ROYAL INDEMNITY COMPANY a/s/o DANA CORPORATION, Plaintiff v. SECURITY
GUARDS, INC., Defendant.
UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA
255 F. Supp. 2d 497; 2003 U.S. Dist. LEXIS 6586
April 4, 2003, Decided April 4, 2003, Filed; April 7, 2003, Entered
DISPOSITION: [**1] Defendant's Motion for Summary Judgment was denied.
PROCEDURAL POSTURE: Defendant, a facility security provider for insured
(Security Provider), filed a motion for summary judgment on claims by
plaintiff, an insurer, as subrogee of the insured, a truck frame
manufacturer, seeking damages of at least $ 7,000,000 of more that $
16,500,000 paid out by the insurer as the result of a fire at the truck
OVERVIEW: Specifically, the insurer alleged that the Security Provider
failed to properly respond to an alarm, which resulted in the spread of the
fire. The Security Provider argued for summary judgment that pursuant to the
terms of the limitation of liability clause of its agreement with the truck
manufacturer, in effect at the time of the fire, the insured's damages were
limited to $ 50,000, which would not satisfy the $ 75,000 amount in
controversy requirement for diversity jurisdiction under 28 U.S.C.S. §
1332(a). However, the district court determined that the limitation of
liability provision only limited liability for damages "caused solely by the
negligence" of the Security Provider and that the insurer, through
affidavits and depositions, had pointed to genuine issues of material fact
as to whether the Security Provider's failure to contact the truck
manufacturer's personnel when a critical alarm sounded constituted gross
negligence. Finally, the court reasoned dismissal was not proper where the
contract between the truck manufacturer and the Security Provider did not
limit liability for breach of contract, and the insurer had offered evidence
that its damages exceed $ 75,000.
OUTCOME: The Security Provider's motion for summary judgment was denied.
COUNSEL: For ROYAL INDEMNITY COMPANY, PLAINTIFF: KEVIN J. O'BRIEN, MARKS,
O'NEILL, REILLY AND O'BRIEN, TIMOTHY D. RAU, MARKS, O'NEILL, O'BRIEN &
COURTNEY, P.C., PHILA, PA USA.
For ROYAL INDEMNITY COMPANY, PLAINTIFF: JEFFREY CRAWFORD, PHILLIP
SILVERBERG, KEVIN BUCKLEY, LEONARD SHEFT, MOUND, COTTON, WOLLAN &
GREENGRASS, NEW YORK, NY USA.
For SECURITY GUARDS, INC., DEFENDANT: DAVID R. STRAWBRIDGE, COZEN &
O'CONNOR, PHILA, PA USA.
For SECURITY GUARDS, INC., DEFENDANT: DEAN J. BUONO, PARKER MC CAY &
CRISCUOLO, MARLTON, NJ USA.
JUDGES: MICHAEL M. BAYLSON, U.S.D.J.
OPINIONBY: MICHAEL M. BAYLSON
OPINION: MEMORANDUM [*499]
April 4, 2003
This subrogation action requires the Court to construe a limitation of
liability clause. In doing so, the Court must address any differences
between negligence and gross negligence under Pennsylvania law. The
underlying facts concern a fire that occurred at an industrial facility
operated by Dana Corporation, a truck frame manufacturer. Dana's insurer,
plaintiff Royal Indemnity Company, paid Dana more than $ 16.5 million as a
result of the fire, and now, as subrogee of Dana, seeks damages of at [**2]
least $ 7 million from defendant Security Guards, Inc., which provided guard
services for Dana. Royal Indemnity alleges that SGI failed to properly
respond to an alarm, which resulted in the spread of the fire.
Oral argument was held on March 7, 2003. For the reasons that follow,
Defendant's Motion for Summary Judgment that the damages cannot exceed $
50,000, and thus there is no federal jurisdiction, will be denied.
The following facts are viewed in the light most favorable to the plaintiff.
This subrogation action arises out of a fire that occurred on August 11,
1999 at a truck frame manufacturing facility located in Reading,
Pennsylvania. (Pl.'s Compl. PP 8, 18). The facility was owned and operated
by Dana Corporation ("Dana"), a Virginia corporation with its principal
place of business in Toledo, Ohio. Id. PP 2, 8. At all relevant times, Royal
Indemnity Company ("Royal"), a Delaware corporation with its principal place
of business in Charlotte, North Carolina, was Dana's property insurer. Id. P
At the time of the fire, defendant Security Guards, Inc. ("SGI"), a
Pennsylvania corporation with its principal place of business in Wyomissing,
[**3] Pennsylvania, provided guard services to Dana at its Reading facility
pursuant to a security services agreement ("Agreement") between Dana and SGI
executed on August 14, 1989, and renewed annually pursuant to its terms. Id.
PP 3, 9; Pichini Aff., Def.'s Mot. Summ. J., Ex. 1. At the time of the fire,
the agreement was in full force and effect, subject only to the fact that
the hourly rate for each guard had increased from $ 9 to $ 12.58. Id. P 10;
Pichini Aff. P 9, Def.'s Mot. Summ. J., Ex. 1.
SGI employee Hank Clarke ("Clarke") was stationed at Dana's main security
guard booth on August 11, 1999, from 2 p.m to 10 p.m. (Pl.'s Compl. P 12).
Upon the sounding of a "critical alarm," or Point 51 alarm, SGI guards were
required to immediately contact the maintenance supervisor [*500] located
in the area where the alarm sounded and to contact ADT, the alarm company,
which, in the case of a fire, would contact the Reading fire department. Id.
P 13. At 5:39 p.m., a critical alarm was activated by a fire in the paint
shop in Section 104 of the Lewis building at the Dana plant. Id. PP 16, 17.
Royal alleges that Clarke failed to immediately contact the supervisor in
the area of the alarm [**4] or upon the sounding of three subsequent
critical alarms and attempted to instead reset the alarm. Id. PP 19-21. At
5:54 p.m., approximately fifteen minutes later, ADT automatically received a
signal that Dana's fire alarm had been activated and notified the Reading
fire department. Id. P 23. Royal claims the fire department would have
responded to the fire fifteen minutes earlier if Clarke had followed the
appropriate security procedure and that the amount of damage to the plant
would have been substantially less. Id. PP 24, 25.
As a result of the fire, Dana made a claim on Royal, and in accordance with
its policy terms, Royal paid Dana $ 16,535,882.84. Id. P 27; Subrogation
Receipt, Def.'s Mot. Summ. J., Ex. A.
Royal, as Dana's subrogee, initiated this action. The three-count Complaint
alleges negligence (Count I), gross negligence (Count II), and breach of
contract (Count III) against SGI for its employees' failure to promptly
respond to the critical alarm signal at the Dana plant by immediately
contacting the maintenance supervisor and the alarm company, who would have
alerted the Reading fire department. Id. P 28-36. Royal alleges that as a
result of SGI's [**5] alleged failure to respond to the critical alarm that
the fire department could not respond to the fire at the Dana plant until
approximately fifteen minutes after the first critical alarm sounded,
resulting in greater damage to the plant. Id. PP 29, 32, 35. On each count,
Royal claims damages of at least $ 7 million plus interest and costs of
suit. Id. PP 30, 33, 36.
II. Legal Standard
Summary judgment is appropriate "if the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, if
any, show that there is no genuine issue as to any material fact and that
the moving party is entitled to a judgment as a matter of law." Fed. R. Civ.
P. 56(c). An issue is "genuine" if the evidence is such that a reasonable
jury could return a verdict for the non-moving party. Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986). A
factual dispute is "material" if it might affect the outcome of the case
under governing law. Id.
A party seeking summary judgment always bears the initial responsibility for
informing the district court of the basis for its motion and identifying
[**6] those portions of the record that it believes demonstrate the absence
of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317,
322, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986). Where the non-moving party
bears the burden of proof on a particular issue at trial, the moving party's
initial burden can be met simply by "pointing out to the district court that
there is an absence of evidence to support the non-moving party's case." Id.
at 325. After the moving party has met its initial burden, "the adverse
party's response, by affidavits or as otherwise provided in this rule, must
set forth specific facts showing that there is a genuine issue for trial."
Fed. R. Civ. P. 56(e). Summary judgment is appropriate if the non-moving
party fails to rebut by making a factual showing "sufficient to establish
the existence of an element essential to that party's case, and on which
that party will bear the burden of proof at trial." Celotex, 477 U.S. at
322. Under Rule 56, the Court [*501] must view the evidence presented on
the motion in the light most favorable to the opposing party. Anderson, 477
U.S. at 255.
This diversity [**7] action is governed by substantive state law. See Erie
R.R. Co. v. Tompkins, 304 U.S. 64, 78-80, 58 S. Ct. 817, 82 L. Ed. 1188
(1938). When ascertaining Pennsylvania law, the decisions of the
Pennsylvania Supreme Court are the authoritative source. See State Farm Mut.
Automobile Ins. Co. v. Coviello, 233 F.3d 710, 713 (3d Cir. 2000) (citing
Connecticut Mut. Life Ins. Co. v. Wyman, 718 F.2d 63, 65 (3d Cir. 1983)). If
the Pennsylvania Supreme Court has not yet passed on an issue, then this
court will consider the pronouncements of the lower state courts. See id.
This Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1331
because Plaintiff and Defendant are citizens of different states, and the
amount in controversy exceeds $ 75,000. (Pl.'s Compl. P 4). Venue is
appropriate under 28 U.S.C. § 1391(a) because the events giving rise to the
claim occurred in this District, and the property that is the subject of
this action is located in this District. Id. P 5.
A. Limitation of Liability Clause
The limitation of liability clause in the [**8] contract between Dana and
SGI states in relevant part:
In the event of any bodily injury or property damage loss sustained by
CLIENT [Dana] and caused solely by the negligence of CONTRACTOR [SGI] or its
employees, CONTRACTOR [SGI] will indemnify and hold CLIENT [Dana] harmless
for such loss to the extent of $ 50,000 per occurrence.
(Agreement, Def.'s Mot. Summ. J., Ex. 1). By its terms, this clause is
limited to claims based on negligence.
Under Pennsylvania law, "it is well established that the intent of the
parties to a written contract is to be regarded as being embodied in the
writing itself, and when the words are clear and unambiguous the intent is
to be discovered only from the express language of the agreement." Steuart
v. McChesney, 498 Pa. 45, 444 A.2d 659, 661 (Pa. 1982). "In deciding whether
contract language is unambiguous, a court not only asks whether the language
is clear, but also hears the proffer of the parties and determines if there
are 'objective indicia that, from the linguistic reference point of the
parties, the terms of the contract are susceptible of different meanings.'"
John Wyeth & Bro. Ltd., v. CIGNA Int'l. Corp., 119 F.3d 1070, 1074 (3d Cir.
1997). [**9] To be ambiguous, a contract provision must be capable of two
reasonable, alternative meanings. Madison Constr. Co. v. Harleyville Mut.
Ins. Co., 735 A.2d 100, 106 (Pa. 1999). To be unambiguous, a contract
provision must be reasonably capable of only one construction. Wyeth, 119
F.3d at 1074. It is the court's function to determine if a provision is
ambiguous. Polish American Machinery Corp. v. RD & D Corp., 760 F.2d 507,
512 (3d Cir. 1985). In doing so, the court must not "distort the meaning of
the language or resort to a strained contrivance in order to find an
ambiguity." Madison Constr., 735 A.2d at 106.
Defendant SGI moves for summary judgment and contends that pursuant to the
terms of the agreement between Dana and SGI in effect at the time of the
fire, that Royal's damages are limited to $ 50,000, which cannot satisfy the
$ 75,000 amount in controversy requirement for diversity jurisdiction under
28 U.S.C. § 1332(a), and therefore Royal's claim must be dismissed. (Def.'s
Mot. Summ. J. at 1-2).
[*502] SGI asserts that this provision was essential to the agreement.
(Pichini Aff. P 6, Def.'s [**10] Mot. Summ. J., Ex.1). SGI maintains that
this provision clearly and unambiguously limits its liability for any
damages caused to Dana by SGI's negligence to $ 50,000. (Def.'s Mem. Law.
Supp. Mot. Summ. J. at 5).
SGI notes that whereas exculpatory clauses are generally disfavored by
courts and subject to strict construction standards, limitation of liability
clauses are not disfavored and are construed under the general rules
applying to contract interpretation. See Valhal Corp. v. Sullivan
Associates, Inc., 44 F.3d 195, 202-03 (3d Cir. 1995); Def.'s Mem. Law. Supp.
Mot. Summ. J. at 6. SGI seeks to enforce the $ 50,000 limitation of
liability clause against Dana because it claims that the parties were aware
of the potential multimillion-dollar exposure to SGI, and that the $ 50,000
amount is reasonable when considered against SGI's fees for providing
security services, which amounted to $ 533,733.19 for 1999. Def.'s Mem. Law.
Supp. Mot. Summ. J. at 7 (citing Pichini Aff. P 9, Def.'s Mot. Summ. J., Ex.
Plaintiff opposes summary judgment and contends that the limitation of
liability clause is strictly limited to negligence, that the issues in this
case raise the [**11] standard of gross negligence which is well-founded
under Pennsylvania law, and also the limitation of liability clause does not
address the claims based on breach of contract.
This Court previously has examined the scope of limitation of liability
clauses in contracts in situations similar to the instant case. In Neuchatel
Insurance v. ADT Security Systems, Inc., 1998 U.S. Dist. LEXIS 17692, No.
CIV.A.96-5396, 1998 WL 966080, at *1 (E.D. Pa. Nov. 5, 1998) (Pollak, S.J.),
the plaintiff insurer brought a subrogation action against defendants ADT
and others alleging that their negligence and gross negligence resulted in
the burglary of a Rolex watch repair facility and the theft of $ 1.8 million
in merchandise. After examining the plaintiff's evidence and limitation of
liability clause in the contract between the plaintiff and defendants, the
Court concluded that the contract limited the defendants' liability for acts
of negligence and gross negligence and granted summary judgment in favor of
the defendants. Id. 1998 U.S. Dist. LEXIS 17692 at *13.
In Neuchatel, the limitation of liability provision in question was
substantially broader than the provision in the instant case. The first
It [**12] is understood that ADT is not an insurer ... and that the amounts
payable to ADT hereunder are based upon the value of the services and the
scope of liability as herein set forth and are unrelated to the value of the
customer's property or property of others located in customer's premises.
ADT makes no guaranty or warranty, including any implied warranty of
merchantability or fitness, that the system or services supplied, will avert
or prevent occurrences or the consequences therefrom, which the system or
service is designed to detect. It is impractical and extremely difficult to
fix the actual damages, if any, which may proximately result from the
failure on the part of ADT to perform any of its obligations hereunder. The
customer does not desire this contract to provide for full liability of ADT
and agrees that ADT shall be exempt from liability for loss, damage or
injury due directly or indirectly to occurrences or consequences therefrom,
which the service or system is designed to detect or avert; that if ADT
should be found liable for loss, damage or injury due to a failure of
service or equipment in any respect, its liability shall be limited to a sum
equal to 100% of the annual [**13] service charge or $ 10,000, whichever is
less, as the agreed upon damages and not as a [*503] penalty, as the
exclusive remedy; and that the provisions of this paragraph shall apply if
loss, damage or injury irrespective of cause or origin results directly or
indirectly to person or property from performance or nonperformance of
obligations imposed by this contract or from negligence, active or
otherwise, of ADT, its agents or employees.
Id. 1998 U.S. Dist. LEXIS 17692 at *8 (emphasis added).
Similarly, the provision in the insured's contract with defendant Wells
Fargo contained language limiting that defendant's liability:
It is agreed that Wells Fargo is not an insurer and that the payments herein
provided are based upon the cost to Wells Fargo of its services hereunder,
and the extent of its liability as herein below limited; that in the event
of a default on the part of Wells Fargo in the performance of any of its
obligations hereunder, either by way of non-performance or negligent
performance or otherwise, and as a resulting loss, or in any event resulting
from the relationship hereby created, Wells Fargo's liability shall not
exceed the sum of $ 50.00 and Subscriber's sole remedy at [**14] law or in
equity shall be the right to recover a sum within such limit.
Id. 1998 U.S. Dist. LEXIS 17692 at *9 (emphasis added).
The Court concluded that:
The ADT and Wells Fargo contracts both contain clauses excluding, and/or
placing a dollar ceiling on, liability; and in both instances those clauses
are keyed to negligence and conduct that is "otherwise" wrongful.
Accordingly, this court concludes that, notwithstanding plaintiffs'
allegations of gross negligence, plaintiffs' potential recovery is limited
by those clauses.
Id. 1998 U.S. Dist. LEXIS 17692 at *10.
In the instant case, the limitation of liability provision only limits
liability for damages "caused solely by the negligence" of SGI or its
employees. (Agreement, Def.'s Mot. Summ. J., Ex. 1). The Court agrees with
Judge Pollak's finding in Neuchatel "that if either an exculpatory clause or
a limitation of liability clause excludes or limits only negligent conduct
and is not broad enough to cover conduct that may be described as grossly
negligent, willful or wanton, liability is neither excluded nor limited if
the conduct alleged is found to be grossly negligent, willful, or wanton."
Id. 1998 U.S. Dist. LEXIS 17692 at *7 n.4. Additionally, the limitation of
liability [**15] provision makes no reference to liability for performance
or non-performance under the contract, so liability is neither excluded nor
limited for breach of contract.
B. Claims Based on Negligence
Royal claims that SGI's duty to Dana is undisputed. If a Point 51 critical
alarm was triggered in the Dana paint shop, it was Dana's procedure for the
SGI guard to immediately notify the Department 104 supervisor. (Pichini Aff.
P 14, Def.'s Mot. Summ. J., Ex. 1; Clarke Dep. at 20-21, 34, 63-64, Pl.'s
Resp. Def.'s Mot. Summ. J., Ex. B; Ott. Dep. at 101, Pl.'s Resp. Def.'s Mot.
Summ. J., Ex. C). A Point 51 critical alarm was triggered on August 11, 1999
at 5:39 p.m., approximately fifteen minutes before a fire alarm was
triggered, and Clarke was monitoring the alarm panel for Dana in the control
booth. (Pichini Aff. PP 10-12, Def.'s Mot. Summ. J., Ex. 1). Clarke knew
that he was always required to call someone in response to a Point 51
critical alarm, and he was usually able to contact a Dana supervisor within
a minute. (Clarke Dep. at 67-69, Pl.'s Resp. Def.'s Mot. Summ. J., Ex. B).
Royal alleges that Clarke neglected his duty. (Pl.'s Mem. Law. Resp. Def.'s
Mot. Summ. J. at 8). [**16]
Mr. Janisjewski, the Reading fire marshal, testified that the sooner a fire
department responds to a fire, the less damage is [*504] done, and with
regard to Dana's paint shop fire, he stated that there was an incipient
stage to the fire, for approximately ten to fifteen minutes before it broke
into full flame, but by the time the Reading fire department was alerted,
the paint shop was engulfed in flames. (Janisjewski Dep. at 46-48, 199-202,
Pl.'s Resp. Def.'s Mot. Summ. J., Ex. E).
Royal's fire cause and origin expert, John F. Goetz, testified that it was
likely that the fire started small before burning across the side and under
the dip tank, and that it was likely that the fire burned for two to five
minutes before triggering the Point 51 alarm. (Goetz Aff. PP 5, 7, Goetz
Dep. of Oct. 22, 2002 at 223-24, Ex. 1). Mr. Goetz stated that the "delay in
alerting the fire department resulted in significant additional fire damage
to the Dana paint shop well in excess of one million dollars." (Goetz Aff. P
Royal further supports its claim that the fifteen-minute delay resulted in
the spread of the fire by pointing to the arrival of the deputy fire chief
on the scene three minutes after [**17] the fire department was alerted.
(Moyer Dep. at 75-76, Pl.'s Resp. Def.'s Mot. Summ. J., Ex. D). Royal also
asserts that even if the alarm were placed in test mode, as SGI contends,
SGI guards were not instructed to ignore all alarms, or specifically the
Point 51 critical alarms, but would not respond if an alarm was in test mode
only if specifically ordered not to do so. (Clarke Dep. at 56; Ott. Dep. at
103, Pl.'s Resp. Def.'s Mot. Summ. J., Exs. B, C). Mr. Clarke does not
recall placing the alarm in test mode or being told by anyone to ignore the
Point 51 critical alarm on the day of the fire (Clarke Dep. at 53, 57, Pl.'s
Resp. Def.'s Mot. Summ. J., Ex. C). Although Clarke did not know what a
"critical alarm" referred to, he knew that it could be "very, very serious"
and that it was always his duty to call a supervisor when such an alarm
sounded. Id. at 25-26, 61, 67.
Royal, through affidavits n1 and depositions, has pointed to genuine issues
of material fact as to whether Clarke's failure to contact Dana personnel
when the Point 51 critical alarm sounded constitutes negligence. SGI's
Motion for Summary Judgment on Count I will be denied. However, if a jury
were to conclude [**18] that SGI was negligent, its liability would be
limited to $ 50,000 as provided in the limitation of liability clause in the
contract between Dana and SGI. n2
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -
n1 Royal contends that the affidavit of Guido M. Pichini, president and CEO
of SGI, is inadmissible because he does not have personal knowledge of the
facts as required by Fed. R. Civ. P. 56(e). (Pl.'s Mem. Resp. Def.'s Mot.
Summ. J. at 23). Royal also asserts that the exhibits to his affidavit
should not be considered. Id. However, Royal repeatedly cites to Pichini's
affidavit as factual support for its assertions in its brief responding to
Defendant's Motion for Summary Judgment. See Pl.'s Resp. Def.'s Mot. Summ.
J. at 2, 8, 18.
SGI responds that it can meet its initial burden by relying entirely on the
agreement between Dana and SGI and that Pichini's affidavit merely
authenticates that agreement. (Def.'s Reply Brief Supp. Mot. Summ. J. at
9-10; Pichini Aff. PP 6-8, Def.'s Mot. Summ. J., Ex. 1). SGI argues that Mr.
Pichini, as SGI's president and CEO and an SGI employee since 1983, is
familiar with the services his company provides to clients such as Dana as
well as being familiar with the manner in which SGI performs its security
duties and that his affidavit and attached exhibits are proper. (Def.'s
Reply Brief Supp. Mot. Summ. J. at 10).
Royal's argument is not well-supported by the record, and Royal's own
reliance on the affidavit in its responsive brief belies its own argument.
The Court finds that Mr. Pichini's affidavit is admissible. [**19]
n2 GI is correct that if negligence were the only claim, federal
jurisdiction would not exist. However, because the Court concludes below
that other claims, where the amount in controversy exceeds $ 75,000, exists,
federal jurisdiction is established.
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -
[*505] C. Claims Based on Gross Negligence
SGI contends that Count II of Royal's Complaint, alleging gross negligence,
must fail because the limitation of liability clause applies to negligence
claims, and SGI cites numerous cases to support its argument that
Pennsylvania does not recognize a cause of action for gross negligence.
(Def.'s Mem. Law. Supp. Mot. Summ. J. at 7).
There are many decisions of the Pennsylvania and federal courts applying
Pennsylvania law and which discuss the concept of gross negligence.
Analyzing the holdings and the language of the numerous Pennsylvania cases
on this issue is more similar to looking at multiple pellets from a shotgun
as compared to a single bullet from a rifle.
SGI points to Ferrick Excavating and Grating Company v. Senger Trucking
Company, 484 A.2d 744, 749 (Pa. 1984), in which [**20] the Pennsylvania
Supreme Court wrote that "there are no degrees of negligence in
Pennsylvania." SGI also points to the Third Circuit's discussion of gross
negligence in Fialkowski v. Greenwich Home for Children, Inc., 921 F.2d 459,
462 (3d Cir. 1990), in which the Court observed that "degrees of negligence
are not generally recognized under Pennsylvania common law." Following
Fialkowski, in Jordan v. City of Philadelphia, 66 F. Supp. 2d 638, 644-45
(E.D. Pa. 1999), the District Court dismissed a gross negligence count of a
complaint in response to a Rule 12(b)(6) motion, finding that the plaintiffs
could proceed with their claims under a general negligence theory with gross
negligence as the alleged standard of care violated. However, it is not
necessary to attempt to harmonize these many cases or to try to devise a
uniform theory under Pennsylvania law in order to decide the summary
judgment issue in this case.
In Shouey v. Duck Head Apparel Company, Inc., 49 F. Supp. 2d 413, 417 (W.D.
Pa. 1999), the court addressed the concept of gross negligence having
relevance under Pennsylvania law only as it pertains to different standards
[**21] of care, which are not generally applicable in negligence cases. The
court disregarded the claim of gross negligence and considered the complaint
as simply having asserted a claim for negligence. Id. at 418.
SGI asserts that because the instant case does not involve any of the unique
circumstances requiring a consideration of a different standard of care than
that presented in an ordinary negligence case, that Royal's gross negligence
claim is not cognizable under Pennsylvania law. (Def.'s Mem. Law. Supp. Mot.
Summ. J. at 9).
SGI also contends in the alternative that Royal's factual allegations do not
meet Pennsylvania's standard for gross negligence. Pennsylvania courts
generally view gross negligence as "a want of even scant care, but something
less than intentional indifference to consequences of actions." Fidelity
Leasing Corp. v. Dun & Bradstreet, Inc., 494 F. Supp. 786, 790 (E.D. Pa.
1980). Gross negligence also has been defined as a "failure to perform a
duty in reckless disregard of the consequences or with such want of care and
regard for the consequences as to justify a presumption of willfulness of
wantonness." Williams v. State Civil Serv. Comm'n, 9 Pa. Commw. 437, 306
A.2d 419, 422 (Pa. Super. 1973), [**22] aff'd, 457 Pa. 470, 327 A.2d 70
(Pa. 1974)). To find gross negligence, there must be "an extreme departure
from ordinary care." Douglas W. Randall, Inc. v. AFA Protective Systems,
Inc., 516 F. Supp. 1122, 1126 (E.D. Pa. 1981), aff'd, 688 F.2d 820 (3d Cir.
1982). SGI contends these cases demonstrate a focus on the defendant's
conduct rather than on the results of the incident.
Royal contends that whether gross negligence is considered a standard of
care violated under a negligence theory, or [*506] whether it is a
separate cause of action, is a distinction with no practical relevance
because Pennsylvania consistently has recognized that limitation of
liability clauses which merely mention "negligence," such as the one in the
instant case, do not limit damages arising out of gross negligence. (Pl.'s
Mem. Law. Resp. Def.'s Mot. Summ. J. at 5). This Court concludes Royal's
argument is supported by close analysis of case law.
The Court agrees with Royal that the Third Circuit's discussion in
Fialkowski that "degrees of negligence are not generally recognized under
Pennsylvania common law" is dicta because other language in the case
identifies Pennsylvania [**23] "cases holding that the allegations of the
complaint were sufficient to state a claim for gross negligence." 921 F.2d
at 462 n.6.
Royal deems inapposite the language in Ferrick that "there are no degrees of
negligence in Pennsylvania" because that case concerned the standard of care
applicable to bailment situations and did not specifically discuss gross
negligence. 484 A.2d at 749. As noted, though, in Home Indemnity Company v.
National Guardian Sec. Services Corp., 1995 U.S. Dist. LEXIS 6603, No.
CIV.A.94-4964, 1995 WL 298233, at *4 (E.D. Pa. May 11, 1995), there are
numerous post-Ferrick opinions recognizing gross negligence as a theory or
standard under Pennsylvania law. For example, in Nicholson v. Mount Airy
Lodge, Inc., 1997 U.S. Dist. LEXIS 21035, No. CIV.A.96-5381, 1997 WL 811935,
at *4 (E.D. Pa. Dec. 29, 1997), the Court denied the defendant's motion for
summary judgment on the plaintiff's claim of gross negligence and noted the
Generally, "the issue of whether a given set of facts satisfies the
definition of gross negligence is a question of fact to be determined by a
jury." Albright v. Abington Mem'l Hosp., 548 Pa. 268, 696 A.2d 1159, 1164-65
(Pa. 1997) [**24] (discussing "gross negligence" under 50 P.S. § 7114(a));
Stark Co. v. National Guardian Sec. Servs., 1990 U.S. Dist. LEXIS 10098,
1990 WL 112110, *3 [(E.D. Pa. Aug. 3, 1990) (Shapiro, J.)] (generally
whether "defendant's actions demonstrate the lack of care required of gross
negligence is a question of fact for the jury"). The court may decide the
issue as a matter of law only when "the conduct in question falls short of
gross negligence, the case is entirely free from doubt, and no reasonable
jury could find gross negligence." Albright, 696 A.2d at 1165.
In Douglas W. Randall, a store security system triggered numerous false
alarms, which the security company responded to by adjusting the system so
that the alarms stopped. The court denied the defendant's motion for
judgment notwithstanding the verdict, finding that if the defendant turned
down the sensitivity level of the system to such a low level that it could
not detect the entry of a person into the store, that the jury did not err
in finding that the defendant's actions departed from the standard of
ordinary care to the extent that they constituted gross negligence. 516 F.
Supp. at 1126.
In Newark Ins. Co. v. ADT Security Systems, Inc., 1997 U.S. Dist. LEXIS
12124, No. CIV.A.96-3469, 1997 WL 539752, [**25] at *1 (E.D. Pa. Aug. 5,
1997), the plaintiff insurance company, as subrogee of its insured, brought
an action against the defendants ADT and Bell Atlantic alleging negligence,
gross negligence, and breach of contract, among other claims, stemming from
a burglary of videotapes from the insured's warehouse. Defendant ADT had
installed and maintained the alarm at the warehouse, and the defendant Bell
Atlantic had provided service on the telephone lines. Id. The Court found
that a genuine issue of material fact existed as to whether ADT was
negligent or grossly negligent in allowing the warehouse alarm system to
allegedly remain [*507] unmonitored for 56 days and in not performing
certain tests required for particular alarm systems. Id. 1997 U.S. Dist.
LEXIS 12124 at *5. The Court denied ADT's motion for summary judgment,
finding that if ADT were found negligent at trial, its liability would be
limited to $ 1,000 as provided in the limitation of liability clause in its
contract with the insured, but if it were found grossly negligent, its
liability would not be contractually limited. Id. On the breach of contract
claim, the Court found that a genuine issue of material fact existed as to
whether ADT breached [**26] its contractual obligations to the insured but
found that recovery was limited to $ 1,000 by the contract provision
applying to injury resulting from performance or non-performance of
contractual obligations. Id. 1997 U.S. Dist. LEXIS 12124 at *7.
Applying a gross negligence standard, SGI contends in the instant case that
Royal has not produced any evidence suggesting that Clarke's failure to
notify the maintenance supervisor in response to the Point 51 alarm
constitutes gross negligence, but "was, at most, a failure to measure up to
the conduct of a reasonable person and, therefore, perhaps negligence."
(Def.'s Mem. Law. Supp. Mot. Summ. J. at 11). SGI notes that there were no
other critical alarms between 5:39 p.m. and 5:52 p.m. when the first alarm
was received. Id. at 9 (citing Dana Alarm Records, Def.'s Mot. Summ. J., Ex.
C.). One other critical alarm occurred after 5:54 p.m. after ADT responded
to the fire alarm by calling the fire department. Id. at 10. SGI emphasizes
that the 5:39 p.m. critical alarm was not a fire alarm but was a supervisory
alarm, which did not require contacting the fire department. Id. at 11. It
goes on to claim that Point 51 alarms were a common occurrence at Dana,
[**27] and not once during the previous forty Point 51 alarms that had
sounded in the weeks leading up to and including the day of the fire had
there been a fire in the paint shop. Id. SGI contends that even though
Clarke did not remember putting the alarm into test mode that he must have
done so, which would not require a response from Clarke or ADT. Id. at
Royal asserts that Clarke's ignoring of this alarm was reckless and that
SGI's attempts to explain the Point 51 alarm as a common occurrence that
allegedly sounded five times on the day of the fire are similar to the
defense used in Douglas W. Randall, where the alarm company defendant, after
numerous false alarms, turned down the system's sensitivity to the point
that it could not detect the entry of a person into the store. 516 F. Supp.
at 1126-27. Just as the jury found the defendant grossly negligent in that
case, Royal argues that it would not be unreasonable for a jury to find that
SGI was grossly negligent when its employee ignored an alarm that he
understood could be "very, very serious."
In its reply brief, SGI submitted further evidence regarding the Point 51
alarms that had sounded in the days [**28] and hours leading up to the 5:39
p.m. alarm on August 11, 1999 in an attempt to show that such alarms were a
common occurrence and that none of the prior alarms indicated a fire. SGI
also points to records showing that Mr. Clarke ordered the alarm to be
placed in test mode until 10 p.m. on August 11 even though he does not
recall doing so. (Def.'s Reply Br. Supp. Mot. Summ. J., Ex C at 25).
However, even if the alarm were placed in test mode, SGI guards were not
instructed to ignore all alarms, or specifically the Point 51 critical
alarms, but would not respond if an alarm was in test mode only if
specifically ordered not to do so. (Clarke Dep. at 56; Ott. Dep. at 103,
Pl.'s Resp. Def.'s Mot. Summ. J., Exs. B, C).
Royal, through affidavits and depositions, has pointed to genuine issues of
material fact as to whether Clarke's failure [*508] to contact Dana
personnel when the Point 51 critical alarm sounded constitutes gross
negligence. SGI's Motion for Summary Judgment on Count II will be denied.
Construing the limitation of liability clause, the Court concludes that if,
under either a standard of care theory or a claim applying gross negligence,
if SGI were to be found grossly negligent, [**29] its liability would not
be limited to $ 50,000, and Royal has provided evidence upon which a jury
could find that its damages far exceed the $ 75,000 jurisdictional amount in
D. Claims Based on Breach of Contract
Royal asserts that its claim for breach of contract is not subject to the
limitation of liability provision in the contract between Dana and SGI
because that provision relates to injury or damage caused solely by the
negligence of SGI. Royal asserts that the provision is unambiguous and must
be given its plain meaning, but that if the Court finds the language
ambiguous, that becomes a question of fact for the jury. (Pl.'s Resp. Def.'s
Mot. Summ. J. at 14 n.4).
Under Pennsylvania law, courts "have routinely referred to the specific
language of the contract in issue to determine the scope of an
exculpatory/limitation of liability clause, and therefore, the type of
conduct for which liability was excluded or limited." Neuchatel, 1998 U.S.
Dist. LEXIS 17692, 1998 WL 966080, at *9.
In Neuchatel, for example, the contracts at issue in that case clearly
limited the defendants' liability for breach of contract by specifically
referring to the defendant's duties [**30] according to their respective
contracts. In the instant case, the limitation of liability provision makes
no reference to liability for performance or non-performance under the
contract, but only limits liability for damages "caused solely by the
negligence" of SGI or its employees. (Agreement, Def.'s Mot. Summ. J., Ex.
A cause of action for breach of contract is distinct from a cause of action
for negligence. In Pennsylvania, "a contract action may not be converted
into a tort simply by alleging that the conduct in question was done
wantonly." Phico Ins. Co. v. Presbyterian Medical Serv. Corp., 663 A.2d 753,
757 (Pa. Super. 1995). Royal maintains that the breach of contract count of
its Complaint is based on SGI's failure to perform duties owed to Dana under
the Agreement and is distinct from its negligence cause of action, which is
based on duties SGI owes Dana "as a matter of social policy." (Pl.'s Resp.
Def.'s Mot. Summ. J. at 16).
Plaintiff points to Newark, in which the Court recognized a cause of action
for both breach of contract and negligence and found that the plaintiff
raised a genuine issue of material fact on both actions. 1997 U.S. Dist.
LEXIS 12124, 1997 WL 539752, [**31] at *5-7.
Defendant relies on Valhal, in which the Third Circuit considered whether a
cause of action, although arising out of a contractual relationship, should
be brought in contract or tort. 44 F.3d at 208. In Valhal, the Court
discussed two lines of reasoning: the "misfeasance/nonfeasance" approach and
the "gist of the action" approach. Id.
The first line comes from the Pennsylvania Superior Court's opinion in Raab
v. Keystone Ins. Co., 271 Pa. Super. 185, 412 A.2d 638 (1979), which
involved a claim that the insurance company negligently failed to pay
benefits under a no-fault automobile insurance policy and that an agent of
the company maliciously interfered with the contractual relationship between
the policyholder and the carrier. The court wrote:
Generally when the breach of a contractual relationship is expressed in
terms of tortious conduct, the cause of [*509] action is properly brought
in assumpsit and not in trespass. However, there are circumstances out of
which a breach of contract may give rise to an actionable tort. The test
used to determine if there exists a cause of action in tort growing out of a
breach of contract [**32] is whether there was an improper performance of a
contractual obligation (misfeasance) rather than a mere failure to perform
Id. at 187-88, 412 A.2d 638. Under the Raab line of reasoning, if there had
been a complete failure to perform a contract, the action lies in assumpsit,
while if there had been an improper performance, the action lies in tort.
See also Hirsch v. Mount Carmel Dist. Indus. Fund, Inc., 636 Pa. Super. 433,
526 A.2d 422, 423 n.2 (1987). Under the second line, the
misfeasance/nonfeasance distinction is not pursued. n3 Rather, the nature of
the wrong ascribed to the defendant "[is] the gist of the action, the
contract being collateral." Grode v. Mutual Fire, Marine, and Inland Ins.
Company, 154 Pa. Cmwlth. 366, 623 A.2d 933, 935 n.3 (1993) (quoting Closed
Circuit Corp. v. Jerrold Elec., 426 F. Supp. 361, 364 (E.D. Pa. 1977)).
Thus, if the harm suffered by the plaintiff would traditionally be
characterized as a tort, then the action sounds in tort and not in contract.
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -
n3 Subsequent cases follow the "gist of the action" approach. See Factory
Mkt., Inc. v. Schuller Int'l., Inc., 987 F. Supp. 387, 393-94 (E.D. Pa.
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - [**33]
However, Valhal is unavailing to Defendant. The Pennsylvania Superior Court
has explained that "the important difference between contract and tort
actions is the latter lie from the breach of duties imposed as a matter of
social policy while the former lie for the breach of duties imposed by
mutual consensus." Phico, 663 A.2d at 757 (cited in Factory Mkt., Inc. v.
Schuller Int'l., Inc., 987 F. Supp. 387, 393 (E.D. Pa. 1997)). In the
instant case, a genuine issue of material fact exists on all three counts of
Plaintiff's Complaint as to whether Defendant's conduct constituted
negligence, gross negligence, or breach of contract. The claim for breach of
contract arises out of SGI's alleged failure to perform duties owed to Dana
under the Agreement, and the negligence cause of action may be based on
those duties as well as duties SGI may owe Dana as a matter of social
policy. Here, the contract provision between Dana and SGI does not limit
liability for breach of contract, and Royal has offered evidence that its
damages exceed $ 75,000. Therefore, Defendant's Motion for Summary Judgment
on Count III will be denied.
IV. Conclusion [**34]
Royal has raised genuine issues of material fact for trial. Therefore, for
the reasons discussed above, Defendant's Motion for Summary Judgment will be
An appropriate Order follows.
AND NOW, this 4th day of April, 2003, in consideration of Defendant's Motion
for Summary Judgment (Doc. No. 18), Plaintiff's opposition thereto, and
Defendant's Reply, and following oral argument, it is hereby ORDERED that
Defendant's Motion for Summary Judgment is DENIED.
BY THE COURT:
MICHAEL M. BAYLSON, U.S.D.J.
ROYAL INDEMNITY COMPANY a/s/o DANA CORPORATION, Plaintiff v. SECURITY GUARDS, INC., Defendant. UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA 255 F. Supp. 2d 497; 2003 U.S. Dist. LEXIS 6586
ROYAL INDEMNITY COMPANY a/s/o DANA CORPORATION, Plaintiff v. SECURITY