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Erie Castings Co. v. Grinding Supply Inc.

June 12, 1984


Appeal from the United States District Court for the Western District of Pennsylvania.

Aldisert, Weis, and Rosenn, Circuit Judges.

Author: Weis


WEIS, Circuit Judge.

In this diversity case, we are called upon to decide whether a third party causing injury to an employee is liable to the employer for the increase in insurance premiums attributable to the employee's workmen's compensation claim. Lacking a controlling decision of the state supreme court, we predict that Pennsylvania would not allow such a recovery. We will therefore affirm the district court's judgment in favor of the defendants.

Plaintiff Erie Castings originally filed this suit in Pennsylvania state court, and the case was removed to federal court on diversity grounds. After discovery, both parties filed motions for summary judgment. The district court denied the plaintiff's motion and entered judgment for defendants.

In 1980 an employee of Erie Castings was injured when a grinding wheel exploded. The wheel had been manufactured by defendant Acme Abrasive and purchased by Erie Castings from defendant Grinding Supply. The employee, who had received $26,908.81 in workmen's compensation benefits from Erie's insurance carrier, sued Acme for damages under theories of strict liability and negligence. The case was settled for $185,000, and, under its subrogation rights, Erie's insurance carrier was reimbursed for its compensation payments, less attorneys' fees.

As a result of the employee's injury, Erie's premiums for workmen's compensation insurance increased substantially. Erie sought recovery of that sum in this suit based on strict liability, negligence, and breach of warranty. In denying recovery, the district court reasoned that the increase in premiums "is simply an additional part of the exchange the employer must bear to be free from employee lawsuits." Plaintiff appeals, contending that the damages are recoverable under Pennsylvania common law and the Uniform Commercial Code, 13 PA. CONS. STAT. ANN. § 2715(b) (Purdon 1983).

This case arose in Pennsylvania and the parties do not dispute that the law of that state applies. When the highest state court has not rendered an authoritative pronouncement, the task of a federal tribunal is to predict how that court would rule. Keystone Aeronautics Corp. v. R.J. Enstrom Corp., 499 F.2d 146 (3d Cir. 1974). The decisions of the states's intermediate appellate courts are to be given proper regard. Connecticut Mutual Life Insurance Co. v. Wyman, 718 F.2d 63, 65 (3d Cir. 1983). "The policies underlying the applicable legal doctrines, the doctrinal trends indicated by these policies, and the decisions of other courts may also inform our analysis." Pennsylvania Glass Sand Corp. v. Caterpillar Tractor Co., 652 F.2d 1165, 1167 (3d Cir. 1981).

Pennsylvania first enacted workmen's compensation legislation in 1915, and the statute has been revised on several occasions. See PA. STAT. ANN. tit. 77, § 1 et seq. (Purdon 1952 & Supp. 1983). Since its inception, the statutory plan has been to supplant the employee's common law rights against the employer with a system of benefits payable to the employee by the employer, without regard to negligence or contributory fault. Employees received the assurance of prompt, fixed payments. In return, employers are immune from common law liability. Thus, through a series of trade-offs, the Act established an entirely new arrangement for workplace injuries.

Not every common law remedy of the injured employee was surrendered. The worker still retained the right to damages from a third party whose negligence was a proximate cause of the injury. The Act qualified that recovery by subrogating the employer to the rights of the employee against a third party "to the extent" of the compensation benefits payable. PA. STAT. ANN. tit. 77, § 671 (Purdon Supp. 1983).

Until 1974, the third party could join the employer as an additional defendant by alleging that its negligence contributed to the employee's injury. If joint liability was established, the third party sued by an employee was entitled to contribution from the employer but only to the extent of the compensation specified in the Act. Chamberlain v. Carborundum Co., 485 F.2d 31, 33 (3d Cir. 1973); Maio v. Fahs, 339 Pa. 180, 14 A.2d 105 (1940).

In 1974 an amendment to the Act changed third party practice by providing that the employer could not be held liable for "damages, contribution, or indemnity," unless otherwise agreed in a written contract. PA. STAT. ANN. tit 77, § 481 (Purdon Supp. 1983). As a consequence, an employer may no longer be joined as an additional defendant by the third party in a suit by an employee. Heckendorn v. Consolidated Rail Corp., 502 Pa. 101, 465 A.2d 609 (1983).

Thus, the common law relationship between employer and employee is not the only one that has been altered by the Act. The employer also has been given immunity from certain claims by third parties. Further, the 1974 amendment improved the employer's situation by relieving it of the expense incurred in participating as an additional defendant in ...

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