The opinion of the court was delivered by: FOGEL
Plaintiff, King Aluminum Corporation (King), brought this action against Defendants William Hyndman III Insurance Agency, Inc. (Hyndman) and American Casualty Company of Reading, Pennsylvania (American Casualty) to recover damages in the amount of $250,000 either from Hyndman for errors and omissions in failing to obtain a policy of umbrella excess insurance, or from American Casualty on the theory that it had in fact undertaken to provide the coverage. The relevant facts may be summarized as follows:
On November 30, 1971, an employee of King, acting within the scope of his employment, was involved in a serious automobile accident in Ohio. A suit was brought against King in the Court of Common Pleas of Greene County, Ohio, seeking recovery in the amount of $800,000. King duly notified American Casualty, which company denied liability on the basis of its assertion that the incident had occurred after expiration of the original policy period or any agreed-upon extensions thereof. The Ohio suit was subsequently settled for $350,000. King's claim in the instant action is limited to an agreed-upon figure of $250,000, the sum required to complete the settlement after the $100,000 primary insurance had been exhausted.
Plaintiff's claim is based upon two mutually exclusive legal theories. King first contends that the excess insurance policy was in force with American Casualty, pursuant to an alleged oral binder given by agents of American Casualty to agents of Hyndman, the insurance broker for King during the period in question. In the alternative, King alleges that if the excess insurance policy was not in force at the time of the Ohio accident, Hyndman is in breach of its contract to procure and keep in force excess insurance of the type specified, and must respond, under the law of Pennsylvania, to the extent of King's loss, which was a direct consequence of Hyndman's failure to carry out its undertaking.
The matter was tried before a jury, which returned a verdict on January 24, 1974, in favor of King against American Casualty. The verdict was molded in accordance with a pretrial agreement of the parties.
By agreement of the parties, one final issue has been submitted to the Court alone for determination. This involves counsel fees incurred by King in defense and settlement of the suit brought in the Court of Common Pleas of Green County, Ohio. King seeks to charge American Casualty with these fees, which amount to $2004.96.
King has argued that if American Casualty had properly conceded coverage in the Ohio suit, King would have had no need to retain counsel, since the limits of the umbrella insurance coverage ($5,000,000) were substantially in excess of the damages claimed. King asserts that American Casualty's denial of coverage, in light of the $100,000 limit of the underlying insurance, compelled it to protect its interests by retaining its own counsel in Ohio.
American Casualty has filed no brief in this matter, preferring to rest on the language of the policy, which does not require American Casualty to defend King in cases of the type which arose in Ohio.
The narrow issue presented for decision is as follows: In a case in which there is no contractual duty on the part of an excess liability insurer to defend the insured against claims falling within the coverage of the policy, may the insured nonetheless recover counsel fees incurred in the defense of the claim, when the insurer has wrongfully denied coverage under the policy, under circumstances in which the potential exposure of the insured could exceed the limit of the underlying insurance?
In support of its claim, King cites cases decided under the law of Pennsylvania which permit recovery by the insured of counsel fees incurred in defending a claim after the wrongful denial of coverage by the insurance carrier. Vanderveen v. Erie Indemnity Company, 417 Pa. 607, 208 A.2d 837 (1965); Ripepi v. American Insurance Companies, 349 F.2d 300 (3d Cir. 1965). These cases, however, are based on the existence of a duty on the part of the carrier to defend the claim, neglect of which duty amounts to breach of the insurance contract. As the Court stated in Vanderveen, supra, 417 Pa. at 608, 208 A.2d at 838:
An insurer's failure or refusal to defend a claim within the scope of an insurance policy constitutes a breach of contract for which it is subject to damages recoverable in an action of assumpsit. King v. Automobile Underwriters, Inc., 409 Pa. 608, 187 A.2d 584 (1963), and Cadwallader v. New Amsterdam Casualty Co., 396 Pa. 582, 152 A.2d 484, 72 A.L.R.2d 1242 (1959). This includes the costs required to defend the claim: Cadwallader v. New Amsterdam Casualty Co., supra.
The Supreme Court of Iowa was faced with a similar claim in the case of Brown Manufacturing Company v. Crouse, 251 Iowa 594, 102 N.W.2d 154 (1960). In the Brown case, plaintiff corporation brought suit against defendant cartage company for damage in transit to a pair of punch presses. Defendant cross-petitioned against its casualty insurance carrier, which denied liability and asserted that the loss did not fall within the coverage of the policy. The trial court determined that the loss did fall within the coverage of the policy, and awarded the insured defendant counsel fees and expenses incurred in defense of the action, in spite of the fact that the policy did not establish a contractual duty on the part of the insurer to defend the insured. The Supreme Court of Iowa reversed on the question of counsel fees and expenses. The Court stated:
"II. Condition 15 of the policy provides in part: '* * * If suit is brought against the assured * * * the Company may, at its own cost, defend such suit * * * the assured shall not * * * incur any expense * * * except at his own cost without the written consent of this Company previously given.' In addition the company reserves the right to adjust or settle the claim and the assured is required to cooperate in a settlement or suit.
The above condition gives the insurer appellant an option either to defend or not to defend. Such a provision is clearly for the benefit of the insurer ...