Opinion ID: 3014115
Heading Depth: 2
Heading Rank: 1

Heading: Defense and Indemnification

Text: Wausau conceded at oral argument that Staples was covered under the Wausau Policy for this particular matter. Indeed, the District Court found as a matter of fact that Staples was listed as an additional insured, and that “Mr. Kline sustained injuries arising out of the work he was performing as an employee of Brenner Associates . . . .” Staples, 7 2003 WL 21672262, at . Wausau does not appeal this finding. Therefore the only remaining question is whether Staples, which had notified Wausau at the time of the occurrence, violated its duty to cooperate by failing to notify Wausau when Kline’s complaint was filed, thereby relieving Wausau of any liability under the claim. We hold that Staples did not violate its duty under the policy and therefore that Wausau was not relieved of liability. First, the District Court’s conclusion that Wausau “did not have a duty to defend Staples at the time of Staples’ March 24, 1997 correspondence, because Mr. Kline had not yet filed a Complaint against Staples,” Staples, 2003 WL 21672262, at , constituted an error. Under the Wausau Policy, Staples was obligated to inform Wausau at the time of the occurrence. That Kline’s attorney attempted to enter into settlement discussions shortly after the occurrence, but before filing a complaint, underscores the logic behind the timely notification requirement. Had Wausau agreed to defend Staples at this time, the ultimate lawsuit could have been avoided. We reject any suggestion that Staples notified Wausau too soon. Second, the District Court erred in concluding that Staples failed to cooperate by not providing information necessary to consider Kline’s claim. Staples stated “[it does] not have any statements, photographs and diagrams, or contracts to send.” App. at 257. Wausau argues that the failure to provide this information prevented it from adequately considering the claim. This argument is disingenuous for several reasons. Wausau 8 specifically denied the claim based on alleged independent acts of negligence, not based on a lack of information. Further, it is difficult to understand what specific information Wausau needed to consider the claim when it was clear that the injury arose while Kline was performing work for Brenner on behalf of Staples. Finally, Staples could not send information that it could not gather. From the record, it appears Staples forwarded Wausau everything in its possession. There was no failure to cooperate in the initial investigation. Third, Staples was not obligated to inform Wausau of the Kline action. We have stated that “‘[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.’” Apalucci v. Agora Syndicate, Inc., 145 F.3d 630, 634 (3d Cir. 1998) (quoting Brakeman v. Potomac Inc. Co., 371 A.2d 193, 200-01 (Pa. 1977) (Roberts, J., concurring and dissenting) (citations omitted)). Here, Wausau’s refusal to defend its insured, Staples, was unjustified. Pursuant to the Wausau Policy, Staples informed Wausau at the time of the occurrence, namely Kline’s injury. The District Court concluded that Kline’s injuries arose out of work he was performing as an employee of Brenner and on behalf of Staples. This puts the incident squarely within the Additional Insured Endorsement provision, and “your work” definition outlined in the Wausau Policy. 9 Despite this, Wausau denied coverage on October 8, 1997 in a letter stating, “The basis for our denial is there appear to be independent acts of negligence alleged against an employee of Staples.” App. at 262. Nothing in the Policy provides that Wausau’s requirement to defend and indemnify can be excused on the basis of independent acts of negligence. Wausau’s initial denial was unjustified thereby relieving Staples of its duty to inform Wausau of the suit. This follows as a matter of law, but also as a matter of common sense. Once Wausau had denied the claim without a good faith reason for doing so, Staples was forced to undertake its own defense. There was no reason to believe that making a second request after Kline filed suit would have elicited a different response from Wausau. An “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.” Apalucci, 145 F.3d at 634 (quoting Brakeman, 371 A.2d at 201). Because Wausau’s refusal to defend “cut at the very root of the mutual obligation [between the insurer and the insured, it] put an end to its right to demand further compliance with the . . . term of the contract.” Id. (internal quotation marks and citation omitted). It follows that the District Court erred when it found that Wausau was not obligated to reimburse Staples for the amount it paid for the arbitration award, and costs and fees associated with the arbitration. 10