Coverage Analysis
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 (2d Circuit)


  The general rule in Vermont is that a court will find an “occurrence” if the insured did not intend to inflict the injury on the victim by his intentional act and the act was not so inherently injurious that the injury was certain to follow from it.

  Where circumstances indicate that an insured knew that his act would damage the injured party, evidence of subjective intent not to injure will not create an "occurrence."  Glens Fall Ins. Co. v. Lebanon Homes of New England, Inc., 404 A.2d 101, 137 Vt. 313 (1979)(sheriff's sale of property was an "occurrence" where insured was misinformed as to owner of affected property).  However, even the intentional destruction of property will be deemed to constitute an "occurrence" if the conduct was undertaken under the mistaken belief that the acts were authorized.  Vermont v. Glens Falls Ins. Co., 404 A.2d 101, 104 (Vt. 1979) (intentional seizure of property by sheriff deemed covered where insured acted under mistaken belief that he was authorized the levy on the property that he seized).  

  In Village of Morrisville Water and Light Department v. USF&G, 775 F.Supp. 718 (D. Vt. 1991), a federal court ruled that claims arising out of the disposal of the insured's PCB-containing transformers at a licensed site alleged an "occurrence" since, even though the insured knew that its wastes were toxic, it did not expect or intend the improper and illegal disposal actions that caused the pollution.

  Allegations that the insured breached its production contract with the plaintiff were held not to allege an "occurrence" in City of Burlington v. National Union, 163 Vt. 124, 655 A.2d 719 (1994).  However, the court found coverage for the same claims under an excess policy that did not define "event" as precluding coverage for injuries that were expected or intended by the insured.  City of Burlington v. AEGIS, No. 94-098 (Vt. September 22, 1995).  Similarly, allegations that the insured induced senior executives of a business competitor to join his company and to bring as much proprietary information with them as possible were held not to allege an "occurrence" in Select Designs Ltd. v. Union Mutual Fire Ins. Co., 674 A.2d 798 (Vt. 1996).   In such cases, the insurer has a duty to defend unless the evidence establishes that an injury was highly probable or intentionally caused.  State of Vermont v. Glen Falls Ins. Co., 137 Vt. at 317.  However, subjective testimony is only relevant where the facts are in dispute.

  Similarly, a U.S. District Court has refused to find that claims for wrongful termination allege an "occurrence."  Woodstock Resort Corp. v. Scottsdale Ins. Co., No. 2:95-CV-148 (D. Vt. May 16, 1996).  As the Vermont Supreme Court had defined an "accident" as "an unexpected happening without intention and design,"  Judge Sessions ruled that the injuries alleged by the plaintiff were reasonably certain to result from his firing, notwithstanding an affidavit submitted by the insured that he did not expect or intend these damages to occur. 

  Under Vermont law, an intent to injure will be inferred in all cases involving the abuse or sexual exploitation of children.  TBH v.  Meyer, 716 A.2d 31, 33 (Vt.  1998).  See, also, Nationwide Mutual Fire Ins.  Co.  v.  Lajoie, 661 A.2d 85, 86 (Vt.  1995) (Lewd and lascivious conduct with a minor) and Massachusetts Mutual Life Ins.  Co.  v.  Ouellette, 617 A.2d 132, 135 (Vt.  1992) (sexual assault).

  An insane person cannot form an intent to cause injury as a matter of law.  Cooperative Fire Ins. Co. v. Combs, 648 A.2d 857 (Vt. 1994).

  An exclusion for intentional acts has been limited to situations in which the insured also expected or intended to cause injury. Cooperative Fire Ins. Association of Vermont v. Bizon, 693 A.2d 722, 724 (Vt. 1997).  


  The Vermont Supreme Court has ruled that a trial court did not err in allocating responsibility for clean up costs of the amount of gasoline that had leaked out of the insured’s underground tanks during the insurers’ respective policy periods.  In Agency of Natural Resources v.  Glens Falls Ins.  Co., 1999 Vt. LEXIS 205 (Vt.  June 25, 1999), the court declared that the trial court’s analysis was logical and supported by the evidence.

  An insurer is not obligated to pay to defend claims that are not covered under its policy and may pro-rate its defense obligations if a reasonable basis exists for allocating between covered and non-covered matters. Burlington Northern v. Royal Globe Ins. Co., 616 F.Supp. 481, 483 (D. Vt. 1985).  

  An insured was not entitled to indemnity from a carrier for liabilities that had already been paid in full by other insurers. In Re St. Johnsbury Trucking Company, Inc., Bankruptcy No. 93B 4313 (D. Vt. April 19, 1999)


  All appeals are heard directly by the Vermont Supreme Court.


  Unfair or deceptive consumer practices are proscribed by Vt. Stat. Ann. tit. 9, § 2451 (1984 & Supp. 1992).  Unfair claims handling by insurers is regulated under Vt. Stat. Ann. tit. 8, § 4724(9) (1970).

  A third-party claimant has no right of action against a liability insurer for refusing to settle.  Larocque v. State Farm Ins. Co., 660 A.2d 286 (Vt. 1995).  


  Allegations that the plaintiff had been placed at risk of contracting respiratory diseases and had suffered emotional distress due to the release of formaldehyde gas from the insured's UFFI insulation were held to describe a "bodily injury" in American Protective Ins. Co. v. McMahan, 562 A.2d 462 (Vt. 1989).


  Historically, Vermont has treated timely notice is a condition precedent to coverage.  See e.g. Nelson v. Travelers Ins. Co., 113 Vt. 86, 98, 30 A.2d 75 (1943); Houran v. Preferred Acc. & Ind. Co., 109 Vt. 258, 273, 195 A. 253 (1938).  However, on March 28, 1997, the Vermont Supreme Court ruled for the first time that an insurer must show prejudice to defeat coverage on the basis of late notice.  Cooperative Fire Ins. Association of Vermont v. White Caps, Inc., No. 96-528 (Vt. March 28, 1997).

  The duty to provide notice arises when there are "circumstances calculated to instill in the reasonable person a belief in the possibility of an impending claim."  Glens Falls, 134 Vt. 446-447 (1975).  The burden of establishing timely notice is on the insured.
  An argument that Houran no longer reflected the law of Vermont was rejected in 1992 by a U.S. District Court in Vermont Gas Systems, Inc. v. USF&G, No. 90-121 (D. Vt. September 14, 1993).  However, the District Court concluded that an insured might nonetheless be excused from the consequences of its late notice under the rule of Houran if it was "excusable delay."
  Subsequent state supreme court cases had suggested that tardy notice can be overcome if the insured substantially complied or can otherwise explain or justify its delay.  Putney School v. Schaarf, 599 A.2d 322 (Vt. 1991).  See also  Ziman v. Employers Fire Ins. Co., 493 F.2d 196, 199 (2d Cir. 1974)(opining that Vermont Supreme Court would adopt "prejudice" rule).  However, in the most recent ruling on this issue, the U.S. District Court held in Town of Windsor v. The Hartford Acc. & Ind. Co., 885 F.Supp. 651 (D. Vt. 1995) that Vermont courts, like those of New York, treat compliance with notice requirements as a condition precedent to coverage and, accordingly, do not require prejudice to bar coverage on this basis.  However, the Windsor court refused to grant summary judgment on this basis where questions of fact existed as to when the insured's successive communications with the government gave rise to a perception of liability.


  Party seeking coverage has burden of establishing claim within policy insuring agreement.  Lyndonville Savings Bank & Trust v. Peerless, 234 A.2d 340, 126 Vt. 436 (1967).  Burden of proving limitation to coverage is on party that would benefit by it.  American Fidelity Ins. Co. v. Elkins, 215 A.2d 516, 125 Vt. 313 (1965).  The insurer bears the burden of showing that the claims are excluded by the policy.  City of Burlington v. Association of Gas & Elec. Ins. Servs., Ltd., 11 Vt. L. W. 64, 66 (2000). 


  Place of contracting held to be more important than place of injury or situs of pollution in Village of Morrisville Water and Light Department v. USF&G, 775 F.Supp. 718 (D. Vt. 1991). However, in E.B. and A.C. Whiting Company v. Hartford Fire Ins. Co., 838 F.Supp. 863 (D. Vt. 1993), the District Court applied Vermont law in a case where the insured and the site of pollution were located in Vermont but the policies were issued elsewhere, noting Vermont's paramount interest in cleaning up the pollution.


  It does not appear that the insurer must relinquish control of its insured’s defense when defending under a reservation of rights or non waiver agreement.  The case of Lynch v. Phico Ins. Co., 226 B.R. 813 (Vt. 1998) recognized, however, that full candor and complete honesty must exist in relationship between insurer and insured.  In cases involving third party insurance, the insured leaves the fate of his defense in the hands of the liability insurer, who may have a conflict of interest with the insured.  For example, while preparing the insured’s defense, the insurer may come across its own defenses to coverage.  The insurer must fulfill its policy oriented obligation with the utmost loyalty, not for the purpose of developing policy defenses.  Where specific grounds for coverage defenses are not disclosed to the insured in a reservation of rights letter of non waiver agreement, the insurer will be deemed to have waived any applicable policy defenses.  American Fidelity Company v. Kerr, 138 Vt. 359 (1980).


  The Vermont Supreme Court has held that "damages" includes all liabilities of the insured "regardless of how characterized."  State of Vermont v. Glens Falls Ins. Co., 137 Vt. 313, 319 (1979).  "Damages" have been held to include clean-up costs in a series of federal decisions interpreting Vermont law. Gerrish Corp. v. Universal Underwriters Ins. Co., 754 F.Supp. 358 (D. Vt. 1990), aff'd, 947 F.2d 1023 (2d Cir. 1991); Village of Morrisville Water and Light Department v. USF&G, 775 F.Supp. 718 (D. Vt. 1991) and Vermont Gas Systems, Inc. v. USF&G, 805 F.Supp. 227 (D. Vt. 1992).  Standard measure of damages in Vermont is cost of repair or, where that is impractical, the reduction in market value of the property.  Bolkum v. Staab, 133 Vt. 467, 346 A.2d 210 (1975).

  In contrast to these rulings, a federal district court declared in Windham Solid Waste Management District v. National Cas. Co., No. 1-96-cv-376 (D. Vt. October 29, 1997), aff’d 1998 U.S. App. LEXIS 13225 (2d Cir. June 22, 1998)  that costs incurred by a landfill operator in compliance with an order by the State of Vermont to remedy a breach of its operating permit were essentially a claim for injunctive relief and was therefore excluded as not seeking "monetary damages."  


   --Claims Manuals

   --Drafting History

   --Other Policyholder Claims

   --Reinsurance Information



  Under Vermont law, an insurer had any duty to defend a claim that sets forth allegations that are potentially covered by the policy.  City of Burlington v. National Union Fire Ins. Co., 655 A.2d 719, 721 (1994).  

  An insurer has a duty to defend whenever it is clear that the claim against its insured might be of the type covered by the policy. Garneau v. Curtis & Bedell, Inc., 610 A.2d 132 (Vt. 1992).  In considering whether it has a duty to defend, the insurer must consider both facts that actually alleged and which may be known or readily discoverable through investigation.  However, if there is no possible duty to indemnify, there is no duty to defend.  Garneau, supra.  An insurer may only terminate its defense obligation by demonstrating at the outset that the claims against its insured are entirely excluded under the terms of its policy. Village of Morrisville Water and Light Department v. USF&G, 775 F.Supp. 718 (D. Vt. 1991).

  PRP claims were held to be a "suit" in Village of Morrisville.  More recently, the federal district court has made clear that not all claims, even claims in the environmental context, will be treated as a suit. See also In Re St. Johnsbury Trucking Company, Inc., Bankruptcy No. 93B 4313 (D. Vt. April 19, 1999).  In Northern Security Ins.  Co.  v.  Mitec Telecom, Inc., 38 F.Supp.2d 345 (D.  Vt. 1999), Judge Sessions declared that the analysis that had led Vermont courts to find coverage for governmental Superfund claims did not apply to private claims since such communications lack the coerciveness or  legal consequences of a PRP letter.


  An insurer waives all coverage defenses if it accepts the defense of its insured without obtaining a non waiver agreement.  American Fidelity Co.  v.  Kerr, 416 A.2d 163 (Vt.  1980).  A unilateral assertion of coverage defenses through the device of a reservation of rights will generally not be deemed affective.  Id.  at 363.  The preferred course of action, therefore, is to obtain a non waiver agreement with the assent of the insured.  BD v.  Employers Liability Assurance Corp., 168 A. 919, 924 (Vt.  1933).  

  The general rule in Vermont is that "when one defense is specified by an insurer as its reason for refusing to pay a loss, all others are waived."  Cummings v. Conn. Gen. Life Ins. Co.  102 Vt. 351, 360 (1930); Maska U.S., Inc. v. Kansa General Ins. Co., No. 5:93-CV-309 (D. Vt. December 2, 1996) and In Re Annette Lynch, 1998 WL 799815 (Bankr.  D.  Vt. October 16, 1998).  However, the rule only applies if the insurer raises any specific defense in its response or fails to add a "savings clause" in its letter, reserving the right to raise other defenses later on. Farm Bureau Mutual Auto Ins. Co. v. Houle, 118 Vt. 154 (1954).  Further, the waiver doctrine does not apply if the facts supporting the coverage defense were not known to the insurer at the time of tender. Segalla v. United States Fire Insurance Co., 135 Vt. 185 (1977).


  Coverage may be precluded if insured was aware of its legal liability, but not solely on the basis that it knew about the injuries giving rise to the later claims. Vermont Gas Systems, Inc. v. USF&G, 151 F.R.D. 268 (D. Vt. 1993).


  No cases.


  Where a conflict arises between the “other insurance” clause in an automobile liability policy and a clause in a rental agreement wherein the renter agrees that his policy shall act as primary insurance, the Vermont Supreme Court has ruled in Champlain Casualty Company v.  Agency Rent-A-Car, Inc., 97-101 (Vt.  June 12, 1998) that the renter’s personal policy applies first. the court declined to adopt a general rule for reconciling conflicting “other insurance” clauses, nor did it reach the issue of how a loss should be apportioned among competing policies.  The Supreme Court did state, however, that the trial court had erred in declaring that the rental car agency’s statutory self-insured obligations were not “collectible insurance” for the purpose of applying “other insurance” clauses. 


  For years, such exclusions were forbidden by the Vermont Division of Banking and Insurance.  Gerrish, supra and E.B. and A.C. Whiting Company v. Hartford Fire Ins. Co., 838 F.Supp. 863 (D. Vt. 1993).  Until 1983, the VDBI mandated the inclusion of an endorsement (Form GL 01 11 or CA 01 13) deleting the exclusion.  Thereafter, for a narrow window between January 1, 1983 and October 18, 1983, the VDBI allowed such exclusions for certain classes of risks.  However, this new policy was soon rescinded after the VDBI learned, contrary to what ISO had led it to believe, that insureds were unable to buy stand alone pollution coverage.  Beginning July 1, 1984, the VDBI required insurers issuing policies in Vermont to include a "claims made" ISO Endorsement (GL 01 54 (CG 01 54)).  However, certain classes of risks could still be excluded on a case by case basis.  The VDBI has maintained this position as regards the new "absolute" pollution exclusion.

  The VDBI's current position is codified as Bulletin 106, issued in October 1994.  Under this position, exclusions may be added to GL risks that have a "high probability of a pollution claim": businesses that store or dispose of chemicals, auto body and repair shops; battery manufacturers and recyclers; car dealers' fuel oil, kerosine and gasoline sales; marinas; municipalities and printers.  Such applications must be accompanied by a signed request from the named insured.

  Prior to 1999, several courts had ruled that this “practice” of the VDBI was binding on insurers, even those whose policies had been issued outside of Vermont. Maska U.S., Inc. v. Kansa General Ins. Co., No. 5:93-CV-309 (D.Vt. September 30, 1996), aff'd (D. Vt. December 2, 1996)(but, see below).  See also Vermont American Corp. v. American Employers Ins. Co., Washington No. 330-6-95 (Vt. Super. October 31, 1997).   A state trial court has more recently rejected this analysis, however, declaring in Agora Syndicate, Inc. v. Safety Medical Systems, Inc., Chittenden County No. SO872-98 (Vt. Super. July 22, 1999) that the VDBI regulations did not apply to an exclusion in an excess surplus lines policy.

  A contrary view was adopted by the Second Circuit in 1999, however.  In Maska U.S., Inc. v. Kansa General Insurance Company, 198 F.3d 74 (2nd Cir. 1999), the Court of Appeals refused to find VDBI’s practice over this period of three decades had created an enforceable public policy against pollution exclusions in Vermont insurance policies.  In fact, it found that this practice had no legal effect since  the VDBI had not followed the Vermont Administrative Procedures Act that would have required it to publish a proposed rule, hold a public hearing, receive public comments, file a final proposed rule and adopt a final rule with respect to such exclusions.  The Second Circuit further took note of certain cases in which state trial courts had refused to give effect to such exclusions but distinguished all of them as involving “contested cases” that solely had binding effect upon the insurer and policy at issue in each and did not set precedent as to state law as a whole.  While agreeing that the State of Vermont is, of course, free to establish a public policy prohibiting pollution exclusions in Vermont insurance policies, in the absence of any such statute, binding precedent or valid administrative rule expressing such a policy, the court refused to find that the clear exclusion in the Zurich policy, to which Maska had agreed, and for which it had probably paid lesser premiums as a consequence, was so “injurious to the interests of the public” as to bar its application.  (The court sidestepped the issue of whether Zurich was estopped to rely on the exclusion, which had not been filed with the VDBI, as the insured had not raised this question in the trial court).


  Punitive awards were held covered in American Protective Ins. Co. v. McMahan, 562 A.2d 462 (Vt. 1989).  See also  State v. Glens Falls Ins. Co., 404 A.2d 101 (Vt. 1979).


  "An insurance policy must be construed according to its terms and the evident intent of the parties as expressed in the policy language. . . . Disputed terms should be read according to their plain, ordinary and popular meaning." National Union Fire Ins. Co., 163 Vt. at 127-28, 655 A.2d at 721. However, "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." City of Burlington v. Associated Elec. & Gas. Ins. Servs., Ltd., 164 Vt. 218, 221, 669 A.2d 1181, 1183 (1995).

  In the absence of an express definition in the policy, a policy term will be accorded its common and ordinary meaning.  Northern Security Insurance Company v. Perron, No. 99-109 (Vt. May 4, 2001).
  A court should not find ambiguity in a policy merely because courts in other jurisdictions have come to differing conclusions concerning its meaning.  Peerless Ins. Co. v. Wells, 580 A.2d 485, 488 (1990) and Select Design Ltd. v. Union Mutual Fire Ins. Co., 674 A.2d 798 (Vt. 1996).  


  No cases.


  Vermont Supreme Court adopted an "exposure" trigger for chemical exposure claims in McMahan, supra. This trigger was applied to pollution claims by federal court in Village of Morrisville, supra. In E.B. and A.C. Whiting Company v. Hartford Fire Ins. Co., 838 F.Supp. 863 (D. Vt. 1993), the District Court declined to adopt the "continuous trigger" theory proposed by the Federal Magistrate, holding that this conclusion was inconsistent with "exposure" trigger set forth in McMahan.

  A state trial court adopted a "continuous" trigger for pollution claims in Vermont American Corp. v. American Employers Ins. Co., Washington No. 330-6-95 (Vt. Super. November 24, 1997).  The court rejected the contention of various parties that coverage for pollution claims resulting from continuing discharges were limited to the policy in effect at the date of "first exposure" or the point in time at which the pollution became "manifest."  To the contrary, the court ruled that "where multiple exposures occur, multiple policies may be triggered."

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