City of Burlington v. National Union Mutual Fire Insurance Co.

CITY_OF_BURLNGTON_V_NATL_UNION_FIRE_INS.94-381; 163 Vt 124; 655 A.2d 719

[Filed 30-Dec-1994]

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. 94-381


City of Burlington                        Supreme Court

                                          On Appeal from
     v.                                    Chittenden Superior Court

National Union Fire                       November Term, 1994
Insurance Company


Matthew I. Katz, J.

John L. Franco of McNeil, Leddy & Sheahan, Burlington, for
 plaintiff-appellant 

Aaron Eaton and Joseph H. Badgewick of Ryan Smith & Carbine, Ltd., Rutland,
 for defendant-appellee 

      
PRESENT:  Gibson, Dooley, Morse and Johnson, JJ., and Peck, J. (Ret.),
          Specially Assigned 


     DOOLEY, J.   This appeal concerns whether National Union Fire Insurance
Co. (NUFI) owes its insured, City of Burlington, reimbursement for
Burlington's expenses in investigating, defending and settling a suit
initiated against it in the Caledonia Superior Court, entitled Moffatt v.
City of Burlington.  Because NUFI declined to defend, Burlington provided its
own defense and eventually settled the Moffatt case before trial.  Burlington
then brought a declaratory judgment action seeking a determination that NUFI
breached its duty to defend under the policies it issued to Burlington, and,
consequently, that NUFI must indemnify Burlington for its defense and
settlement costs.  The trial court granted NUFI's motion for summary
judgment, and Burlington appeals.  Because the claims alleged in the Moffatt
complaint are not possibly covered by Burlington's policy with NUFI, we
affirm. 

     The issue on appeal is whether the allegations in the Moffatt complaint,
sounding in breach of contract and related torts, triggered NUFI's duty to
defend Burlington under the provisions of the occurrence-based liability
insurance policies that NUFI issued to Burlington. 

 

The Moffatt suit contained five counts against the City of Burlington.  All
of the counts arose out of the operation of an electric generation plant
owned by the Burlington Electric Department. The plant was fueled by wood
chips supplied by plaintiffs, and plaintiffs alleged that Burlington refused
to purchase the volume of wood chips called for in their contract.   Count I
alleged that Burlington breached its contract with plaintiffs.  Count II
alleged that Burlington knew its refusal to accept the quantity of wood chips
contracted for was causing the plaintiffs devastating financial hardship, and
had the character of a willful and wanton or fraudulent tort of insult and
oppression.  Count III alleged breach of duty of good faith and fair dealing
under the wood chip contract.  Count IV alleged economic duress in the
administration of the wood chip contract, and Count V alleged deceit,
claiming that Burlington failed to disclose correct information and
misrepresented material facts.  The plaintiffs claimed bodily injuries
including severe emotional distress, as well as economic losses, and asked
for an award of direct, consequential, and punitive damages. 

     Burlington's liability insurance policies provided in relevant part that
NUFI: 

          will pay on behalf of the insured all sums which the insured
          shall become legally obligated to pay as damages because of
               A. bodily injury or 
               B. property damage 
          to which this insurance applies, caused by an occurrence,
          and the company shall have the right and duty to defend any
          suit against the insured seeking damages on account of such
          bodily injury or property damage, even if any of the
          allegations of the suit are groundless, false or fraudulent
          . . . . 

(Emphasis added.)  Coverage is triggered by an "occurrence," defined in the
policies as "an accident, including continuous or repeated exposure to
conditions, which results in bodily injury or property damage neither
expected nor intended from the standpoint of the insured."  On NUFI's motion
for summary judgment, the trial court concluded that all five of the Moffatt
counts were variations on a claim of breach of contract, and were in no way
covered under Burlington's policy with NUFI. 

     The requirements for summary judgment are familiar.  Summary judgment is
appropriate 

 

where there is no genuine issue of material fact and the moving party is
entitled to judgment as a matter of law, after giving the benefit of all
reasonable doubts and inferences to the nonmoving party.  See State v.
Delaney, 157 Vt. 247, 252, 598 A.2d 138, 141 (1991); V.R.C.P. 56(c). The
standard on review by this Court is the same as the standard to be applied by
the trial court in ruling on the motion.  See Cavanaugh v. Abbott
Laboratories, 145 Vt. 516, 520, 496 A.2d 154, 157 (1985).  In this case,
there is no factual dispute about the language of the complaint or of the
policies; rather, the parties dispute whether coverage under the NUFI policy
extends to the Moffatt suit.  The issue, therefore, is solely one of law. 

     We have often explained that an insurer's duty to defend is broader than
its duty to indemnify.  See Garneau v. Curtis & Bedell, Inc., 158 Vt. 363,
366, 610 A.2d 132, 134 (1992). Generally, the insurer's duty to defend is
determined by comparing the allegations in the complaint of the underlying
suit to the terms of coverage in the policy.  See Cooperative Fire Ins. Ass'n
v. Gray, 157 Vt. 380, 382, 599 A.2d 360, 361 (1991); Commercial Union Ins.
Co. v. City of Montpelier, 134 Vt. 184, 185, 353 A.2d 344, 345 (1976).  If
any claims are potentially covered by the policy, the insurer has a duty to
defend.  See Garneau, 158 Vt. at 366, 610 A.2d  at 134.  Conversely, where
there is no possibility that the insurer might be obligated to indemnify,
there is no duty to defend.  Id. 

     The specific issue in this case is whether any of the five counts
contained in the Moffatt complaint alleges an "occurrence," as that term is
defined in the NUFI policy.  The resolution of this issue in turn depends on
whether any of the counts show the presence of an "accident," an essential
component of an "occurrence" under the NUFI policy. 

     An insurance policy must be construed according to its terms and the
evident intent of the parties as expressed in the policy language.  Sanders
v. St. Paul Mercury Ins. Co., 148 Vt. 496, 500, 536 A.2d 914, 916 (1987). 
Disputed terms should be read according to their plain, ordinary and popular
meaning.  See American Protection Ins. Co. v. McMahan, 151 Vt. 520, 522, 562 A.2d 462, 464 (1989).  Using these principles, we have defined "accident" as
an 

 

"`unexpected happening without intention and design.'"  Commercial Union Ins.
Co., 134 Vt. at 186, 353 A.2d  at 346 (quoting Anton v. Fidelity & Casualty
Co., 117 Vt. 300, 305, 91 A.2d 697, 700 (1952)). 

     There is no question that Burlington acted intentionally in refusing to
accept wood chip deliveries.  Despite its intentional act, it argues that the
Moffatt complaint alleged an accident because Burlington neither expected nor
intended the resulting harm.  In making this argument, it relies upon Village
of Morrisville Water & Light Dep't v. United States Fidelity & Guar. Co., 775 F. Supp. 718, 729-30 (D. Vt. 1991), where the court reasoned that the
unexpected nature of an accident describes the harm which is caused rather
than the act involved.  The case involved insurance coverage for a Vermont
utility claimed by the Federal Environmental Protection Agency (EPA) to be
responsible in part for the clean-up of a Missouri disposal site to which it
had sent PCBs.  Although the site had been EPA approved for PCB disposal, its
owner failed to deal with them properly and left the site contaminated with
PCBs.  The federal court found that liability based on the utility's disposal
of the PCBs was an "occurrence" which triggered coverage because it was an
"accident" as required by the policy.  Id.  Thus, an intentional act can be
an "occurrence" if the resulting harm "was not expected or intended by the
insured."  Id. at 730. 

     The Village of Morrisville case drew its distinction from decisions of
this Court where we found that an accident was present despite the
intentional nature of the insured's conduct. We have found an accident where
the insured shot into a house and injured an unseen person in another room
when the bullet traveled through the wall.  See Otterman v. Union Mutual Fire
Ins. Co., 130 Vt. 636, 642, 298 A.2d 547, 551 (1972).  We concluded that the
insured had neither intended nor expected to hit the injured person.  Id. 
See also Espinet v. Horvath, 157 Vt. 257, 260-61, 597 A.2d 307, 309-10 (1991)
(injury not expected or intended when insured intended to shoot over injured
party's head but mistakenly hit him). 

     We also found an "occurrence" where a sheriff mistakenly seized the
wrong property in 

 

levying a writ of execution.  See State v. Glens Falls Ins. Co., 137 Vt. 313,
317-18, 404 A.2d 101, 103-04 (1979).(FN1)  We held the damage to the business
from which the property was taken was neither intended nor expected. 

     These cases are distinguishable because in each the insured intended no
injury to the party who brought the claim(s) for which coverage was sought. 
Here, it cannot be said that Burlington intended no injury to the plaintiffs
in Moffatt.  Burlington intended or expected economic injury to the wood chip
suppliers when it reduced its purchases from them. 

     The distinction Burlington draws is unworkable and would result in a
duty to defend in virtually any commercial contractual dispute.  No doubt
Burlington took the actions it did because of its economic interests in the
electricity generation business.  There is no reason that it, or more
properly its managers, would have precise knowledge of the amount or nature
of the damage it might inflict on others as a consequence of its business
actions.  To determine whether there is a duty to defend based on such
knowledge is arbitrary, far afield from any common- sense definition of
accident. 

     The trial court's decision relies heavily on the fact that despite the
tort claims in the Moffatt  complaint, the underlying dispute is really based
on breach of a commercial contract. In the trial court's view, a breach of
contract could not be considered an accident or occurrence. Other
jurisdictions have held that a breach of contract does not constitute an
occurrence under liability policies that require an accident for an
occurrence.  See Jakobson Shipyard, Inc. v. Aetna Casualty & Sur. Co., 961 F.2d 387, 389 (2d Cir. 1992) (no accident where insured shipbuilder provided
tug boat with defective steering mechanism contrary to contract
specifications); Pace Constr. Co. v. United States Fidelity &Guar. Ins. Co.,
934 F.2d 177, 180 

 

(8th Cir. 1991) (no accident where insured subcontractor breached contractual
duty to procure insurance for contractor); Magic Valley Potato Shippers v.
Continental Ins. Co., 739 P.2d 372, 375-76 (Idaho 1987) (no accident where
buyer failed to pay for and pick up goods in violation of existing contract).

     The characterization of the claims as sounding in tort or contract is
not necessarily determinative of whether insurance coverage is available
under insurance contract language that does not rely on such a distinction. 
See Garneau, 158 Vt. at 368, 610 A.2d  at 134-35.  The distinction is
relevant, however, to highlight the mismatch between the kind of coverage
claim Burlington is asserting and the purpose of the general liability policy
from which it seeks coverage.  As one court explained in denying coverage for
a breach of contract claim on a comprehensive liability policy: 

          To allow indemnification under the facts presented here
          would have the effect of making the insurer a sort of silent
          business partner subject to great risk in the economic
          venture without any prospects of sharing in the economic
          benefit.  The expansion of the scope of the insurer's
          liability would be enormous without corresponding
          compensation.  There is simply no reason to expect that such
          a liability would be covered under a comprehensive liability
          policy which has, as its genesis, the purpose of protecting
          an individual or entity from liability for essentially
          accidental injury to another individual, or property damage
          to another's possessions, even if, perhaps, the coverage of
          the policy has been expanded to cover other non-bodily
          injuries that sound in tort. 

Toombs NJ Inc. v. Aetna Casualty & Sur. Co., 591 A.2d 304, 306 (Pa. Super.
Ct. 1991). Similarly,  we would distort the purpose of the liability
insurance policy in this case by applying it to commercial litigation arising
out of Burlington's breach of a contract to purchase a specified quantity of
wood chips. 

     In view of our disposition, we need not address the other arguments
raised by Burlington. 

     Affirmed. 
                              FOR THE COURT:

                              ______________________________________
                              Associate  Justice

------------------------------------------------------------------------------
                            Footnotes

FN1. The Glens Falls decision cast the question somewhat differently, stating 
 that it was undisputed that there had been an "accident" but it was disputed
 whether the accident was expected or intended.  Glens Falls Ins. Co., 137 Vt.
 at 317, 404 A.2d  at 103-04.  We think the lack of intent or expectation
 inheres in the definition of accident.