A limitation of liability clause found in PECO Energy’s “public utility tariff” does not disclaim it from a subrogation claim lodged by an insurance company, the state Superior Court has ruled.

The majority of the three-judge panel decided that Rule 12.1 of the tariff was not in violation of public policy because it did not amount to a fully exculpatory clause, which would absolve the energy giant of all liability. (The Superior Court has held exculpatory clauses within a tariff as void against public policy.) Instead, the rule only blocked liability for damages attributable to “accidents” or causes outside of the company’s control, under the majority’s analysis.

With that said, the rule also did not disclaim a strict liability claim because the rule’s provisions revolve around what the company could control and the foreseeability of harm, which the court noted was an element of negligence. As state jurisprudence allows a party to pursue a claim of strict liability against a utility company, the panel reversed the trial court and paved the way for State Farm to pursue a claim of strict liability against PECO.

Last year, a Philadelphia judge found that while Rule 12.1 of the tariff did not expressly disclaim PECO of strict liability, the trial court nonetheless concluded the tariff’s “provisions reach widely enough to encompass strict liability” and, thus, disclaim it.

The intermediate appellate court agreed with the judge that the tariff did not run afoul of public policy, but disagreed that it amounted to a disclaimer of strict liability claims.

“To the contrary, [the provisions] address whether the cause of action was beyond the company’s control and the foreseeability of the harm,” Judge Jacqueline O. Shogan wrote for the majority. “As noted previously, a foreseeability of harm is an element of negligence. It is not, however, required for a cause of action sound in strict liability.”

Judge David N. Wecht wrote a concurring and dissenting opinion, which was three pages longer than the majority’s analysis, to say he would have found the rule to be exculpatory and thus contrary to public policy.

A tariff, as explained by the Commonwealth Court, is a set of rules imposed by the state on the schedule of rates for services as well as rules and regulations for those services. The Public Utility Commission holds jurisdiction over matters concerning a utility and the public.

In State Farm Fire & Casualty v. PECO, both parties filed motions for summary judgment after a “dangerous and defective” surge of electricity passed through several policyholders’ meters and caused damages to their houses. Invoking subrogation, State Farm sued PECO for negligence, strict liability, breach of contract and breach of warranty.

The trial court granted PECO’s motion for summary judgment.

In reviewing the decision, Shogan’s 17-page analysis largely relied on two cases.

In one case, DeFrancesco v. Western Pennsylvania Water, the Superior Court found exculpatory clauses within a tariff to be void against public policy. That was in 1984.

In 1976, the Superior Court decided Behrend v. Bell Telephone, ruling that a tariff provision limiting the liability of a telephone company — as opposed to exculpating it — was valid.

“In concluding that the foregoing limitation of liability clause was valid and enforceable, we recognized the PUC’s authority to determine the reasonableness of tariffs as well as its power to assess whether such provisions are ‘compatible with the [Public Utility C]ode and policies of the commission and consistent with its regulatory scheme,’” Shogan wrote, citing Behrend.

The liability clause in DeFrancesco was “patently different from” the one proffered in Behrend, Shogan noted, because it disclaimed all liability. 
”A clause which limits but which does not entirely exempt a utility from liability is enforceable and will not be void on public policy grounds,” Shogan said. “Conversely, a clause which is truly exculpatory in nature, in other words, one which absolves the utility of all liability, is void as against public policy.”

While tariffs do have the “force and effect of law,” Shogan noted they are not statutes subject to statutory interpretation, meaning courts must rely on rules of contract interpretation in deciding matters like State Farm.

The tariff in the instant case reads, in relevant part, as follows:

“The company is also not liable for any damages due to accident, strike, storm, riot, fire, flood, legal process, state or municipal interference, or any other cause beyond the company’s control,” the document says, according to the opinion.

It later limits liability, absent willful and/or wanton misconduct, to the greater of $500 or two times the charge the customer faced for their service during the time period service was affected.

In other words, if State Farm can prove willful or wanton misconduct on the part of PECO, its recovery is not limited. It was not clear what the underlying value of the claim was in this case.

But, after a short review of state courts’ definition of the word “accident,” Shogan said the tariff was not unlawful.

“In this case, defining what is not precluded by the liability limitation clause is as important as what it does preclude,” Shogan said. “Based on the above definition of ‘accident,’ we conclude that the clause does not preclude recovery for the antithesis of an accident; namely, it does not proscribe events that are foreseeable.”

“Indeed, ‘the foreseeability of the harm is an element of negligence,’” she added.

In a much shorter analysis on the strict liability issue, Shogan said the trial court got it wrong by ruling the rule’s provisions extended to a strict liability disclaimer.

For PECO’s tariff to disclaim strict liability, Rule 12.1 must include some language purporting to disclaim liability for electricity that “[was] expected to and [did] reach the user or consumer without substantial change in the condition in which it was sold” and for electricity which possessed “a defective condition, unreasonably dangerous,” Shogan said, citing Schriner v. Pa. Power & Light.

Wecht wrote a 20-page concurring and dissenting opinion in which he said he found the rule in the tariff to be exculpatory. He said the tariff reflected a “contract of adhesion” and that it was ambiguous and required more development.

“There can be no question that utility companies employ form tariffs, and that these will not be revised at a customer’s request,” Wecht said. “Unless an individual of a Luddite bent prefers to live as he might have done a century or more ago, he has little choice but to accept the terms that the utility places before him.”

Raymond E. Mack of Nelson Levine de Luca & Hamilton in Blue Bell, Pa., represented State Farm and declined to comment on the decision.

John E. Salmon of Salmon, Ricchezza, Singer & Turchi in Philadelphia represented PECO and did not return a call requesting comment.

Ben Present can be contacted at 215-557-2315 orbpresent@alm.com. Follow him on Twitter @BPresentTLI.

(Copies of the 37-page opinion in State Farm Fire & Casualty v. PECO, PICS No. 12-1914, are available from Pennsylvania Law Weekly. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information.) •