City of Burlington v. Associated Elec. & Gas Ins. Servs.
Annotate this Case
City of Burlington v. Associated Elec. & Gas Ins. Servs. (98-049); 170 Vt. 358;
751 A.2d 284
[Filed 25-Feb-2000]
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. 98-049
City of Burlington Supreme Court
On Appeal from
v. Chittenden Superior Court
Association of Gas and Electric January Term, 1999
Insurance Services, Ltd.
Linda Levitt, J.
John L. Franco, Jr., Burlington, and John T. Leddy of McNeil, Leddy &
Sheahan, P.C., Burlington, for Plaintiff-Appellee.
Joseph E. Frank of Paul, Frank & Collins, Inc., Burlington, for
Defendant-Appellant.
PRESENT: Amestoy, C.J., Morse, Johnson, Skoglund, JJ., and Cashman, D.J.
SKOGLUND, J. For the third time, we are asked to decide the extent
of insurance coverage, if any, available to appellee City of Burlington
concerning its settlement of a suit claiming that the City wrongfully
refused to accept wood chip deliveries as provided in a contract between
the City and the owners of a wood products business, the Moffatts. In the
first case, we determined that the City's primary liability policy with
National Union Fire Insurance Co. (NUFI) did not require the insurer to
defend and indemnify the City in response to the Moffatt suit. See City
of Burlington v. National Union Fire Ins. Co., 163 Vt. 124, 126, 655 A.2d 719, 720 (1994) (hereafter NUFI). In the second case, we concluded that
the insuring agreement contained in the City's excess liability policy
with appellant Associated Electric & Gas Insurance Services, Ltd. (AEGIS)
covered the
claims raised in the underlying suit, but remanded the matter for the
superior court to determine the applicability of policy exclusions not
previously considered. See City of Burlington v. Associated Elec. & Gas
Ins. Servs., 164 Vt. 218, 222-23, 669 A.2d 1181, 1184 (1995) (hereafter
AEGIS). Both AEGIS and the City now appeal the superior court's summary
judgment ruling on remand that the excess insurer must indemnify the City
for defending and settling the underlying claims for bodily injury. We
affirm.
The material facts are undisputed. The City sought indemnification
from NUFI and AEGIS in separate declaratory judgment actions after
defending against and eventually settling a lawsuit, entitled Moffatt v.
City of Burlington, in which the plaintiffs claimed that the City's
failure to fulfill its contractual obligations to purchase a specified
volume of wood chips for its electric generating plant caused them
economic losses and bodily injuries, including emotional distress. In
each case, the superior court awarded summary judgment to the insurer.
In NUFI, we affirmed the superior court's judgment that the Moffatt
allegations, sounding in breach of contract and related torts, were not
covered by NUFI's liability policy, which provided coverage for an
"occurrence" - defined as "an accident" resulting "in bodily injury or
property damage neither expected nor intended from the standpoint of the
insured." 163 Vt. at 126-27, 655 A.2d at 720. In so ruling, we noted
that an "accident" is an unexpected happening, and that the City had acted
intentionally in refusing the wood chip deliveries. See id. at 128, 655 A.2d at 721. Further, we distinguished cases cited by the City in which
the unintended harm constituted the "occurrence," noting that the City
"intended or expected economic injury to the wood chip suppliers when it
reduced its purchases from them." Id. at 128-29, 655 A.2d at 721-22. We
stated that basing coverage on the City's lack of "precise knowledge of the
amount or nature of the damage it might
inflict on others as a consequence of its business actions" would take us
"far afield from any common-sense definition of accident." Id. at 129,
655 A.2d at 722.
In AEGIS, however, we reversed the superior court's summary judgment
ruling in favor of the excess insurer. We relied on the particular
language of the policy's insuring agreement, which defined "occurrence" as
an "accident" or "event" resulting "in bodily injury, personal injury, or
property damage." AEGIS, 164 Vt. at 221, 669 A.2d at 1183. Noting that
the commonly understood meaning of the term "event" is not limited to
accidental or unintended actions, we concluded that the term covered the
claims raised in Moffatt, thereby requiring AEGIS to indemnify the City.
See id. at 222, 669 A.2d at 1184. We further stated that our conclusion
was reinforced by the fact that the AEGIS definition of "occurrence" did
not include the standard modifying phrase "neither expected nor intended"
contained in the NUFI policy's definition of "occurrence." See id. at
222-23, 669 A.2d at 1184. Nevertheless, because AEGIS also relied on
policy exclusions that "should first be construed and applied by the trial
court," id. at 223, 669 A.2d at 1184, our opinion did not resolve the
issue. We remanded the matter to the trial court to consider the policy
exclusions when determining whether AEGIS was required to indemnify the
City.
The exclusion examined on remand provides that coverage does not apply
"to liability of any INSURED for BODILY INJURY, PERSONAL INJURY or
PROPERTY DAMAGE caused intentionally by or at the direction of such
insured." After rejecting AEGIS's arguments that our conclusions in NUFI
compelled summary judgment in its favor, the superior court ruled that the
exclusion denied coverage for intentional injuries, but not necessarily for
intentional harms, and therefore the City's actions that led to the
underlying suit were not excluded from coverage. The court determined
that AEGIS was responsible for covering the City's liability and costs
associated
with the underlying claims for bodily injury, but not for property damage,
because the latter claims were actually seeking compensation for uncovered
economic losses. Accordingly, the court granted partial summary judgment
in favor of AEGIS and partial summary judgment in favor of the City.
Both parties appeal. AEGIS argues that the superior court erred in
concluding that (1) neither the doctrine of stare decisis nor the doctrine
of issue preclusion dictated granting summary judgment in favor of AEGIS;
(2) the AEGIS exclusion did not apply; (3) AEGIS's refusal to defend
against the Moffatt suit estopped it from challenging the justiciability of
the underlying claims for emotional distress; and (4) the City was
entitled to prejudgment interest on defense costs not associated
exclusively with the Moffatts economic loss claims. In addition to
opposing these arguments, the City contends in its cross-appeal that the
superior court erred in denying coverage for property damage, and in
failing to award the City full reimbursement for its costs in defending
against the Moffatt suit.
We apply the same standard as that applied by the trial court in
reviewing arguments challenging the grant or denial of summary judgment:
"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." NUFI, 163 Vt. at 127, 655 A.2d at 721. As was the
case in the two previous appeals concerning this matter, the parties do
not dispute the material facts; thus, the issues concern solely questions
of law.
I.
AEGIS first argues that under the doctrines of issue preclusion and
stare decisis NUFI is controlling precedent on the ultimate issue of
whether the City intended the harm resulting from its breach of contract.
In AEGIS's view, NUFI concluded that because the City intended some harm,
all resulting harm must be deemed intentional, regardless of its nature or
scope. Thus, AEGIS takes the position that NUFI compelled the superior
court on remand to conclude that the AEGIS exclusion denied coverage for
all of the resulting harm caused by the City's decision to limit the
Moffatts' wood chip deliveries.
We find no merit to this argument. NUFI construed a different
provision contained in a different policy. In NUFI, this Court was
concerned with whether the City's breach of contract was an "accident,"
which we had defined in previous case law as an unexpected happening
occurring without intention or design. See 163 Vt. at 128, 655 A.2d at
721. We stated that without question the City acted intentionally in
refusing the wood chip deliveries. See id. We also stated, in response
to the cases cited by the City holding that an intentional act may be an
"occurrence" if the resulting harm was unintended, that the City intended
or expected the Moffatts to incur economic injury from its decision to
limit deliveries, even if it was not aware of the precise nature or amount
of the damages. Id. at 128-29, 655 A.2d at 721-22. We concluded that
compelling NUFI to defend the Moffatt suit would have the effect of
imposing a duty to defend in virtually any commercial contract dispute,
and, consequently, would distort the purpose of the liability policy. Id.
at 129-30, 655 A.2d at ___.
These statements were made solely in support of our conclusion that
the City's conduct triggering the underlying suit was not accidental in
nature, and thus was not a covered "occurrence" under the particular
language of the NUFI policy. See id. at 129, 655 A.2d at 722-23
("common-sense definition of accident" would be stretched beyond
recognition if we were to base duty to defend on whether insured had
precise knowledge of amount or nature of damages that might result from
its business decision). They do not govern the question of whether, under
the AEGIS
exclusionary clause, any "BODILY INJURY, PERSONAL INJURY or PROPERTY
DAMAGE" alleged in the Moffatt complaint was "caused intentionally" by the
City. Indeed, "the same issue as in NUFI" was raised in AEGIS but
resolved in favor of the City because the definition of "occurrence" in
the AEGIS policy was more expansive, covering both events and accidents.
See AEGIS, 164 Vt. at 220, 669 A.2d at 1183 ("real difference" between
NUFI and AEGIS policies lies in content of definition of "occurrence").
II.
AEGIS argues, however, that even if NUFI does not compel summary
judgment in its favor under the doctrines of issue preclusion or stare
decisis, its "intentional injury" exclusion should apply as a matter of
law because all of the injuries suffered by the Moffatts must be deemed
intentional under this Court's reasoning in Cooperative Fire Ins. Ass'n of
Vermont v. Bizon, 166 Vt. 326, 693 A.2d 722 (1997) and Nationwide Mut.
Fire Ins. Co. v. Lajoie, 163 Vt. 619, 661 A.2d 85 (1995) (mem.). These
two cases do not support AEGIS's argument.
In Bizon, we upheld the superior court's denial of coverage based on
our conclusion that the insured's act of shooting at another person was an
"intentional act" within the meaning of the applicable policy's exclusion.
See 166 Vt. at 333-34, 693 A.2d at 727. In so ruling, we stressed "that
the wording of the policy makes the exclusion applicable when the 'act,'
not the injury, is intentional," and that a "person who deliberately fires
a gun at another knows that it will inflict injury although the shooter
cannot necessarily predict the extent of that injury." Bizon, 166 Vt. at
334, 693 A.2d at 727.
Here, in contrast, the AEGIS exclusion denies coverage only when the
harm is "caused intentionally." The superior court found the AEGIS
exclusion ambiguous as to whether it applied
to intentional acts or intentional injuries. But after construing the
provision in favor of the insured, see id. at 333, 693 A.2d at 727, the
court ultimately concluded that the policy denied coverage only for
intentional injuries. We find no ambiguity in the language of the
exclusion, which plainly denies coverage for "BODILY INJURY, PERSONAL
INJURY, or PROPERTY DAMAGE caused intentionally by or at the direction of
such INSURED." Assuming that the City intentionally breached its
commercial contract with the Moffatts, that intentional act, in and of
itself, did not manifest an intent to cause bodily injury or property
damage.
In Lajoie, we upheld the trial court's ruling that the insured's
sexual and emotional abuse of his stepdaughter was intentional conduct as
a matter of law and not covered under the applicable policy. See 163 Vt.
at 620, 661 A.2d at 85. That decision, in which we applied a rule
inferring intent to injure in cases involving sexual abuse of a minor, see
id.; see also TBH v. Meyer, 168 Vt. 149, 153, 716 A.2d 31, 34 (1998)
(extending inferred-intent rule to situations involving non-physical
sexual exploitation of child), has no application here.
The most that can be said from the pleadings and supplementary filings
of the parties in this case is that the City could have reasonably
expected their reduction in wood chip orders to have an economic impact on
the Moffatts. This is a far cry from showing that the City intentionally
caused bodily injury or property damage to the Moffatts. Indeed, nothing
in the record suggests such an intent, and AEGIS has failed to cite any
case law based on even remotely similar facts denying coverage under an
intentional-harm exclusion such as the one under review here.
Accordingly, summary judgment in favor of the City is appropriate with
respect to the claimed exclusion. See City of Burlington v. Glen Falls
Ins. Co., 133 Vt. 423, 424, 340 A.2d 89, 90 (1975) (stating general rule
that insurance policy exclusions must be strictly construed); First Am.
Nat'l Bank v. Fidelity &
Deposit Co., 5 F.3d 982, 984-85 (6th Cir. 1993) (insurer has burden of
establishing that loss results from cause falling within policy
exclusion); Gerrish Corp. v. Universal Underwriters Ins. Co., 947 F.2d 1023, 1029-30 (2d Cir. 1991) (under Vermont law, insurance policy
exclusions are to be strictly and narrowly construed); Davis v. Liberty
Mut. Ins. Co., 19 F. Supp. 2d 193, 202 (D. Vt. 1998) (to escape duty to
defend, insurer has burden of showing that claims against it are entirely
excluded from coverage).
III.
Next, AEGIS argues that even if its intentional-harm exclusion is
inapplicable here, the City is not entitled to indemnification for the
claims of bodily injury alleged in the underlying complaint because those
claims are not justiciable. AEGIS further contends that the superior court
erred in ruling that AEGIS waived any right to challenge justiciability of
those claims by failing to defend against them in the Moffatt suit.
For the most part, the claims of bodily injury in the underlying
complaint alleged that the Moffatts suffered various forms of emotional
distress, accompanied by a variety of physical manifestations, as the
result of the City's conduct and their ensuing financial problems. AEGIS
argued before the superior court that because the Moffatts' claims for
damages based on emotional distress were not justiciable under Vermont
law, either as part of their existing claims or as independent torts, the
City was not entitled to indemnification for having settled those claims.
The superior court initially ruled that AEGIS was liable to indemnify
the City for the emotional distress claims because they fell within the
policy's definition of bodily injuries. In response to AEGIS's motion to
reconsider, the court stated that it need not decide whether the Moffatts'
emotional distress claims were justiciable under Vermont law because
AEGIS's refusal
to defend the City in the underlying suit estopped the insurer from
challenging the ensuing settlement. The Court further found that the City
acted reasonably in settling the Moffatt lawsuit and compensating the
Moffatts for their claimed bodily injuries because, in a prior summary
judgment motion in the underlying suit, the City had challenged the
Moffatts' claims to emotional distress damages on much the same grounds as
later argued by AEGIS, and the superior court had rejected the City's
arguments and denied its motion before the City elected to settle.
Here, on appeal, AEGIS renews its contention that there was no viable
claim for emotional distress damages, arguing that (1) emotional distress
is not within the scope of incidental damages that may be claimed by a
seller as the result of a buyer's breach of a commercial contract for the
sale of goods, see 9A V.S.A. §§ 2-708, 2-710; and (2) the Moffatts' claims
do not demonstrate that city officials either engaged in the kind of
outrageous and extreme conduct necessary to support a claim of intentional
infliction of emotional distress, see Jobin v. McQuillen, 158 Vt. 322,
327, 609 A.2d 990, 993 (1992), or negligently inflicted emotional distress
upon the Moffatts by placing them in danger and thus subjecting them to a
reasonable fear of imminent physical harm, see id. at 328, 609 A.2d at
993. AEGIS further contends that, as the excess insurer, it had no duty
to defend, and thus the superior court erred in concluding that it waived
its right to challenge the settlement by failing to defend against the
underlying suit.
We conclude that provisions in the AEGIS policy obligated the insurer
to indemnify the City with respect to that part of the settlement
compensating the Moffatts for their claimed bodily injuries. Under the
AEGIS policy, the term "bodily injury" explicitly includes "mental anguish"
and "emotional upset." The policy requires AEGIS to indemnify the insured
for any and all sums that the insured "shall become legally obligated to
pay as ULTIMATE NET LOSS by reason of the
liability imposed upon the INSURED by law or liability assumed by the
INSURED under CONTRACT . . . for damages because of BODILY INJURY,
PERSONAL INJURY or PROPERTY DAMAGE." (emphasis added). Under the policy,
the term "ultimate net loss" includes "all sums which the INSURED shall
become legally obligated to pay as damages either by adjudication or
compromise with the consent of the COMPANY . . . and all expenses incurred
by the INSURED in the investigation, negotiation, settlement and defense of
any claim or suit seeking such damages." In a section entitled
"cooperation and settlements," the policy provides that, in the event of
an occurrence "which may involve this POLICY, the NAMED INSURED may,
without prejudice as to liability, proceed immediately with settlements."
The section further provides that while the insurer may not be required to
assume charge of the settlement or defense of a claim, it shall have the
right and shall be given the opportunity to associate with the insured and
any other insurer in the defense and control of a claim under its policy.
In this case, the City became legally liable to pay a judgment as the
result of its settlement with the Moffatts based on underlying facts that
constituted an "occurrence" under the AEGIS policy. Further, the
Moffatts' claims for bodily injury fell squarely within the definition of
bodily injury contained in the AEGIS policy. AEGIS may not have consented
to the settlement and may not, as an excess insurer, have had a duty to
defend against the Moffatt suit. But having failed to identify its duty
to indemnify the City under the policy, AEGIS cannot now avoid that duty by
relying on a requirement that it consent to any settlement. Indeed, as
noted, under the section in the AEGIS policy specifically addressing
settlements, the insured "may, without prejudice as to liability, proceed
immediately with settlements" not exceeding the policy limit. To the
extent that the AEGIS policy provisions are ambiguous in this regard, they
must be construed in favor of the insured. See
Bizon, 166 Vt. at 333, 693 A.2d at 727. Accordingly, notwithstanding its
arguments to the contrary, AEGIS's contention that the superior court
erred by granting summary judgment to the City with respect to the
underlying claims for bodily injury is without merit.
IV.
Before addressing AEGIS's final argument challenging the trial court's
award of prejudgment interest, we examine the City's arguments on
cross-appeal that the trial court erred in (1) concluding that the
economic harm claimed by the Moffatts was not covered "property damage"
under the AEGIS policy, and (2) declining to award the City full
reimbursement for its costs in defending and settling all of the claims in
the Moffatt suit.
A.
First, the City argues that because the Moffatts' claims of economic
harm fit within the definition of "property damage" contained in the AEGIS
policy, the superior court should have required AEGIS to indemnify the
City for its defense and settlement of those claims as well as the
Moffatts' bodily injury claims. We disagree.
In their complaint, the Moffatts alleged that as the result of the
City's conduct (1) they did not receive the profits that their company
would otherwise have generated; (2) they were forced to dispose of assets
and properties at distressed prices to raise funds to pay creditors; (3)
some of their equipment necessary for the business was repossessed, and
foreclosure proceedings were commenced against them; (4) their other
business, which had previously been profitable, was crippled; (5) their
inability to pay off loans because of the City's conduct resulted in
their incurring costs associated with additional interest charges, penalty
fees, and attorney's fees; (6) their business reputation and standing in
the community was permanently damaged; (7) their credit-worthiness
was destroyed; and (8) they suffered emotional distress.
Under the applicable AEGIS policy, "property damage" is defined as
(1) physical injury to or destruction of tangible property which
occurs during the POLICY PERIOD, including the loss of use
thereof at any time resulting therefrom; or (2) loss of use at any
time of tangible property which has not been physically injured or
destroyed provided such loss of use is caused by an accident or an
event or continuous or repeated exposure to conditions during the
POLICY PERIOD.
This definition is essentially identical to the general liability insurance
policy form that was revised in 1973. In the earlier 1966 version,
"property damage" was defined simply as "injury to or destruction of
tangible property." Lucker Mfg. v. Home Ins. Co., 23 F.3d 808, 815 (3d
Cir. 1994). Some courts interpreted this definition broadly to cover
nonphysical injuries, while other courts denied coverage when there was no
physical contact between the person causing the injury and the property
that was damaged. See id.; Eljer Mfg. v. Liberty Mut. Ins. Co., 972 F.2d 805, 810 (7th Cir. 1992). The 1973 revision was intended to resolve this
conflict by creating a two-part definition that plainly allowed coverage
for both physical and nonphysical injuries. See Lucker Mfg., 23 F.3d at
815; Eljer Mfg., 972 F.2d at 810.
Here, as noted, the alleged "property damage" suffered by the Moffatts
was loss of profits, assets, equipment, reputation, and credit-worthiness.
The superior court found no evidence of any physical injury to, or
destruction of, tangible property. Further, the court concluded that the
Moffatts' loss of business opportunity with the City, which resulted in
lost profits and a subsequent loss of assets used in their business, was
purely economic loss not covered as "property damage" under the AEGIS
policy.
On appeal, the City contends that the Moffatts lost the use of
tangible property - equipment
and machinery through repossession, and real property through foreclosure
proceedings - and that they suffered lost profits and other consequential
losses as the result of their loss of that tangible property. The City's
argument is not persuasive. The vast majority of courts have held that
purely economic losses, such as lost profits, are generally not recoverable
under insurance provisions providing coverage for the loss of use of
tangible property. See Coultner v. CIGNA Property & Cas. Cos., 934 F. Supp. 1101, 1122-23 (N.D. Iowa 1996); American States Ins. Co. v. Martin,
662 So. 2d 245, 248-49 (Ala. 1995); L. Ray Packing Co. v. Commercial Union
Ins. Co., 469 A.2d 832, 835 (Me. 1983). There may be an exception to this
general rule when an occurrence causes the loss of use of tangible
property, and the loss of use, in turn, then causes economic losses such
as lost profits. See, e.g., National Union Fire Ins. Co. v. Structural
Sys. Tech., Inc., 756 F. Supp. 1232, 1241 (E.D. Mo. 1991) (suggesting that
coverage for lost profits and diminution in value would be available
because collapse of radio tower resulted in loss of use of tangible
property). For example, if a manufacturer of construction cranes sold a
defective crane that collapsed in front of, and blocked physical access
to, a restaurant, some courts would require the manufacturer's insurer to
provide coverage for the loss of use of the restaurant, including lost
income. See Lucker Mfg., 23 F.3d at 815 n.6; see also Continental Cas.
Co. v. Gilbane Bldg. Co., 461 N.E.2d 209, 214 (Mass. 1984) ("loss of
access"). In such situations, coverage for lost profits may be
appropriate because the occurrence directly caused a loss of use of
tangible property, which resulted in lost income.
The converse situation exists in the instant case. The "event" - the
City's decision to limit wood deliveries - caused the Moffatts' wood
products business to incur a loss of income, which, in turn, had other
collateral effects, including the repossession of, and foreclosure on,
tangible property. The heart of the underlying claim is that the City's
breach of contract caused a loss of business
opportunity and thus lost income. Cf. General Ins.Co. v. Western Am. Dev.
Co., 603 P.2d 1245, 1247 (Or. Ct. App. 1979) (coverage for "loss of use of
tangible property" was not available to purchasers claiming that real
property they bought was worth less than they expected because of
existence of easement). The loss of use of tangible property was
incidental to, and not directly caused by, the "event." Accordingly, the
superior court did not err in refusing to extend coverage for the
underlying economic-loss claims. See 9 L. Russ, Couch on Insurance 3d §
126:39 (1997) (coverage will not be triggered by loss of use indirectly
related to insured occurrence).
B.
The City also argues in its cross-appeal that even if only the bodily
injury portion of the Moffatt settlement is covered, the language of the
AEGIS policy requires indemnification of all defense costs without
apportionment. Again, we disagree.
The superior court concluded that it was appropriate to apportion the
covered and noncovered portions of the settlement and costs of defense
because the settlement distinguished between claims for bodily injury and
those for other noncovered claims. In so ruling, the superior court
relied on the following analysis:
Where an insured is forced to defend suit because his insurer denies
coverage, the insured may recover attorney's fees expended in that
defense if it is determined that the insurer was, in fact, obligated to
defend. Buntin v. Continental Ins. Co., 525 F. Supp. 1077, 1083
(D.V..I. 1981). Where, however, the suit contains claims which
the insurer is not obligated to defend, the question arises whether
the insured is entitled to recover all fees expended in defense of the
suit. In such a situation, courts generally apportion the fees where
the non-covered claims can "clearly be distinguished from the
covered claims." Crist v. Insurance Co. of North Amer., 529 F. Supp. 601, 604 (D. Utah 1982). Where the covered and non-
covered claims cannot be so distinguished, the insurer will be liable
for all fees expended. Id. at 604.
Burlington Drug Co. v. Royal Globe Ins. Co., 616 F. Supp. 481, 483 (D. Vt.
1985).
The City notes that some courts in other jurisdictions have taken
different approaches from Burlington Drug, but states that this Court need
not decide which approach to adopt because the language of the AEGIS
policy requires that there be no allocation of defense costs for covered
and noncovered claims. The City relies on two policy provisions. The
first defines "ultimate net loss" as:
(1) all sums which the INSURED shall become legally obligated to
pay as damages either by adjudication or compromise with the
consent of the COMPANY . . . ; and (2) all expenses incurred by
the INSURED in the investigation, negotiation, settlement and
defense of any claim or suit seeking such damages . . . .
The second provides that the insurer agrees to indemnify:
The INSURED for any and all sums which the INSURED shall
become legally obligated to pay as ULTIMATE NET LOSS by
reason of the liability imposed upon the INSURED by law or
liability assumed by the INSURED under CONTRACT . . . for
damages because of BODILY INJURY, PERSONAL INJURY or
PROPERTY DAMAGE caused by an OCCURRENCE.
We do not agree that the provisions relied upon by the City require
AEGIS to pay for all defense costs regardless of whether they concern
covered or noncovered claims. Indeed, under the latter provision, AEGIS's
duty to indemnify is limited to the insured's liability resulting from
bodily injury or property damage caused by an occurrence. We have already
upheld the superior court's ruling that the Moffatts' economic-loss claims
were not covered as property damage under the AEGIS policy. Further,
insofar as the City relies solely on the language of the policy
provisions, and makes no attempt to argue for an allocation rule other than
the one set forth in Burlington Drug and adopted by the superior court in
this case, we need not consider that question here.
V.
AEGIS's final argument is that even if the Moffatt bodily injury
claims are covered, the superior court erred by awarding prejudgment
interest on the costs of defense related to those claims. Testimony at an
evidentiary hearing revealed that of the $492,859 in legal costs expended
by the City in defense of the Moffatt suit, $133,446 was attributable to
solely economic damage claims, $2677 was attributable solely to bodily
injury damage claims, and the remaining $356,736 was either attributable
to fees associated with the City's general defense of liability, or could
not be tracked with certainty to bodily injury or economic-loss damage
claims. The superior court ruled that AEGIS was required to indemnify the
City for $356,736 in legal fees because (1) none of those fees could be
allocated exclusively to noncovered economic losses, see Burlington Drug,
616 F. Supp. at 483 (insurer will be liable for all fees that cannot be
associated with noncovered claims), and (2) the fees were incurred in
defense of liability and thus would have been necessary notwithstanding
the existence of noncovered claims. The court then concluded that the City
had a right to prejudgment interest because the fees were easily
ascertainable. See Estate of Fleming v. Nicholson, ___ Vt. ___, ___, 724 A.2d 1026, 1030 (1998) (award of prejudgment interest is mandatory when
damages are readily ascertainable, and is discretionary in other
circumstances).
AEGIS contends that the fees were not readily ascertainable because
the bulk of the defense costs associated with the two types of claims were
scrambled in a massive billing ascertainable only by the attorney who was
familiar with the billing. We find no error. As noted, the superior court
concluded that the City was entitled to the $356,736 in fees because it
would have incurred those fees even if the non-covered claims had not
existed. AEGIS does not challenge this conclusion. Nor does AEGIS suggest
that the claimed legal work was not done, or that the amount of the fees
was
unreasonable. Accordingly, the superior court correctly determined that
the fees were ascertainable and thus subject to prejudgment interest.
Affirmed.
FOR THE COURT:
_______________________________________
Associate Justice
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