Opinion
March 21, 1962.
January 21, 1963.
Contracts — Insurance — Liability insurance — Terms — Construction — Agreement to defend — Breach — Damages — Measure.
Where a liability insurance policy contains an agreement by the insurer to defend a claim against the insured, a failure without cause by the insurer to defend, whether willful or not, gives rise to a cause of action; and in such case the measure of damages is the cost of hiring substitute counsel and other costs of the defense.
Mr. Justice EAGEN filed a concurring opinion.
Before BELL, C. J., MUSMANNO, JONES, COHEN, EAGEN and O'BRIEN, JJ.
Appeal, No. 52, March T., 1962, from judgment of Court of Common Pleas of Allegheny County, Jan. T., 1961, No. 1451, in case of Graham W. King, Jr. v. Automobile Underwriters, Inc., attorney in fact for subscribers of State Automobile Insurance Association. Judgment affirmed.
Assumpsit. Before SMART, J., without a jury.
Finding entered in favor of defendant on allegation of wilful refusal to settle case, plaintiff's motion for new trial dismissed and judgment entered. Plaintiff appealed.
Norman Paul Wolken, for appellant.
Carl Eck, with him George Y. Meyer, and Meyer, Darragh, Buckler Bebenek, for appellee.
Appellant-insured brought this action of assumpsit seeking recovery from appellee-insurer for (1) willful breach of its duty to defend and (2) willful breach of its obligation to settle.
A failure without cause by an insurer to defend — whether willful or not — gives rise to a cause of action. See Cadwallader v. New Amsterdam Cas. Co., 396 Pa. 582, 152 A.2d 484 (1959). The measure of recovery for breach of this obligation is the cost of hiring substitute counsel and other costs of the defense. The parties have stipulated that appellee is liable for $2,316.25, the amount expended by appellant in hiring substitute counsel and otherwise defending the suit brought against him by the injured party. Hence, appellee has compensated appellant for breach of its duty to defend.
As for the alleged willful refusal to settle, the court below resolving conflicting testimony specifically found that there was no opportunity and therefore no refusal to settle by appellee. Since this finding is amply supported by the record, we are not called upon in this case to re-examine the nature of the insurer's obligation in this regard.
Judgment affirmed.
I concur in the result.
If there is an obligation to indemnify and the insurer is guilty of the exercise of bad faith or negligence in its decision not to defend, then it is, and should be, liable for the payment of the full amount of the judgment recovered against the insured, regardless of the policy limitations. In the instant action the insured was reimbursed for all sums expended in the defense of the related action. Further, the court below correctly concluded that under the established facts no bad faith or wilful breach of its obligation existed on the part of the insurer when it failed to defend. Since an alleged exercise of bad faith was the sole basis of the cause of action, the judgment must be affirmed.