- Pennsylvania Indemnity Law: Something is Better than Nothing
- May 7, 2003
- Law Firm: Marshall, Dennehey, Warner, Coleman & Goggin - Philadelphia Office
In Greer v. City of Philadelphia, 795 A.2d 376 (Pa. 2002), the subcontractor on a project to remove signs from I-95 signed a contract which contained an indemnity clause. That clause obliged the subcontractor to indemnify PennDOT and the general contractor "from and against claims, damages, losses and expenses, including but not limited to attorney's fees, arising out of or resulting from the performance of the Subcontractor's Work under this Subcontract . . . but only to the extent caused in whole or in part by negligent acts or omissions of the Subcontractor, the Subcontractor's Sub-Subcontractors, anyone directly or indirectly employed by them or anyone for whose acts they may be liable, regardless of whether or not such claim, damage, loss or expense is caused in part by a party indemnified hereunder." (Emphasis added by court.)In the course of the project, a motor vehicle accident occurred and generated a personal lawsuit that went to the jury, which returned a verdict in favor of the injured motorist and against the striking motorist (who had settled with the plaintiff before trial), PennDOT, the general contractor, and the subcontractor for $2,500,000. The jury found the injured motorist to have been 12 percent comparatively negligent and the striking motorist, PennDOT, the general contractor, and the subcontractor each to have been 22 percent negligent.
PennDOT and the general contractor filed motions which invoked the subcontract's indemnity clause and sought to shift their liability to the subcontractor. However, the trial court denied those motions, holding that the terms of the subcontract did not express a promise on the part of the subcontractor to protect PennDOT and the general contractor from liability for their own negligence. In the ensuing appeals from that ruling, the Commonwealth Court reached the opposite conclusion and upheld the claims for full indemnification by the subcontractor. The Commonwealth Court held that the phrase "to the extent" meant that the subcontractor promised to indemnify PennDOT and the general contractor up to the percentage of the liability which the jury allocated to the subcontractor. Because the jury allocated the same percentage of liability to PennDOT, the general contractor and the subcontractor, the subcontractor had to cover PennDOT and the general contractor.
The Pennsylvania Supreme Court allowed the subcontractor to appeal from the Commonwealth Court's decision. In that appeal, the parties offered three interpretations of the subcontract's indemnity clause. The subcontractor asserted that the clause was not clear enough to oblige it to indemnify PennDOT and the general contractor for their own negligence, and that the clause meant no more than that the subcontractor would pay its share of the verdict. The general contractor argued that the indemnity clause clearly and unequivocally provided it and PennDOT with complete indemnity for their own negligence, as long as the subcontractor was also partially negligent. PennDOT advocated the approach taken by the Commonwealth Court, contending that the provision unambiguously indemnified it and the general contractor for their own negligence only up to an amount equal to the subcontractor's liability for its negligence. The Pennsylvania Supreme Court again underscored that those who hope to be indemnified for the consequences of their own negligence have to make sure that their indemnity contracts spell out the agreement of the indemnitor to assume that liability in explicit detail. In its view, the subcontract's indemnity clause did not satisfy that standard. Instead, the court held that the "only to the extent that" phrase meant that the subcontractor's indemnity obligation was limited to that portion of damages attributed to its negligence, and the "regardless of" phrase merely clarified that any negligence on the part of PennDOT and the general contractor would not bar their indemnification for damages allocated to the subcontractor's negligence. The court's construction of the "only to the extent that" gave the indemnity clause a "comparative negligence construction." The court rejected PennDOT's argument that this construction rendered the entire indemnity provision meaningless since PennDOT and the general contractor were entitled to contribution as joint tortfeasors without the indemnity clause. The court pointed out that the indemnity clause had meaning and value, because it provided them with "significant relief beyond that to which they are entitled under Pennsylvania's contribution statute," including (1) "an additional means of recovering any amount they might be compelled to pay on account of [the subcontractor's] negligence," (2) an entitlement to recover attorney's fees and other expenses arising out of the subcontractor's negligence, and (3) a "meaningful benefit in that it unconditionally obligates [the subcontractor] to indemnify them not only for its own negligence, but also for the negligence of its sub-subcontractors and 'direct or indirect' employees." The court held that the indemnity clause did not unambiguously indemnify PennDOT and the general contractor for their own negligence, but rather, served only to protect them from liability for damages due to the negligence of the subcontractor, its sub-subcontractors, its employees and others for whose acts the subcontractor may be liable. Consequently, PennDOT and the general contractor were "liable for the share of damages that the jury attributed to each of them when it assigned them each a proportional percentage of liability."
Those who wish to shift financial responsibility for their own negligence or other liability to others through indemnity clauses should make sure that the indemnity clauses satisfy the strict conditions set by the Pennsylvania Supreme Court. As an added practical matter, the indemnitees should also make sure that their indemnitors have sufficient contractual liability insurance to cover the transferred risks.