Opinion
October 4, 1966.
November 15, 1966.
Insurance — Automobile liability insurance — Policy — Terms — Construction — Insurer's obligations — Defending case under nonwaiver of rights.
1. In this appeal in which it appeared that defendant insurer had issued a policy of insurance to plaintiffs agreeing to indemnify them against liability to third parties, that A was injured in a fire on plaintiffs' premises but they did not notify insurer of this accident until two years later when suit was instituted against them by A, when plaintiffs turned the suit papers over to insurer, who then took a non-waiver agreement from one of the plaintiffs which provided that insurer did not waive any rights under the policy (particularly the right to disclaim coverage in the event the insured failed to give to insurer proper notice of an accident resulting in injury) "until such time as the company may expressly communicate to the Insured its position in writing . . ."; that insurer subsequently advised plaintiffs to retain counsel of their own choice to represent their interests in the event that there should be a judgment in excess of the insurance coverage and such counsel was retained; that A obtained a judgment against the plaintiffs which was affirmed on appeal and six days later insurer gave written notice to plaintiffs that it was denying coverage under the policy because of excessive delayed notice of the accident, it was Held that (1) the insurer had not waived its right under the non-waiver agreement and (2) under the terms of the policy it was not liable to indemnify plaintiffs for their liability to A.
2. Where a liability insurer defends an action against its insured under a non-waiver agreement any requirement of a reasonable time within which to notify the insured of its position must properly be determined from the date that all necessary legal proceedings were completed. [483]
3. An insurance carrier which is contemplating refusing to indemnify its insured should advise the insured to secure competent counsel of his choice and thereby avoid the risk that the insured may suffer injury by reason of being denied insurance coverage after trial or settlement, at which he was not represented by his own counsel; and such practice also avoids an estoppel which prevents the insurer from denying coverage by reason of its having lulled the insured into a sense of security to his detriment. [484]
Before BELL, C. J., MUSMANNO, JONES, COHEN, EAGEN, O'BRIEN and ROBERTS, JJ.
Appeal, No. 222, March T., 1966, from judgment of Court of Common Pleas of McKean County, Oct. T., 1963, No. 283, in case of Louis Nichols and D. J. Davidson, doing business as Motor Inn Filling Station v. American Casualty Company. Judgment reversed; reargument refused January 12, 1967.
Assumpsit. Before MENCER, P.J.
Verdict for plaintiffs, defendant's motion for new trial and judgment non obstante veredicto refused and judgment entered on the verdict. Defendant appealed.
William C. Walker, with him Thomas J. Cox, Jr., and Dickie, McCamey Chilcote, for appellant.
Preston J. McDonnell, for appellees.
This is an appeal by defendant from the judgment of the trial court in favor of plaintiffs. Defendant insurance company had issued a policy of insurance to plaintiffs agreeing to indemnify them against liability to third parties. While this policy was in effect, one Harold Jordan was injured in a fire on plaintiffs' premises. Plaintiffs did not notify defendant of the accident until two years later when suit was instituted against them by Jordan. At that time, plaintiffs turned the suit papers over to defendant, who then took a non-waiver agreement from D. J. Davidson, one of the present plaintiffs. That agreement provided that the defendant did not waive any rights under the policy (particularly the right to disclaim coverage in event the insured failed to give to defendant proper notice of an accident resulting in injury) "until such time as the company may expressly communicate to the Insured its position in writing. . . ." Defendant subsequently advised plaintiffs to retain counsel of their choice to represent their interests in the event that there should be a judgment in excess of the insurance coverage. Plaintiffs did retain private counsel, who together with the attorney supplied by defendant, represented them at trial and on appeal before this Court, which affirmed a judgment in favor of Jordan in the sum of $5,000. Six days after our decision was rendered, defendant gave written notice to plaintiffs that it was denying coverage under the policy because of excessive delayed notice of the accident.
Plaintiffs contend that defendant waived its rights under the non-waiver agreement because it failed to state its position in writing within a reasonable time after the execution of that agreement. We do not agree.
The non-waiver agreement expressly provides that "all proceedings necessary to the legal defense of any action or suit arising from [the accident in question] . . . shall not be construed as a waiver of any provision, term, condition, limitation, etc., in said policy [of insurance]. . . ." The obvious import of those words is that defendant might undertake the defense of plaintiffs, including representation at trial and on appeal, without fear of having waived any of its rights under the policy. Consequently, any requirement of a reasonable time within which to notify plaintiffs of its position must properly be determined from the date that all necessary legal proceedings were completed. See Laroche v. Farm Bureau Mutual Automobile Insurance Co., 335 Pa. 478, 7 A.2d 361 (1939), where this Court stated that a non-waiver agreement is proper and effective for the purpose of reserving to the insurance company the right to disclaim liability notwithstanding its undertaking to defend a suit against its insured.
A case much on point is Di Prampero v. Fidelity and Casualty Company of New York, 286 F.2d 367 (3d Cir. 1961). In that case, action was brought by an insured to recover under a policy of liability insurance certain sums the insured had been compelled to pay to satisfy three judgments against him received by persons injured in an automobile accident and to settle a wrongful death claim arising out of the same accident. The insurer had advised the insured that it was questionable whether or not the accident was within coverage of the policy and that it would, nevertheless, undertake to defend him, but only to the extent of the insured interest. The insured elected to retain for the defense of his uninsured interest the lawyer employed by the insurance company to represent him on the insured interest. After adverse judgments in three cases and a large settlement of the fourth, the insurer denied coverage under the policy. Affirming a judgment for the insurance carrier, the Third Circuit held that the insured did not suffer injury at the hands of the insurance company or its attorney, who in no way sacrificed the uninsured interest. Since there was no prejudice to the insured in Di Prampero, where one counsel represented the insured in two capacities, a fortiori there can be no prejudice in the instant case where the plaintiffs obtained private counsel. Despite our recognition in Gedeon v. State Farm Mutual Automobile Insurance Company, 410 Pa. 55, 188 A.2d 320 (1963), that the obligation to indemnify is separate from the obligation to defend, the more cautious practice is that even in a situation where there is absent the possibility of a verdict in excess of the policy limits, if an insurance carrier is contemplating refusing to indemnify it should advise the insured to secure competent counsel of his choice. In the instant case, the carrier, by following this practice, avoided the risk that the insured might suffer injury by reason of being denied insurance coverage after trial or settlement, at which he was not represented by his own counsel; likewise, the insurer avoided an estoppel, preventing it from denying coverage by reason of its having lulled the insured into a sense of security to his detriment. See New Amsterdam Casualty Co. v. Kelly, 57 F. Supp. 209 (E. D. Pa. 1944).
Judgment reversed and entered for the defendant n.o.v.