Erie Castings Co. v. Grinding Supply, Inc.

Citation736 F.2d 99
Decision Date12 June 1984
Docket NumberNo. 83-5701,83-5701
PartiesERIE CASTINGS COMPANY, Appellant, v. GRINDING SUPPLY, INC. and Acme Abrasive Company, Appellees.
CourtUnited States Courts of Appeals. United States Court of Appeals (3rd Circuit)

Irving Murphy (argued), Russell S. Warner, MacDonald, Illig, Jones & Britton, Erie, Pa., for appellant.

John G. Gent (argued), George Joseph, Quinn, Gent, Buseck & Leemhuis, Inc., Erie, Pa., for appellees.

Before ALDISERT, WEIS and ROSENN, Circuit Judges.

OPINION OF THE COURT

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. Sec. 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 state'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. Caterpiller 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, Sec. 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, Sec. 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, Sec. 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 suits by employees against third-parties. See 42 PA.CONS.STAT.ANN. Sec. 2252 (Purdon 1975).

The Act does not specifically address the issue in this case, namely, whether the employer may recover from a third party increased premiums resulting from an employee's claim. The statute does, however, provide background necessary for resolution of the matter.

Similarly, the appellate decisional law of the Pennsylvania state courts does not specifically respond to the question. The state Supreme Court has not yet considered the problem, but the Superior Court, an intermediate appellate body, has encountered the issue on two occasions.

In Canada Dry Bottling Co. v. Mertz, 264 Pa.Super. 480, 400 A.2d 186 (1979), an employee was killed in an automobile collision with a third party. The trial court allowed the employer a tort recovery against the third party that included not only the damage to the company car, but also the increase in workmen's compensation premiums resulting from the employee's death claim. On appeal, a majority of the Superior Court panel affirmed the judgment, but declined to rule on the issue of legal causation as it applied to the premium increase because that point had not been briefed by the third party. Id. at 487, 400 A.2d at 190. The dissenting judge reasoned that because the risk of increased premiums was not reasonably foreseeable the judgment should have been reversed. Id. at 495, 400 A.2d at 194 (Lipez, J. dissenting).

After this inconclusive decision, the court confronted the issue a second time in Whirley Industries, Inc. v. Segel, 316 Pa.Super. 75, 462 A.2d 800 (1983). That case also arose out of an automobile accident between an employee and a third party. In a per curiam opinion, the Superior Court denied the employer recovery of the premium increase, concluding that "the economic harm is too remote from the cause in fact to be attributable to the [third party]." Id. at 82, 462 A.2d at 804. It is significant that in Whirley the employer's subrogation right had been extinguished by the Pennsylvania Motor Vehicle No-Fault Act, PA.STAT.ANN. tit. 40, Sec. 1009.101 et seq. (Purdon Supp.1983), which made Workmen's Compensation Act benefits the primary source of payment to an employee. The net result in Whirley was that the employer could not recover the increase in premiums resulting from the employee's claim and was barred from reimbursement of the compensation payments as well.

The Mertz and Whirley suits were both based on negligence, and there was no contractual relationship with the third parties on which to predicate a breach of warranty claim. Thus, although the Whirley case provides some clue as to the state's attitude on employer recovery under a tort theory, there is nothing to indicate what result would be reached in a Commercial Code setting. Consequential damages for breach of contract may be different than the forseeable loss in tort. In addition, neither of the cases discussed whether suing to collect premiums was foreclosed by the restrictions implicit in the workmen's compensation system. That consideration, which would apply equally to tort and contract cases, apparently was not called to the attention of either panel of the Superior Court.

In predicting how the Pennsylvania Supreme Court would rule on the overall issue encompassing contract as well as tort, it is helpful to refer to decisions in other jurisdictions. Defendants have called our attention to the opinion of the New Jersey Superior Court in Multiplex Concrete, Inc. v. Besser Co., 153 N.J.Super. 531, 380 A.2d 708 (1977). In that case, an employee was killed as a result of a defect in machinery the employer had purchased from the defendant. The employee received compensation benefits but did not file an action against the defendant-manufacturer. As a result of the compensation claim, the employer's premiums were increased and suit was brought for reimbursement of that amount.

The New Jersey Workmen's Compensation Act grants subrogation rights to the employer, but "only for such rights of action as the injured employee ... would have against the third person." N.J.STAT.ANN. Sec. 34:15-40 (West 1959). The court held that the employer could not recover the increased premiums. It reasoned that the claim was "not a primary cause of action which the employer has directly in its own right; rather it seeks damages directly related to the compensation payments made pursuant to the Workmen's Compensation Act." 153 N.J.Super. at 534-35, 380 A.2d...

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