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DAYTON ELEC. MFG. CO. v. APCOM

January 17, 1992

DAYTON ELECTRIC MANUFACTURING CO., Plaintiff,
v.
APCOM, INC. and LIBERTY MUTUAL INSURANCE CO., Defendants.



The opinion of the court was delivered by: CHARLES RONALD NORGLE

 ORDER

 Before the court is the summary judgment motion of APCOM, Inc. ("APCOM") and Liberty Mutual Insurance Co. ("Liberty Mutual" or collectively "defendants") pursuant to Federal Rule of Civil Procedure 56(c). The court denies summary judgment for defendants and grants summary judgment, sua sponte, for plaintiff.

 APCOM manufactures water heater element lines. *fn1" Dayton Electric Manufacturing Co. ("Dayton") purchased these water heater elements from APCOM, labeled them as Dayton water heater elements, and sold them to companies for incorporation into water heaters which were in turn sold to the general public. APCOM was the sole supplier of water heater elements to Dayton, and Dayton's parent company W.W. Grainger ("Grainger"), at all relevant times.

 When Dayton purchased water heater elements from APCOM, they did so on a purchase order form that contained a paragraph that stated in relevant part:

 3. Product liability indemnity; hazardous substance and OSHA compliance:

 (a) Seller [APCOM] agrees to protect, defend, indemnify, assume any liability, save and hold harmless Grainger, its agents, subsidiaries and affiliates, employees, insurers, successors and assigns, from and against any claims, demands, suits, liabilities, penalties, losses, damages, or charges, settlements, judgments, costs and expenses (including attorneys fees incurred) by any person arising out of or allegedly based on any alleged defect, failure, breach of warranty (express or implied), of or connected with any product covered by this order or arising out of any actual or alleged violation by such products of any statute, ordinance, administrative order, rule, or regulation.

 APCOM and Dayton concede they are bound by the terms of this paragraph.

 Paragraph 4 of those same purchase orders required APCOM to "procure broad form vendors liability insurance coverage naming W.W. Grainger, Inc. and its subsidiaries and affiliates as named insureds . . . ." APCOM purchased a Comprehensive General Liability insurance policy from Liberty Mutual. The policy covered not only APCOM, but also Grainger and Dayton as required by paragraph 4 of the purchase orders. There is no dispute that the policy was in force and effect and no party claims that Grainger and Dayton were not covered by it.

 In 1988, 49 lawsuits were filed in the Court of Common Pleas in Philadelphia, Pennsylvania ("Philadelphia suits"). Dayton was named as a defendant and it was alleged that Dayton's water heater elements exposed people present at the 30th Street Station area of the Philadelphia Amtrak Rail system to asbestos. *fn2" Dayton was served with a summons and complaint for each of these suits and these papers were forwarded to APCOM and Liberty Mutual.

 By a letter dated February 22, 1988, the attorney for Grainger and Dayton, Joel Gusky ("Gusky"), asked APCOM, through President George Fehrmann ("Fehrmann"), to defend Grainger in these actions and enclosed a copy of one of the complaints. That letter also contained the following sentence: "We have ascertained that the products claimed to contain asbestos are those included in the attached Installation Instructions for Water Heater Elements." The Installation Instructions were those supplied by APCOM with its water heater elements when sold to Dayton. After receiving no response to their request for defense, Grainger sent another letter, containing essentially the same information, to Fehrmann on March 21.

 Shortly after receipt of the letters, J. Kurt Straub ("Straub") was retained as counsel on behalf of APCOM and Liberty Mutual. In late March, 1988, he called Gusky concerning the Philadelphia suits. Gusky relayed information obtained during a meeting he had had with attorneys for the plaintiffs in the Philadelphia suits and other information which demonstrated that APCOM's elements were the subject of the suit. Straub stated that the water heater elements at issue contained no asbestos.

 After additional investigation, it was determined that the subject APCOM-Dayton water heater elements never contained asbestos. In order to have the Philadelphia suits dismissed, Straub and Gusky worked together and eventually obtained an affidavit from Fehrmann dated July 28, 1988, which stated that the water heater elements never contained asbestos.

 The next correspondence was dated January 19, 1989. In it, Grainger notified APCOM of Grainger's intention to seek legal fees and expenses incurred in the defense of the Philadelphia suits. It also reiterated that APCOM products were the subject of the ...


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