NOT PRECEDENTIAL

           UNITED STATES COURT OF APPEALS
                FOR THE THIRD CIRCUIT
                     ____________

                         No. 15-1837
                        ____________

NATIONWIDE PROPERTY AND CASUALTY INSURANCE CO;
     NATIONWIDE MUTUAL FIRE INSURANCE CO

                              v.

     RANDY SHEARER; ERIN SHEARER, husband and wife;
WALTER G. FOX (deceased); ROSEMARY FOX, husband and wife;
   PATRICK B. IORIO; PHILOMENA IORIO, husband and wife;
JEFFREY IORIO; DIANE IORIO; husband and wife; EDITH TOMEI

                                    Walter G. Fox;
                                    Rosemary Fox;
                                    Patrick B. Iorio;
                                    Philomena Iorio;
                                    Jeffrey Iorio;
                                    Diane Iorio;
                                    Edith Tomei,

                                            Appellants
                        ____________

        On Appeal from the United States District Court
           for the Western District of Pennsylvania
                   (D.C. No. 2-14-cv-00735)
        District Judge: Honorable Terrence F. McVerry
                         ____________

         Submitted Under Third Circuit L.A.R. 34.1(a)
                       May 18, 2016

  Before: SMITH, HARDIMAN, and NYGAARD, Circuit Judges.

                    (Filed: May 26, 2016)
                                      ____________

                                        OPINION *
                                      ____________

HARDIMAN, Circuit Judge.

       This appeal arises out of a property dispute between Randy and Erin Shearer and

Appellants (collectively, the Policyholders), who were insured by Nationwide Property

and Casualty Insurance Company and Nationwide Mutual Fire Insurance Company

(collectively, Nationwide). After discovering the discharge of sewage and other waste on

their property, the Shearers sued the Policyholders under various theories sounding in

trespass, nuisance, and violations of state environmental law.

       Nationwide initially defended the Policyholders subject to a reservation of rights.

Nationwide informed the Policyholders that it would investigate the circumstances

surrounding the Shearers’ claims, but stipulated that “this investigation [was] subject to a

Reservation of Rights, meaning that [Nationwide] specifically reserve[d] the right to

later deny coverage on [the] claim at the conclusion of its investigation.” App. 462, 472,

482; see App. 491. Nationwide highlighted the fact that each of the Policyholders’

contracts contained exclusions for pollution or biological deterioration, which might

apply. In a supplemental reservation of rights letter, Nationwide cautioned each

Policyholder to “be aware that as the facts are determined, [Nationwide] may assert the


       *
        This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does
not constitute binding precedent.
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right to deny coverage and withdraw from the handling of this claim for any valid reasons

that may arise.” App. 465, 475, 485, 497. And Nationwide made clear that its assumption

of the Policyholders’ defense “shall not be deemed to be a waiver of or estoppel of these

and all rights under the policy and applicable law.” App. 463, 473, 483; see App. 496.

       On June 9, 2014, Nationwide filed a complaint seeking a declaratory judgment that

it had no duty to defend or indemnify the Policyholders in connection with the Shearers’

lawsuit, citing the pollution and biological deterioration exclusions. After discovery, the

parties filed cross-motions for summary judgment. The Policyholders did not challenge

the applicability of the pollution and biological deterioration exclusions. Instead, they

argued that Nationwide should be equitably estopped from withdrawing because it had

been defending them for several years and such an untimely withdrawal would prove

prejudicial.

       The District Court rejected the Policyholders’ arguments and granted summary

judgment in favor of Nationwide. Because Nationwide’s reservation of rights letters made

clear that its defense “shall not be deemed to be a waiver of or estoppel of these and all

rights under the policy and applicable law,” the Court held that Pennsylvania law

“completely undercuts the Policyholders’ estoppel argument.” App. 22 (citing Brugnoli v.

United Nat’l Ins. Co., 

, 167 (1981)). Nor was the Court persuaded by the

Policyholders’ unsupported claim that Nationwide was required to take steps to withdraw

its defense “within a certain period of time after issuing [its] reservation of rights

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letter[s].” App. 23. Although the Court recognized that a reservation of rights letter will

not trump an estoppel argument in every case, see Willis Corroon Corp. v. Home Ins. Co.,

, 452 (7th Cir. 2000), it described a reservation of rights as “a lofty hurdle”

that can be cleared only by a showing of “actual prejudice.” App. 27. Finding “no

allegations, let alone evidence, of prejudice,” the Court held that “there is no basis to

estop Nationwide from asserting its coverage defenses.” App. 28. The Policyholders

appealed. 1

       The Policyholders claim the District Court erred in refusing to equitably estop

Nationwide from withdrawing its defense of the Shearers’ lawsuit. They contend that,

notwithstanding their receipt of timely and unambiguous reservation of rights letters,

“Nationwide . . . made it clear that [it would represent them] and did represent [them] for

in excess of two years without [indicating that it might] withdraw as counsel.”

Policyholders Br. 5–6. They further argue that Nationwide’s about-face left them “in the

lurch,” requiring them to spend time and money “to retain new counsel” and forcing them

into “a disadvantaged position” in their ongoing litigation. 

The Policyholders

characterize these circumstances as the inducement, detrimental reliance, and prejudice

needed to make out a defense of equitable estoppel. We disagree.


       1
         The District Court had jurisdiction under 28 U.S.C. §§ 2201(a) and 1332. We have
jurisdiction under 28 U.S.C. §§ 2201(a) and 1291. We exercise plenary review of a district
court’s order granting summary judgment. Fed. Home Loan Mortg. Corp. v. Scottsdale Ins.
Co., 

, 443 (3d Cir. 2003).

                                              4
       Under Pennsylvania law, “[e]quitable estoppel is a doctrine of fundamental

fairness intended to preclude a party from depriving another of a reasonable expectation,

when the party inducing the expectation knew or should have known that the other would

rely to his detriment upon that conduct.” TIG Ins. Co. v. Tyco Int’l Ltd., 

, 456 (M.D. Pa. 2013) (quoting Straup v. Times Herald, 

, 720 (Pa.

Super. Ct. 1980), overruled on other grounds by Kreutzer v. Monterey Cty. Herald Co.,

(Pa. 2000)). In the insurance context, “there must be such conduct on the

part of the insurer as would, if the insurer were not estopped, operate as a fraud on some

party who has taken or neglected to take some action to his own prejudice in reliance

thereon.” Titan Indem. Co. v. Cameron, 

, at *2 (E.D. Pa. Feb 19, 2002)

(quoting Wasilko v. Home Mut. Cas. Co., 

, 63 (Pa. Super. Ct. 1967)).

Accordingly, an insured must show “(1) an inducement, whether by act, representation, or

silence when one ought to speak, that causes one to believe the existence of certain facts;

(2) justifiable reliance on that inducement; and (3) prejudice to the one who relies if the

inducer is permitted to deny the existence of such facts.” TIG Ins. 

–57.

       Here, Nationwide preserved its coverage defenses by mailing reservation of rights

letters to the Policyholders. 

. Each Policyholder was informed

that Nationwide could withdraw its defense for various reasons. The fact that Nationwide

defended the case for some time before citing an exclusion and denying coverage does

                                              5
not somehow turn the defense it did provide into fraudulent inducement. See Argonaut

Great Cent. Ins. Co. v. Phil’s Tavern, Inc., 

, at *4 (E.D. Pa. Oct. 29,

2001). Nor does it turn the Policyholders’ decision to allow Nationwide to provide them

with a defense into detrimental reliance. 

       Finally, the Policyholders are unable to show prejudice. While they were

understandably disappointed by Nationwide’s decision to withdraw its defense, the fact

that it was entitled to do so under the terms of the insurance contracts means that the

defense it did tender was a temporary benefit to the Policyholders.

       We will affirm the judgment of the District Court for the reasons stated.




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