negligent acts unless an express stipulation concerning the indemnitee's negligence was included in the document."). On occasion,
Bracken v. Burchick Constr. Co., Inc., No. 1432 WDA 2012, 2014 WL 10790110, at *3-4 (Pa. Super. Oct. 10, 2014).
Valhal Corp. v. Sullivan Assocs., Inc., 44 F.3d 195, 202 (3d Cir. 1995) (citation omitted).
While the Third Circuit had to address multiple issues on appeal, the first issue the court addressed was whether the district court erred in concluding that the subcontract imposed an obligation on the subcontractor to defend the contractor in the Texas suit. Id. at 370-71. The Third Circuit noted that the subcontractor argued on appeal that the Perry-Ruzzi rule should apply to "the indemnification and defense of a party's contractual liability." Id. at 371. The subcontractor further asserted that the district court should have analyzed whether the subcontract "expressly includes, rather than excludes, such obligations." Id. The Third Circuit agreed with the subcontractor. Id.
In addressing the subcontractor's duty to defend, the court discussed general indemnity principles, including, inter alia, that "the court must strictly construe the scope of an indemnity contract against the party seeking indemnification." Id. (citation omitted). The court then indicated that "[i]t is well-settled in Pennsylvania that an indemnity agreement that covers loss due to the indemnitee's own negligence must be clear and unequivocal," and goes on to discuss Perry and Ruzzi. Id. at 371-72. After discussing the Perry-Ruzzi rule, the court determined that the "Pennsylvania Supreme Court would hold that [it] applies to indemnity claims for losses contractually assumed by the indemnitee." Id. at 372. In doing so, the court explained that
Id. at 373.
The Third Circuit then applied the Perry-Ruzzi rule to the subcontract and concluded that it did not unequivocally require [the subcontractor] to defend [the contractor] in an indemnification suit brought by a third party." Id. The court specifically indicated that it was reading the applicable indemnification and defense provision "narrowly," id. at 373, and concluded that "[the subcontractor's] duty to defend [the contractor] in contractual indemnity suits may arise only from the plainly expressed intention of the parties, spelled out in unambiguous terms." Id. at 374. Since the subcontract lacked such "specific language," the court held that "the subcontractor was not obligated to defend [the contractor] against contractual indemnity claims." Id.
Id. at 498-99 (citation omitted).
The Court also notes that Justice Saylor wrote a dissenting opinion in which he indicated that Perry-Ruzzi would not "come into play in assessing an indemnitor's duty to defend in situations in which the plaintiff's `sole negligence' theory is merely one of multiple claims asserted against the prospective indemnitee." Id. at 500 (Saylor, J., dissenting).
As an aside, if Perry-Ruzzi applies, there is at least the potential for inconsistency based upon the current state of Pennsylvania law on duty to defend claims in the non-insurance context, especially based on how P&G would have the court apply Perry-Ruzzi. In the insurance context, the law is abundantly clear that the duty to indemnify, while not as broad as the duty to defend, is not subject to a more searching review than when a court is deciding whether an insurer has a duty to defend. Instead, the applicable standard is dependent on the stage of the case, with the duty to defend being implicated upon a review of the underlying complaint and the duty to indemnify (while being triggered upon a review of the complaint) not being implicated until there is a determination of coverage. See Erie Ins. Exchange v. Fidler, 808 A.2d 587, 590 (Pa. Super. 2002) ("The obligation of an insurer to defend an action against the insured is fixed solely by the allegations in the underlying complaint. As long as a complaint alleges an injury which may be within the scope of the policy, the insurer must defend its insured until the claim is confined to a recovery the policy does not cover."); State Farm Fire and Cas. Co. v. DeCoster, 67 A.3d 40, 46 (Pa. Super. 2013) ("Unlike the duty to defend, a determination of the duty to indemnify is not necessarily limited to the factual allegations of the underlying complaint. Rather, there must be a determination that the insurer's policy actually covers a claimed incident." (citation and internal quotation marks omitted)). In the non-insurance context, claims for indemnification are (understandably) subjected to a very highly scrutinized review pursuant to the general caselaw and Perry-Ruzzi, yet in these same cases, courts still mention that the duty to defend is broader than the duty to indemnify. Thus, if the Perry-Ruzzi rule applies to both the duty to defend and duty to indemnify in the non-insurance indemnification context, and if the rule applies beyond identifying whether there is a duty to defend generally and applies to the scope of that duty, it would appear that the principle that the duty to defend is broader than the duty to indemnify would no longer exist.
Here, P&G has not pointed to any requirement that the Agreement had to define the phrase "performance of the Agreement," as the parties did in Hershey for the court to find that the phrase is unambiguous. The Superior Court did not state that the phrase must be defined to be enforceable. In addition, unlike here, the personal injury claims arose out of conduct by the employee that clearly were not within the scope of the work described under the agreement. Again, here, Air Products had to, inter alia, select the equipment, design and install it, and maintain it at P&G's Louisiana location. The claims in the Lott Matter, as they pertain to Air Products, arise out of or relate to its work pursuant to the Agreement.
