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D ock e t 97-1190

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. e du/thir dc ir c uit_1998/129Filed June 2, 1998

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 97-1190

RONALD APALUCCI,

Appellant

v.

AGORA SYNDICATE, INC.

Appeal from the United States District Court for the Eastern District of Pennsylvania

D.C. No.: 96-cv-4552

Argued January 22, 1998

Before: SLOVITER, LEWIS,* and ROSENN, Circuit Judge s.

(Opinion Filed June 2, 1998)

Joseph F. McGowan, Jr. (Argued)
1913 Greentree Road Cherry Hill, NJ 08003 Counsel for Appellant

William M. Connor Michael J. Smith (Argued)
Billet & Connor

2000 Market Street
Suite 2803 Philadelphia, PA 19103 Counsel for Appellee

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* Although Judge Lewis took part in consideration o f this case, he has been unable to clear this written opinion because o f illness.OPINION OF THE COURT

ROSENN, Circuit Judge.

On this appeal, we are asked to decide a question o ffirst impression in Pennsylvania: whether an insurer's fa ilure to defend under its liability insurance policy, which results in a default judgment being entered against its insure d, entitles a third-party beneficiary of the policy to sue the insurer to collect the judgment when the policy onl y permits such suits after an "actual trial." In this case, plaintiff, Ronald Apalucci, obtained a default judg ment against C.R. Management Enterprises, Inc. t/a Tijua na Yacht Club (the "Tijuana Yacht Club" or the "Club") . The Club's insurer, defendant, Agora Syndicate, Inc. (" Agora"), failed to defend the lawsuit. Apalucci then sought payment of the judgment from Agora as a third-party benefic iary under Agora's liquor liability insurance policy wit h the Tijuana Yacht Club. When Apalucci's efforts to coll ect failed, he sued Agora alleging bad faith and breach of contract in refusing to defend the Club and make pa yment to him. The district court granted Agora's motion f or summary judgment. Apalucci timely appealed. We will

vacate and remand.

I.

Because this appeal is from a grant of summary judgment, the following facts are viewed in a light most favorable to the appellant, Apalucci, with all doub ts and
reasonable inferences resolved in his favor. See Re itz v. County of Bucks, 125 F.3d 139, 143 (3d Cir. 1997). The underlying suit at issue here arises from the Tijua na Yacht Club's service of alcoholic beverages to Apalucci w hen he was only 19 years old and visibly intoxicated. Afte r leaving the Club, he fell into a plate glass window and sus tained serious injuries to his leg.

Apalucci then sued the Club in the United States Di strict Court for the Eastern District of Pennsylvania alle ging, among other things, that it was negligent in servin g

2alcoholic beverages to him in light of his minority age and

visible intoxication. Shortly after the incident, h owever, the Club ceased to do business and its principal, Cam R owell, could not be found. Thus, unable to personally serv e Rowell, Apalucci eventually effectuated substitute service by mail. When the Club took no action in response to Apalucci's complaint, the court entered a default j udgment against it for $75,000.

At the time of Apalucci's injury, the Tijuana Yacht Club carried a liquor liability insurance policy issued by Agora. Apalucci attempted to collect his judgment by makin g a demand against Agora for payment of the $75,000 def ault judgment in accordance with the terms of the policy . As a condition of coverage, however, the policy required the Club's owner to notify it, and cooperate and assist in the investigation and defense, of any claims. Furthermo re, the policy permitted suit against Agora only on a final judgment obtained after an "actual trial." Although Rowell n otified Agora of Apalucci's claim, Agora alleges that it wa s unable to locate Rowell. Accordingly, Agora denied coverag e due to Rowell's failure to cooperate and assist in the def ense of Apalucci's claims as required by the terms of the i nsurance contract. Apalucci contests this allegation, arguin g that the insured cooperated in the investigation of the clai m and that Agora even undertook an initial investigation into the facts surrounding the incident.

In his complaint, Apalucci raised two claims. First , he alleged that Agora acted in bad faith in the execut ion of its duty to provide coverage and defense to the Club. S econd, he alleged that Agora's failure to pay the $75,000 judgment
constituted "a breach of contractual duties owed to [him] as a third party beneficiary of the coverage purchased by [the Tijuana Yacht Club]."

Agora denied any obligation to Apalucci and moved f or summary judgment. In its motion, Agora asserted as its primary defense Apalucci's lack of standing to sue for bad faith, and secondarily, the Club's failure to coope rate in the underlying negligence action. These defenses, it fo rcefully argued, relieved it of any duties it may have had t o the Club or Apalucci. Persuaded, the district court gra nted

3summary judgment in favor of Agora. After the court denied

Apalucci's motion for reconsideration, he timely ap pealed.1

II.

Although the parties discuss at length their differ ing versions of the facts, and their respective views a s to the court's grant of summary judgment, the dispositive issues raised concern the right to sue under the insurance
contract and the contract's "no action clause." The se related issues are solely legal over which our revi ew is plenary. See Travitz v. Northeast Dep't ILGWU Healt h and Welfare Fund, 13 F.3d 704, 708 (3d Cir. 1994); McMi llan v. State Mutual Life Assurance Co. of America, 922 F.2 d 1073, 1074 (3d Cir. 1990). Specifically, we must predict whether the Pennsylvania Supreme Court would hold that Agor a's failure to defend the Club against Apalucci's suit, resulting in a default judgment against it, entitles Apalucci , as thirdparty beneficiary under the liability insurance pol icy, to sue Agora to collect on the judgment when the policy on ly permits such suit after an "actual trial."

It is well-settled that under Pennsylvania law, an injured party has no right to directly sue the insurer of a n alleged tortfeasor unless a provision of the policy or a st atute create such a right. See, e.g., Dercoli v. Pennsylv ania Nat'l Mut. Ins. Co., 535 A.2d 163, 165 (Pa. Super. Ct. 19 87), rev'd on other grounds, 554 A.2d 906 (Pa. 1989); Fo lmar v. Shaffer, 332 A.2d 821, 823 (Pa. Super. Ct. 1974); Philadelphia Forrest Hills Corp. v. Bituminous Cas. Corp., 222 A.2d 493, 494 (Pa. Super. Ct. 1966). Apalucci, however, argues that the district court ignored the very clear terms of Agora's insurance policy which conta ins an express provision obligating it to pay the judgment he obtained against its insured, thus breaching its co ntractual

___________________________________________________ ______________

1. The district court exercised diversity jurisdict ion pursuant to 28 U.S.C. S 1332, as the parties are citizens of diffe rent states and the amount in controversy exceeded the then-applicable amount of $50,000. This Court has appellate jurisdiction of the distri ct court's final order pursuant to 28 U.S.C. S 1291.

It is undisputed that Pennsylvania law applies. The district court applied Pennsylvania law, as do we.

4obligation to him as a third-party beneficiary.2 As Apalucci

correctly notes, the district court did not determi ne the meaning of, or even mention, this provision.

The specific provision on which Apalucci focuses is commonly referred to as a "No Action Clause." It re ads in relevant part as follows:

No person or organization has a right . . . :

a. To join us as a party or otherwise bring us into a "suit" asking for damages from an insured ; or

b. To sue us . . . unless all . . . terms ha ve been fully complied with.

A person or organization may sue us to recov er on an agreed settlement or on a final judgment aga inst an
insured obtained after an actual trial . . .

.

(emphasis added). Thus, under this provision, an in sured must meet two conditions precedent to have a direct right of action against the insurer. First, the insured m ust have fully complied with all terms of the policy, includ ing the previously mentioned notice and cooperation provisi ons. We express no opinion as to whether this condition was met as
the district court did not address the issue and de cided the case on other grounds. This issue will need to be r esolved on remand. Construing the evidence in the light mos t favorable to Apalucci, we will assume solely for pu rposes of
this discussion that the condition has been met.

Second, Apalucci must have obtained a final judgmen t in his favor against the Club after an "actual trial." Agora

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2. Apalucci also argues for the first time here on appeal that Pa. Stat. Ann. tit. 40, S 117 provides him with a statutory r ight to proceed against Agora. Under this provision, "the insolvency or ban kruptcy of the person
insured shall not release the insurance carrier fro m the payment of damages for injury sustained or loss occasioned dur ing the life of such policy." As a general rule, however, " `[t]his [C]o urt has consistently

held
that it will not consider issues that are raised fo r the first time on appeal.' " Queen City Pizza, Inc. v. Domino's Pizza , Inc., 124 F.3d 430, 443 (3d Cir. 1997) (quoting Harris v. City of Phila delphia, 35 F.3d 840, 845 (3d Cir. 1994)), cert. denied, 118 S. Ct. 1385 (1998). Accordingly, we decline to address the merits of this argument.

5contends that because Apalucci obtained only a defa ult

judgment against its insured and thus an actual tri al was never held, Apalucci has no standing to sue it unde r the express terms of this provision. We disagree. We co nclude that in the context of this case, the Pennsylvania Supreme Court would hold that other factors outweigh the po licy's actual trial requirement and entitle Apalucci to su e Agora.

The Pennsylvania Supreme Court and this Circuit sit ting in diversity have not had the occasion to interpret a "no action clause" in the context of a direct action by a thirdparty who secured a default judgment against an ins ured due to the insurer's alleged failure to defend. Sev eral Pennsylvania cases, however, do provide support for the result we reach today. First, in Foster v. Mutual F ire, Marine and Inland Ins. Co., 623 A.2d 928 (Pa. Commw. Ct. 1 993), aff 'd, 636 A.2d 627 (Pa. 1994), the court, in disc ussing an almost identical no action clause, explained the cl ause's purposes as follows:

[N]o action clauses are intended to prevent (1) actions against the insurer for a money judgment by the injured party until damages have been fixed by final judgment or agreed settlement; (2) nuisance suits against the insurance company; and (3) an in jured party or an insured from bringing the insura nce company into the underlying litigation with possible resultant prejudice.

Id. at 930 (citations omitted). None of these purpo ses is offended by permitting Apalucci's suit against Agor a after obtaining a default judgment. The fact and the amou nt of the insured's liability have been conclusively esta blished by an enforceable court judgment. Moreover, Apalucci's suit is not a nuisance suit. Thus, when the clause is disti lled, its
essence is not the nature of the trial but whether the insured suffered a bona fide and fixed money judgme nt.

Brakeman v. Potomac Ins. Co., 371 A.2d 193 (Pa. 197 7), provides further support for our analysis of the no action clause and the legal significance of the term"actua l trial" contained therein. In Brakeman, an insurer defended against a suit brought by a party injured in an acc ident involving its insured. The action sought payment of a

6settlement agreement entered into by the injured pa rty and

its insured, on the grounds that the insured breach ed a term of the contract. The late, learned Justice Rob erts, citing a long line of cases, noted that (as alleged ly happened here), "[w]here an insurance carrier breaches its i nsurance contract by unjustifiably refusing to defend its in sured, it cannot assert as a defense to an action by the insu red or the injured party that the insured did not comply w ith the `actual trial' provisions of the insurance contract ." Id. at 200-201 (Roberts, J., concurring and dissenting) (c itations omitted). He went on to explain that, "[t]he insura nce company's initial repudiation of the contract in de nying liability under the policy relieve[s] the insured o f strict performance of those provisions intended for the pr otection of the insurer [if the insurer is in fact obligated to defend the insured]." Id. at 201 (quoting Murphy & Co. v. Manufacturers' Cas. Co., 89 Pa. Super. 281, 286 (Pa . Super. Ct. 1926)); see also Roberts v. Fireman's Ins. Co. of Newark, N.J., 101 A.2d 747 (Pa. 1954) (quoting Murphy & Co. with approval). This language demonstrates that the appl icability of the "actual trial" provision is dependent upon t he insurer defending its insured in good faith. This is precis ely what Apalucci argues Agora did not do.

Accordingly, because the insurer's refusal to defen d " `cut at the very root of the mutual obligation, [it] put an end to its right to demand further compliance with the . . . term of the contract.' " Id. (quoting St. Louis Dressed Beef & Provision Co. v. Maryland Cas. Co., 201 U.S. 173, 1 81 (1906)). Thus, we predict that if confronted with t his question, the Pennsylvania Supreme Court would conc lude that if Agora's refusal to defend its insured amoun ted to a
breach of the insurance contract and resulted in th e default judgment obtained by Apalucci, Agora thereby forfei ted its right to enforce the actual trial requirement. Ther efore, we hold that the Pennsylvania Supreme Court would not preclude Apalucci from suing Agora for breach of co ntract pursuant to the policy's no action clause, despite the
absence of an actual trial.3

___________________________________________________ ______________

3. Apalucci has not raised the issue of whether Ago ra's failure to defend constitutes a waiver and/or estoppel, and we, there fore, do not discuss
it.

7Finally, the result we reach comports with elementa ry

principles of fairness and equity. As a general rul e, when one party to a contract unilaterally prevents the performance of a condition upon which his own liabi lity depends, the culpable party may not then capitalize on that failure. See, e.g., St. Louis Dressed Beef & Provis ion Co., 201 U.S. at 181; Borough of Nanty-Glo v. American S ur. Co. of N.Y., 175 A. 536, 537 (Pa. 1934). Here, it strik es us as patently unfair to allow Agora to unilaterally (and potentially unjustifiably) sit by while a default j udgment is entered against its insured, and then take advantag e of
that same self-induced default as the cornerstone o n which to reject a claim under the insurance contract betw een them. See Tudesco v. Wilson, 60 A.2d 388, 391 (Pa. Super. Ct. 1948).

III.

In summary, we believe that the Pennsylvania Suprem e Court would hold that an insurance company's failur e to defend its insured, which results in the entry of a default judgment against the insured, entitles a third-part y beneficiary of a liability insurance policy to dire ctly sue the insurer to collect and enforce the default judgment
, notwithstanding that the policy only permits a thir d-party suit to collect if a judgment is obtained in an "ac tual trial." We remind the parties, however, that we express no opinion
as to the factual merits of this case. We leave the factual issues, such as the insured's alleged cooperation w ith Agora, for resolution on remand in the district cou rt.

Accordingly, the district court's grant of summary judgment will be reversed and the case remanded to the district court for further proceedings consistent w ith this opinion. Costs taxed against the appellee.

A True Copy:

Teste:

Clerk of the United States Court of Appeals
for the Third Circuit

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