Case Title: McAlister v. Vermont Property and Casualty Insurance Guaranty Assoc.

Citation: 180 Vt. 203, 2006 VT 85, 908 A.2d 455

Docket Number: 

State: vermont

Court: Vermont Supreme Court

Date: 2006-08-11T00:00:00Z

Document:
McAlister v. Vermont Property & Casualty Insurance Guaranty Assn. (2004-547); 
180 Vt. 203; 908 A.2d 455

2006 VT 85

[Filed 11-Aug-2006]


       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.

                                 2006 VT 85

                                No. 2004-547


  Robert K. McAlister                            Supreme Court

                                                 On Appeal from
       v.                                        Lamoille Superior Court


  Vermont Property and Casualty Insurance        November Term, 2005 Guaranty
  Association and Robert S. Baska, M.D.


  Edward J. Cashman, J.

  Colin R. Benjamin of Benjamin, Bookchin, Colburn & Durrell, P.C., Derby,
    for  Plaintiff-Appellee.

  W. Scott O'Connell of Nixon Peabody LLP, Manchester, New Hampshire, and
    Joseph C. Tanski and Mark D. Robins, Boston, Massachusetts, for
    Defendant-Appellant.


  PRESENT:  Reiber, C.J., Dooley, Johnson, Skoglund and Burgess, JJ.

        
       ¶  1.  BURGESS, J.   In this declaratory judgment action, defendant
  Vermont Property and  Casualty Insurance Guaranty Association ("VPCIGA")
  appeals from the superior court's order, on the parties' cross-motions for
  summary judgment, that VPCIGA must provide insurance coverage up to
  $300,000 to defend and indemnify defendant Dr. Robert S. Baska against
  plaintiff's medical malpractice claim.  The issue on appeal is whether
  plaintiff's claim is a "covered claim" under Vermont's Property and
  Casualty Insurance Guaranty Association Act, 8 V.S.A. §§ 3611-3626, which
  governs the extent of VPCIGA's obligations to an insured or claimant when
  an insurer becomes insolvent.  See 8 V.S.A. § 3615.  Although we disagree
  with the reasoning relied upon by the trial court, we conclude that
  plaintiff's claim is a covered claim under the Act.  Accordingly, we
  affirm.

       ¶  2.  The relevant undisputed facts may be briefly summarized. 
  Plaintiff claims he suffered injuries as a result of negligent treatment he
  received from Dr. Baska in 1999.  From 1992 through 2001, Dr. Baska carried
  medical malpractice insurance through PHICO Insurance Company under a
  "claims-made" policy, which provided coverage only if the medical incident
  from which the claim arose occurred while the policy was in effect and the
  claim was made during the policy period.  If the policy was cancelled for
  any reason, PHICO was required to provide Dr. Baska the option to purchase
  an extended reporting period, or "tail," to assure continuity of coverage
  for medical incidents that occurred during the time the terminated
  claims-made policy was in effect.  Dr. Baska's policy was cancelled,
  effective August 25, 2001, and Dr. Baska purchased the extended reporting
  tail coverage for a one-time premium of $35,512.  The extended reporting
  period became effective the same day the underlying policy was terminated. 
  There was no expiration date for the extended reporting period, so that
  claims arising from medical incidents that occurred when the claims-made
  policy was in effect could be reported any time after the tail reporting
  period commenced.
   
       ¶  3.  On February 1, 2002, PHICO was determined to be insolvent and
  placed into liquidation by order of the Commonwealth Court of Pennsylvania. 
  The order set a deadline of April 1, 2003 for filing claims with the
  liquidator.  On July 30, 2002, plaintiff filed a malpractice lawsuit
  against Dr. Baska in Lamoille Superior Court and a proof of loss against
  PHICO with the Pennsylvania liquidator.  VPCIGA declined to defend or
  indemnify Dr. Baska in the suit on the grounds that a claim pursuant to
  extended reporting coverage must have been filed within thirty days of the
  liquidation order to be considered a "covered claim" under the Guaranty
  Association Act.  Plaintiff then filed this declaratory judgment action to
  resolve the dispute over the extent of VPCIGA's obligations.

      
       ¶  4.    We begin with a brief discussion of VPCIGA's role under
  Vermont's Guaranty Association Act.  VPCIGA is a nonprofit, unincorporated
  legal entity created by the Act to provide a limited amount of substitute
  insurance coverage when an insurer becomes insolvent.  8 V.S.A. §§ 3613,
  3615.  Membership in the association is compulsory for all insurers writing
  policies and transacting business in this state.  Id. § 3613.  The costs of
  satisfying VPCIGA's statutory obligations for insolvent insurers are
  distributed among all member insurers.  Id. § 3615(a)(3).  

       ¶  5.  To the extent of its statutory obligations, VPCIGA is deemed to
  be the insurer on "covered claims" and has "all rights, duties, and
  obligations of the insolvent insurer as if the insurer had not become
  insolvent."  Id. § 3615(a)(2).  VPCIGA's obligation is limited to the
  insolvent insurer's obligation under the policy from which the claim
  arises.  Int'l Collection Serv. v. Vt. Prop. & Cas. Ins. Guar. Ass'n, 150
  Vt. 630, 631, 555 A.2d 978, 978 (1988); see also 8 V.S.A. § 3612(4)(B)
  (defining "[c]overed claim" as "an unpaid claim . . . which arises out of
  and is in an amount not in excess of the applicable limits of an insurance
  policy to which [the Act] applies").  In addition to certain monetary
  limits, the Act provides the following express limitations to VPCIGA's
  obligations:

      [VPCIGA] shall . . . [b]e obligated to the extent of the covered
    claims existing prior to the order of liquidation, arising within
    30 days after the order of liquidation, or before the policy
    expiration date if less than 30 days after the order of
    liquidation, or before the insured replaces the policy or causes
    its cancellation, if the insured does so within 30 days of the
    determination . . . .  In no event shall the association be
    obligated to a policyholder or claimant in an amount in excess of
    the obligation of the insolvent insurer under the policy from
    which the claim arises, nor for any claim filed with the
    association after the final date set for the filing of claims
    against the liquidator or receiver of the insolvent insurer, nor
    in any event after the expiration of three years from the date of
    determination of the insolvency of such insurer.  

  Id. § 3615(a)(1).  


       ¶  6.  VPCIGA argues that under the terms of the extended reporting
  tail coverage no claim could exist or arise within thirty days of the order
  of liquidation where the claim was not reported until after thirty days
  from the order of liquidation had passed.  Plaintiff responds that the
  purchase of the reporting tail on Dr. Baska's claims-made policy
  essentially converted the policy to an "occurrence" policy, where a claim
  is deemed to exist or arise at the time of the medical incident, so long as
  the medical incident occurred during the policy period, even if the claim
  is not reported until after the policy period expired.  Under plaintiff's
  argument, the thirty-day cutoff in the first sentence of § 3615(a)(1) is
  inapplicable in the context of reporting tail coverage where the underlying
  claims-made policy has already been cancelled.  In such a case, plaintiff
  argues, it is the second sentence that governs, allowing a claim to be
  filed up until the cutoff date set for filing claims against the
  liquidator.  

       ¶  7.  On appeal from a grant of summary judgment, we apply the same
  standard as the trial court.  Allstate Ins. Co. v. Vose, 2004 VT 121, ¶ 13,
  177 Vt. 412,