Title: No. Security Insurance Co. v. Hatch

State: vermont

Issuer: Vermont Supreme Court

Document:

No. Security Insurance Co. v. Hatch  (95-607); 165 Vt 383; 683 A.2d 392

[Opinion Filed 9-Aug-1996]


       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.
 

                                 No. 95-607


Northern Security Insurance Co.                   Supreme Court

                                                  On Appeal from
     v.                                           Washington Superior Court

Keith Hatch and Dawn Tanko                        May Term, 1996


John P. Meaker, J.

       Leo A. Bisson, Jr. of Downs Rachlin & Martin, St. Johnsbury, for
  plaintiff-appellant

       Geoffrey M. FitzGerald and Brian J. Grearson of Brian J. Grearson,
  P.C., for defendant-appellee


PRESENT:  Allen, C.J., Gibson, Dooley, Morse and Johnson, JJ.


       DOOLEY, J.   This appeal arises from a declaratory judgment action
  brought by Northern Security Insurance Company against Keith Hatch and Dawn
  Tanko.  Northern Security alleged that Hatch's fraudulent claim regarding
  losses from a September 6, 1992 fire voided his homeowner's policy,
  precluding coverage for Tanko's injury claim against him from an unrelated
  fire incident on October 11, 1992.  Northern Security appeals the superior
  court's grant of Tanko's motion for summary judgment, arguing that under
  the plain meaning of the relevant provisions, the policy was voided by
  Hatch's fraudulent claim.  We affirm.

       On September 6, 1992, a fire occurred at Hatch's Williamstown home,
  and Hatch alleged the fire was accidental in a sworn proof of loss
  submitted to his insurance carrier, Northern Security.  It is undisputed
  that Hatch's sworn claim was false and fraudulent.  On December 7, 1993,
  Hatch was convicted of first-degree arson for the September 6, 1992 fire,
  and that conviction was upheld on appeal.

       This appeal arises from an unrelated incident.  On October 11, 1992,
  Tanko, while a

 

  guest at Hatch's home, was injured by an allegedly defective stove.  She
  filed a claim with Northern Security against Hatch's homeowner's policy,
  the same policy for which Hatch filed the fraudulent proof of loss.  After
  Hatch's conviction, Northern Security brought this action for a judicial
  declaration that it did not have to pay the Tanko claim because the policy
  was voided by Hatch's fraudulent fire claim.(FN1)  The superior court
  concluded that the policy was not voided by Hatch's fraudulent claim and
  ruled that Tanko's claim was covered.

       The issue on appeal is whether the insured's fraudulent presentation
  of a claim on a homeowner's policy voids the entire policy so as to
  preclude coverage for a later unrelated claim of an innocent third party. 
  Northern Security argues that Hatch's policy was void as of September 6,
  1992.  Tanko maintains the policy is not void, was never cancelled prior to
  the date of her injuries, and that she may recover against it.(FN2)

       The dispute centers on the meaning of language in the homeowner's
  insurance policy relating to concealment or fraud and to cancellation. 
  Under a heading of "Sections I and II -- Conditions," the relevant
  provisions state:

          2.  Concealment or Fraud.  We do not provide coverage for an
              insured who, whether before or after a loss, has:
              a.  intentionally concealed or misrepresented any material fact
                  or circumstance;
              b.  engaged in fraudulent conduct; or
              c.  made false statements;
              relating to this insurance.
              . . .
          5.  Cancellation.
              . . .
              b.  We may cancel this policy only for the reasons stated in
                  this policy by letting you know in writing of the date
                  cancellation takes effect.

 

                  . . .
                  (3)  When this policy has been in effect for 60 days or
                       more . . . we may cancel for one or more of the
                       following reasons:
                       . . .
                       (b)  fraud or material misrepresentation affecting
                            the policy or in the presentation of a claim,
                            or violation of any provisions of the policy.
                            This can be done by letting you know 45
                            days before the date cancellation takes
                            effect.

  The policy in which these conditions appear contains two coverage sections. 
  Section I covers property damage and has subsections for the dwelling,
  other structures and personal property. The Hatch fire claim sought payment
  under this section.  Section II covers liability claims against the
  homeowner and has subsections for personal liability and medical payments. 
  Tanko's claim was filed under this section.

       Northern Security contends that Condition 2 on concealment or fraud
  unambiguously expresses that a violation of the provision voids the whole
  policy, precluding coverage even as to unrelated third-party claims
  involving different parts of the policy.  Tanko responds that the language
  of the provision is ambiguous and must be construed strictly against the
  insurance carrier to limit the loss of coverage to the fraudulent claim or
  to the coverage section of the policy.  Because there is no dispute that
  Hatch submitted a fraudulent claim and that such a claim provides the
  insurer the remedy set forth in Condition 2, the question before us is
  relatively narrow.(FN3)

       Rules for interpreting insurance contracts in Vermont are well
  established.  An insurance policy must be interpreted according to its
  terms and the evident intent of the parties as expressed in the policy
  language.  City of Burlington v. National Union Fire Ins. Co., 163 Vt. 124,
  127,