SDV Insights

Third Circuit Holds That Duty to Indemnify "Follows" Duty to Defend

In a win for policyholders, the Third Circuit Court of Appeals recently affirmed a District Court’s 2018 ruling, which held that the duty to indemnify follows the duty to defend where a settlement precludes a determination on the facts of the case relative to liability and apportionment.

In Liberty Mutual Insurance Co. v. Penn National Mutual Casualty Insurance Co.,1  a large concrete panel collapsed and killed a construction worker at a construction site in New Kensington, Pennsylvania. Cost Company (“Cost”), Liberty Mutual’s insured, was a masonry subcontractor on the project and had further subcontracted with Pittsburgh Flexicore Co. (“Flexicore”), Penn National’s insured, for the concrete panels. Cost’s subcontract agreement required Flexicore to name Cost as an additional insured under its general liability policy issued by Penn National.

When the construction worker’s widow filed a wrongful death lawsuit against Cost and Flexicore, Cost demanded that Penn National defend and indemnify it as an additional insured under the policy. Penn National refused, arguing that any additional insured status had terminated at the conclusion of Flexicore’s work for Cost. As a result, Liberty Mutual defended Cost in the lawsuit, which was ultimately settled.

Following the settlement, Liberty Mutual sued Penn National, asserting that Cost was an additional insured under the Penn National policy and seeking reimbursement for the sums it paid to defend and indemnify Cost. Each insurer moved for summary judgment. The District Court ruled in Liberty Mutual’s favor, and Penn National appealed.

On appeal, the Third Circuit Court of Appeals first addressed whether Penn National had a duty to defend Cost. Answering in the affirmative, the Court of Appeals reasoned that Cost qualified as an additional insured under the Penn National policy’s Completed Operations endorsement. Moreover, the allegations in the complaint (i.e., that the worker’s death was caused, in part, by Flexicore’s failure to provide warnings) demonstrated that there is a possibility that Penn National’s policy covers the claim.

Turning to the duty to indemnify, the Court of Appeals noted that in an insurance coverage action, “where the underlying tort case has been settled, the insurers may seek a resolution of only the factual disputes that would not have been resolved had the underlying tort suit been tried.”2 In other words, factual disputes that would have been addressed in the settled underlying litigation cannot be resolved in a coverage action. The Court of Appeals added that where a coverage action raises such disputes, “Pennsylvania law provides that the duty to defend itself triggers the duty to indemnify.”3

Moving to the facts of the case, the Third Circuit Court of Appeals agreed with the District Court that “the settlement made it impossible to determine the precise basis of Cost’s and Flexicore’s liability.”4 Accordingly, the Court of Appeals held that, “[b]ecause such factual disputes cannot be decided in this multiparty, multiclaim case without factfinding in the [Underlying Action], Pennsylvania law requires that Penn National’s duty to indemnify follows its duty to defend Cost.”5

Although Liberty Mutual involves a dispute between two insurers, it represents a win for policyholders because it lowers the bar for triggering an insurer’s duty to indemnify in cases where a settlement precludes a factual determination as to the allocation of liability among various defendants. Instead, an insured need only establish that the applicable insurance policy potentially covers the claim in such cases.

For more information, contact Jeffrey J. Vita at
*Special thank you to Robbie Fitzgerald, SDV Law Clerk, for contributing to this Case Alert.


12021 WL 5401543 (3d Cir. 2021).
2Id at *4


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