Town of Lowell v. Vermont League of Cities and Towns, No. 544-9-16 Wncv (Teachout, J., Sept. 15, 2017). 

[The text of this Vermont trial court opinion is unofficial. It has been reformatted from the original. The accuracy of the text and the 

accompanying data included in the Vermont trial court opinion database is not guaranteed.]

STATE OF VERMONT

SUPERIOR COURT CIVIL DIVISION

Washington Unit Docket No. 544-9-16 Wncv

TOWN OF LOWELL, VERMONT

Plaintiff

v.

VERMONT LEAGUE OF CITIES AND TOWNS

and VLCT PROPERTY AND CASUALTY

INTERMUNICIPAL FUND, INC.

Defendants

DECISION

Cross-Motions for Summary Judgment

The Town of Lowell incurred costs for attorneys’ fees in defending an Agency of Natural 

Resources (ANR) enforcement action in which it ultimately prevailed. The ANR action 

concluded with a voluntary dismissal and no imposition of liability. The Town now seeks to 

recover its costs for attorneys’ fees under the terms of its insurance policy with the Vermont 

League of Cities and Towns (VLCT) Property and Casualty Intermunicipal Fund, Inc. (PACIF), 

of which it is a member. Defendant relies on an exclusion and the dispute is over whether the 

exclusion bars coverage at all and thus bars defense costs. The parties have filed cross-motions 

for summary judgment. Oral argument was heard on July 11, 2017. The Town is represented by 

Attorney Ron Shems, and the Defendant is represented by Attorney Christopher Ekman.

 In 2015, ANR served the Town with an administrative order documenting its findings 

that the Town had improperly moved and replaced a culvert without a permit in violation of 

various statutes administered by ANR. The culvert had failed and discharged a large amount of 

“earthen material.” The ANR Order provided as follows:

Pay a penalty of $85,000 no later than thirty (30) consecutive calendar days 

following the effective date of this Order. . . .

The above penalty amount may not necessarily include all the costs incurred by 

the Secretary for the enforcement of the above described violation(s) or the full 

amount of economic benefit gained by the Respondent from the violation(s). The 

Secretary reserves the right to augment the above stated penalty through evidence 

presented at hearing. In accordance with 10 V.S.A. § 8010, the penalty may be 

increased by the total costs incurred by the Secretary for the enforcement of this 

matter and by the total amount of economic benefit gained by the Respondents 

from the violation(s), each according to proof at the hearing.
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The Town repeatedly sought a defense from the VLCT and PACIF, which consistently denied 

any defense, claiming that the ANR claim was excluded from coverage by § V-B(5) of the Fund 

policy. ANR eventually voluntarily dismissed its action against the Town, which incurred no 

liability.

The coverage at issue is Public Officials Liability Coverage, which provides coverage for 

claims against the Town for “Wrongful Act(s).” Fund § V-A(1)(a). A wrongful act is “any 

actual or alleged violation of any federal, state, or local civil rights, or breach of duty by the 

Member in the discharge of duties for the Named Member, individually or collectively.” 

Wrongful act coverage is not generally limited by who asserts the wrongful act against the 

member. However, the exclusion at Fund § V-B(5) provides that the coverage does not apply to 

any claim “[f]or any loss which represents cost, civil fine, penalty, or expense levied or imposed 

against any Member arising from any complaint or enforcement action from any federal, state, or 

local governmental regulatory agency.” Thus, in broad terms, coverage exists when a person or 

entity files a claim against the Town for a wrongful act, but there is no coverage when the 

government files a claim against the Town for violation of a government regulation.

On its face, this exclusion appears to apply to the ANR action at issue here. ANR is a 

state governmental regulatory agency. The administrative order represents a complaint or 

enforcement action against the Town. It appears to impose a “cost, civil fine, penalty, or 

expense” on the Town.

The Town concedes that this is so in general. It further concedes that the $85,000 penalty 

described in the administrative order is excluded from coverage because it is a penalty. It argues, 

however, that the second paragraph quoted above, in which ANR reserved the right to recapture

“economic benefit,” represents a claim for damages, not a penalty, and thus the ANR action was 

covered at least in part. It argues that the legislature clarified that recapturing economic benefit 

under 10 V.S.A. § 8010 must be treated as damages and not as a penalty in the 2008 amendments 

to § 8010 and related statutes. 2007, Adj. Sess., No. 191. Analysis of this argument requires 

review of both the statute under which the enforcement action was brought, 10 V.S.A. § 8010, 

and the language of the applicable provisions of the insurance policy.

Prior to the 2008 amendment, although ANR was entitled by statute to seek recovery for 

“economic benefit” in enforcement actions, the term was not statutorily defined. The 

Environmental Court interpreted the phrase as “wrongful profits,” but in 2003, the Supreme 

Court rejected that analysis. It explained that “[u]sing a wrongful profits analysis significantly 

overinflates the actual economic benefit to the violator; rather than leveling the playing field, it 

puts him or her at a marked disadvantage.” Agency of Nat. Res. v. Deso, 2003 VT 36, ¶ 8, 175 

Vt. 513. “[W]hen the violation gives the violator a competitive advantage, such profits are an 

economic benefit subject to penalty by confiscation.” Id. ¶ 9. There was no ambiguity in Deso

that recapturing economic benefits is part of the Agency penalty analysis. In part, the 2008 

amendment responds to Deso by rejecting it. “Economic benefit” is now statutorily defined to 

mean the “reasonable approximation of any gain, advantage, wrongful profit, or delayed avoided 

cost, financial or otherwise, obtained as a result of a violation. Economic benefit shall not be 

limited to only competitive advantage obtained.” 10 V.S.A. § 8002(11); 2007, Adj. Sess., No. 
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191, § 1 (emphasis added). 

In sum, while the amendment changed the definition of “economic benefit,” it did not 

change the fact that the context was still consequences of an enforcement action for a violation, 

with a purpose of imposition of a consequence so serious as to deter violations. Nothing about 

the amendment implies that recapturing economic benefits became something other than a type 

of penalty or a standard used to measure an amount of penalty.

As to the terms of the policy, the Town’s argument depends on the premise that the Fund 

sets up a dichotomy between “damages,” which are covered, and “civil penalties,” which are not 

covered. Fund § V-A(1)(b) says that the Fund will “[d]efend the Member against any claim or 

suit seeking damages as covered above [in subsection (a)].” Fund § V-A(1)(a) provides 

coverage for “Ultimate Net Loss” due to a “Wrongful Act.” The word “damages” is not used. 

Ultimate net loss is defined as “the total sum that the Member becomes obligated to pay by 

reason of Wrongful Act(s) claims, through either adjudication or compromise.” Fund § V-C(2). 

Again, the word “damages” is not used. It appears from these provisions that the word 

“damages” is used as a proxy for financial loss but these provisions do not attempt to distinguish 

financial loss from penalty. Thus, they cannot have the effect of overriding the terms of the 

exclusion.

The coverage protects against wrongful acts. The exclusion at Fund § V-B(5) describes a 

type of wrongful act for which there is no coverage: enforcement actions by governmental 

agencies imposing a “cost, civil fine, penalty, or expense.”

The ‘damages versus civil penalty’ dichotomy proposed by the Town would likely lead to 

coverage, or at least a defense, in most if not all government agency enforcement actions, which 

is precisely what the exclusion excludes. The Town takes the position that capturing a 

wrongdoer’s “economic benefit” is remedial, and thus in the nature of damages, whereas a 

penalty is punitive. The expression “damages” is not so precise, however. While it often

connotes compensation for a harm, it is also used to connote punitive components of judgments, 

such as punitive damages. As described above, the Fund document itself does not appear to use 

the expression “damages” in the way that the Town advocates. 

There is no reason that a consequence with a punitive purpose cannot also be remedial or 

that a penalty must be exclusively punitive. See State v. Irving Oil Corp., 2008 VT 42, ¶ 17, 183 

Vt. 386 (explaining in the context of civil penalties including the recapture of economic benefit

that “[t]he primary purpose of civil penalties is not punishment. Rather, these penalties serve a 

remedial purpose by making noncompliance at least as costly as compliance. They also 

reimburse the government for enforcement expenses and other costs generated by the violation.”

(quoting Agency of Nat. Resources v. Riendeau, 157 Vt. 615, 622 (1991)).

In sum, the recapture of “economic benefit” is not, under the statute, necessarily

characterized as “damages” as opposed to a “cost, civil fine, penalty, or expense.” The Town’s

argument that the 2008 amendment to 10 V.S.A. § 8010 says just that is not persuasive. Prior to 

the amendment, “the economic benefit gained from the violation” was one factor among many 

that ANR was required to consider when imposing a civil penalty. 10 V.S.A. § 8010(b)(5) 
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(2007). The 2008 amendment separated out the recapture of economic benefit from the other 

penalty factors, defined it, and set a specific limit on how much of it might be sought. Nothing 

in the statute or amendment implies any legislative intent to stop treating the recapture of 

economic benefit as a civil penalty and start treating it as “damages” that are not a civil penalty. 

Even though the duty to defend is broader than the duty to indemnify, Cincinnati 

Specialty Underwriters Ins. Co. v. Energy Wise Homes, Inc., 2015 VT 52, ¶ 33, 199 Vt. 104, in 

this case, there was no possibility of potential coverage that would trigger the duty to defend. 

The coverage question was not whether the ANR action sought “damages.” It was whether the 

ANR enforcement action represented a claim based on a wrongful act as defined in the Fund. 

The exclusion question was whether the ANR action was an enforcement action by a 

governmental agency seeking a “cost, civil fine, penalty, or expense,” which it was. Hence, the

duty to defend was not triggered.

ORDER

For the foregoing reasons: VLCT’s and PACIF’s motion for summary judgment is 

granted and the Town’s motion is denied.

Dated at Montpelier, Vermont this ____ day of September 2017.

_____________________________

Mary Miles Teachout

Superior Judge