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July 17, 1997


The opinion of the court was delivered by: KELLY


 JULY 17, 1997

 This action involves a determination of whether Third-Party Defendant Pennland Insurance Company ("Pennland") is required to provide insurance coverage arising out of a motor vehicle accident between Anna and James Thomas ("Plaintiffs") and Michael J. Brown ("Brown"). Pennland has filed a motion for summary judgment which is presently before the Court. Plaintiffs and Brown agree that there are no genuine issues of material fact and have filed a joint cross-motion for summary judgment. For the reasons that follow, Plaintiffs' Motion will be denied and summary judgment will be granted in favor of Pennland.


 On August 3, 1994, the Plaintiffs were seriously injured when the car in which they were driving was struck by a 1994 Ford Ranger pick-up truck ("Ford Ranger") driven by Brown and owned by his parents, Robert and Leonor Brown. On January 19, 1995, Plaintiffs brought suit against Brown in the United States District Court for the Eastern District of Pennsylvania. At the time of the accident, the Ford Ranger was insured through a business automobile policy issued by Great American Insurance Company ("Great American") to Robert and Leonor Brown. In addition to the coverage by Great American, Brown had his own personal automobile policy issued by Nationwide Insurance Company ("Nationwide"), although this policy covered a separate vehicle.

 Defendant Brown tendered the defense of Plaintiffs' suit to Great American and Nationwide, both of which accepted coverage. *fn1" Great American subsequently paid the Plaintiffs $ 250,000, which represented the remainder of its policy limits. *fn2" The Plaintiffs also received $ 15,000 from Nationwide, which represented the limit on that policy. In consideration of the $ 265,000, Anna and James Thomas entered into a release, discussed below, and a stipulation to dismiss the civil action.

 On November 24, 1995, the Plaintiffs filed a civil action directly against Pennland arguing that it was required to provide insurance coverage to Brown through a policy issued to Brown's parents. Pennland moved to dismiss the Complaint arguing that the Plaintiffs were strangers to the insurance contract at issue and, therefore, had no standing to sue. On June 27, 1996, Judge VanArtsdalen granted Pennland's Motion and dismissed the action with prejudice. See Thomas v. Pennland Ins. Co., 1996 U.S. Dist. LEXIS 9239, Civ. No. 95-7390, 1996 WL 379376 (June 27, 1996) ("Thomas I ") (holding that Plaintiffs lacked standing to sue).

 Approximately one month later, on July 26, 1996, the Plaintiffs filed the present action against Brown. Brown subsequently filed a third-party complaint against Pennland seeking a declaration that he is entitled to coverage under the Pennland policy at issue. After the discovery period closed, Pennland filed a Motion for Summary Judgment which is now before the Court. Pennland raises a host of arguments in support of its Motion including the following: (1) the action is barred by the doctrine of res judicata; (2) the action is barred by the doctrine of collateral estoppel; (3) the March 9, 1996 Release extinguished Pennland's duty to indemnify Brown; and (4) the Plaintiffs cancelled coverage of the Ford Ranger prior to the accident.


 Pursuant to Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment is proper "if there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). The moving party has the initial burden of informing the court of the basis for its motion and identifying those portions of the record that demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 325, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). The non-moving party cannot rest on the pleadings, but rather that party must go beyond the pleadings and present "specific facts showing that there is a genuine issue for trial." Fed. R. Civ. P. 56(e). If the court, in viewing all reasonable inferences in favor of the non-moving party, determines that there is no genuine issue of material fact, then summary judgment is proper. Celotex, 477 U.S. at 322; Wisniewski v. Johns-Manville Corp., 812 F.2d 81, 83 (3d Cir. 1987).


 1. Res Judicata and Collateral Estoppel

 Pennland maintains that Plaintiffs' Complaint is nothing more than a "thinly veiled attempt to thwart [Judge VanArtsdalen's] prior order which, consistent with Pennsylvania law, did not allow [a] direct action[] against [Pennland]." (Pennland's Mem. at 7). Pennland goes on to argue that the sole role of Brown in this lawsuit is to act as a conduit to facilitate a direct action against Pennland- which had already been dismissed with prejudice by Judge VanArtsdalen. As a result of that decision, Pennland argues that res judicata bars the present suit.

 The Pennsylvania Supreme Court has defined res judicata and collateral estoppel as follows:

Res judicata, or claim preclusion, is a doctrine by which a former adjudication bars a later action on all or part of the claim which was the subject of the first action. Any final, valid judgment on the merits by a court of competent jurisdiction precludes any future suit between the parties or their privies on the same action.
. . .
Collateral estoppel, or issue preclusion, is a doctrine which prevents re-litigation of an issue in a later action, despite the fact that it is based on a cause of action different from the one previously litigated. The identical issue must have been necessary to final judgment on the merits, and the party against whom the plea is asserted must have been a party, or in privity with a party, to the prior action and must have had a full and fair opportunity to litigate the issue in question.

 Balent v. City of Wilkes-Barre, 542 Pa. 555, 669 A.2d 309, 313 (Pa. 1995) (citations omitted). The party wishing to invoke res judicata must show that: (1) the issues are identical; (2) there is an identity of causes of action; (3) there is an identity of persons and parties to the action; and (4) there is an identity of the quality or capacity of the parties suing or sued. Zarnecki v. Shepegi, 367 Pa. Super. 230, 532 A.2d 873, 877 (Pa. Super. 1987). In addition, "it is axiomatic that in order for either collateral estoppel or res judicata to apply, the issue or issues must have been actually litigated and determined by a valid and final judgment. County of Berks v. Pennsylvania Labor Relations Bd., 544 Pa. 541, 678 A.2d 355, 359 (Pa. 1996) (citing Philadelphia Marine Trade Ass'n v. International Longshoremen's Ass'n, 453 Pa. 43, 308 A.2d 98 (Pa. 1973).

 Pennland's attempt to apply res judicata and collateral estoppel to this action is fatally flawed because the underlying issues were not addressed in the prior ...

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