Case Title: Burlington, City of, v. Arthur J. Gallagher & Co.

Citation: 173 Vt. 484, 788 A.2d 18

Docket Number: 

State: vermont

Court: Vermont Supreme Court

Date: 2001-10-29T00:00:00Z

Document:
City of Burlington v. Arthur J. Gallagher & Co. (2000-482); 173 Vt. 484;
788 A.2d 18

[Filed 29-Oct-2001]

                                 ENTRY ORDER

                      SUPREME COURT DOCKET NO. 2000-482

                             OCTOBER TERM, 2001

City of Burlington, et al.	       }	APPEALED FROM:
                                       }
                                       }
     v.	                               }	Chittenden Superior Court
                                       }	
Arthur J. Gallagher & Co., et al.      }
                                       }	DOCKET NO. S191-98CnC

                                                Trial Judge: Helen M. Toor

             In the above-entitled cause, the Clerk will enter:

       The City of Burlington and those certain Underwriters at Lloyd's,
  London ("Underwriters")  appeal a superior court order granting defendants,
  Arthur J. Gallagher & Co. and its subsidiaries,  summary judgment against
  Underwriters and partial summary judgment against Burlington.  
  Underwriters sought indemnity, or alternatively presumptive damages, from
  Gallagher, an insurance  broker that procured a liability insurance policy
  for the City of Burlington, because Gallagher failed  to notify
  Underwriters of a claim made against the city.  Burlington sought punitive
  damages from  Gallagher, in addition to compensatory damages.  We find no
  error in the superior court's order and  therefore affirm.

       The essential facts are not disputed.  Gallagher brokered an Airport
  Owners' and Operators'  Liability policy from Underwriters for the
  Burlington International Airport starting in 1985.  The  policy provided
  coverage for, among other things, damages caused by wrongful eviction and
  legal  costs incurred to defend any third party claim.  Like most liability
  policies, the policy required  Burlington to promptly notify Underwriters
  of any claim made against the city under the policy.   Such notice was to
  be provided to Gallagher rather than to Underwriters directly, according to
  the  policy's terms.

       On July 13, 1989, Burlington notified Gallagher of a suit that one of
  the city's airport tenants  had filed against it.  The tenant, Business
  Air, Inc., claimed damages resulting from a 1987 eviction  after the roof
  trusses failed in the hangar it leased. Burlington and Business Air
  eventually settled the  suit for $795,000 in 1993.  Following the
  settlement, Gallagher finally notified Underwriters of the  claim against
  Burlington.

       After Underwriters became aware of the Business Air action, it
  negotiated a one million dollar  settlement with Burlington for any claims
  arising from the Underwriter's failure to defend the city 

 

  and provide coverage for Business Air's claim against Burlington. 
  Underwriters, along with  Burlington, then sued Gallagher for not promptly
  notifying Underwriters of the Business Air matter.   The insurer's
  complaint alleged that Gallagher breached its duty as Underwriters' agent
  and fiduciary  to timely notify Underwriters of the claim against
  Burlington.   Underwriters asserted that  Gallagher's untimely notice
  harmed the company because it was unable to investigate and evaluate 
  Business Air's claim and monitor and control the defense.  To remedy that
  harm, Underwriters asked  for "implied indemnification and/or presumptive
  damages . . . in the full amount paid by  Underwriters to Burlington in the
  settlement."

       The case proceeded through discovery, which was the subject of some
  dispute.  Gallagher  sought documents that would show the extent of
  Underwriters' actual damages from the delayed  notification.  Underwriters
  refused to supply the requested documents and agreed to limit its  damages
  theories to presumed damages and/or implied indemnity and actual damages in
  the form of  transaction and accounting expenses caused by Gallagher's late
  claim notice.  The court then issued a  discovery order memorializing the
  limit on damages which could be claimed and denying the request  for
  documents.  Underwriters subsequently abandoned the accounting and
  transaction expense theory  of damages, leaving presumed damages and
  implied indemnity as the remaining theories.

       In January and March 2000, Gallagher and Underwriters respectively
  moved for summary  judgment.  Underwriters argued that it should be
  relieved of its obligations under the insurance  contract due to
  Gallagher's late claim notice for the same reasons an insurer is relieved
  of its  obligations when the insured provides untimely notice. 
  Underwriters' theory would hold Gallagher  ultimately responsible for
  fulfilling the insurance contract's coverage commitments just as the 
  insured is so responsible in late claim notice cases.  Gallagher opposed
  Underwriters' motion.  It  sought summary judgment against Underwriters on
  all counts and against Burlington on the issue of  punitive damages.  The
  court granted judgment for Gallagher, concluding that there was no legal 
  basis or precedent to support Underwriters' claims, and there was
  insufficient evidence to establish  malice to warrant presenting the
  punitive damages claim to a jury.  On reconsideration, the court  again
  found no basis for Underwriters' claims that implied indemnity and presumed
  damages are  available to the insurer from the broker's untimely claim
  notice.  The court entered final judgment for  Gallagher on all of
  Underwriters' claims, and summary judgment for Gallagher on Burlington's
  claim  for punitive damages only.  This appeal followed.

       Assuming Underwriters has a valid liability claim for Gallagher's
  breach of its professional  duty to provide timely notice of claims to
  Underwriters, Underwriters chose not to pursue its actual  damages as a
  result of Gallagher's apparent breach.  That choice is fatal to
  Underwriters' claims here.  A plaintiff in a professional negligence case
  such as this must prove "by a preponderance of the  evidence, the extent
  and nature of their damages."  Callan v. Hackett, 170 Vt. 609, 609,