Opinions of the United
1998 Decisions                                                                                                             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Precedential or Non-Precedential: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


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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, 

, 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

                               2
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

                               3
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, 

, 708 (3d Cir. 1994); McMillan v.
State Mutual Life Assurance Co. of America, 

,
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 third-
party 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., 

, 165 (Pa. Super. Ct. 1987),
rev'd on other grounds, 

(Pa. 1989); Folmar v.
Shaffer, 

, 823 (Pa. Super. Ct. 1974);
Philadelphia Forrest Hills Corp. v. Bituminous Cas. Corp.,

, 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.

                               4
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., 

,
443 (3d Cir. 1997) (quoting Harris v. City of Philadelphia, 

,
845 (3d Cir. 1994)), cert. denied, 

(1998). Accordingly, we
decline to address the merits of this argument.

                               5
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 third-
party 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., 

(Pa. Commw. Ct. 1993),
aff 'd, 

(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.

(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., 

(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." 

(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]." 

(quoting Murphy & Co. v.
Manufacturers' Cas. Co., 

, 286 (Pa. Super.
Ct. 1926)); see also Roberts v. Fireman's Ins. Co. of Newark,
N.J., 

(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.' " 

Louis Dressed Beef &
Provision Co. v. Maryland Cas. Co., 

, 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.

                               7
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 

; Borough of Nanty-Glo v. American Sur. Co.
of N.Y., 

, 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, 

, 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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