Opinion ID: 3010133
Heading Depth: 2
Heading Rank: 3

Heading: Pacific Indemnity Co. v. Linn

Text: On the cross-appeal, the Gym and Guzzardi argue the district court erred in denying summary judgment on their claim that the pre-trial settlement and dismissal of the Silverman suit required, as a matter of law, a finding that General Star has a duty to indemnify them for the cost of settling the Silverman suit. The Gym and Guzzardi argue that, under our holding in Pacific Indemnity Co. v. Linn, 766 F.2d 754 (3d Cir. 1985), General Star has a duty to indemnify because the Silverman suit was dismissed before Silverman's claims could be confined to those outside the scope of policy coverage. The district court rejected this argument finding the present case distinguishable from Linn and analogous to Cooper Labs., Inc. v. Int'l Surplus Lines Ins. Co., 802 F.2d 667, 674 n.1 (3d Cir. 1986), and Safeguard Scientifics, Inc. v. Centercore, Inc., 766 F. Supp. 324, 334 (E.D. Pa. 1991), rev'd on other grounds, 961 F.2d 209 (3d Cir. 1992) (Table). In Linn, Pacific Indemnity brought a declaratory judgment action to determine which of several insurers had a duty to defend and indemnify Dr. Linn in suits against him to recover for injuries or death suffered by persons who had read and followed his diet book. Several of the suits against Dr. Linn were settled by the insurance companies before sufficient facts were developed to determine the basis for Dr. Linn's liability. Consequently, it was impossible to determine whether the policies provided coverage for the settlement amount. Because we could not determine which of the injured bookreaders claims would have prevailed, we held the duty to defend carries with it the conditional obligation to indemnify until it becomes clear that there can be no recovery within the insuring clause. Id. at 766. We observed: [t]o reach the opposite conclusion could conceivably result in an insured never being indemnified in a suit that its insurer settles where that insurer defends under a reservation of rights. In such a situation, it would behoove the insurer to reserve its rights and to settle the suit to avoid both the costs of litigation and, at the same time, the costs of indemnification. Id. at 766. Thus our holding was based, in part, on the concern that an insurer would be able to settle a suit without an agreement with the insured, and attempt to avoid its duty to indemnify by claiming a jury would have found the claims in the underlying suit were not covered by the policy. The Gym and Guzzardi argue Linn is analogous to this case because the Silverman suit was settled before the claims were confined to those outside of the scope of the policy. But unlike the insured in Linn, the Gym and Guzzardi participated and acquiesced in the settlement of the underlying case. Because the Gym and Guzzardi were not exposed to the risk that influenced the Linn decision, the district court correctly denied their motion for summary judgment. See Cooper Labs., Inc. v. Int'l Surplus Lines Insurance Co., 802 F.2d at 674 (holding the Linnduty to indemnify rule did not apply to a case settled by the insured) (applying New Jersey law); Safeguard Scientifics, Inc. v. Centercore, Inc., 766 F. Supp. at 334 (same).