Nationwide Mutual Fire Insurance Co. v Gamelin
Annotate this Case
Nationwide Mutual Fire Insurance Co. v. Gamelin (2000-531); 173 Vt. 45;
786 A.2d 1078
[Filed 21-Sep-2001]
NOTICE: This opinion is subject to motions for reargument under
V.R.A.P. 40 as well as formal revision before publication in the Vermont
Reports. Readers are requested to notify the Reporter of Decisions,
Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801 of
any errors in order that corrections may be made before this opinion goes
to press.
No. 2000-531
Nationwide Mutual Fire Insurance Company Supreme Court
On Appeal from
Chittenden Superior Court
v.
G. Thomas Gamelin, Jr. May Term, 2001
Matthew I. Katz, J.
Todd C. Hartsuff of Spokes Foley P.L.C., Burlington, for Appellant.
Paul R. Bowles of Hill, Unsworth, Barra & Bowles, P.L.C., Montpelier, for
Appellee.
PRESENT: Amestoy, C.J., Dooley, Morse, Johnson and Skoglund, JJ.
DOOLEY, J. This is a mortgage foreclosure action in which defendant,
G. Thomas Gamelin, appeals the superior court's decision denying him
permission to appeal from the decree of foreclosure and a decision
dismissing his counterclaim. Plaintiff is Nationwide Mutual Fire
Insurance Company, which acquired the mortgage pursuant to a litigation
settlement with the original mortgagee, Vermont Federal Bank (VFB). We
conclude that the superior court erroneously denied permission to appeal
and, accordingly, we reach the merits. On the merits, we conclude that
Nationwide failed to show that it is entitled to a right of subrogation,
and remand the matter for the superior court to reconsider, in light of
our decision, whether Nationwide is entitled to be subrogated
to the mortgagee's right to foreclose on Gamelin's property. We also
conclude that the superior court erred in granting Nationwide summary
judgment on Gamelin's counterclaim. Accordingly, we reverse and remand.
The relevant facts are convoluted and concern three lawsuits. In
March 1992, Gamelin purchased from Nationwide a "Golden Blanket"
homeowner's insurance policy on his residence. In November 1993, before
Gamelin began serving a six-month prison term, he entered into a contract
whereby a third party, Carl Albarelli, agreed to assume all financial
obligations for the home, including mortgage payments to mortgagee VFB, in
exchange for exclusive possession and the right to a deed after the
mortgage was discharged. Upon Gamelin's release from prison, he moved into
an apartment without returning to his home. Apparently, while the home
was in the possession of Albarelli in November 1994, it was damaged by
fire. Gamelin filed an insurance claim with Nationwide, but Nationwide
denied it in January 1995 on the grounds that Gamelin did not reside in
the home at the time of the fire and had made numerous misrepresentations
in renewals of the policy after he entered prison, specifically by failing
to disclose the mortgage to VFB, his criminal conviction, and the lease
purchase arrangement with Albarelli.
In July 1995, Gamelin assigned his rights as an insured under the
homeowner's policy to VFB. There is also evidence that Gamelin made a
similar assignment to Albarelli in 1994. In November 1995, VFB brought
suit against Nationwide (the contract case). In May 1997, in response to
opposing motions for summary judgment, the superior court ruled that
Gamelin's assignment of rights to VFB was valid, (FN1) and that
Nationwide's coverage under Gamelin's policy could not be
denied on the grounds that Gamelin did not reside at the insured premises
at the time of the fire. The court granted summary judgment to VFB on
these two points, but denied both sides summary judgment as to
Nationwide's defense that Gamelin's policy was void because he failed to
disclose the existence of the VFB mortgage, the agreement with Albarelli,
and his incarceration. The court found that there were disputed issues of
material fact with respect to the fraudulent misrepresentation defense.
The court stated that Nationwide would have to prove that Gamelin intended
to deceive Nationwide or that the undisclosed information materially
affected Nationwide's decision to renew the policy.
While the contract case was pending, Gamelin discontinued making
monthly mortgage payments to VFB, and in August 1996 VFB brought the
mortgage foreclosure case now before us. Gamelin filed an answer in that
case.
In late 1997, as trial in the contract case approached, Gamelin sued
Nationwide for damages resulting from Nationwide's refusal to pay the
claims that arose from the fire loss (the tort case). Within weeks of the
filing of that case, VFB and Nationwide settled the contract case. Under
the settlement, Nationwide paid VFB $150,000, and VFB's
successor-in-interest eventually assigned Gamelin's mortgage deed to
Nationwide. The paragraph of the settlement agreement, which is central
to the case before us, reads as follows:
3. Paragraph 11 of the Defendant's insurance policy provides that
in the event the claim by the insured is denied, the [insurer]
has the option to pay the mortgagee all sums due the mortgagee
and be thereafter subrogated to the rights of the mortgagee. The
Defendant has elected to exercise its right under this provision
in its policy and accordingly, in exchange for the payment of
said sum of $150,000.00,
[VFB] shall assign to [Nationwide] the Promissory Note executed
by G. Thomas Gamelin, Jr., together with the Mortgage Deed
securing said indebtedness.
In other sections, the settlement agreement provides that the $150,000
"represents full payment of [VFB's] claims, including, but not limited to,
principal, interest and other charges due the Plaintiff relative to its
mortgage received from G. Thomas Gamelin, Jr.," and further provides that
VFB's "efforts have resulted in Defendant honoring its insurance policy
and paying the outstanding indebtedness owed on the Plaintiff's mortgage."
The tort case proceeded, and, in June 1998, the superior court ruled
that Gamelin's earlier assignment of his rights to Albarelli and VFB
precluded him from making claims under the policy for fire loss, (FN2) but
did not preclude him from going forward with his tort-based claims of bad
faith and consumer fraud. Nationwide was later granted summary judgment on
the latter claims as well.
Meanwhile, Nationwide, proceeding as assignee of Gamelin's mortgage
deed, sought to foreclose on Gamelin's residence (the foreclosure case).
The superior court issued a decree of foreclosure after denying Gamelin's
motion to dismiss and granting Nationwide's motion for summary judgment on
Gamelin's counterclaim alleging negligent misrepresentation. In denying
Gamelin's motion to dismiss, the court ruled that a provision in his
insurance policy allowed for a right of subrogation, and that Nationwide
had exercised that right and thus was entitled to proceed with its
foreclosure action. The court then denied Gamelin's motion for permission
to appeal from its decree of foreclosure.
I.
The first issue that we must deal with is whether we have jurisdiction
to consider this appeal. Section 4601 of Title 12 requires that defendant
Gamelin obtain permission to appeal, but the superior court denied such
permission. Thus, we can allow this appeal only if we conclude that "the
trial court has withheld its discretion entirely or that it was exercised
for clearly untenable reasons or to a clearly untenable extent." Vermont
Nat'l Bank v. Clark, 156 Vt. 143, 145, 588 A.2d 621, 622 (1991).
The superior court's decision is short and cryptic: "Dispute is
actually with decision in earlier case." Nationwide argues that the
court's reference is to the tort case, wherein the court first dismissed
Gamelin's contract claims against Nationwide because Gamelin had assigned
his rights to VFB and Albarelli, and later found no bad faith or consumer
fraud.
As often occurs in cases like this, we must analyze the merits, at
least superficially, to review the decision denying the appeal. In our
discussion of the merits below, we conclude that the superior court acted
prematurely in granting Nationwide's motion for judgment of foreclosure and
its motion for summary judgment on the counterclaim. This conclusion does
not necessarily mean, however, that the denial of the motion to appeal was
beyond the trial court's discretion. Indeed, if we were to simply review
the merits to determine whether to allow the appeal, the screening function
required by § 4601 would be superfluous.
But here, we have other reasons to allow the appeal. For one thing,
the decision denying appeal never mentions Gamelin's attempt to appeal the
summary judgment for Nationwide on his
counterclaim. We must conclude that the court failed to exercise its
discretion as to that appeal issue.
Further, with respect to Nationwide's rights under its settlement with
VFB, we find the court's rationale to deny the appeal - "Dispute is
actually with decision in earlier case." - to be untenable. Gamelin made
clear that his appeal issues involve this case. Gamelin asserts that the
court erred in determining that Nationwide could subrogate to the rights
of VFB. This issue could not have been raised in the tort case and is not
foreclosed by the tort case judgment.
Finally, we add that there is a pervasive disconnect in the rationales
put forward by Nationwide and accepted by the trial court. On the merits,
the court ruled that Nationwide is subrogated to the rights of VFB because
of the provision of the policy allowing Nationwide to pay off the
mortgagee and assume its rights. On the motion to appeal the subrogation
decision, the court apparently ruled that Gamelin could not appeal because
he assigned his rights to VFB - an entirely different rationale. Given
the superior court's cryptic decision and the apparent switch of rationales
to one not explored or explained, we hold that the motion for permission to
appeal was denied for untenable reasons. Accordingly, we reach the merits
of the appeal.
II.
On the merits, Gamelin first argues that the court erred in holding
that Nationwide was subrogated to the rights of VFB. The court's decision
was:
[A] provision in an insurance policy on mortgaged property for
subrogation of the insurer to the rights of the mortgagee is
generally held to preclude the right of the mortgagor to have the
insurance applied on the mortgage debt. . . . Thus, contrary to
defendant's position, his debt was not paid. The insurance
policy here provided for a right of subrogation, which plaintiff
exercised, and is now entitled to proceed in the foreclosure
action initiated by the bank.
Accordingly, defendant's motion to dismiss the foreclosure action
is denied.
(citations omitted).
Gamelin contends that Nationwide is not entitled to a right of
subrogation, notwithstanding its purported assignment from the bank,
because the insurance company never covered the fire loss under his policy
and never proved any wrongdoing on his part that would have negated
coverage. Nationwide responds that its assignment from the bank was valid
as a matter of law under a provision in Gamelin's insurance policy, and
that, in any event, Gamelin cannot challenge the validity of the
assignment here because he could have done so in the tort case and never
did so.
A.
In making the former argument, Nationwide relies on the following
section of the parties' policy:
If we pay the mortgagee for a loss and deny payment to you:
a. we are subrogated to all the rights of the mortgagee granted
under the mortgage on the property; or
b. at our option, we may pay to the mortgagee the whole principal
on the mortgage plus accrued interest. In this event, we will
receive a full assignment and transfer of the mortgage and all
securities held as collateral to the mortgage debt.
Specifically, Nationwide asserts that it proceeded under subsection b.
above, and that this subsection gives it a valid assignment from the bank
as a matter of law.
Before directly addressing Nationwide's assertions, we note that the
above clause is part of a standard mortgage clause that establishes a
separate contractual relationship between the insurer and the mortgagee.
The primary purpose of the clause is to give the mortgagee additional
security in the event the insured mortgagor does something that
invalidates the insurance policy on the
mortgaged premises. See 4 L. Russ & T. Segalla, Couch on Insurance 3d §§
65:32-33 (1997). Under this policy language, if the insurer pays off the
mortgagee, under circumstances where the mortgagor had no right to recover
under the policy, the insurer is entitled to be subrogated to the
mortgagee's rights as against the insured. See Auto-Owners Mut. Ins. Co.
v. Newman, 851 S.W.2d 22, 27 (Mo. Ct. App.1993) (since insurer was
adjudicated not liable to insureds under insurance policy, amount paid to
mortgagee did not inure to benefit of insureds); see also Farmers Ins. Co.
v. Smith, 957 P.2d 125, 127 (Okla. Ct. App. 1997) (insurer became
subrogated to mortgagee's right to foreclose on property where insured's
policy coverage had expired due to non-payment of premiums); Valley Forge
Ins. Co. v. Ryan, 824 S.W.2d 236, 238 (Tex. Ct. App. 1992) (because
judicial determination was made that insured deliberately caused fire loss,
insurer was subrogated to extent it paid mortgagee).
On the other hand, if the insured has done nothing to invalidate a
policy covering mortgaged property, and will not be unjustly enriched by
way of a double recovery, the insurer has no right of subrogation against
the insured mortgagor. See Valley Forge, 824 S.W.2d at 238 (insurer's
right of subrogation under mortgage clause may be asserted when payment of
loss proceeds is made to mortgagee, but only when insured is not entitled
to payment); see also Wine v. Globe Amer. Cas. Co., 917 S.W.2d 558, 562
(Ky. 1996) (general common law rule is that insurer has no right of
subrogation "until the insured has first recovered the full amount of loss
sustained").
It is evident from the above discussion that Nationwide exaggerates
the force of its standard mortgage clause in the instant circumstances.
For one thing, the clause applies only when the insurer pays the mortgagee
and denies payment to the mortgagor. Here, Gamelin assigned his rights to
VFB,
and Nationwide purportedly paid off the rights of both. Under the
circumstances presented by the policy language, Gamelin would retain his
coverage claim against Nationwide.
More importantly, Nationwide is using the clause both to assume the
rights of the mortgagee and to extinguish the coverage claim. In so
doing, Nationwide hopes to avoid any obligation to pay for the fire loss
it insured without ever proving a valid defense to coverage. We reject
this position as contrary to the purpose of the clause upon which
Nationwide relies. Rather, we apply the standard mortgage clause in
accordance with its language, and that language does not apply to give
Nationwide a right of subrogation or assignment here. See Ulm v. Ford
Motor Co., 170 Vt. 281, 295-96, 750 A.2d 981, 992-93 (2000) (where policy
does not explicitly provide for a right of subrogation, we will not imply
such a right).
B.
Apart from the policy language itself, however, Nationwide relies upon
equitable subrogation and assignment to create its rights. The main
doctrine invoked is subrogation, as provided in the settlement agreement
between VFB and Nationwide. Subrogation is an equitable doctrine that
enables a secondarily liable party who has been compelled to pay a debt to
be made whole by collecting that debt from the primarily liable party,
who, in good conscience, should be required to pay. Norfolk & Dedham Fire
Ins. Co. v. Aetna Cas. & Sur. Co., 132 Vt. 341, 343, 318 A.2d 659, 661
(1974). "[T]he right of subrogation is a favorite of the law, and the
tendency is to extend its application" to reach a fair result. Id. at
346, 318 A.2d at 662.
But "[t]he subrogee must have clear equity and subrogation is defeated
by countervailing equities." Id.; see 16 Couch on Insurance 3d, supra §
222.24, at 52, 55 (2000) (principle of subrogation will be applied or not
according to dictates of equity and good conscience, resting, as
it does, on maxim that no one should be enriched by another's loss;
principle of subrogation is a fluid concept that depends upon particular
circumstances and is based on natural justice of placing burden of loss
where it ought to be, without rigid rule of law). "Subrogation will not be
enforced to the prejudice of equal or higher rights." Norfolk & Dedham,
132 Vt. at 346, 318 A.2d at 662 ; see Wine, 917 S.W.2d at 561 (because
goal of subrogation is to accomplish justice between parties, great care
is taken to ensure that invoking doctrine does not impair one with superior
equitable rights). This is particularly true in the context of a
foreclosure action, which is itself equitable in nature. See Retrovest
Assocs. v. Bryant, 153 Vt. 493, 500, 573 A.2d 281, 285 (1990); Merchants
Bank v. Lambert, 151 Vt. 204, 206, 559 A.2d 665, 666 (1989) (foreclosure
actions are equitable in nature, and therefore it is proper for the court
to weigh the equities of the situation); see also Gordon v. Deavitt, 84
Vt. 59, 64, 78 A. 113, 114 (1910) ("when equity requires it the court may
deny to the assignee of a mortgage a right which the mortgagee himself
could have asserted").
We decline to consider for the first time on appeal whether, and if
so, to what extent, Nationwide was equitably subrogated to the rights of
VFB. The issue arose in the context of Nationwide's "motion for judgment
of foreclosure" and Gamelin's motion to dismiss and opposition to
Nationwide's motion. Because of the court's erroneous ruling that
Nationwide was fully subrogated to the rights of VFB as a matter of law
under its standard mortgage clause, the court never explored the relative
equities of the parties, and thus Nationwide's liability for the insurance
claim remains unresolved. We remand for that determination.
C.
Notwithstanding the equities of the case, Nationwide seeks to invoke
the doctrine that assignment of a mortgage during foreclosure carries with
it the foreclosure. See First Vermont Bank
& Trust Co. v. Kalomiris, 138 Vt. 481, 483, 418 A.2d 43, 44-45 (1980). We
find this argument unavailing. Whether Nationwide's claimed right to
foreclose on Gamelin's property is technically by way of subrogation or
assignment, see Bank of Fort Mill v. Lawyers Title Ins. Corp., 268 F.2d 313, 316 (4th Cir. 1959) (assignment of legal claim necessarily
contemplates continued existence of claim assigned, whereas equitable
doctrine of subrogation presupposes destruction of claim through
subrogee's actual payment and satisfaction of claim), an "assignment
creates no right greater than the equitable right of subrogation." Id. at
316-17; see Wine, 917 S.W.2d at 564 (although in abstract terms,
assignment differs from subrogation, in field of insurance subrogation,
distinction is academic and assignment adds nothing to rights vested in
surety through subrogation; when right of insurer to subrogate is
formalized by execution of express assignment, status of insurer is
nonetheless that of subrogee rather than assignee).
D.
Nationwide argues, however, that Gamelin had no independent rights
under the insurance policy after having assigned his rights as an insured
to Albarelli and VFB. We do not believe that Gamelin's assignment of the
insurance claim to VFB relieves Nationwide of proving that it is entitled
to an equitable right of subrogation under the circumstances. See 16 Couch
on Insurance 3d, supra § 222:7, at 29 (burden of proving entitlement to
subrogation is on subrogee). After obtaining an assignment of Gamelin's
rights, VFB sued Nationwide seeking damages for the fire loss. In
November 1997, VFB made a demand on Nationwide for approximately $200,000,
including $90,000 for real estate damage, $30,000 for personal property
damage, $10,000 for inflation and increased cost adjustment, $43,000 for
pre-judgment interest, and $27,000 for attorney's fees. On the other
hand, as of May 21, 1996, the unpaid balance on the note securing the
mortgage was $109,822, including accrued interest, with interest to
continue to accrue at $23 per day. The parties settled the case in
November 1997 when Nationwide agreed to pay VFB $150,000, which
represented full payment of VFB's claims, "including, but not limited to,
principal, interest and other charges due [VFB] relative to its mortgage
received from G. Thomas Gamelin, Jr." (Emphasis added.) Thus, the
settlement amount is very close to the sum of the amounts for the unpaid
principal of the note, with interest accrued to the date of the settlement
and attorney's fees.
In essence, Nationwide has paid off the note, and collection fees, but
little if anything for the insurance claim. Although there has never been
an adjudication that Nationwide must pay the insurance claim, the
preliminary rulings regarding Nationwide's liability in the contract case
had gone against Nationwide before it decided to settle the matter with
VFB. Given these circumstances, Nationwide must prove that it is entitled
to an equitable right of subrogation, notwithstanding Gamelin's
assignment.
E.
Nationwide also argues that Gamelin cannot now challenge the
assignment because he could have done so in the tort case. We no not
believe that either claim or issue preclusion from the tort case helps
Nationwide. Gamelin does not challenge the validity of the assignment of
the insurance claim to VFB; nor does he argue that he has any independent
contract or tort claims against Nationwide that would be resolved in this
foreclosure litigation. Instead, he challenges the effect of that
assignment on Nationwide's rights in this foreclosure action and the scope
of the rights which VFB had when it assigned them to Nationwide. See Lamb
v. Geovjian, 165 Vt. 375, 380, 683 A.2d 731, 734 (1996) (claim preclusion
can apply if claim was raised or could have been raised in the
earlier proceeding); Berlin Convalescent Ctr. v. Stoneman, 159 Vt. 53, 56,
615 A.2d 141, 144 (1992) (issue preclusion requires that the contested
issue be actually decided in the former case).
We also note that the tort case dealt with the combined effect of both
assignments of the insurance claim, while this case involves the effect of
only the assignment to VFB. There has been little examination in this
record of the significance of Gamelin's two assignments, first to Albarelli
and then to VFB, of the insurance claim. It is not clear whether Gamelin
had any remaining claim to assign when he assigned the insurance claim to
VFB. Indeed, Albarelli's rights are wholly unexplored because he was
never made a party in the foreclosure proceeding, despite his apparent
interest in the property.
Apart from Albarelli's interest, Gamelin's position is that he
assigned his insurance claim to VFB in the expectation that, armed with
both his rights and its independent rights, VFB would be able to obtain
full payment on the mortgage, and he would hold the property free of any
indebtedness, but with the responsibility of rebuilding the home after the
fire damage without insurance proceeds. He argues that having to pay the
mortgage debt defeats the expectation behind the assignment. The
circumstances of Gamelin's assignment of the insurance claim to VFB are not
developed in the record.
While the circumstances behind Gamelin's assignment of the insurance
claim to VFB go to whether Nationwide should be subrogated to VFB's
foreclosure rights, they may similarly raise defenses against VFB's
foreclosure rights, which can, in turn, be raised against Nationwide as
assignee. See Ide v. Spencer, 50 Vt. 293, 296 (1877) (defenses that can be
raised against mortgagee can be raised against assignee of mortgagee). We
also note that VFB anticipated that there might be further litigation
between it and Gamelin over its use of the assignment of the insurance
claim,
and Nationwide expressly agreed to hold VFB harmless from such litigation.
It is unclear whether VFB is still a party in this litigation, and the
court should resolve this question before attempting to resolve the
merits. (FN3)
III.
Because of the uncertainty over the outcome of the subrogation issue
on remand, we must also address Gamelin's claim on appeal that the
superior court erred by granting Nationwide summary judgment as to his
counterclaim alleging negligent misrepresentation. The counterclaim
alleged that in 1995 an unnamed VFB employee told his attorney that even if
VFB could not obtain payment of the mortgage from Nationwide, it would
look to its errors and omissions insurance policy to cover its loss. It
alleged that VFB was negligent in not obtaining the insurance reimbursement
from its errors and omissions policy. It sought compensatory and punitive
damages because of VFB's action.
In an initial order, the superior court held that the counterclaim
could be raised against Nationwide as an equitable defense in the
foreclosure action. (FN4) The court characterized the defense
as negligent misrepresentation: "the bank told defendant that its 'errors
and omissions' policy would cover the property losses for which the
insurance company denied coverage, and that defendant relied on this
representation by discontinuing his mortgage payments, which led to the
foreclosure action." In an affidavit, Gamelin amplified that he
understood from his attorney that the errors and omissions policy coverage
would begin once VFB filed suit against Nationwide, and that he
discontinued mortgage payments three months after suit was commenced to
give the bank policy "ample time to cover said mortgage." He also
indicated that he would not have assigned his insurance claim to VFB if he
had been told that the bank's policy proceeds would not cover the
mortgage.
Based on the deposition of Gamelin's former attorney, Nationwide
sought summary judgment on the counterclaim, arguing that any promise of
bank insurance coverage of the mortgage costs was too vague and
speculative to be relied upon, and that Gamelin did not rely upon it in
fact. Gamelin responded mainly with the affidavit described above. The
court granted summary judgment holding that: (1) the statement of the
unnamed bank employee to Gamelin's attorney was "sketchy," mentioning the
errors and omission policy generally as a source of coverage for the bank's
loss; (2) Gamelin could not rely on such a sketchy reference because
"[t]here are simply too many unknown particulars a reasonable person would
need to make an informed decision;" (3) Gamelin never followed up with VFB
or the purported insurance carrier to confirm coverage; (4) Gamelin
allegedly relied upon the statement a year later by discontinuing mortgage
payments; and (5) in an earlier motion, Gamelin claimed that he
discontinued mortgage payments because he could not afford them any
longer. The court concluded that, as a matter of law, Gamelin had no right
to rely on the bank employee's statement, and in fact did not rely on the
statement. On appeal, Gamelin argues that
summary judgment was inappropriate, and that the court could not reach the
result it did without an evidentiary hearing.
The standard for resolving a motion for summary judgment is whether
"there is no genuine issue as to any material fact" and, if so, whether
either party "is entitled to a judgment as a matter of law." V.R.C.P.
56(c). In applying this standard, the trial court must regard as true all
allegations of the nonmoving party supported by admissible evidence and
give the nonmoving party the benefit of all reasonable doubts and
inferences. Politi v. Tyler, 170 Vt. 428, 431, 751 A.2d 788, 790 (2000).
We apply the same standard on appeal. O'Donnell v. Bank of Vermont, 166
Vt. 221, 224, 692 A.2d 1212, 1214 (1997).
We conclude that the superior court struck too soon in granting
summary judgment on this issue, particularly in the face of Gamelin's
affidavit. Regarding whether Gamelin actually relied upon the bank
employee's statement as transmitted through his lawyer, Gamelin stated that
he took two actions in reliance: assignment of the insurance claim to VFB,
and discontinuance of mortgage payments. The superior court looked only
at the latter action, ruling that it came too late to have been caused by
the promise of insurance coverage for the mortgage payments. Gamelin's
affidavit explains that he waited to discontinue payment until shortly
after VFB filed suit against Nationwide, based on his understanding of
when the policy coverage would commence. In light of this explanation, we
cannot say as a matter of law that Gamelin failed to show reliance. In any
event, the first action, execution of the assignment, occurred shortly
after the alleged statement of the bank officer and is sufficient to show
reliance. (FN5)
It is a closer question whether the court could conclude that any
reliance was unjustified as a matter of law. Justifiable reliance is an
objective standard. See Limoge v. People's Trust Co., 168 Vt. 265, 269,
719 A.2d 888, 890 (1998). In Silva v. Stevens, 156 Vt. 94, 108, 589 A.2d 852, 860 (1991), we affirmed a jury instruction which defined justifiable
reliance for a negligent misrepresentation claim as follows: "[p]laintiff
may justifiably rely upon a representation when the representation is not
obviously false and the truth of the representation is not within the
knowledge of, or known by the plaintiffs." (Alteration in original;
internal quotation marks omitted.) At the time of the alleged statement
of the bank employee, Nationwide was denying coverage to VFB because
Nationwide had never been notified of the existence of any mortgagee.
Based on Gamelin's deposition and affidavit testimony, a factfinder could
have found that Gamelin notified VFB of the omission, VFB agreed to
contact Nationwide to be added to the policy as mortgagee, and VFB failed
to follow up as agreed. Thus, it was not unreasonable to expect that VFB
was talking with its errors and omissions policy carrier about a potential
claim.
Although we agree with the trial court that the bank employee's
statement to Gamelin's lawyer, if believed, is vague and sketchy, we
cannot say in light of this background that the representation was
obviously false as a matter of law. See Silva, 256 Vt. at 108, 589 A.2d at
860. Nor can we say as a matter of law that Gamelin or his lawyer should
have known it was false. We also reiterate that the reliance involved
included execution of the assignment, and the record is very sparse on the
circumstances surrounding that act. For these reasons, we do not believe
that the justifiable reliance issue could be decided on summary judgment.
Cf. Limoge, 168 Vt. at 269, 719 A.2d at 891 (factfinder should weigh
evidence in determining whether there was justifiable reliance to support
negligent misrepresentation claim).
Gamelin's motion for permission to appeal the October 5, 2000 decree
of foreclosure is granted; the decree of foreclosure is stricken, and the
matter is remanded for further proceedings consistent with this opinion.
FOR THE COURT:
_______________________________________
Associate Justice
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Footnotes
FN1. Nationwide argued that the assignment to VFB was invalid because the
policy required Gamelin to obtain Nationwide's consent to assign the
policy, and Gamelin never sought Nationwide's consent. The court held
that the policy language did not apply to assignment of the claim against
Nationwide for the fire loss. There is no indication that the Albarelli
assignment came up in the VFB litigation against Nationwide.
FN2. We have before us only limited parts of the record in the tort case.
There is no indication that Gamelin challenged the validity of the
assignments in the tort case. Instead he argued that the assignments did
not preclude him from litigating the insurance claim against Nationwide, an
argument that the court rejected as to the contract claims.
FN3. After it signed the settlement with VFB, Nationwide entered the
foreclosure litigation and filed a motion seeking "that it be joined
and/or substituted with respect to the instant foreclosure only," stating
that "Vermont Federal Bank remains the proper party as regards Mr.
Gamelin's counterclaim." On a motion reaction form, the court checked
"granted." Because the motion sought alternative actions, we cannot
determine what was granted. Despite Nationwide's statement with respect
to the counterclaim, VFB did not participate further in the foreclosure
argument and has not participated here on appeal.
FN4. The superior court's order cites to Retrovest Assocs., 153 Vt. at 500,
573 A.2d at 285, in which we held that a mortgagor could use a
counterclaim recovery as an offset against the debt underlying a mortgage
and defeat foreclosure if the recovery was sufficient to extinguish the
debt. Apparently, the court assumed that a counterclaim against a
mortgagee would have the same effect against the assignee of the mortgage,
and the case proceeded on that assumption. Nationwide has not
cross-appealed that ruling here.
FN5. Nationwide argues on appeal that Gamelin failed to raise this reliance
issue below. In fact, Gamelin raised it in his affidavit and highlighted
it in his memorandum of law. We cannot find that it is not preserved.
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