to defend him in the action filed by Perry. Erie requested at that time that Blatch cooperate with defense counsel retained on his behalf.
On January 24, 1984, the Court of Common Pleas directed that Blatch could be served by regular mail. His counsel then sent him a copy of the proposed Answer, and requested that he sign a verification of the proposed Answer. Blatch never contacted counsel to respond to the letters transmitted or the pleadings served or received. On February 10, 1984 and again on February 23, 1984, defense counsel wrote to Blatch indicating that it was imperative that Blatch contact counsel and cooperate in the defense of his case. Blatch never responded to defense counsel's repeated telephone calls and letters requesting cooperation in the preparation and signing of the Answer and in discovery. On February 27, 1984, Connor filed an unverified Answer on behalf of Blatch. After continuing unsuccessfully to secure Blatch's cooperation, Connor advised Erie that while Mr. McNeill had cooperated in defending the action, Blatch had not as of that time.
Shortly thereafter, an arbitration hearing in Perry v. McNeill was scheduled for May 3, 1984 at 9:30 am. While making continued efforts to secure Blatch's cooperation, Connor advised Blatch that it was necessary for him to attend the May 3, 1984 arbitration. Blatch then contacted Connor's office and informed Connor that he would attend the arbitration. On May 3, 1984, Blatch failed to appear for the arbitration. Defense counsel obtained a continuance, and the arbitration was rescheduled for May 16, 1984. Connor then wrote to Blatch, informing him of the new arbitration date and requesting that Blatch contact his counsel immediately. Counsel then reached Blatch by telephone and advised him that it was necessary that Blatch appear for the arbitration. Blatch acknowledged that he had received the letters sent to him by counsel, apologized for not cooperating in the past and promised to appear.
On May 7, 1984, Connor wrote to Blatch, advising him that the arbitration had been continued from May 16, 1984 until May 22, 1984 at 9:30 am, and requesting his attendance. Blatch never contacted Connor as requested in the letters informing him of the arbitration dates, and did not appear for the arbitration either on May 16, 1984 or May 22, 1984. Blatch did, however, take that day off from work. At the arbitration on May 22, 1984, defense counsel again requested a continuance, but this second request was denied. On May 23, 1984, the panel of arbitrators found in favor of Perry and against Blatch in the amount of $8,062.50.
Connor advised Erie's litigation supervisor, Robert T. Giannone, on June 1, 1984 what occurred at the arbitration. On June 6, 1984, Erie wrote to Blatch informing him that they were disclaiming coverage for lack of cooperation, and instructed Connor & Weber to withdraw their appearance for Blatch in the suit. In order to protect Blatch's rights in the litigation, an appeal of the arbitrator's decision was filed on Blatch's behalf, and Blatch was so informed.
On August 9, 1984, defense counsel filed with the Court of Common Pleas a notice and petition to withdraw as counsel for Blatch, and served copies on Blatch and on Prudential Property and Casualty Insurance Co., Perry's uninsured motorist insurance carrier. The notice advised that the return date on the motion was August 26, 1984, and that a hearing on the motion was set for September 6, 1984. Prudential then filed a motion for leave to intervene in the underlying action, but did not oppose the withdrawal. Blatch did not oppose the petition to withdraw or appear for the hearing. The petition for leave to withdraw as counsel for Blatch was then approved, and the motion for leave to intervene by Prudential was denied as moot. Connor & Weber withdrew as counsel for Blatch. Neither Prudential nor Blatch filed a motion for reconsideration of either decision.
Shortly thereafter, counsel for Perry made a claim for uninsured motorist benefits against his carrier, Prudential. Prudential paid to Perry $10,299.56 in settlement of the uninsured motorist claim on January 10, 1985. On September 13, 1985, counsel for Perry and McNeill in the underlying action stipulated that the action had been settled, and the case was discontinued as to McNeill only. On March 27, 1986, the Court of Common Pleas dismissed Blatch's appeal from the arbitration for lack of prosecution, and reinstated the arbitration award. The next day, Prudential filed the instant declaratory judgment action against Erie.
The law in this area appears to be clear.
As the Superior Court stated in Paxton National Ins. Co. v. Brickajlik, 342 Pa. Super. 621, 493 A.2d 764 (1985):
The purpose of the cooperation clause is to protect the insurer's interest and to prevent collusion between the insured, to whose rights the insurer has been subrogated, and the third party tortfeasor. See: 8 Appleman, Insurance Law and Practice § 4771. The cooperation clause is a material condition to the liability of the insurer. Cameron v. Berger, 336 Pa. 229, 233, 7 A.2d 293, 295 (1938). Before an insurer is relieved of liability, however, it must show that there was more than an unsubstantial or immaterial departure from the letter of the policy and that the insurer suffered substantial prejudice because of the conduct of the insured. Conroy v. Commercial Casualty Ins, Co., 292 Pa. 219, 140 A. 905 (1928).
Furthermore, prejudice must be demonstrated and it cannot be presumed. See Federal Kemper Ins. Co. v. Johnson, 21 D. & C. 3d 724, 728 (Cumberland Co. 1981), citing Frank v. Nash, 166 Pa. Super. 476, 71 A.2d 835 (1950).
In Paxton, the insurer which had reimbursed its insured for his loss in the theft of a truck filed an action against the insured to recover damages for the insured's alleged breach of the cooperation clause, after the insured refused to sign a complaint to enable the insurer to sue a third party bailee in the insured's name. The Superior Court held that because the insured had already authorized the insurer to sue in his name or its own any third party responsible for the loss, the refusal of the insured to sign the complaint was not a material breach of the cooperation clause of the contract. As a result, the insurer could not disclaim liability.
In Spears v. Dawson, 10 D. & C. 3d 703 (Allegheny Co. 1979), the parties were involved in an automobile collision. Dawson's insurer, Keystone Ins. Co. ("Keystone"), hired counsel to represent Dawson in the damage action filed by Spears. Although he received notice of the arbitration hearing and was requested by counsel to attend, Dawson failed to appear, and an award was made in Spears' favor. Keystone did not appeal the arbitration award, although an appeal would have entitled Dawson -- and indirectly, the insurer -- to a de novo hearing. Keystone then notified Dawson that it would not satisfy the award because of Dawson's noncooperation. Spears then sought to execute on the award, naming Keystone as the garnishee. Keystone opposed the garnishment, and Spears moved for summary judgment.
After disposing of other issues not raised by the instant case, the court denied plaintiff's motion. It explained:
Since an appeal from an arbitration award entitles the parties to a de novo hearing, Keystone, by taking the appeal on behalf of the insured, could have cured the insured's breach of the cooperation clause. And its failure to do so may prevent Keystone from establishing that the insured's breach of the cooperation clause resulted in substantial prejudice and injury to Keystone's defense of plaintiff's claim