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DAILY EXPRESS, INC. v. NORTHERN NECK TRANSFER CORP

June 2, 1980

DAILY EXPRESS, INC., Plaintiff
v.
NORTHERN NECK TRANSFER CORP., Defendant and Third Party Plaintiff v. CAROLINA CASUALTY INSURANCE COMPANY, Third Party Defendant



The opinion of the court was delivered by: RAMBO

MEMORANDUM

 Daily Express, Inc. (Daily) entered into a "trip lease" agreement with Northern Neck Transfer Corporation (Northern) on November 7, 1978. Under the terms of the lease Northern leased a truck and a driver to Daily. While operating the vehicle subject to the terms of the trip lease, Northern's driver-employee became involved in an accident in West Virginia. Daily and Northern have stipulated that the negligence of Northern's driver was the proximate cause of the accident (Stipulation of Facts P 5); that Daily made payments to the injured third parties (SF P 7); and that the payments were fair and reasonable (SF P 8). Daily put Northern on notice, prior to settlement of the claims, that it would look to Northern for reimbursement of the sums paid to settle the claims of the injured third parties.

 Daily initiated this action on the basis of the indemnity clause of the "trip lease" agreement *fn1" and common law principles of indemnity. Defendant Northern filed a third party complaint asserting that any liability of Northern to Daily is covered under a contract of insurance between Northern and Carolina Casualty Insurance Company (Carolina). Carolina, on the other hand, alleges that recovery by Northern against Carolina is barred by exclusion (a) of the policy, which excludes from coverage "liability assumed by the insured under any contract or agreement." Presently before the court for determination are motions for summary judgment filed by all parties. *fn2"

 I. IS DAILY ENTITLED TO INDEMNITY FROM NORTHERN?

 The Interstate Commerce Act and the I.C.C. regulations were designed for the protection of the public, *fn3" not to excuse a party from liability he might otherwise have. Vance Trucking Co. v. Canal Insurance Co., 249 F. Supp. 33, 39 (D.S.C.1966), aff'd., 395 F.2d 391 (4th Cir.), cert. denied, 393 U.S. 845, 89 S. Ct. 129, 21 L. Ed. 2d 116 (1968). "While a lessee cannot free itself of its federally imposed duties when protection of the public is at stake, the federal requirements are not so radically intrusive as to absolve lessors or their insurers of otherwise existing obligations under applicable state tort law doctrines or under contracts allocating financial risk among private parties." Carolina Casualty Insurance Co. v. Insurance Co. of North America, 595 F.2d 128, 138 (3rd Cir. 1979) (footnote omitted).

 The general principle that a court may give effect to otherwise existing allocations of financial responsibility when the goal of protecting the injured public has been fulfilled, appears to find affirmance in Transamerican Freight Lines, Inc. v. Brada Miller Freight Systems, Inc., 423 U.S. 28, 96 S. Ct. 229, 46 L. Ed. 2d 169 (1975). In that case, the Supreme Court held that pursuant to a hold harmless agreement, "although one party is required by law to . . . bear the consequences of any negligence, the party responsible in law may seek indemnity from the party responsible in fact." Id. at 40, 96 S. Ct. at 235. The case sub judice falls within this general principle due to the fact that Daily has already paid the claims of the third parties, members of the general public, and now seeks reimbursement from Northern. Therefore, if Northern has assumed by contract the ultimate responsibility for any damage or injury to anyone as a result of its employee's negligence, or if Northern is liable for such damage or injury on the basis of common law indemnification principles, it cannot shirk that responsibility solely on the basis that the I.C.C. regulations place primary responsibility to the public upon Daily.

 Whether an individual is entitled to recover on the theory of implied contract of indemnity is determined by the applicable laws of the forum state. Carolina Casualty Insurance Co. v. Insurance Company of North America, supra. In this case, Pennsylvania law is controlling. *fn4"

 Under Pennsylvania law, before an individual may seek indemnity on either an express or implied contract of indemnity, he must at least have had a legal duty to pay to the third party the sum in question. West Africa Navigation, Ltd. v. Nacirema Operating Co., 191 F. Supp. 131 (D.C.1961). This poses no problem where the indemnitee has paid the sum to satisfy a legally enforcible judgment, but where the payment is made in the settlement of a claim, the question becomes somewhat more complex. The factual situation in this case is further complicated by the existence of the insurance agreement between Northern and Carolina.

 Generally, under an express contract of indemnification for damages, an indemnitee is not entitled to recover under the agreement until he has made actual payment or otherwise suffered actual loss or damage. Borowsky v. Margulis, 310 Pa. 420, 165 A. 491 (1933). Where, however, the indemnitee's liability is clear, with no apparent defense available, he may discharge a claim against him without waiting for an adjudication of fault. In doing so, however, he assumes the risk in an action against the indemnitor of proving not only that he was liable to the third party, but also that the amount of settlement was reasonable. Martinique Shoes, Inc. v. New York Progressive Wood Heel Co., 207 Pa.Super. 404, 217 A.2d 781 (1966).

 When dealing with an implied contract of indemnity, the requirements are similar but not exactly the same. If the amount paid is reasonable and just, the payment is made in good faith, and notice is given to the indemnitor that settlement is being made, then the indemnitee may settle; but he still assumes the risk of proving liability and reasonableness of settlement in any subsequent litigation. Neville Chemical Co. v. Union Carbide Corp., 294 F. Supp. 649 (D.C.1968), affirmed in part, vacated in part, 422 F.2d 1205, (3rd Cir.), cert. denied, 400 U.S. 826, 91 S. Ct. 51, 27 L. Ed. 2d 55 (1970); Martinique Shoes, Inc. v. New York Progressive Wood Heel Co., supra. See also, 42 C.J.S. Indemnity § 25 (1944).

 The following are undisputed facts. The accident occurred on November 7, 1978. On November 28, 1978, Daily sent Northern a letter stating: (1) the letter was "formal notice of our intent to pursue (the indemnification clause) of the trip lease agreement," (2) Northern, or its insurer could "assume handling of these claims," (3) if Daily were not contacted, it would "proceed to secure the most economical settlement possible and look to (Northern) for indemnity . . . ." Settlement of the claims was made by Daily after notice to Northern. Further, Northern and Daily have stipulated that the settlement of eleven thousand two hundred dollars ($ 11,200.00) was paid by Daily, and that such settlement was fair and reasonable.

 Daily is justified in seeking payment of the settlement amount from Northern. It is entitled to the indemnity on the basis of the trip lease. But, even absent the lease, Daily would have prevailed on common law principles of indemnity as Northern contests neither the reasonableness of the settlement, nor its ultimate liability. Between Daily and Northern there ...


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