Pennsylvania Supreme Court Permits Waivers for Future Negligence by Third Parties

State Court Docket Watch Article

July 31, 2013

Michael I. Krauss, Samantha Rocci

On April 25, 2013, in Bowman v. Sunoco, a divided Pennsylvania Supreme Court held that Pennsylvania public policy does not prohibit waivers of liability for future negligence by a non-contracting party.1 The implications of this decision are significant.

I. Background

The plaintiff worked as a private security guard with Allied Barton Security Services. As a condition of her employment, she signed a “Workers’ Compensation Disclaimer.” This “disclaimer” purported to waive plaintiff’s right to sue any of Allied’s clients for damages related to injuries that were covered under the state’s Workers’ Compensation Act.2 Subsequently, while guarding one of Sunoco’s refineries, plaintiff slipped on snow or ice and was injured. After collecting workers’ compensation benefits, she proceeded to sue Sunoco for negligence, asserting that its negligent failure to clear the ice in an obscure location was the proximate cause of her injury.

During discovery, Sunoco learned of the Workers’ Compensation Disclaimer, and invoked it in its motion for summary judgment.  Plaintiff responded that the waiver contained in the disclaimer violated Pennsylvania’s public policy, particularly as clearly embodied in the first sentence of section §204(a) of the Pennsylvania Workers’ Compensation Act, which reads: “No agreement, composition, or release of damages made before the date of any injury shall be valid or shall bar a claim for damages resulting therefrom; and any such agreement is declared to be against the public policy of this Commonwealth.”3

Finding that the disclaimer did not violate public policy as articulated in §204(a), the trial court granted Sunoco’s motion and dismissed plaintiff’s suit.4 On appeal, the Superior Court affirmed, ruling that plaintiff waived only her right to sue third-party customers for damages that were covered under workers’ compensation. While she waived those rights, she still retained the right to receive damages through Workers’ Compensation, the protection of which is a matter of public policy. The disclaimer itself therefore did not violate public policy, because it did not attempt to deprive her of the rights granted by the Act.5 The Superior Court found no precedent to support applying §204(a) to waivers benefiting third parties.

II. The Pennsylvania Supreme Court’s Ruling

Plaintiff appealed to the Pennsylvania Supreme Court. She reasserted her claim that the disclaimer violated Pennsylvania public policy since it was clearly contrary to the plain language of §204(a) of the Pennsylvania Workers’ Compensation Act.6 Since the language of §204(a) is unambiguous, she argued, the court must apply the statute as written, without “interpreting” it as had done the Superior Court. Plaintiff also argued that the disclaimer conflicted with the subrogation clause of §319 of the Act, which allows a liable employer to be subrogated to the right of the employee when the latter’s injury is caused in whole or in part by the act or omission of a third party.7 Finally, plaintiff asserted that the disclaimer is incompatible with the common law of contract, as it purports to waive a cause of action not yet accrued.

Sunoco reiterated that, properly understood, §204(a) does not apply to releases benefiting third parties, but only to an employer’s attempt to reduce its own liability.8 It supported its argument by citing a Pennsylvania case holding that §204(a) only prohibited agreements to hold the employer harmless for future injury.9 Since plaintiff did recover Workers’ Compensation for her injuries, the disclaimer did not contravene the public policy behind the Act.

The Pennsylvania Supreme Court rejected plaintiff’s plain language argument after looking at §204(a) as a whole, noting that the majority of §204(a) addresses the employer’s obligation under the act, not third party duties.10 Therefore the court found the section ambiguous as to the issue of third party liability.11 The court believed that the legislature likely intended the “agreements” and “release of damages” exclusions in §204(a) to refer to employer obligations, though it conceded that the statute does not make this conclusion inevitable. In light of this ambiguity, the court submitted the Act to a more thorough statutory analysis.

Looking at the history of the statute, the court determined that the legislature intended §204(a) to apply only to employers.12 The original statutory setup established a dual scheme of recovery using Articles II and III. Originally, provisions in Article III were elective, and Article II applied if the employer and employees did not accept those provisions. Since the Act originally provided this dual recovery scheme, a public policy violation occurred only when the employer attempted to avoid both avenues of recovery.13 Plaintiff was still covered under the compensation scheme detailed in Article III and thus the disclaimer did not violate the public policy behind the Act.

     The court did not find plaintiff’s other assertions compelling. Turning to her subrogation argument, the court found that an employer may choose to waive its subrogation right, and that such a waiver was clearly not contrary to public order, as it had no effect on workers. The disputed clause had the practical effect of accomplishing just such a waiver.14

Plaintiff relied on two Pennsylvania cases, Henry Shenk Company v. City of Erie and Vaughn v. Didizan, to support her claim that the disclaimer violated contract law by releasing liability for an action not yet accrued.15 The court distinguished each of them, finding that waivers of future actions are permissible in Pennsylvania if the parties contemplated the actions at the time of release.16 In each of the two cases cited, the actions could not have been contemplated by the parties, and could be distinguished from her case since here the purpose of the disclaimer was precisely to encompass future causes of action. Therefore, the parties in Bowman obviously contemplated such future actions.17 Furthermore, the court cites multiple cases where releases for claims not yet accrued have been upheld.

Finally, the court looked to two cases from other jurisdictions that upheld similar waivers, Horner v. Boston Edison Company18 and Edgin v. Entergy Operations, Inc.19 In Horner, the Appeals Court of Massachusetts found a similar waiver valid since it only prevented the employee from recovering amounts in addition to those recovered from workers’ compensation. The Supreme Court of Arkansas, in Edgin, found that such a waiver did not violate public policy since the employer was not attempting to “escape liability entirely, but [was] instead, attempting to shield its clients from separate tort liability” for injuries covered by workers’ compensation.

The dissent would have denied defendant’s summary judgment motion, and found fault with the majority’s finding of ambiguity within the statute. Finding the statutory language prohibiting waivers “clear and unambiguous,” the dissent argued that the waiver that plaintiff signed therefore contravened Pennsylvania public policy.20 Furthermore, the dissent asserted that its interpretation was consistent with other portions of the Worker’s Compensation Act that permit an employee to bring action against a third party when that party causes him or her injury.21 Condemning the majority’s “journey into the forbidden land of impermissible statutory interpretation,” the dissent accused the majority of activism that disregarded the plain meaning of §204(a) in its decision.

III. Implications

This decision has many interesting implications. Clearly, employers whose employees work at remote client sites may now protect those clients from tort liability, and not merely via an indemnity clause as had previously been practiced. An indemnity clause shifts the risk of client negligence from the client to the employer (and depends crucially on the solvency of the employer), while the waiver in Bowman shifts the risk to the employee.

A second and quite interesting consideration is that the reasoning of the Pennsylvania Supreme Court majority could logically extend to products liability claims against tool manufacturers for workplace injuries. Since the court stressed that waivers of future tort recovery by an employee do not violate public policy so long as the employee can still recover through workers’ compensation, and since it construed §204(a) to apply to only employer-employee relationships, it is difficult to see why its rationale would not apply to a suit by an employee against the manufacturer of an allegedly defective product that injured that employee, assuming an appropriate waiver had been signed. Such an extension of the rationale in Bowman would likely lead to employers receiving better deals on tool and other product purchases from manufacturers, in exchange for including “Bowman waivers” in their employment contracts. A very significant component of American products liability law involves “end runs” around workers compensation, wherein an employee of a negligent employer, banned from suing that employer under the state workers’ compensation statute, instead sues a product manufacturer, and recovers moneys (pain and suffering, etc.) not recoverable under workers’ comp. Bowman may now offer a way to prevent such end runs.

The Pennsylvania Supreme Court may soon be called upon to determine the scope of this decision. In the meantime, it is likely that Pennsylvania employees will encounter more waivers of liability for third parties, as employers seek to test the limits of the court’s decision in Bowman.

 

*Michael I. Krauss is a Professor of Law at George Mason University and Samantha Rocci is a J.D. Candidate at George Mason University School of Law.

 

Endnotes

1 Bowman v. Sunoco, Inc., 2013 WL 1767731 (Pa. Apr. 25, 2013).

2 The disclaimer stated:

I hereby waive and forever release any and all rights I may have to:

           -make a claim, or

           -commence a lawsuit, or

           -recover damages or losses

from or against any customer (and the employees of any customer) of Allied Security to which I may be assigned, arising from or related to injuries which are covered under the Workers’ Compensation statutes.

Id.

3 77 P.S. § 71(a).

4 Bowman v. Sunoco, Inc., 2008 WL 8833338 (Pa. Com. Pl. May 21, 2008).

5 Bowman v. Sunoco, Inc., 986 A.2d 883 (Pa. Super. 2000).

6 2013 WL 1767731 at *2.

7 Section 319 reads: “Where the compensable injury is caused in whole or in part by the act or omission of a third party, the employer shall be subrogated to the right of the employe, . . . against such third party to the extent of the compensation payable under this article by the employer.” 77 P.S. § 671.

8 Bowman v. Sunoco, 2013 WL 1767731 (Pa. Apr. 25, 2013).

9 Inman v. Nationwide Mutual Ins. Co., 641 A.2d 329, 331 (Pa. Super. 1994).

10 Section 204(a) reads, in its entirety:

(a) No agreement, composition, or release of damages made before the date of any injury shall be valid or shall bar a claim for damages resulting therefrom, and any such agreement is declared to be against the public policy of this Commonwealth. The receipt of benefits from any associating, society, or fund shall not bar the recovery of damages by action at law, nor the recovery of compensation under article three hereof; and any release executed in consideration of such benefits shall be void: Provided, however, That if the employe receives unemployment compensation benefits, such amount or amounts so received shall be credited against the amount of the award made under the provisions of sections 108 and 306, except for benefits payable under section 306(c) or 307. Fifty per centum of the benefits commonly characterized as “old age” benefits under the Social Security Act (49 Stat. 620, 42 U.S.C. §301 et seq.) shall also be credited against the amount of payments made under sections 108 and 306, except for benefits payable under section 306(c): Provided, however, That the Social Security offset shall not apply if old age Social security benefits were received prior to the compensable injury. The severance benefits paid by the employer directly liable for the payment of compensation and the benefits from a pension plan to the extent funded by the employer directly liable for the payment of compensation which are received by an employe shall also be credited against the amount of the award made under sections 108 and 306, except for benefits payable under section 306(c). The employe shall provide the insurer with proper authorization to secure the amount which the employe is receiving under the Social Security Act.

77 P.S. § 71(a) (internal citations omitted).

11 Bowman v. Sunoco, 2013 WL 1767731 at *4 (Pa. Apr. 25, 2013).

12 Id. at *5–6.

13 Id.

14 Id. at *6.

15 Henry Shenk Company v. City of Erie, 352 Pa. 481, 43 A.2d 99 (1945); Vaughn v. Didizian, 436 Pa.Super. 436, 648 A.2d 38 (1994)

16 Bowman v. Sunoco, 2013 WL 1767731 at *6–7.

17 Id. at *7.

18 Horner v. Boston Edison Co., 695 N.E.2d 1093 (Mass. App. Ct. 1998).

19 Edgin v. Entergy Operations, Inc., 961 S.W.2d 724, 727 (Ark. 1998).

20 Bowman v. Sunoco, 2013 WL 1767731 at *8–9 (Baer, J., dissenting).

21 Id.

Pennsylvania Supreme Court Permits Waivers for Future Negligence by Third Parties