Case Title: Blake v. Nationwide Insurance Co.

Citation: 180 Vt. 14, 2006 VT 48, 904 A.2d 1071

Docket Number: 

State: vermont

Court: Vermont Supreme Court

Date: 2006-05-26T00:00:00Z

Document:
Blake v. Nationwide Insurance Co. (2005-176); 180 Vt. 14; 904 A.2d 1071

2006 VT 48

[Filed 26-May-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 48

                                No. 2005-176


  Clifton Blake                                  Supreme Court

                                                 On Appeal from
       v.                                        Windham Superior Court


  Nationwide Insurance Company                   February Term, 2006


  Karen R. Carroll, J.

  Thomas C. Bixby of McCarty Law Offices, P.C., Brattleboro, for
    Plaintiff-Appellant.

  John A. Serafino of Ryan, Smith & Carbine, Ltd., Rutland, for
    Defendant-Appellee.


  PRESENT:  Reiber, C.J., Dooley, Johnson, Skoglund and Burgess, JJ.  

        
       ¶  1.  DOOLEY, J.   Plaintiff Clifton Blake appeals the superior
  court's grant of summary judgment for defendant Nationwide Insurance
  Company ("Nationwide").  Plaintiff argues that Nationwide had a duty to
  defend the insured's employee, Clifford Riddle, in the underlying
  negligence action and that Nationwide's failure to defend should estop it
  from asserting that injuries caused by Riddle's negligence were not covered
  by the policy.  Plaintiff also claims that the superior court: (1)
  erroneously granted Nationwide summary judgment based on the finding that
  plaintiff's injuries occurred in the course of his employment; (2) made
  procedural errors in awarding summary judgment; (3) erroneously refused to
  compel Nationwide to produce its file in discovery; and (4) erroneously
  dismissed his count alleging that Nationwide acted in bad faith.  We hold
  that defendant had no duty to defend and, therefore, is not estopped from
  denying coverage under the employment exclusion.  We also hold that the
  court properly granted summary judgment, denied the motion to compel
  discovery, and dismissed the bad faith claim.  We affirm.

       ¶  2.  Plaintiff and Clifford Riddle, both Jamaican migrant farm
  workers, were involved in a motor vehicle accident on July 17, 1997. 
  Riddle was driving a truck owned by their employer, Donald Harlow, and
  plaintiff was a passenger in the truck when it struck a tree. (FN1) 
  Plaintiff sustained severe injuries as a result.  The truck was insured
  under a policy issued to Donald and Madeline Harlow by defendant
  Nationwide.  The policy contains specific exclusions for "bodily injury to
  others for which any insured may be held liable under a workmen's
  compensation, unemployment compensation, disability benefits, or similar
  law" and "bodily injury to an employee of any insured, while the employee
  is engaged in activities of employment."  As a result of his injuries,
  plaintiff received workers' compensation benefits from the Harlows'
  workers' compensation insurer.
   
       ¶  3.  Plaintiff sought legal counsel to explore other ways to recover
  for his injuries, and on September 16, 1998, plaintiff's counsel sent a
  letter to the Harlows informing them that his office would be representing
  plaintiff in plaintiff's claim regarding the "work-related automobile
  accident," and that they should forward the letter to both their workers'
  compensation and automobile insurance carriers.  After a follow-up letter
  threatening suit, a Nationwide claims agent responded on April 27, 1999,
  stating that plaintiff's injury was not a covered loss under the auto
  insurance policy Nationwide issued to the Harlows because plaintiff was
  covered by workers' compensation insurance. 
   
       ¶  4.  On December 2, 1999, plaintiff brought suit against the Harlows
  and Clifford Riddle to recover for injuries sustained in the accident. 
  Apparently the Harlows had initially sought a defense, but Nationwide
  denied their claim under one of the exclusions listed above. (FN2)  In any
  event, plaintiff dismissed the claims against the Harlows and when Riddle
  did not appear, obtained a default judgment and eventually a damage award
  against him in the amount of $3,887,193.72.  Riddle never sought a defense
  from Nationwide, and Nationwide provided no defense to him.  Thus,
  Nationwide was not involved in the underlying litigation.
   
       ¶  5.  After securing the default judgment and before the assessment
  of damages, plaintiff notified Nationwide that it had breached its
  obligation to defend Riddle.  Nationwide responded that the claim had been
  denied prior to litigation because "this policy does not cover bodily
  injury to an employee of any insured, while the employee is engaged in
  activities of employment."  Following the damage assessment, plaintiff
  notified Nationwide that it was obligated to pay the judgment and that he
  would seek punitive damages if Nationwide failed to pay.  Apparently,
  Nationwide did not respond to this letter, and this suit ensued on March
  15, 2003. 
   
       ¶  6.  Plaintiff's complaint alleged that Nationwide's policy
  covered Clifford Riddle as a permissive user of the Harlows' automobile at
  the time of the accident.  It alleged the underlying litigation and the
  default judgment of $3,887,193.72 and stated that "despite having ample
  knowledge of the claim [Nationwide] has failed to defend and/or make any
  payments on the judgment."  It alleged that Nationwide was obligated to pay
  the judgment and had acted in bad faith in not doing so.  It sought the
  amount of the underlying judgment plus compensatory damages for
  Nationwide's actions in bad faith, punitive damages, and attorneys' fees. 

       ¶  7.  Nationwide moved to dismiss the action for failure to state a
  claim because there was no privity of contract between plaintiff and
  Nationwide and because coverage was excluded as Riddle was acting in the
  course of his employment when the accident occurred.  Plaintiff countered
  with a motion to enforce the underlying judgment, arguing that Nationwide's
  failure to defend Riddle in the underlying action estopped it from
  defending in the instant action.  In support of this motion, plaintiff
  attached correspondence between plaintiff's counsel and claims adjusters
  for Nationwide. 

       ¶  8.  It became clear from these initial filings that plaintiff was
  pursuing two theories of Nationwide's liability.  The first and primary
  theory was that Nationwide was obligated to pay the underlying judgment,
  whether or not there was coverage under the policy, because it breached its
  duty to defend Riddle in the underlying action without seeking a
  declaratory judgment on the issue of coverage.  The second theory was that
  there was coverage under the policy because the exclusions on which
  Nationwide relied did not apply.  The superior court denied the motion to
  enforce under the first theory, relying on the correspondence attached to
  the plaintiff's motion.  In essence, the court granted Nationwide's motion
  to dismiss the first theory.  The court denied the motions on the second
  theory, ruling that it could not be decided on a motion to dismiss without
  factual support.
   
       ¶  9.    We note that the motions the court decided were plaintiff's
  attempts at preemptive strikes to obtain early decisions on the merits
  without trial and without the factual development necessary for a trial or
  even a motion for summary judgment.  The court could have decided that all
  of the claims in the motions were premature, as it did with respect to
  plaintiff's second theory, but it decided to rule against plaintiff on the
  merits of his main claim.  Plaintiff could not complain about this
  disposition because he brought it on himself by filing the motion and
  supporting letters.  Nationwide might have claimed that the motion for
  enforcement was really one for summary judgment because of the attached
  factual material, see Lueders v. Lueders, 152 Vt. 171, 172, 566 A.2d 404,
  405 (1989), but instead took advantage of plaintiff's motion for a
  successful preemptive strike of its own.  Whatever procedural
  irregularities are behind the court's decision have been waived.

       ¶  10.  In ruling on the first theory, the superior court concluded
  that even if plaintiff's estoppel theory was valid, it would not apply in
  this case because Nationwide had no reason to believe there was a dispute
  over coverage:

    From Blake's own submissions, it appears that Nationwide informed
    Blake of its position that his injuries were not covered because
    he was the insured's employee - a plausible position, certainly -
    no later than April 1999.  Yet, it does not appear that there was
    any further communication between Blake and Nationwide until April
    2001, after a default judgment against Riddle had been entered. 
    Moreover, even then, Blake provided no factual or legal
    explanation of why he believed the exclusion did not apply. 
    Estoppel is an equitable doctrine, and when an insurer states a
    non-frivolous position regarding non-coverage, it would not be
    equitable to invoke estoppel because it failed to pursue a
    declaratory judgment, when the party disputing non-coverage did
    nothing to let the insurer know that a viable dispute existed and
    a declaratory judgment action was needed. 

  The court added that "we certainly do not want to encourage insurers to
  seek a declaratory judgment every time they deny coverage, even if there is
  no viable dispute."  
   
       ¶  11.  Nationwide then moved for summary judgment on the second
  theory, asserting that the workers' compensation and employment-related
  policy exclusions to its coverage applied such that plaintiff's injuries
  were not covered by the Harlows' policy.  The superior court initially
  denied the motion but reconsidered when Nationwide filed Donald Harlow's
  affidavit, which stated that plaintiff was injured in the course of his
  employment with the Harlows.  Nationwide argued that Harlow's affidavit
  established that plaintiff was working at the time of the accident, and
  thus plaintiff's injuries fell under the employment-related exclusion to
  the policy.  Plaintiff did not produce any evidence to contest the
  affidavit.  The superior court granted Nationwide's motion for summary
  judgment on April 22, 2005, finding there was no genuine issue as to the
  fact that plaintiff's injuries occurred in the scope of employment. 
  Plaintiff appeals from the judgment and the denial of the motion to
  enforce. (FN3)
        
       ¶  12.  The first issue is whether Nationwide had a duty to defend
  Riddle in the underlying action.  Plaintiff relies upon our general
  description of the duty to defend:

      We have often explained that an insurer's duty to defend is
    broader than its duty to indemnify. . . .  Generally, 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. . . .  If any claims are potentially
    covered by the policy, the insurer has a duty to defend.

  City of Burlington v. Nat'l Union Fire Ins. Co., 163 Vt. 124, 127,