Before: Sloviter, Lewis,* and Rosenn, Circuit Judges.
The opinion of the court was delivered by: Rosenn, Circuit Judge.
Appeal from the United States District Court for the Eastern District of Pennsylvania D.C. No.: 96-cv-4552
* Although Judge Lewis took part in consideration of this case, he has been unable to clear this written opinion because of illness.
On this appeal, we are asked to decide a question offirst impression in Pennsylvania: whether an insurer's failure to defend under its liability insurance policy, which results in a default judgment being entered against its insured, entitles a third-party beneficiary of the policy to sue the insurer to collect the judgment when the policy only permits such suits after an "actual trial." In this case, plaintiff, Ronald Apalucci, obtained a default judgment against C.R. Management Enterprises, Inc. t/a Tijuana Yacht Club (the "Tijuana Yacht Club" or the "Club"). The Club's insurer, defendant, Agora Syndicate, Inc. ("Agora"), failed to defend the lawsuit. Apalucci then sought payment of the judgment from Agora as a third-party beneficiary under Agora's liquor liability insurance policy with the Tijuana Yacht Club. When Apalucci's efforts to collect failed, he sued Agora alleging bad faith and breach of contract in refusing to defend the Club and make payment to him. The district court granted Agora's motion for summary judgment. Apalucci timely appealed. We will vacate and remand.
Because this appeal is from a grant of summary judgment, the following facts are viewed in a light most favorable to the appellant, Apalucci, with all doubts and reasonable inferences resolved in his favor. See Reitz v. County of Bucks, 125 F.3d 139, 143 (3d Cir. 1997). The underlying suit at issue here arises from the Tijuana Yacht Club's service of alcoholic beverages to Apalucci when he was only 19 years old and visibly intoxicated. After leaving the Club, he fell into a plate glass window and sustained serious injuries to his leg.
Apalucci then sued the Club in the United States District Court for the Eastern District of Pennsylvania alleging, among other things, that it was negligent in serving alcoholic beverages to him in light of his minority age and visible intoxication. Shortly after the incident, however, the Club ceased to do business and its principal, Cam Rowell, could not be found. Thus, unable to personally serve Rowell, Apalucci eventually effectuated substitute service by mail. When the Club took no action in response to Apalucci's complaint, the court entered a default judgment against it for $75,000.
At the time of Apalucci's injury, the Tijuana Yacht Club carried a liquor liability insurance policy issued by Agora. Apalucci attempted to collect his judgment by making a demand against Agora for payment of the $75,000 default judgment in accordance with the terms of the policy. As a condition of coverage, however, the policy required the Club's owner to notify it, and cooperate and assist in the investigation and defense, of any claims. Furthermore, the policy permitted suit against Agora only on a final judgment obtained after an "actual trial." Although Rowell notified Agora of Apalucci's claim, Agora alleges that it was unable to locate Rowell. Accordingly, Agora denied coverage due to Rowell's failure to cooperate and assist in the defense of Apalucci's claims as required by the terms of the insurance contract. Apalucci contests this allegation, arguing that the insured cooperated in the investigation of the claim and that Agora even undertook an initial investigation into the facts surrounding the incident.
In his complaint, Apalucci raised two claims. First, he alleged that Agora acted in bad faith in the execution of its duty to provide coverage and defense to the Club. Second, he alleged that Agora's failure to pay the $75,000 judgment constituted "a breach of contractual duties owed to [him] as a third party beneficiary of the coverage purchased by [the Tijuana Yacht Club]."
Agora denied any obligation to Apalucci and moved for summary judgment. In its motion, Agora asserted as its primary defense Apalucci's lack of standing to sue for bad faith, and secondarily, the Club's failure to cooperate in the underlying negligence action. These defenses, it forcefully argued, relieved it of any duties it may have had to the Club or Apalucci. Persuaded, the district court granted summary judgment in favor of Agora. After the court denied Apalucci's motion for reconsideration, he timely appealed.*fn1
Although the parties discuss at length their differing versions of the facts, and their respective views as to the court's grant of summary judgment, the dispositive issues raised concern the right to sue under the insurance contract and the contract's "no action clause." These related issues are solely legal over which our review is plenary. See Travitz v. Northeast Dep't ILGWU Health and Welfare Fund, 13 F.3d 704, 708 (3d Cir. 1994); McMillan v. State Mutual Life Assurance Co. of America, 922 F.2d 1073, 1074 (3d Cir. 1990). Specifically, we must predict whether the Pennsylvania Supreme Court would hold that Agora's failure to defend the Club against Apalucci's suit, resulting in a default judgment against it, ...