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SAFECO INS. CO. OF AMERICA v. GREAT AMERICAN INS.

September 15, 1981

SAFECO INSURANCE COMPANY OF AMERICA
v.
GREAT AMERICAN INSURANCE COMPANY v. ARDMORE DISTRIBUTORS, INC.



The opinion of the court was delivered by: HUYETT

MEMORANDUM

This complaint seeks a declaratory judgment pursuant to 28 U.S.C. § 2201. Jurisdiction is predicated upon diversity of citizenship. The plaintiff is a Washington corporation with its principal place of business in Seattle, Washington and the defendant is a New York corporation with its principal place of business in Cincinnati, Ohio. The third-party defendant is a Pennsylvania corporation with its principal place of business in Pennsylvania. The amount in controversy exceeds $ 10,000. The parties have executed a comprehensive stipulation of uncontested facts. Agreeing that there are no genuine issues of material fact, they have submitted the case on cross-motions for summary judgment.

 As set forth in the stipulation of facts, the suit arises from an incident on January 2, 1976. On that date, John Jefferson entered a Baskin-Robbins store located in Ardmore, Pennsylvania for the purpose of purchasing some ice cream. The Baskin-Robbins store was franchised to the third-party defendant, Ardmore Distributors, Inc. (Ardmore Distributors), by Baskin-Robbins Eastern Corporation (the predecessor interest of Baskin-Robbins, Inc.) with the approval of Baskin-Robbins, Inc.

 While in the store, Jefferson sampled a new flavor of ice cream and immediately complained of a burning sensation in his throat. The burning sensation was caused by ammonia nitrate which had tainted the ice cream at the time of its manufacture in a plant operated by Baskin-Robbins, Inc. As a result of the personal injuries sustained by Jefferson, he instituted suit against Baskin-Robbins, Inc., Baskin-Robbins Ice Cream Company (jointly referred to as Baskin-Robbins) and Ardmore Distributors in the Montgomery County Court of Common Pleas.

 That suit was eventually settled for the sum of $ 40,000 which was paid to Jefferson in equal parts by Safeco Insurance Company (Safeco) as insurer for Ardmore Distributors and Great American Insurance Company (Great American) as insurer for Baskin-Robbins. The specific terms of the settlement agreement were as set forth in a letter signed on May 2, 1980, by counsel for Great American, Safeco and Ardmore Distributors. The parties agreed that their joint settlement with Jefferson would not prejudice any rights one of them may have against the others.

 At the time of the incident in question, the Baskin-Robbins store was being operated by Ardmore Distributors pursuant to a franchise agreement (agreement). Additionally, at the same time Ardmore Distributors was a party to a sublease (lease) between it and Baskin-Robbins Eastern Corporation. At all pertinent times the president and chief operating officer of Ardmore Distributors was Bruce Bradway. After Bradway executed the franchise agreement and lease on behalf of Ardmore Distributors, he took copies of them to a Safeco agent and requested that the agent provide him with coverage sufficient to fulfill the requirements of the franchise and lease agreements. As a result, Safeco issued to Ardmore Distributors its policy number CP553117 which contained a "change endorsement" in effect at the time of the Jefferson incident which added Baskin-Robbins as an "additional named insured" to the policy.

 It is important to note that Safeco concedes that Ardmore Distributors requested it to name Baskin-Robbins on the Safeco policy and that Safeco did, in fact, do so. Safeco also concedes that if there were no other insurance available to Baskin-Robbins, the Safeco policy would have covered Baskin-Robbins for a claim such as Jefferson's.

 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 ...

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