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Beckwith Mach. Co. v. Travelers Indem. Co. - 638 F. Supp. 1179 (W.D. Pa. 1986)

Rule:

Once a third party has raised allegations against an insured which potentially fall within the coverage provided, the insurer is obligated to defend its insured fully until it can confine the possibility of recovery to claims outside the coverage of the policy. Therefore, it is clear that where a claim potentially may become one which is within the scope of the policy the insurer's refusal to defend at the outset of the dispute is a decision it makes at its own peril.

Facts:

Defendant Travelers Indemnity Company (Travelers) provided its insured, plaintiff Beckwith Machinery Company (Beckwith) with comprehensive general liability insurance pursuant to manuscript insurance policy number TR-NSL-103T891-6-74. Under the policy, Travelers agreed to pay all sums with which Beckwith became obligated to pay by reason of liability imposed by law, or assumed by Beckwith under any contract, “for damages because of bodily injury, personal injury or property damage to which the policy applied.” In a separate lawsuit, Beckwith was charged with breach of warranties and misrepresentation of quality. Travelers assumed the defense of the case; however, it subsequently withdrew. Beckwith then brought suit alleging that Travelers breached its contract when the latter withdrew its defense of the former in the underlying lawsuit. Both parties filed motions of summary judgment regarding whether the damages from the underlying lawsuit were covered by the insurance policy and whether Travelers had a duty to defend Beckwith.

Issue:

Was the insurer obligated to defend its insured from third-party claims against the latter, thereby warranting the grant of summary judgment in favor of the insured?

Answer:

Yes.

Conclusion:

The federal district court granted judgment in favor of plaintiff Beckwith and held that the underlying lawsuit stated claims that were potentially covered by the insurance policy. The court further held that once there were allegations against an insured that potentially fell within the coverage provided, the insurer was obligated to defend its insured fully until it could confine the possibility of recovery to claims outside the coverage of the policy. Further, the court held that defendant was estopped from denying coverage because plaintiff detrimentally relied on defendant's policy for indemnification.

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