City of Burlington v. Associated Electric & Gas Services, Ltd.

CITY_OF_BURLINGTON_V_ASSOC_ELEC_GAS_SERVICES.94-098; 164 Vt 218; 669 A.2d 1181

[Filed 22-Sep-1995]

       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. 94-098


City of Burlington                                Supreme Court

                                                  On Appeal from
    v.                                            Chittenden Superior Court

Associated Electric & Gas                         November Term, 1994
Services. Ltd.


Matthew I. Katz, J.

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

       Joseph E. Frank of Paul, Frank & Collins, Inc., Burlington, for
  defendant-appellee

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


       DOOLEY, J.   This is a companion case to  Burlington v. National Union
  Fire Insurance Co., ___ Vt. ___, 655 A.2d 719 (1994) (hereinafter NUFI), in
  which we decided that the primary liability policy the City of Burlington
  had with National Union Fire Insurance Co. did not require the insurer to
  defend or indemnify the city in the case of Moffatt v. City of Burlington. 
  Having settled the Moffatt litigation, the City seeks a summary judgment
  that Associated Electric & Gas Insurance Services, Ltd. (AEGIS), an excess
  liability carrier, must indemnify it for part of the settlement amount. 
  Finding differences in the basic coverage of the respective policies
  involved in the companion cases, we reverse a Chittenden Superior Court
  decision that no coverage is extended by the AEGIS policy and remand for
  further proceedings.

       The basic facts are set out in the following paragraph from NUFI:

        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 or 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.

  NUFI, ___ Vt. at ___, 655 A.2d  at 720.  After NUFI and AEGIS declined
  to defend or indemnify, Moffatt was settled for an undisclosed amount
  exceeding $100,000.  The size of the settlement is relevant only in that
  AEGIS's excess liability coverage begins at $100,000 in damages.  A part of
  the settlement was allocated to damages relating to personal injury, pain
  and suffering, and injuries to health.

       The issue in NUFI was whether any of the five Moffatt counts alleged
  an "occurrence," the operative coverage term in the NUFI policy.  The
  policy defined "occurrence" to mean an "accident . . . which results in
  bodily injury or property damage neither expected nor intended from the
  standpoint of the insured."  Id. at ___, 655 A.2d  at 720.  Distinguishing
  cases where an intended act results in unintended damages or injury, we
  concluded that the facts underlying the Moffatt litigation showed that
  Burlington intended or expected economic injury to the wood chip suppliers
  when it reduced its purchases from them.  Id. at ___, 655 A.2d  at 721-22. 
  We held that Moffatt was really a breach of contract action, although cast
  in tort language, and "we would distort the purpose of the liability
  insurance policy" if we found coverage for the Moffatt litigation.  Id. at
  ___, 655 A.2d  at 722-23.  Thus, we found that plaintiffs' damages in
  Moffatt were not caused by an "occurrence" as defined in the NUFI policy,
  and NUFI had no duty to defend or indemnify.

 

       Although there are some minor differences in the positions of the
  parties in this case, reflecting that AEGIS is an excess carrier, the
  parties have framed the same issue as in NUFI: whether the damages suffered
  by the plaintiff in Moffatt were caused by an occurrence, as defined in the
  relevant policy.  The real difference in the cases lies in the content of
  the definition of "occurrence."  The definitions in the policies are:

               NUFI                                    AEGIS

     "Occurrence" is "an accident,       "Occurrence" is "an accident, event
   including continuous or repeated    or continuous or repeated exposure to
   exposure to conditions, which       conditions which result in bodily injury,
   results in bodily injury or         personal injury or property damage."
   property damage neither expected 
   nor intended from the standpoint 
   of the insured."

  There are two obvious differences in the definitions.  The first is
  that the AEGIS policy has added the term "event" as a synonym for
  "occurrence."  The second is that the phrase "neither expected nor intended
  from the standpoint of the insured" appears only in the NUFI policy
  language.  The City argues that these differences both support coverage
  under the AEGIS policy and mean that our NUFI decision is not controlling. 
  Not surprisingly, AEGIS, supported by the trial court, argues that NUFI
  controls despite the wording differences.

       Both the summary judgment standard and our main rules on construing
  insurance contracts are set out in NUFI and do not need to be repeated
  here.  See id. at ___, 655 A.2d  at 721.  We add only that where a disputed
  term in an insurance policy is susceptible to two or more reasonable
  interpretations, the ambiguity must be resolved in favor of the insured. 
  See Garneau v. Curtis & Bedell, Inc., 158 Vt. 363, 367, 610 A.2d 132, 134
  (1992).  The reason for construing ambiguities against the insurer is a
  simple matter of fairness; insurers enjoy considerable expertise and the
  insured generally has no voice in the preparation and drafting of the
  policy.  See 2 G. Couch, Couch on Insurance §15:77, at 383 (2d ed. 1984);
  see also CPC Int'l v. Northbrook Excess & Surplus Ins., 962 F.2d 77, 88
  (1st Cir. 1992) (ambiguities resolved against insurer because it is party
  that selected confusing language).

       We recognize at the outset that much of the reasoning of NUFI applies
  here.  As we emphasized in NUFI, requiring indemnification for what are
  essentially contractual claims

 

  normally lies outside of the realm of liability insurance and makes
  the carrier a business partner with the insured sharing, however, only in
  the losses.  The risk is enormous, and, we have no doubt, virtually
  impossible to evaluate to establish a price for coverage.

       On the other hand, an insurance policy is a consensual contract.  If
  an insurance carrier makes a business decision to take on such an
  obligation, we must enforce it for the insured who is entitled to the
  benefits of the bargain made.  See 2 G. Couch, supra § 15:10, at 153-54;
  see also York Industrial Center, Inc. v. Michigan Mut. Liab. Co., 155 S.E.2d 501, 505 (N.C. 1967) ("occurrence" must be given meaning defined in
  policy, regardless of whether broader or narrower meaning is customarily
  given to term).  Our duty is to construe the insurance policy as it is
  written, not to rewrite it on behalf of the parties.  See Medlar v. Aetna
  Ins. Co., 127 Vt. 337, 347, 248 A.2d 740, 747 (1968).

       There is another relevant consideration.  Insurance contracts are not
  individually drafted agreements, nor are they drafted in isolation from
  contracts of other carriers.  The NUFI language comes from a standard
  industry model, as we noted sixteen years ago in State v. Glens Falls Ins.
  Co., 137 Vt. 313, 315 n.1, 404 A.2d 101, 103 n.1 (1979); see also Broadwell
  Realty Servs. v. Fidelity & Casualty Co. of N.Y., 528 A.2d 76, 84 (N.J.
  Super. Ct. 1987) (insurance industry developed standard occurrence-based
  liability policy which included definition of occurrence as in NUFI),
  abrogated by Morton Int'l Inc. v. Gen'l Acc. Ins. Co., 629 A.2d 831 (N.J.
  1993);  Rynearson, Exclusion of Expected or Intended Personal Injury or
  Property Damage Under the Occurrence Definition of the Standard
  Comprehensive General Liability Policy, 19 Forum 513, 513-14 (1984)
  (describing drafting history of "standard comprehensive general liability
  policy").  We can only assume that AEGIS has intentionally deviated from
  this model.

       We agree with the City that the differences between the AEGIS and NUFI
  policy language are determinative.  One dictionary defines "event" as
  "[s]omething that takes place" or "[t]he actual outcome or final result." 
  Webster's II New Riverside University Dictionary 448 (1984).  The American
  Heritage Dictionary defines "event" as "[a]n occurrence, incident, or

 

  experience, especially one of some significance."  American Heritage
  Dictionary 454 (1979). Neither of these definitions suggests that the term
  "event" is limited to an action that is accidental or unintended.  At best,
  the term is ambiguous, and this ambiguity must be resolved in favor of the
  insured.   See Garneau, 158 Vt. at 367, 610 A.2d  at 134.  We conclude that
  the term "event" in the excess liability policy covers the claims raised in
  Moffatt, and that AEGIS had a duty to indemnify Burlington.

       Our conclusion is reinforced by the fact that AEGIS has left out
  language covering occurrences only if they cause damages "neither expected
  nor intended from the standpoint of the insured."   In general, insurance
  policies that include the word "event" in their definition of "occurrence"
  also include an express coverage limitation regarding the intent or
  expectation of the insured.  See, e.g., CPC Int'l, 962 F.2d  at 83 n.5
  ("Occurrence" defined as "an accident, event or happening . . . which
  results . . . [in injury] neither expected nor intended from the standpoint
  of the Insured") (emphasis added); Diocese of Winona v. Interstate Fire &
  Casualty Co., 858 F. Supp. 1407, 1416 (D.Minn. 1994) ("occurrence" defined
  as "an accident, event, or happening that `unexpectedly and
  unintentionally' results in a loss") (emphasis added); Hatco Corp. v. W.R.
  Grace & Co.-- Conn, 801 F. Supp. 1334, 1351 (D.N.J. 1992) ("occurrence"
  defined as "an accident, event or continuous or repeated exposure to
  conditions which result...in injury . . . which is accidentally caused")
  (emphasis added).  The omission of this standard phrase reinforces that
  coverage extends beyond accidental occurrences.

       This decision does not fully resolve the controversy because AEGIS
  also relies on certain policy exclusions that were not addressed by the
  trial court.  Although the City would have us address those provisions, we
  decline to do so because they should first be construed and applied by the
  trial court.

       Reversed and remanded.


                              FOR THE COURT:


                              _______________________________________ 
                              Associate Justice