that Baskin-Robbins is named as an additional insured on the policy that Safeco issued to Ardmore Distributors, Safeco nevertheless asserts a right to recover its contribution, contending that when the "other insurance" clauses of the Safeco and Great American policies are compared, Great American is required to bear the entire loss attributable to its insured, Baskin-Robbins. Great American contends that the franchise agreement placed the entire risk of loss on Safeco's insured, Ardmore Distributor because Ardmore Distributor agreed to indemnify Baskin-Robbins for this type of liability and agreed to provide Baskin-Robbins with insurance for this type of liability. Great American also disputes Safeco's conclusion about the effect of the two other insurance clauses. Further, Great American argues that if Safeco is right that the Safeco policy does not cover Baskin-Robbins because of the other insurance clauses, then Ardmore Distributors is liable to Baskin-Robbins (and by way of subrogation to Great American) for breach of the franchise agreement.
Before a determination can be made of the rights of Safeco and Great American, a determination must first be made of the rights of their insureds, Ardmore Distributors and Baskin-Robbins. Since Safeco and Great American are both insurers, their rights and responsibilities can be no different than those of their insureds except insofar as the rights are altered by the policies themselves. Thus it is necessary first to determine how Pennsylvania courts would allocate the responsibility for this incident between Baskin-Robbins and Ardmore Distributors and secondly how the terms of the policies effect which insurance company is responsible for payment of the loss.
Paragraph 5 of the stipulation of facts identifies the source of the ammonia nitrate contamination at the Baskin-Robbins plant where the ice cream was manufactured. The common law of Pennsylvania recognizes a right of indemnity in one who, without active fault, has been compelled by law to pay damages to an injured party. The faultless party may recover the full amount paid it to the injured party from the party actively at fault for the injury. See Burbage v. Boiler Engineering and Supply Co., 433 Pa. 319, 249 A.2d 563, 567 (1969). Therefore, because Ardmore Distributor's liability is based solely upon its failure to discover a defect created by Baskin-Robbins, Ardmore Distributors would be entitled to common law indemnity from Baskin-Robbins. See id. See also Tromza v. Tecumseh Products Co., 378 F.2d 601 (3d Cir. 1967).
Although the common law of indemnity would entitle Ardmore to recover from Baskin-Robbins, Great American, Baskin-Robbins' insurer, contends that the usual result is reversed in this case. Great American contends that certain provisions of the franchise agreement require that Ardmore indemnify Baskin-Robbins. The provision of the franchise agreement at the center of this controversy provides in part: "Retailer (Ardmore Distributors) agrees to hold harmless and protect area franchiser (Baskin-Robbins Eastern Corp.) and Baskin-Robbins (Baskin-Robbins, Inc.) from and against any liability of any kind or nature resulting from the operation of retailer's business." (Emphasis supplied) This provision which Great American interprets as a broad promise to indemnify was drafted by Baskin-Robbins.
A fundamental rule of contract interpretation is that where the language of a written contract is ambiguous, it will be construed against the party who chose the language. Rest. of Contracts § 235(d). In addition, special rules of interpretation apply to alleged promises to indemnify. In Pennsylvania, an indemnity contract will not be construed as protecting the indemnitee from loss resulting from its own negligence unless the intent to provide such protection is expressed in unequivocal terms. In Pittsburgh Steel Co. v. Paterson-Emerson-Comstock, Inc., 404 Pa. 53, 57, 171 A.2d 185, 187 (1961), the Pennsylvania Supreme Court stated: "the law is well settled that the intention to include within the scope of an indemnification contract, a loss due to the indemnitee's own negligence, must be expressed in clear and unequivocal language." Two years later, the Pennsylvania Supreme Court reiterated the law of the Commonwealth on this subject in Dilks v. Flohr Chevrolet, 411 Pa. 425, 192 A.2d 682 (1963):
The principle which underlies all these cases is that, where a person claims that, under the provisions and terms of a contract, he is rendered immune from and relieved of any liability for negligent conduct on his part or on the part of his employees, the burden is upon such person to prove (a) that such contractual provisions and terms do not contravene public policy and (b) that the provisions and terms of the contract clearly and unequivocally spell out the intent to grant such immunity and relief from liability. Absent such proof, the claim of immunity falls.
Id. at 436, 192 A.2d 682 (emphasis in original).
Applying these rules to this case, I conclude that the provision quoted above provides for indemnification only where the liability "result(s) from the operation of retailer's business" and fails to provide for indemnification in instances where the harm is created by Baskin-Robbins' own conduct. The Pennsylvania requirement of clear and unequivocal language prohibits an interpretation of the phrase "operation of retailer's business" which would encompass harm inflicted during the operation of the business by Baskin- Robbins' culpable conduct, rather than by Ardmore Distributor's conduct.
Great American concedes the applicability of the clear and unequivocal language standard in Pittsburgh Steel but contends that Ardmore's alleged obligation to indemnify Baskin-Robbins for this type of loss does appear in clear and unequivocal language in the franchise agreement when the language "resulting from the operation of retailer's business" is read in conjunction with the sentence that follows it. The next sentence upon which Great American relies provides "Retailer shall procure and maintain during the terms of this agreement liability insurance covering his business operations and product liability, written by reputable insurance Company or companies, and naming Baskin-Robbins and the Area Franchiser among the named insured parties ...."
In the Pittsburgh Steel case, the Pennsylvania Supreme Court was called upon to interpret the following clause: "Contractor ... will indemnify, save harmless and defend a buyer ... from all liability for loss, damage or injury to person or property in any manner arising out of or incident to performance of this order and will furnish buyer with proper evidence that contractor is insured against such liability." The court found no obligation to indemnify against the indemnitee's negligence. Thus, the obligation to procure insurance was not sufficient to clarify otherwise general language. Accordingly, I conclude that in the present case the obligation to procure product liability insurance can not remedy the fatal ambiguity in the preceding sentence. In addition to the Pittsburgh Steel precedent, logic supports an interpretation that treats as severable the sentence dealing with indemnity and the one dealing with the procurement of insurance. As the plaintiff points out in its brief:
Although Safeco does not dispute that a contractual document may properly allocate the burden of purchasing insurance without violating public policy, such provisions are separate and distinct from the provisions pertaining to which liabilities vis-a-vis third parties the parties to the contract agree to accept. Once the parties have agreed as to which will accept the responsibility for suits brought by third parties vis-a-vis the third parties (the indemnity provision) they can then further contract with respect to who is to bear the burden of purchasing the insurance to protect against that responsibility (the insurance provision.)