Safeway Inc. v. PDX, Inc.
4:14-cv-00683
N.D. Tex.Apr 1, 2015Background
- Safeway and software vendor PDX contracted (2006 Keystone Indemnity Agreement, “KIA”) to modify PDX’s pharmacy software so Safeway could print abbreviated (five-section) patient monographs instead of the standard eight-section monographs.
- The KIA contained an indemnity clause by which Safeway waived claims against PDX for the Program and agreed to indemnify and hold PDX harmless for any loss, damage, or expense arising from Customer’s use of the Program, explicitly including attorney fees and related costs.
- Plaintiffs Kathleen and Dane Hardin sued PDX (among others) in California, alleging Ms. Hardin suffered injury from a drug because the monograph provided omitted warnings; claims against PDX alleged defective software design, negligence, and malice in modifying/allowing abbreviated monographs.
- Safeway sought a Texas declaratory judgment that the KIA’s indemnity clause does not require Safeway to indemnify or defend PDX for claims based on PDX’s own negligence, strict liability, or punitive damages; PDX counterclaimed for breach and specific performance and sought attorney’s fees.
- The dispositive legal question was whether, under Texas law (the KIA is governed by Texas law), the indemnity clause satisfies the Texas “express negligence” and related “express intent” rules so as to cover PDX’s alleged negligence and strict liability and related defense costs.
- The court concluded the indemnity clause, read in the contract’s four corners and context, plainly covered the kinds of claims at issue and granted PDX declaratory relief and recovery of most litigation expenses, with a limited issue reserved about whether PDX’s insurer (not PDX) must intervene to recover certain defense fees.
Issues
| Issue | Plaintiff's Argument (Safeway) | Defendant's Argument (PDX) | Held |
|---|---|---|---|
| Whether KIA requires Safeway to indemnify PDX for claims arising from PDX’s own negligence or strict liability | Indemnity cannot be read to cover PDX’s own negligence/strict liability absent express language; Texas requires express negligence language | The parties plainly intended Safeway to indemnify PDX for claims arising from Safeway’s use of the Program, including negligence/strict liability claims tied to that use | Held: KIA satisfies Texas express negligence/express intent rules; Safeway must indemnify PDX for the Hardins’ claims |
| Whether the Hardins’ claims arise from Safeway’s use of the Program (triggering indemnity) | Claims are based on PDX’s conduct (programming/marketing) and not Safeway’s use, so indemnity does not apply | Hardins’ allegations show claims arose directly from Safeway’s election to use the abbreviated monograph functionality provided by PDX | Held: Claims arise from Safeway’s use of the Program and fall within indemnity scope |
| Whether indemnity extends to punitive damages | Indemnity for punitive damages is against public policy and requires additional expressness | KIA’s broad language includes "any and all loss, damage, or expense" and contemplates such risks; parties contemplated punitive exposure | Held: Court found punitive damages claims would be within the indemnity’s scope |
| Recovery of attorney’s fees and defense costs (including fees paid by insurer) | Safeway disputes PDX is prevailing party and contests amounts; also insurer paid some DWT fees so insurer may be real party-in-interest | KIA entitles prevailing party to fees; PDX seeks contractual fees and defense costs incurred in California action | Held: PDX is prevailing party; court awarded PDX $228,290.36 (fees in this action and defense fees through one firm). Court declared $752,932.33 incurred through DWT as reasonable but reserved ruling on awarding that amount because insurer (who paid it) may be real party-in-interest and may need to intervene |
Key Cases Cited
- Ethyl Corp. v. Daniel Constr. Co., 725 S.W.2d 705 (Tex. 1987) (adopts Texas "express negligence" test and four-corners requirement for indemnity covering indemnitee's own negligence)
- Atlantic Richfield Co. v. Petroleum Personnel, Inc., 768 S.W.2d 724 (Tex. 1989) (explains purpose of express negligence rule: require clear drafting to exculpate indemnitee for its own negligence)
- Enserch Corp. v. Parker, 794 S.W.2d 2 (Tex. 1990) (upholds indemnity where contract as whole shows intent to cover indemnitee's negligence)
- Fisk Elec. Co. v. Constructors & Assoc., 888 S.W.2d 813 (Tex. 1994) (reiterates express negligence as rule of contract interpretation resolvable as matter of law)
- Houston Lighting & Power Co. v. Atchison, Topeka & Santa Fe Ry. Co., 890 S.W.2d 455 (Tex. 1994) (applies express intent rule to require specific statement to cover strict liability)
- Dresser Indus., Inc. v. Page Petroleum, Inc., 853 S.W.2d 505 (Tex. 1993) (post-Ethyl authority applying express negligence principles)
- Banzhaf v. ADT Sec. Sys. Sw, Inc., 28 S.W.3d 180 (Tex. App.—Eastland 2000, pet. denied) (express negligence does not require the specific word "negligence"; intent may be shown by contract language)