Antley v. Allstate Ins. Co. ( 2017 )

Antley v. Allstate Ins. Co., No. 677-8-16 Cncv (Mello, J., Nov. 7, 2017).
[The text of this Vermont trial court opinion is unofficial. It has been reformatted from the original. The accuracy of the text and the
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VERMONT SUPERIOR COURT
CHITTENDEN UNIT
CIVIL DIVISION
│
CATHERINE ANTLEY and GIDEON │
BAVLY, │
Plaintiffs │
│
v. │ Docket No. 677-8-16 Cncv
│
ALLSTATE INSURANCE COMPANY, │
Defendant │
│
RULING ON MOTIONS FOR SUMMARY JUDGMENT
This matter involves an insurance coverage dispute. Plaintiffs (“Antley”) seek
coverage through their homeowners insurance policy for claims made against them in
another pending lawsuit. Stevens v. Antley, 152-2-14, Cncv. Defendant Allstate Insurance
Company (“Allstate”) had started defending Antley in that case, and then ceased its
defense after the plaintiffs dropped certain claims. The remaining claims, Allstate
contends, are not covered under the policy, and therefore it had no duty to defend. Also
at issue here is the enforceability of a Reservation of Rights and Non-Waiver Agreement
that purportedly gives Allstate the right to withdraw from its defense of Antley at any time.
Both parties have moved for summary judgment. Paul S. Gillies and Ryan P. Kane, Esqs.
represent Antley. John E. Brady, Esq. represents Allstate.
Undisputed Facts
In February 2014, Leduc, Stevens, and Thompson brought a civil action against
Antley, which included counts for quiet title, slander of title, and trespass with resulting
property damage. Stevens v. Antley, 152-2-14, Cncv. Antley subsequently
counterclaimed for trespass with resulting property damage. Antley sought
indemnification and defense from Allstate under her homeowners policy and personal
umbrella policy. Allstate denied coverage under the homeowners policy, but agreed to
provide a defense under the umbrella policy pursuant to a Reservation of Rights and Non-
Waiver Agreement, signed by Antley on February 15, 2016. That agreement cites several
provisions from the umbrella policy under which Allstate agreed to provide a defense,
including definitions of occurrence, bodily injury, personal injury, and property damage.
That agreement also provides, in pertinent part:
That the insurance company may withdraw from the
investigation or defense of any or all claims and/or suits
arising out of the incident, including, but not limited to the
lawsuit, at any time and discontinue its services,
investigations, negotiations or defense, provided that it shall
give the insured such reasonable notice of its election as
circumstances permit.
Non-Waiver Agreement at 2. The Agreement further provides:
That the insured agreement not to hereafter assert any claim
of waiver or estoppel or any other defense against the
insurance company because of and/or arising out of the
insurance company’s investigation of any claim and/or suit
arising out of the incident, including but not limited to the
lawsuit, because of and/or arising out of any negotiations for
settlement, or because of and/or arising out of any settlement
or defense of any claim and/or suit arising out of the incident,
including, but not limited to the lawsuit, which may have
occurred prior to the date of execution of this agreement, or
which may occur at any time hereafter.
Id.
The plaintiffs in the underlying action voluntarily dismissed counts I through III
(slander of title, trespass, and acquiescence) in June 2016. The remaining counts are for
quiet title (count I) and a declaratory judgment (count II). Allstate (through its attorney)
subsequently moved to withdraw, and this court granted that motion on September 26,
2016. Antley then commenced this action against Allstate, seeking a declaratory
judgment defining Allstate’s obligation to defend her in the underlying suit, as well as an
injunction ordering Allstate to provide such a defense and pay costs and fees uncovered
to date.
Discussion
Antley asserts that Allstate has a duty to defend as a matter of law under the policy
and the underlying complaint. She further maintains that, even if there is no duty to
defend, Allstate is now estopped from disclaiming coverage because the reservation of
rights and non-waiver agreement is unenforceable. Allstate contends that the dismissal
of certain claims in the underlying action has resulted in no possible duty to indemnify,
and that the non-waiver agreement is enforceable.
I. Allstate’s Duty to Defend
Interpretation of an insurance policy, like other contracts, is a question of
law. Shriner v. Amica Mut. Ins. Co., 2017 VT 23, ¶ 6; State Farm Mut. Auto. Ins. Co. v.
Colby, 2013 VT 80, ¶ 8, 194 Vt. 532 (citing Co–op. Ins. Cos. v. Woodward, 2012 VT 22,
¶ 8, 191 Vt. 348). An insurance policy must be construed according to its terms and the
evident intent of the parties as expressed in the policy language, while disputed terms
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should be read according to their “plain, ordinary and popular meaning.” Agency of
Natural Res. v. United States Fire Ins. Co., 173 Vt. 302, 308 (2001). This interpretation is
guided by a “review [of] the language of an insurance contract from the perspective of
what a reasonably prudent person applying for insurance would have understood it to
mean.” Woodward, 2012 VT 22, ¶ 9. Ambiguous policy language is construed in favor of
the insured, “in accordance with the insured’s reasonable expectations for
coverage.” Bradford Oil Co. v. Stonington Ins. Co., 2011 VT 108, ¶ 10, 190 Vt. 330. At
the same time, however, courts “will not deprive the insurer of unambiguous terms placed
in the contract for its benefit.” Id. Courts must give insurance contracts a “practical,
reasonable, and fair interpretation, consonant with the apparent object and intent of the
parties, and strained or forced constructions are to be avoided.” Id.An insurer’s duty to defend is broader than its duty to indemnify. City of Burlington
v. Nat’l Union Fire Ins. Co., 163 Vt. 124, 127 (1994) (citing Garneau v. Curtis & Bedell,
Inc., 158 Vt. 363, 366 (1992)). 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.” Id. “If any claims are potentially covered by the policy, the insurer has a duty to
defend. Conversely, where there is no possibility that the insurer might be obligated to
indemnify, there is no duty to defend.” Id. (citing Garneau, 158 Vt. at 366 (1992)); see
also Hardwick Recycling & Salvage, Inc. v. Acadia Ins. Co., 2004 VT 124, ¶¶ 14–15, 177
Vt. 421 (“A claim against the insured triggers the insurer’s duty to defend whenever it
appears that the policy might cover that type of claim.”).
Antley maintains that Allstate has a duty to defend her under the terms of the policy
and the complaint in the underlying action. Antley acknowledges that the trespass claim
was dismissed, but argues that because the factual allegations underlying that claim
remain in the complaint, Allstate’s duty to defend persists.
Allstate initially provided coverage because the umbrella policy covers “damages
which an insured person becomes legally obligated to pay because of . . . personal injury
or property damage . . . arising from a covered occurrence.” An “occurrence” is defined
as an “accident . . . resulting in . . . personal injury or property damage.” According to the
policy, “personal injury” includes “damages resulting from . . . wrongful entry; invasion of
rights of occupancy,” and “property damage” means “physical harm to or destruction of
tangible property, including loss of its use resulting from such physical harm or
destruction.” The underlying complaint, under the heading “Count V Trespass,” alleged
that Antley and her agents trespassed by “unlawfully entering onto Plaintiffs’ property,”
and that this trespass “has infringed upon the Plaintiffs’ use and enjoyment” of their land.
Stevens Compl. ¶¶ 33–34. An earlier paragraph of the complaint, under the heading
“general allegations,” claims that Antley has “entered onto the Plaintiffs’ parcels without
authorization in an attempt to develop a 50 foot improved access road from Mill Brook
Road over the Plaintiffs’ parcels to both the Callahan and Lathrop parcels that will be
used for heavy vehicular traffic including large logging trucks.” Id. ¶ 16. Antley contends
that because the allegation in paragraph 16 technically remains part of the complaint,
Allstate retains a duty to defend.
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Generally, in deciding whether a duty to defend exists, a court “must focus on the
factual allegations” of the underlying complaint, and “not on the legal theories
asserted.” TBH By & Through Howard v. Meyer, 168 Vt. 149, 153 (1998). Here, however,
the court agrees with Allstate that Antley’s argument irrationally elevates form over
substance. The only relief the plaintiffs in the underlying action now seek pursuant to the
remaining quiet title and declaratory judgment claims is for the court to adjudge and
determine the location of the parties’ respective property boundaries, as well as the
existence, location, scope, and use of the rights-of-way benefitting and encumbering the
respective parcels. The plaintiffs do not seek any damages for Antley’s alleged
unauthorized entrance on their land for the purpose of developing an improved access
road. In fact, it appears that the plaintiffs seek no damages whatsoever. Thus, “there is
no possibility that [Allstate] might be obligated to indemnify” and, consequently, “no duty
to defend.” City of Burlington, 163 Vt. at 127 (citing Garneau, 158 Vt. at 366).
Antley’s interpretation would stretch the general rule, that courts focus on the
factual allegations of the complaint rather than the legal theories asserted, well beyond
its plainly intended application. “In deciding the scope of a liability policy’s coverage, a
court must compare the policy language with the facts pled in the underlying suit to see if
the claim falls within the express terms of the policy; the legal nomenclature the plaintiff
uses to frame the suit is relatively unimportant.” Titan Holdings Syndicate, Inc. v. City of
Keene, N.H., 898 F.2d 265, 271 (1st Cir. 1990) (cited with approval in Meyer, 168 Vt. at
153) (second emphasis added); see also City of Burlington, 163 Vt. at 127 (“If any claims
are potentially covered by the policy, the insurer has a duty to defend.”) (emphasis
added). Here, the factual allegation in paragraph 16 of the complaint in the underlying
action supported only the trespass claim, which was dismissed. Consequently, there can
be no recovery of damages for that allegation.
Antley’s reliance on Employers Mut. Cas. Co. v. Cedar Rapids Television Co., 552
N.W.2d 639, 643 (Iowa 1996) is unpersuasive. There, the Iowa Supreme Court held that
an insurer’s duty to defend continued after a cause of action for a theory of recovery
specifically listed in the policy—malicious prosecution—was dismissed, because the
operative facts of the remaining count for intentional interference with contract contained
allegations of conduct that were arguably within the policy’s coverage for malicious
prosecution. Id. Here, however, the facts alleged in paragraph 16 of the complaint are
irrelevant to the remaining claims and, as the complaint currently stands, recovery of
damages as a result of those alleged facts is not possible. Moreover, the majority ruling
in Employers Mutual Casualty Co. is at odds with contrary authority which this court finds
persuasive:
The rule . . . that the majority of this court would apply purports
to turn on what damages might have been awarded under a
legal theory covered by the policy if that claim could have
been made on the facts of the case. . . . Contrary to the
majority’s suggestion, the duty to defend and the duty to
indemnify both depend on whether the policy extends to the
claims presented. The determination of whether these duties
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exist will ordinarily be made at different times, however. If,
while an action is pending, the pleadings or other
circumstances suggest a possibility that the plaintiff will
ultimately recover under a theory embraced by the policy,
then the insurer must defend that claim. In these ambiguous
pleading situations, an insurer may be required to defend a
suit that is not ultimately within the scope of its liability
coverage. That result is justified by the insurer’s duty to
defend against frivolous claims of the type insured. In the
present case, however, there was no ambiguity at the
pleading stage. The tort of malicious prosecution had been
clearly identified in the initial pleading and then cleanly and
unequivocally withdrawn from the case.
Employers Mut. Cas. Co., 552 N.W.2d at 645–46 (Carter, J., dissenting) (emphasis in
original). As a Florida appellate court similarly held:
There is no doubt that Nationwide was under a duty to defend
this action as originally filed. The facts alleged demonstrated
coverage and did not fall within the policy exclusion.
Nationwide’s duty to defend continued until the amended
complaint was filed, which alleged facts falling within the
exclusion. Since the amended complaint alleged only a single
cause of action, it became perfectly clear at that point that
plaintiff's entire claim was based on events which fell within
the policy exclusion. Since no other cause of action covered
by the policy remained in the amended complaint,
Nationwide’s duty to defend terminated at that point.
Baron Oil Co. v. Nationwide Mut. Fire Ins. Co., 470 So. 2d 810, 815 (Fla. Dist. Ct. App.
1985) (“Once the insurer’s duty to defend arises, it continues throughout the case
unless it is made to appear by the pleadings that the claims giving rise to coverage have
been eliminated from the suit.”).
II. Enforceability of Reservation of Rights and Non-Waiver Agreement
Ordinarily, when an insurer undertakes the defense of its insured, it waives any
defenses against payment under the policy unless it explicitly reserves its rights. See Am.
Fid. Co. v. Kerr, 138 Vt. 359, 363 (1980) (unilateral reservations by insurer are ineffective).
Antley contends that the reservation of rights and non-waiver agreement here is
overbroad, incomplete, contrary to public policy, and consequently unenforceable.
Specifically, she complains that the agreement sets forth no basis for the reservation or
conditions under which coverage may be withdrawn. Antley relies upon In re Lynch, 226
B.R. 813 (Bankr. D. Vt. 1998). In Lynch, the bankruptcy court held that a non-waiver
agreement issued by an insurer, which does not set forth any specific grounds for a
potential denial of coverage, is ineffective under Vermont law to preserve the insurer’s
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defenses to coverage. The court concluded that a reservation of rights or non-waiver
agreement should either quote or make specific reference to policy provisions which are
the basis for the insurer’s reservation of rights. Id. at 815–16.
The Lynch decision interpreted perhaps the leading case regarding the validity of
non-waiver agreements in Vermont, Cummings v. Connecticut Gen. Life Ins. Co., 102 Vt.
351 (1930). In Cummings, the Vermont Supreme Court held that when an insurer elects
to specify reasons for denying coverage, it thereafter waives all other available grounds
for denying coverage unless it expressly reserves the right to later raise other grounds.
The Court stated: “[W]hen [an insurance company] deliberately puts [its] refusal to pay on
a specified ground, and says no more, [it] should not be allowed to ‘mend [its] hold’ by
asserting other defenses.” Id. at 361–62; see also Hamlin v. Mut. Life Ins. Co., 145 Vt.
264, 268–69 (1984); Segalla v. United States Fire Ins. Co., 135 Vt. 185, 189 (1977) (“The
general principle of law controlling in this jurisdiction is that: [w]hen one defense is
specified by an insurer as to its reason for refusing to pay a loss, all others are waived.”).
This doctrine rests on Vermont’s public policy favoring honesty between an insurer and
its insured. Cummings, 102 Vt. at 361.
This court finds the reasoning of Lynch unpersuasive and declines to adopt it here.
Instead, this court adopts the reasoning of a Vermont federal district court decision
rejecting Lynch:
[I]n Cummings, the Court set forth the rule that, when an
insurer states one or more specified reasons for denying
responsibility under a policy, it waives all other known grounds
for denial. The Cummings Court did not, however, hold that
when an insurer generally reserves all applicable coverage
defenses without specifying any particular defenses, it is
barred from raising specific defenses later. In 2008, referring
to the “mend the hold” doctrine as the “insurance-defense-
waiver rule,” the Vermont Supreme Court acknowledged that
a general reservation of rights avoids waiver of additional
defenses, stating: “[A]n insurer waives additional defenses
that are not raised or reserved in an initial denial of
coverage.” Progressive Ins. Co. v. Brown ex rel. Brown, 184
Vt. 388, 391–92 (2008) (emphasis added)
(citing Cummings, 102 Vt. at 360). The Court continued: “[I]f
an insurer initially denies coverage on a specified basis and
does not reserve the right to later raise other grounds, it
waives any additional defenses.” Id. at 392 (emphasis added)
(citing Hardwick Recycling & Salvage, Inc. v. Acadia Ins.
Co., 177 Vt. 421, 427 (2004)). Clearly, the “mend the hold”
doctrine does not bar insurers from generally reserving their
right to assert coverage defenses.
...
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The Lynch holding that a general reservation of rights is
ineffective conflicts with the Cummings decision . . . and
established Vermont jurisprudence. For example, in Vermont
Ins. Mgmt., Inc. v. Lumbermens’ Mut. Cas. Co., 171 Vt. 601,
603 (2000), the Vermont Supreme Court held that, “[w]e have
long recognized that a bilateral reservation of rights
agreement prevents a waiver of the right to dispute coverage.”
And in City of Burlington v. Hartford Steam Boiler Inspection
and Ins. Co., 190 F. Supp. 2d 663, 681 (D. Vt. 2002), the
District Court held that the “mend the hold” doctrine does not
apply where the insurer is silent with respect to potential
defenses and there is no allegation that the insurer misled the
insured by denying coverage on one ground while defending
itself in litigation on different grounds.
The Standard Fire Ins. Co. v. Donnelly, 689 F. Supp. 2d 696, 702–04 (D. Vt. 2010)
(emphasis in original). The non-waiver agreement here is valid and enforceable, and
extinguishes any estoppel argument by Antley.
Moreover, even were this court to adopt the Lynch rationale, it appears that Lynch
is inapplicable here. The agreement between Antley and Allstate actually cites several
specific provisions from the underlying insurance policy, including definitions of
occurrence, bodily injury, personal injury, and property damage. The inclusion of those
policy provisions plainly implies that those were the provisions under which Allstate had
decided to provide coverage, and that Allstate might elect to discontinue coverage if a
change in circumstances negated the applicability of those provisions. Thus, this was not
a general reservation of rights, and Lynch would not apply even if it were binding
precedent.
Order
Plaintiffs’ motion for summary judgment is denied. Defendant’s motion for
summary judgment is granted.
SO ORDERED this 7th day of November, 2017.
_____________________________
Robert A. Mello
Superior Court Judge
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