1998 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

6-2-1998

Apalucci v. Agora Syndicate

Precedential or Non-Precedential:

Docket 97-1190

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Recommended Citation

"Apalucci v. Agora Syndicate" (1998). 1998 Decisions. Paper 129.

http://digitalcommons.law.villanova.edu/thirdcircuit_1998/129
Filed 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 Judges. 

(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 

_________________________________________________________________ 

* Although Judge Lewis took part in consideration of this case, he has 

been unable to clear this written opinion because of illness. 
OPINION OF THE COURT 

ROSENN, Circuit Judge. 

On this appeal, we are asked to decide a question offirst 

impression in Pennsylvania: whether an insurer's failure to 

defend under its liability insurance policy, which results in 

a default judgment being entered against its insured, 

entitles a third-party beneficiary of the policy to sue the 

insurer to collect the judgment when the policy only 

permits such suits after an "actual trial." In this case, 

plaintiff, Ronald Apalucci, obtained a default judgment 

against C.R. Management Enterprises, Inc. t/a Tijuana 

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 beneficiary 

under Agora's liquor liability insurance policy with the 

Tijuana Yacht Club. When Apalucci's efforts to collect 

failed, he sued Agora alleging bad faith and breach of 

contract in refusing to defend the Club and make payment 

to him. The district court granted Agora's motion for 

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 doubts and 

reasonable inferences resolved in his favor. See Reitz v. 

County of Bucks, 125 F.3d 139, 143 (3d Cir. 1997). The 

underlying suit at issue here arises from the Tijuana Yacht 

Club's service of alcoholic beverages to Apalucci when he 

was only 19 years old and visibly intoxicated. After leaving 

the Club, he fell into a plate glass window and sustained 

serious injuries to his leg. 

Apalucci then sued the Club in the United States District 

Court for the Eastern District of Pennsylvania alleging, 

among other things, that it was negligent in serving 

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alcoholic beverages to him in light of his minority age and 

visible intoxication. Shortly after the incident, however, the 

Club ceased to do business and its principal, Cam Rowell, 

could not be found. Thus, unable to personally serve 

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 judgment 

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 making a 

demand against Agora for payment of the $75,000 default 

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. Furthermore, the 

policy permitted suit against Agora only on a final judgment 

obtained after an "actual trial." Although Rowell notified 

Agora of Apalucci's claim, Agora alleges that it was unable 

to locate Rowell. Accordingly, Agora denied coverage due to 

Rowell's failure to cooperate and assist in the defense of 

Apalucci's claims as required by the terms of the insurance 

contract. Apalucci contests this allegation, arguing that the 

insured cooperated in the investigation of the claim 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 execution of its 

duty to provide coverage and defense to the Club. Second, 

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 for 

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 cooperate in the 

underlying negligence action. These defenses, it forcefully 

argued, relieved it of any duties it may have had to the 

Club or Apalucci. Persuaded, the district court granted 

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summary judgment in favor of Agora. After the court denied 

Apalucci's motion for reconsideration, he timely appealed.1 

II. 

Although the parties discuss at length their differing 

versions of the facts, and their respective views as 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." These 

related issues are solely legal over which our review is 

plenary. See Travitz v. Northeast Dep't ILGWU Health and 

Welfare Fund, 13 F.3d 704, 708 (3d Cir. 1994); McMillan v. 

State Mutual Life Assurance Co. of America, 922 F.2d 1073, 

1074 (3d Cir. 1990). Specifically, we must predict whether 

the Pennsylvania Supreme Court would hold that Agora'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 policy, to sue 

Agora to collect on the judgment when the policy only 

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 an alleged 

tortfeasor unless a provision of the policy or a statute 

create such a right. See, e.g., Dercoli v. Pennsylvania Nat'l 

Mut. Ins. Co., 535 A.2d 163, 165 (Pa. Super. Ct. 1987), 

rev'd on other grounds, 554 A.2d 906 (Pa. 1989); Folmar 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 contains an 

express provision obligating it to pay the judgment he 

obtained against its insured, thus breaching its contractual 

_________________________________________________________________ 

1. The district court exercised diversity jurisdiction pursuant to 28 

U.S.C. S 1332, as the parties are citizens of different states and the 

amount in controversy exceeded the then-applicable amount of $50,000. 

This Court has appellate jurisdiction of the district 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. 

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

correctly notes, the district court did not determine 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 reads 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 have been fully 

 complied with. 

 A person or organization may sue us to recover on an 

 agreed settlement or on a final judgment against an 

 insured obtained after an actual trial . . .. 

(emphasis added). Thus, under this provision, an insured 

must meet two conditions precedent to have a direct right 

of action against the insurer. First, the insured must have 

fully complied with all terms of the policy, including the 

previously mentioned notice and cooperation provisions. We 

express no opinion as to whether this condition was met as 

the district court did not address the issue and decided the 

case on other grounds. This issue will need to be resolved 

on remand. Construing the evidence in the light most 

favorable to Apalucci, we will assume solely for purposes of 

this discussion that the condition has been met. 

Second, Apalucci must have obtained a final judgment in 

his favor against the Club after an "actual trial." Agora 

_________________________________________________________________ 

2. Apalucci also argues for the first time here on appeal that Pa. Stat. 

Ann. tit. 40, S 117 provides him with a statutory right to proceed against 

Agora. Under this provision, "the insolvency or bankruptcy of the person 

insured shall not release the insurance carrier from the payment of 

damages for injury sustained or loss occasioned during the life of such 

policy." As a general rule, however, " `[t]his [C]ourt has consistently 

held 

that it will not consider issues that are raised for 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 Philadelphia, 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. 

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contends that because Apalucci obtained only a default 

judgment against its insured and thus an actual trial was 

never held, Apalucci has no standing to sue it under the 

express terms of this provision. We disagree. We conclude 

that in the context of this case, the Pennsylvania Supreme 

Court would hold that other factors outweigh the policy's 

actual trial requirement and entitle Apalucci to sue Agora. 

The Pennsylvania Supreme Court and this Circuit sitting 

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 insured 

due to the insurer's alleged failure to defend. Several 

Pennsylvania cases, however, do provide support for the 

result we reach today. First, in Foster v. Mutual Fire, Marine 

and Inland Ins. Co., 623 A.2d 928 (Pa. Commw. Ct. 1993), 

aff 'd, 636 A.2d 627 (Pa. 1994), the court, in discussing an 

almost identical no action clause, explained the clause'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 injured 

 party or an insured from bringing the insurance 

 company into the underlying litigation with possible 

 resultant prejudice. 

Id. at 930 (citations omitted). None of these purposes is 

offended by permitting Apalucci's suit against Agora after 

obtaining a default judgment. The fact and the amount of 

the insured's liability have been conclusively established by 

an enforceable court judgment. Moreover, Apalucci's suit is 

not a nuisance suit. Thus, when the clause is distilled, its 

essence is not the nature of the trial but whether the 

insured suffered a bona fide and fixed money judgment. 

Brakeman v. Potomac Ins. Co., 371 A.2d 193 (Pa. 1977), 

provides further support for our analysis of the no action 

clause and the legal significance of the term"actual trial" 

contained therein. In Brakeman, an insurer defended

against a suit brought by a party injured in an accident 

involving its insured. The action sought payment of a 

 6 
settlement agreement entered into by the injured party and 

its insured, on the grounds that the insured breached a 

term of the contract. The late, learned Justice Roberts, 

citing a long line of cases, noted that (as allegedly happened 

here), "[w]here an insurance carrier breaches its insurance 

contract by unjustifiably refusing to defend its insured, it 

cannot assert as a defense to an action by the insured or 

the injured party that the insured did not comply with the 

`actual trial' provisions of the insurance contract." Id. at 

200-201 (Roberts, J., concurring and dissenting) (citations 

omitted). He went on to explain that, "[t]he insurance 

company's initial repudiation of the contract in denying 

liability under the policy relieve[s] the insured of strict 

performance of those provisions intended for the protection 

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 applicability 

of the "actual trial" provision is dependent upon the insurer 

defending its insured in good faith. This is precisely what 

Apalucci argues Agora did not do. 

Accordingly, because the insurer's refusal to defend " `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, 181 

(1906)). Thus, we predict that if confronted with this 

question, the Pennsylvania Supreme Court would conclude 

that if Agora's refusal to defend its insured amounted to a 

breach of the insurance contract and resulted in the default 

judgment obtained by Apalucci, Agora thereby forfeited its 

right to enforce the actual trial requirement. Therefore, we 

hold that the Pennsylvania Supreme Court would not 

preclude Apalucci from suing Agora for breach of contract 

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 Agora's failure to defend 

constitutes a waiver and/or estoppel, and we, therefore, do not discuss 

it. 

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Finally, the result we reach comports with elementary 

principles of fairness and equity. As a general rule, when 

one party to a contract unilaterally prevents the 

performance of a condition upon which his own liability 

depends, the culpable party may not then capitalize on that 

failure. See, e.g., St. Louis Dressed Beef & Provision Co., 

201 U.S. at 181; Borough of Nanty-Glo v. American Sur. Co. 

of N.Y., 175 A. 536, 537 (Pa. 1934). Here, it strikes us as 

patently unfair to allow Agora to unilaterally (and

potentially unjustifiably) sit by while a default judgment is 

entered against its insured, and then take advantage of 

that same self-induced default as the cornerstone on which 

to reject a claim under the insurance contract between 

them. See Tudesco v. Wilson, 60 A.2d 388, 391 (Pa. Super. 

Ct. 1948). 

III. 

In summary, we believe that the Pennsylvania Supreme 

Court would hold that an insurance company's failure to 

defend its insured, which results in the entry of a default 

judgment against the insured, entitles a third-party 

beneficiary of a liability insurance policy to directly sue the 

insurer to collect and enforce the default judgment, 

notwithstanding that the policy only permits a third-party 

suit to collect if a judgment is obtained in an "actual 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 with 

Agora, for resolution on remand in the district court. 

Accordingly, the district court's grant of summary 

judgment will be reversed and the case remanded to the 

district court for further proceedings consistent with 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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