T. Copeland & Sons v. Kansa General Ins. Co.

T. Copeland & Sons v. Kansa General Ins. Co. (98-505); 171 Vt. 189; 
762 A.2d 471 

[Filed 28-Jul-2000]
[Motion for Reargument Denied 29-Aug-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. 98-505


T. Copeland & Sons, Inc., et al.	         Supreme Court

                                                 On Appeal from
     v.	                                         Orange Superior Court


Kansa General Insurance Company, et al.	         September Term, 1999



Shireen Avis Fisher, J.

R. Bradford Fawley of Downs Rachlin & Martin, PLLC, Brattleboro, for 
  Plaintiffs-Appellants.

Frank H. Zetelski, Rutland, for Defendant-Appellee Kansa General International
  Insurance Co.

John L. Putnam and David R. Putnam of Stebbins, Bradley, Wood & Harvey, 
  Hanover, New Hampshire, for Defendant-Appellee U.S. Fire Insurance Co.

William H. Quinn of Pierson, Wadhams, Quinn & Yates, Burlington, for 
  Defendant-Appellee Zurich Insurance Co.

John Davis Buckley of Theriault & Joslin, P.C., Montpelier, and Richard W. 
  Bryan and Richard S. Kuhl of Jackson & Campbell, P.C., Washington, D.C., 
  for Defendants-Appellees American Homes Assurance Co. and New Hampshire 
  Insurance Co.

Samuel Hoar, Jr., Shapleigh Smith, Jr. and Elizabeth H. Miller of Dinse, Knapp
  & McAndrew, P.C., for Defendant-Appellee Reliance Insurance Co.

Brooks, McNally, Platto & Vitt, P.C., Norwich, and Alexandre de Gramont of 
  Crowell & Moring, LLP, Washington, D.C., for Defendant-Appellee Cigna Insurance Co.


PRESENT:  Amestoy, C.J., Morse, Johnson, Skoglund, JJ., and Van Benthuysen, 
          Superior J., Specially Assigned.

 

       MORSE, J.  Plaintiff Copeland, as judgment creditor, sued the seven
  insurance companies of  the judgment debtor, Maska U.S., Inc., for damages
  under a direct action statute, which provides, "in  case of [the]
  insolvency or bankruptcy [of insured,] an action may be maintained by the
  injured  person or claimant against the company under the terms of the
  policy."  8 V.S.A. § 4203(3).  The  superior court granted defendants'
  motions to dismiss on the ground that Copeland's suit was time-barred by
  the one-year limitations period established by 8 V.S.A. § 4203(2) ("No
  action shall lie  against the company to recover for any loss under this
  policy, unless brought within one year after  the amount of such loss is
  made certain either by judgment against the insured . . . or by agreement 
  between the parties . . . .").  Copeland argues that the court erred by not
  applying the general six-year  limitations period provided by 12 V.S.A. §
  511 ("A civil action . . . shall be commenced within six  years after the
  cause of action accrues and not thereafter."). We affirm.

       Copeland manufactures furniture at the Pierson Industrial Park in
  Bradford, Vermont.  In  June 1992, Copeland sued Maska, an adjoining
  manufacturer of hockey jerseys, for alleged  contamination of its real
  property.  The case settled, and, on June 28, 1995, the superior court
  entered  judgment against Maska in the amount of $7,000,000.  On October
  24, 1995, after it had paid  Copeland $1,000,000 towards satisfaction of
  the judgment, Maska filed for bankruptcy. (FN1) On  November 1, 1996,
  Copeland sued Maska's several insurers, the defendants below, to recover
  its  judgment.

 

       In 1919, the Vermont Legislature passed an act requiring that all
  liability insurance policies  issued in Vermont contain four conditions. 
  See 1919, No. 155, § 2 (codified as 8 V.S.A. § 4203(1)-(4)).  Two are at
  issue in this case.  They are subsection (2):

          No action shall lie against the [insurance] company to recover 
     for any loss under this [insurance] policy, unless brought within one 
     year after the amount of such loss is made certain either by judgment 
     against the insured after final determination of the litigation or by 
     agreement between the parties with the written consent of the 
     company;

id. § 4203(2), and subsection (3):

          The insolvency or bankruptcy of the insured shall not release 
     the company from the payment of damages for injury sustained or 
     loss occasioned during the life of the policy, and in case of such 
     insolvency or bankruptcy an action may be maintained by the injured 
     person or claimant against the company under the terms of the policy, 
     for the amount of any judgment obtained against the insured not 
     exceeding the limits of the policy.

  Id. § 4203(3).  Thus, subsection (2) established a one-year limitations
  period for actions against  insurers seeking to recover under an insurance
  policy, and subsection (3) created an avenue through  which injured parties
  could directly sue insurance carriers if the insured is insolvent or
  bankrupt.  As  mentioned above, Copeland invoked subsection (3) to bring
  the underlying suit against defendants.   We now must determine whether it
  was too late in doing so, because the judgment was entered on  June 28,
  1995, Maska filed for bankruptcy on October 24, 1995, and the suit to
  recover judgment  was not brought until November 1, 1996.

       Copeland contends that the plain language of  § 4203 means that the
  one-year limitations  period is applicable solely to claims brought by the
  insured against the insurer, not by third-party  judgment creditors. 
  Copeland supports its plain-language interpretation by arguing that 

 

  subsection (2) is separate from, and unrelated to, subsection (3) because
  the former lacks any  reference to direct actions or third-party claims,
  and that its only relation to subsection (3) is the  happenstance of being
  one in a series of six conditions that the Legislature requires all
  insurers to  include in the policies they deliver or sell in Vermont. 
  Copeland maintains that the words "loss  under this policy" in subsection
  (2) refer only to the financial detriment suffered by an insured for  which
  the insurer is liable, and the word "recover" preceding them, by
  definition, means only to get  back or regain.  Therefore, the limitations
  period is applicable to those actions brought by the insured  to get back
  or regain the financial detriment that he has suffered, and does not apply
  to third-party  actions seeking payment on a judgment.  See Olds v. General
  Accident Fire & Life Assurance Corp.,  Ltd., 155 P.2d 676, 680 (Cal. Dist.
  Ct. App. 1945) ("The words 'recover' and 'loss under this policy,'  in
  their normal connotation, would seem to refer to actions by the assured
  after he has paid the  judgment.  The injured third person does not suffer
  a 'loss under this policy' nor are his actions to  'recover' such a loss. .
  . . [,] but an action to be reimbursed for damages suffered . . . .").
  (FN2)   Furthermore, Copeland asserts, reading subsection (2) as applicable
  to actions brought by third  parties would render the operative phrase
  "loss under this policy" surplusage.  See Trombley v.  Bellows Falls Union
  High School, 160 Vt. 101, 104, 624 A.2d 857, 860 (1993) (statutes may not
  be  construed so as to render a significant part pure surplusage).  

       Our primary objective in construing a statute is to give effect to the
  intent of the Legislature.   See In re P.S., 167 Vt. 63, 70, 702 A.2d 98,
  102 (1997).  The first step in 

 

  determining such intent is to study the language of the statute.  See
  Brennan v. Town of Colchester,  ___ Vt. ___, ___, 730 A.2d 601, 603 (1999). 
  Our review of the plain language of § 4203 leads to the  conclusion that
  the Legislature intended the one-year limitations period in subsection (2)
  to govern  direct actions brought under subsection (3).

       First, we are not persuaded by Copeland's argument that subsections
  (2) and (3) are isolated  and unrelated statutory provisions.  The
  Legislature has not amended the language of § 4203 from its  original form
  with the exception of adding subsections (5) and (6).  The original act
  mandated that  four conditions be included in liability insurance policies,
  setting out the conditions one per  paragraph.  See 1919, No. 155, § 2.  In
  other words, the subsections first appeared as a larger whole  that read as
  one section of the original act, not as four separate and independent
  subsections.  Thus,  subsections (2) and (3) were drafted as part of an
  overall statutory scheme and should be read and  construed together. (FN3) 
  See Galkin v. Town of Chester, 168 Vt. 82, 87, 716 A.2d 25, 29 (1998) 
  (statutes in pari materia are to be construed together).

       Second, as illustrated by their use in other subsections of § 4203,
  the Legislature accorded a  broader definition to "recover" and "loss" than
  Copeland argues.  For example, subsection (1) sets  forth the first
  condition required of insurance policies: "The company shall pay and
  satisfy any  judgment that may be recovered against the insured upon any
  claim covered by this policy

 

  . . . ."  8 V.S.A. § 4203(1).  If a third-party judgment creditor may
  "recover" the judgment against the  insured, we see no reason why it cannot
  also be said that he can "recover" against the insurer.

       While "loss" traditionally has been defined as the amount of an
  insured's financial detriment  that the insurer becomes liable to pay, we
  believe that the Legislature broadened "loss" to include the  financial
  detriment suffered by a third party.  Subsection (3) declares that
  bankruptcy shall not  release the insurance company from "payment of
  damages for injury sustained or loss occasioned  during the life of the
  policy, and in case of such insolvency or bankruptcy an action may be 
  maintained by the injured person or claimant against the company under the
  terms of the policy . . . ."  Id. § 4203(3).  This language, particularly
  the inclusiveness of the phrases "injury sustained or loss  occasioned" and
  "injured person or claimant," id. § 4203(3) (emphasis added), illustrates
  the  Legislature's broad interpretation of the vocabulary employed in the
  context of liability insurance, as  well as the interchangeable nature of
  words like "loss" and "injury," and "injured person" and  "claimant."   

       This interchangeability, furthermore, does not render operative words
  of subsection (2)  surplusage.  Copeland argues by illustration that, had
  the Legislature intended to include third-party  claims within the scope of
  subsection (2), it would have written the statute by deleting the following 
  underlined words: "No action shall lie against the company to recover for
  any loss under this policy,  unless brought within one-year after the
  amount of such loss is made certain either by judgment  against the insured
  . . . ."  Id. § 4203(2).  The language emphasized above, however, merely
  describes  a traditional first-party action brought under an insurance
  policy, which in turn becomes  interchangeable with a third-party action
  under subsection (3).  We believe, 

 

  therefore, that the Legislature used "loss" in subsection (2) to refer to
  damages suffered by either the  insured or an injured third party. 
  Consequently, the plain language of subsection (2) - "[n]o action  shall
  lie against the company to recover for any loss" - applies to third-party
  actions brought under  the direct action provision.  Id. § 4203(2).

       We also note that subsection (2) was not worded so as to apply only to
  those actions brought  upon the policy.  Copeland marshals cases in which
  the phrase "[n]o suit or action on this policy,"  preceding language
  setting forth a limitations period, has been interpreted as narrowing the 
  applicability of the limitations period such that it does not include all
  suits.  See, e.g., Stahl v.  Preston Mutual Ins. Ass'n, 517 N.W.2d 201, 203
  (Iowa 1994); Lees v. Middlesex Ins., 594 A.2d 952,  956 (Conn. 1991); Hearn
  v. Rickenbacker, 400 N.W.2d 90, 94 (Mich. 1987).  Accordingly, Copeland 
  urges us to reject the notion that subsection (2) applies to all suits,
  including direct actions.  

       Subsection (2), unlike the language in the cases cited by Copeland,
  states that "[n]o action  shall lie against the company to recover for any
  loss under this policy."  8 V.S.A. § 4203(2).  There is  no restriction
  that actions must be upon the policy; rather, the language is inclusive of
  all suits  seeking recovery.  Therefore, we find these cases unpersuasive.

       Third, the plain language of subsection (3) - that a direct action
  "may be maintained by the  injured person or claimant against the company
  under the terms of the policy," id. § 4203(3)  (emphasis added) - grants
  third parties a derivative right to sue the insurer that is no greater than
  that  of the insured's.  "[W]here the injured party is given a right of
  action 'under the terms of the policy,'  he or she must obviously comply
  with policy terms and conditions or forfeit his or her rights the  same as
  the insured."  7 L. Russ & T. Segalla, Couch on Insurance § 104:39, at
  104-62

 

  (3d ed. 1997).  Under the derivative-right theory, the third party levying
  a direct action stands in the  same shoes as the insured and with rights
  equal to, but not greater than, the insured.  

       This Court has long recognized and approved of the derivative nature
  of third-party rights.   For example, we stated, when addressing the
  question of whether notice of an accident was given as  required by an
  automobile liability insurance policy, that:

          It has been held that notice, given by the injured party as a 
     beneficiary and a party in interest, acting in behalf of the insured, may 
     be a sufficient compliance with the terms of the policy, in the absence 
     of action by the insured.  But notice must be reasonable . . . for, 
     according to the weight of authority, the injured party stands in the 
     shoes of the insured, and is subject to the provisions of the policy and 
     to any defense which the insurer might have raised against the 
     insured.  This is so whether the right of action is conferred by statute 
     . . . or arises under a clause in the insurance contract, as it does here, 
     stipulating that a proceeding brought by the injured party against the 
     insurer, after judgment obtained against the insured, shall be "under 
     the terms of this policy." 	

  Houran v. Preferred Accident Ins. Co., 109 Vt. 258, 265-66, 195 A. 253,
  255-56 (1938), overruled in  part on other grounds by Cooperative Fire Ins.
  Ass'n v. Bizon, 166 Vt. 326, 693 A.2d 722 (1997)  (emphasis added).  When
  this theory is literally followed, "it is apparent that the claimant is, in 
  effect, merely a transferee of the claim against the insurer and holds the
  claim subject to each  limitation and qualification to which it would be
  subject if it were asserted by the insured in an  action against the
  insurer."  7 Couch, supra, § 104:37, at 104-61.  Therefore, since
  subsection (2)  mandates that an insured has only one year in which to
  bring an action against the insurer, a third  party is bound by the same
  condition.

       Our conclusion that Copeland's direct action suit against defendants
  was subject to the one-year limitations period raises the question: When
  does the period begin to run?  Without 

 

  answering this question, the lower court concluded that Copeland's suit was
  nevertheless untimely  because Copeland filed it more than one year after
  both the date on which it received a judgment  against Maska and the date
  on which Maska filed for bankruptcy.  Because we arrive at the same 
  conclusion, we need not address this question.

       Affirmed.
                                       FOR THE COURT:

                                       _______________________________________
                                       Associate Justice


______________________________________________________________________________
                                  Footnotes


FN1.  According to Copeland, upon the adjudication of Maska's bankruptcy,
  they expect to  recover $3,000,000 from the estate, and be left with an
  unsatisfied judgement of a like amount.

FN2.  Olds is distinguishable from the instant case.  In Olds, the
  limitations period was  established by a provision in the insurance policy
  and was analyzed along with a direct action statute.  See Olds, 155 P.2d  at
  678-79.  Here, both the limitations period and the right to direct action
  are set  forth by statute, each provision a part of a larger statutory
  scheme.

FN3.  We find this axiom of statutory construction particularly relevant
  here.  Copeland would  have us liberally construe subsection (3) in favor
  of third parties, see Vincent v. Vermont State  Retirement Bd., 148 Vt.
  531, 536, 536 A.2d 925, 929 (1987) (remedial legislation is to be construed 
  in favor of beneficiary), and strictly construe subsection (2) as applying
  solely to insureds, see  Marshall v. Town of Brattleboro, 121 Vt. 417, 419,
  160 A.2d 762, 764 (1960) (curtailment of  remedy must receive strict
  construction).  Reading the two subsections together, however, is the rule 
  of statutory interpretation that best informs us of Legislature's intent
  behind § 4203.