The opinion of the court was delivered by: SHAPIRO
This declaratory judgment action was commenced by North American Hotels, Ltd., t/a The Latham ("The Latham") and Twin City Fire Insurance Company ("Twin City") to resolve a dispute between Twin City and The Home Indemnity Company ("Home Indemnity"), both insurers of The Latham, as to which insurer is obligated to defend and indemnify The Latham in a state court action filed by a Latham employee. On June 23, 1986, the court granted the motion of The Latham to dismiss it as a party to this action; The Latham agreed to be bound by the judgment of this court as a condition to its dismissal. Pending before the court are cross-motions for summary judgment on which the court heard argument. The parties have stipulated to those facts material to the cross motions.
On December 4, 1980, Linda Redford ("Redford"), an employee of The Latham, was raped by a non-employee while performing her duties as a chambermaid at the hotel. At the time of the rape, The Latham had a workmen's compensation employer's liability policy with Home Indemnity and a general liability policy with Twin City.
On February 11, 1982, Redford filed an action in the Philadelphia Court of Common Pleas against The Latham to recover damages for injuries she sustained as a result of the rape. The Latham promptly notified Twin City (or or about March 1, 1982) and Home Indemnity (on or about March 4, 1982) of the lawsuit and forwarded a copy of Redford's complaint to each carrier. Twin City immediately undertook the defense.
On May 3, 1984, the jury returned a verdict in the Redford action in the sum of $366,240. Twin City then demanded by letter of June 4, 1984 that Home Indemnity take over the defense; no prior demand had been made of Home Indemnity. Home Indemnity refused to assume the defense or indemnify The Latham on August 10, 1984 and thereafter. On December 13, 1985, The Latham, represented by counsel provided by Twin City, filed an appeal with the Superior Court of Pennsylvania; the Superior Court has not yet ruled on this appeal.
Plaintiffs filed this declaratory judgment action on July 16, 1985. The five-count complaint seeks the following specific relief:
1. a determination that Home Indemnity is legally obligated to provide a defense to The Latham in the Redford action;
2. a determination that Home Indemnity is legally obligated to provide indemnification to The Latham for any judgment or settlement in the Redford action;
3. a determination that Home Indemnity is obligated to reimburse Twin City for its costs in investigating and defending the Redford action;
5. a determination that Home Indemnity is obligated to pay punitive damages to Twin City as a result of its bad faith failure to honor contractual obligations to Twin City.
Home Indemnity claims that Twin City is estopped from bringing this action because Twin City's demand that Home Indemnity assume the defense was untimely. The rape occurred on December 4, 1980; Twin City did not make its demand until June 4, 1984, one month after the jury had reached a verdict adverse to the insured. To prevail on its claim of estoppel, Home Indemnity must establish that it has been prejudiced as a consequence of Twin City's "untimely demand," see Brakeman v. Potomac Insurance Co., 472 Pa. 66, 371 A.2d 193 (1977). Home Indemnity claims that it has been prejudiced because Twin City deprived it of the opportunity to manage and control the defense.
The Agreement between The Latham and Home Indemnity does not require a formal demand to invoke Home Indemnity's obligations in connection with a court proceeding. It requires only that The Latham provide Home Indemnity with notice of the proceeding: "If claim is made or suit or other proceeding is brought against the insured, the insured shall immediately forward to the company every demand, notice, summons or other process received by him or his representative."
The Latham notified Home Indemnity of the rape on January 5, 1981, approximately one month after the occurrence giving rise to the litigation. Following the filing of the Redford complaint in the Philadelphia Court of Common Pleas on February 12, 1982, Allen J. Swotes, Esquire, counsel to The Latham, notified Waber Odell Company, the insurance broker who secured Home Indemnity's policy with The Latham, of the lawsuit by letter dated March 4, 1982 enclosing a copy of the Redford complaint. Within a few days, Home Indemnity itself was aware of the Redford action.
If formal demand by the insured or Twin City were a prerequisite to Home Indemnity's obligations under its insurance agreement with The Latham, then the lateness of Twin City's demand might support Home Indemnity's contention that it has been deprived of the opportunity to manage and control the defense. But the agreement does not require a formal demand; it requires only that the insured provide the insurer with notice of the action. There was no legal obligation for Twin City to make a formal demand on Home Indemnity. The Latham complied with the notice requirement. The Latham notified Home Indemnity that an employee had been raped and sent a copy of Redford's complaint to Home Indemnity's authorized agent within one month after it was filed. Home Indemnity had the opportunity to manage and control the defense. It knew of the Redford action from its commencement but chose to do nothing about it. Home Indemnity permitted Twin City to defend without objection. Having voluntarily chosen not to participate in the defense, Home Indemnity cannot successfully claim prejudice now. Twin City admitted at oral argument that it would not have demanded contribution if The Latham won the Redford suit, and did not make its demand until after an adverse jury verdict, but this does not establish prejudice against Home Indemnity; Home Indemnity had the opportunity to defend the Redford suit from soon after its commencement. Home Indemnity's claim of estoppel fails.
Home Indemnity also contends that Twin City waived its right to bring this action by failing to enter into a non-waiver agreement or reservation of rights. In Malley v. American Indemnity Co., 297 Pa. 216, 146 A. 571 (1929), the Supreme Court of Pennsylvania held that an insurer who defended a personal injury action was estopped after an adverse verdict from claiming that the insured was not covered under the insurance agreement.
Twin City had a legal obligation to defend The Latham in the Redford action. There was no waiver or voluntary relinquishment of a right in doing what one was legally obligated to do. Twin ...