Title: Putney School v. Schaaf

State: vermont

Issuer: Vermont Supreme Court

Document:

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, 111 State Street, Montpelier, Vermont 05602 of any errors in order
that corrections may be made before this opinion goes to press.


                                No. 89-253


The Putney School, Inc.                      Supreme Court

                                             On Appeal from
     v.                                      Windham Superior Court

Joseph Schaaf                                November Term, 1990


John P. Meaker, J.

John H. Fitzhugh of Sheehey Brue Gray & Furlong, Burlington, for plaintiff-
  appellant

Allan R. Keyes of Ryan Smith & Carbine, Ltd., Rutland, for defendant-
  appellee CNA Insurance Companies

Jeffrey W. White of Theriault & Joslin, P.C., Montpelier, for defendant-
  appellee National Union Fire Insurance Company


PRESENT:  Gibson, Dooley and Morse, JJ., and Barney, C.J. (Ret.), and
          Martin, Sup. J., Specially Assigned


     MORSE, J.   We are asked to decide whether insurance policies
underwritten by CNA Insurance Companies and National Union Fire Insurance
Company provided coverage to Putney School for the wrongful discharge of a
music teacher, Joseph Schaaf.  After trial, the superior court ruled that
CNA was properly notified of the teacher's claim, but in a later proceeding
held that its policy did not cover Putney School for breach of contract.
The court also ruled that National Union's policy excluded the Schaaf claim
because National Union was not given notice of it according to a provision
requiring notice of preexisting potential claims.  Putney School, bereft of
any insurance coverage, appealed.  We affirm in part and reverse in part.
     The essential facts are not in dispute, but they and the procedural
posture of this lawsuit are complicated.  In January 1984, the Putney
School's headmaster (called school director) became dissatisfied with Schaaf
and informed him that his employment would be terminated at the end of that
school year.  Schaaf was advised of his appeal rights.  The school director
also told Schaaf that he could take up the matter of his employment with the
new school director when she took over.  In mid-1984, Schaaf hired an
attorney, and, on June 5, 1984, filed an appeal to the school's
administrative council.  That month the school also hired an attorney to
represent its interests in the matter.  The appeal was never heard, and
Putney gave Schaaf a sabbatical for the 1984-1985 school year.
     In January 1985, Putney's new school director upheld the decision to
discharge Schaaf and advised him of his right to appeal.  A second appeal
was filed but apparently never heard.  Protracted negotiations ensued, aimed
at settling the employment dispute but instead culminating in a lawsuit for
declaratory judgment brought by the school on May 27, 1986.  Schaaf
counterclaimed for wrongful discharge.  Later, the school brought its two
insurers, CNA and National Union, into the suit as third-party defendants to
determine their respective responsibilities, if any, to cover Schaaf's
claim.
     CNA covered Putney School with a "claims made" liability policy for a
three-year period ending May 25, 1985.  The CNA policy extended coverage
for wrongful acts occurring within the policy period so long as written
notice was given the insurer within one year of notice to the school of the
claim.  CNA's policy, however, excluded "any amounts due, under the terms of
any contractual obligation."
     When CNA's policy terminated, National Union's coverage of the school
commenced.  Its policy covered a three-year period beginning May 25, 1985.
A prior acts endorsement in the policy provided:
           In consideration of the premium charged, it is hereby
         understood and agreed that this policy is extended to
         cover Wrongful Acts committed prior to the beginning of
         the Policy Period.

           All references in this policy to Wrongful Acts
         committed during the Policy Period are hereby amended to
         include Wrongful Acts committed prior to the beginning
         of the Policy Period.

           It is further understood and agreed that the following
         exclusion is hereby added to this policy.

         (K)  To Wrongful Acts committed prior to the beginning
         of the Policy Period if, on or before 5/25/85 any
         Insured knew or could have foreseen that such Wrongful
         Acts would result in a claim or suit against the
         Insured.

(Emphasis added).
     Written notice of the Schaaf claim was sent June 10, 1986, to Putney's
insurance broker, Brewer & Lord, which in turn notified National Union, but
not CNA.  Ten months later, after repeated attempts by Putney to prompt
National Union to take action, it learned the carrier might decline
coverage.  National Union sent a letter dated June 24, 1987, declining
coverage on the basis of the wrongful acts exclusion.  Thereupon, Putney
notified CNA of the Schaaf claim, but CNA promptly denied coverage due to
late notice.
     CNA answered the school's third-party complaint by raising only the
affirmative defense of untimely notice.  On April 28, 1988, the trial court
ordered that by August 1, 1988, the parties were to file a statement of
"significant issues of fact and law."  On May 31, 1988, motions for summary
judgment were filed by the carriers.  CNA's motion rested solely on the
ground that the Schaaf claim was not within the policy period and, if it
was, that proper notice was not received.  Putney then filed a cross-motion
for summary judgment refuting the defenses raised by the companies and
asserting that National Union was estopped from denying coverage because it
neglected to respond promptly.  Because the trial court concluded that the
motions for summary judgment raised disputes concerning genuine issues of
material fact, it denied them and ordered a trial.
     Trial on the merits of the third-party action was held on August 8,
1988.  At the close of evidence, the court ruled from the bench that
National Union had properly declined coverage because its policy's prior
wrongful act exclusion applied but that CNA had been properly notified and
"there was coverage under the CNA policy for Putney for the circumstances
surrounding the termination of Mr. Schaaf."  On August 12, 1988, the court
ordered:
            1. CNA Insurance Companies (CNA) shall provide insur-
          ance coverage in accordance with its Insurance Policy
          with the Putney School which is in evidence.

            2. National Union need not provide insurance coverage
          in accordance with its Insurance policy with the Putney
          School which is in evidence.

     The Schaaf claim then proceeded to trial and, after a few days of
evidence, was settled.  A stipulation was signed, and it became an order of
the court dated August 17, 1988, which included the following provision:
"This order plus the August 12, 1988 Coverage Order fully dispose of all
claims herein."
     Thereafter, CNA filed a motion under V.R.C.P. 54(b) and 59(e) to amend
the August 17th judgment, raising for the first time the defense that its
policy excluded coverage for breach of contractual obligation.  The court,
without stating why, reopened the third-party dispute and, on April 12,
1989, granted CNA summary judgment.
     Putney appealed from the court's amended judgment.  CNA challenges the
original judgment on its obligation to provide coverage.  Although CNA did
not cross-appeal, the issue is preserved.  See Staruski v. Continental
Telephone Co., ___ Vt. ___, ___ n.3, 581 A.2d 266, 267-68 n.3 (1990).
                                    I.
     CNA argues that the court was wrong in finding that its policy's
notice-of-claim requirement was satisfied.  The policy provided that (1) the
insured must report a claim in writing to the insurer, paragraph VII(c); (2)
notice to the insurer shall be given to the firm shown in Item G of the
declarations, paragraph VII(e); (3) CNA, CNA Plaza, Chicago, Illinois, is
the firm indicated in Item G of the declarations; and (4) "[n]otice to any
agent of knowledge possessed by any agent or by any other person shall not .
. . estop the Insurer from asserting any right under the terms of this
policy," paragraph VIII(g).  CNA asserts that because Putney School only
notified its insurance broker, Brewer & Lord, CNA is not estopped from
asserting improper notice.
     Anticipating that the dispute over Schaaf's termination might warrant
notice to its insurer, Putney's business manager in June 1984 telephoned
Brewer & Lord, the brokerage firm that arranged for the policy with CNA and
to which Putney made premium payments.  Brewer & Lord was told that Schaaf
had been terminated and that a dispute existed.  Because Brewer & Lord did
not think the incident serious enough, it did not pass on the information to
CNA.  On these facts, the trial court concluded that Brewer & Lord was
acting as an agent on CNA's behalf and that notice to it was notice to CNA.
     Two years later, on June 10, 1986, Putney's lawyer sent Brewer & Lord a
letter explaining that settlement had failed and a lawsuit was about to be
brought.  Brewer & Lord forwarded the information to National Union, but not
to CNA.  CNA's first notice of the Schaaf dispute was a letter from Putney
in June 1987.
                                    A.
     CNA submits that the court's agency finding was clearly erroneous.
V.R.C.P. 52(a)(2).  In finding that Brewer & Lord acted as CNA's agent, the
court properly looked to the circumstances of their relationship and their
conduct.  Rule v. N.H.-Vt. Health Service, 144 Vt. 323, 326,