Opinion ID: 1922972
Heading Depth: 1
Heading Rank: 1

Heading: insured persons' duties

Text: The insured will: a) give us or our agent prompt notice of all losses and proof of claim if required. b) notify the police of all theft losses. c) promptly deliver to us all papers dealing with any claims or suits. d) submit to examination under oath as often as reasonably requested by us. e) assist us with any claim or suit.... An insurance contract is construed according to its terms and the evident intent of the parties as expressed in the policy language. Ulm v. Ford Motor Co., 170 Vt. 281, 295, 750 A.2d 981, 992 (2000). Disputed terms are assigned their plain, ordinary, and popular meaning. Id. Any ambiguities in disputed terms are resolved in favor of the insured and against the compensated insurer responsible for drafting those provisions. State v. CNA Ins. Cos., 172 Vt. 318, 324, 779 A.2d 662, 667 (2001); Boyer v. Am. Cas. Co., 332 F.2d 708, 711 (2d Cir.1964) (applying Vermont law). As the parties have recognized, the meaning and content of the term assist as it is employed in the policy lends itself to various interpretations. Consequently, we will interpret the disputed term in favor of the insured. ¶ 12. The primary purpose of a cooperation clause is to enable insurers to make a proper investigation while the information is fresh, enable them to decide upon their obligations, and protect them from fraudulent and false claims. See 14 L. Russ, Couch on Insurance § 199:4, at 199-13 (2002) (describing primary purpose of cooperation clause); cf. Northshire Communications, Inc. v. AIU Ins. Co., 174 Vt. ___, ___, 811 A.2d 216, 221 (2002) (purpose of prompt-notice provision as allowing an insurer to form an intelligent estimate of its rights and liabilities, to afford it an opportunity for investigation, and to prevent fraud and imposition upon it.) (internal quotations omitted); White Caps, 166 Vt. at 361, 694 A.2d at 38. As we explain below, the primary purpose of the cooperation clause in Sullivan's policy was substantially met in this case when Sullivan promptly delivered notice of the accident and provided the relevant court documents to Nationwide. ¶ 13. To be sure, Sullivan made it difficult for Nationwide to proceed in the underlying suit. As the trial court observed, Sullivan's recalcitrance presented Nationwide with a delicate conundrum. Nationwide's reaction to Sullivan's behavior, however, must be evaluated in light of the rationale, or more accurately, the irrationality behind Sullivan's objection to participation in the suit. According to Nationwide, Sullivan objected to Gannon entering an appearance on his behalf because he believed Plaintiff's counsel had knowingly misstated his name as `Wayne Sullivan' rather than `Wayne-Arthur: Sullivan' in the . . . Complaint, and as a result, felt that there was no valid court action pending against him. Notwithstanding this asserted position, Sullivan's objections and refusal to officially participate in court proceedings were selective. Sullivan filed what the trial court labeled numerous, and voluminous pro se `pleadings' with the [c]ourt in the civil suit. Additionally, Sullivan's objections to Gannon's representation had nothing to do with the substance or merits of any defense that might have been presented on his behalf; his refusal was based on philosophical positions unrelated to the particular lawsuit itself. Nationwide fully comprehended the futile nature of Sullivan's proposed approach to Smith's suit  pretending that it did not legally exist  and his unique views of the legal system in general, and acknowledged as much in a letter chiding Sullivan for sending documents the insurer deemed largely rambling pseudo-legal gibberish which are nonsensical at best and unintelligible at worst. ¶ 14. Nationwide had responsibilities and obligations under the contract as well. The policy authorized Nationwide to retain defense counsel for Sullivan in the underlying tort claim and assigned control and management of the defense to Nationwide. It obligated Nationwide to defend at our expense, with attorneys of our choice, any suit against the insured where jurisdiction of the court has been obtained without reference to our obligations in this policy. We may investigate, negotiate, and settle any claim or suit as we think appropriate. Relying on the affidavit submitted by Nationwide's adjuster/claims agent, the trial court found that Nationwide would have been in complete control of the merits and the substance of any defense presented in the tort claims case. We agree with this conclusion. ¶ 15. As the trial court found, again based on the affidavit of Nationwide's adjuster/claims agent, Nationwide failed to suggest anything that Sullivan himself did, or did not do, which would have served to materially assist in the actual preparation and presentation of the contemplated defense. Sullivan's conduct may have frustrated Nationwide, but a cooperation or assistance clause, like a prompt-notice provision of an insurance contract, should not function as a technical escape-hatch by which to deny coverage in the absence of prejudice. White Caps, 166 Vt. at 362, 694 A.2d at 38 (internal quotations omitted). An insured's failure to cooperate with its insurer will not relieve the insurer of its coverage obligations unless that noncooperation has, in a significant way, hindered or precluded the insurer from presenting a credible defense to the underlying claim. Allstate Ins. Co. v. State Farm Mut. Auto. Ins. Co., 363 Md. 106, 767 A.2d 831, 844 (2001) (prejudice resulted when insured's noncooperation precluded insurer from offering any evidence in defense of the claim); see also Quintin, 138 Vt. at 489-90, 417 A.2d at 943 (insurer not obligated to defend following insured's intentional concealment or misrepresentation of material fact that individual injured on insured's premises was an employee, which policy excluded from coverage). The fundamental question in this appeal, therefore, is not whether Sullivan made it difficult for Nationwide when he chose, in his fashion, to ignore the lawsuit, but whether that position prejudiced Nationwide's position relative to the litigation. ¶ 16. In arguing that it was prejudiced, Nationwide contends that Sullivan's refusal to permit attorney Gannon to appear and defend precluded Gannon from conducting discovery, taking depositions, etc., or in any way challenging Plaintiff's evidence. However, as the trial court noted, Nationwide was able to determine that it was obligated to defend Sullivan in the underlying tort claim and was able to conduct discovery sufficient to settle claims with Smith's daughter for her personal injuries and with Smith for damage to her vehicle. ¶ 17. Nationwide's investigation also resulted in the insurer's belief that issues of proximate cause and comparative negligence were present in the case. Nationwide avers that the difficulties posed by Sullivan resulted in Gannon's inability to present evidence of plaintiff's alleged preexisting degenerative condition, thus preventing a challenge to the proximate cause and value of plaintiff's alleged damages. From the affidavit of Nationwide's insurance adjuster, it appears that Gannon would also have asserted comparative negligence by claiming that Smith was operating her vehicle at an improper rate of speed at the time of the accident. Thus, it appears that the insurer was able to make a proper investigation while the information was fresh, and to decide upon its contractual obligations. These results demonstrate that Sullivan's prompt notification to Nationwide of the underlying suit went a long way toward fulfilling the purpose of the cooperation or assistance clause. ¶ 18. Nationwide argues that it could not defend the suit because Sullivan refused to allow Gannon to represent him. While Gannon may not have been ethically permitted to enter an appearance on Sullivan's behalf, Nationwide had several viable options available to it. To protect its own interests in Smith's tort action, Nationwide, through its own independent counsel, could have notified Smith's counsel of its predicament so that Smith could join Nationwide in the suit. Nationwide could have moved for intervention pursuant to V.R.C.P. 24 to alert the trial court to its difficulties with its insured. See V.R.C.P. 24(a) (providing for intervention of right when the applicant claims an interest relating to the property or transaction which is the subject of the action and the applicant is so situated that the disposition of the action may as a practical matter impair or impede the applicant's ability to protect that interest, unless the applicant's interest is adequately represented by existing parties); Ulm, 170 Vt. at 294, 750 A.2d at 991 (insurer moved for and was granted intervener status in motor vehicle passenger's products liability claim against manufacturer); see also Davila v. Arlasky, 857 F.Supp. 1258, 1260 (N.D.Ill.1994) (court granted insurer's motion to intervene in light of insured's failure to appear and unwillingness or inability to pay judgments entered against him). Nationwide could have petitioned the court for a declaratory judgment to determine its coverage obligations under the policy before entry of the default judgment. Commercial Ins. Co. of N.J. v. Papandrea, 121 Vt. 386, 392, 159 A.2d 333, 337 (1960) (declaratory judgment useful and the court should grant it when it clarifies the legal relations of the parties or if it will terminate the uncertainty and insecurity of the controversy); Farm Bureau Mut. Auto. Ins. Co. v. Houle, 118 Vt. 154, 158, 102 A.2d 326, 329 (1954) (establishing availability of declaratory judgment to determine an insurer's obligations under a contract of insurance). Additionally, Nationwide could have moved to enjoin plaintiff's underlying claim while the trial court considered the insurer's petition for declaratory relief. See State v. Glens Falls Ins. Co., 134 Vt. 443, 450, 365 A.2d 243, 247 (1976) (citing Houle for the proposition that insurer has powerful remedy of enjoining a claimant's action at law to prevent irreparable damage . . . to an insurer when insured will not assent to nonwaiver agreement). [3] ¶ 19. Notwithstanding the availability of these options, Nationwide did nothing. In discharging their duties specified in and incident to the insurance policy, an insurer and an insured owe to each other a duty of good faith and fidelity. Peerless Cas. Co. v. Cole, 121 Vt. 258, 265, 155 A.2d 866, 871 (1959). Therefore, if a policy of insurance gives an insurer control over the handling of a claim, including decisions concerning litigation and settlement, as the policy did in this case, then the insurer must conscientiously fulfill that duty. See Rodriguez v. Am. Ambassador Cas. Co., 4 F.Supp.2d 1153, 1156 (M.D.Fla. 1998), aff'd, 170 F.3d 188 (11th Cir.1999). ¶ 20. Despite its knowledge of Sullivan's skewed perception of the merits of Smith's personal injury action, Nationwide's efforts to fulfill its contractual obligation to properly control the lawsuit consisted merely of urging its insured to allow counsel to enter an appearance on his behalf. As the trial court noted, [i]nstead of somehow bringing the problem [with Sullivan] to the attention of the [c]ourt, or the Department of Banking and Insurance, or someone, Nationwide chose to remain silent about its dilemma and let a default judgment be entered against Sullivan. Nationwide's meager effort distinguishes this case from others where an insurer's due diligence was a critical factor in evaluating an insured's alleged breach of a cooperation clause. To successfully invoke a defense of noncooperation, diligent effort to secure the cooperation of a recalcitrant insured is required, and, as found by one court, it includes more than simply sending letters to the insured, or telephoning them and requesting their appearance at trial when insurer could have done much more to secure [their insured's] cooperation. Wallace v. Woolfolk, 312 Ill.App.3d 1178, 245 Ill.Dec. 734, 728 N.E.2d 816, 820 (2000) (insurer failed to make diligent efforts to obtain cooperation of insured by sending her six letters and making one telephone call, where insurer had reason to know that insured was either not receiving letters or ignoring them). While diligent efforts must be evaluated in light of the specific circumstances involved in each particular case, an insurer's burden is substantial. See Thrasher v. United States Liab. Ins. Co., 19 N.Y.2d 159, 278 N.Y.S.2d 793, 225 N.E.2d 503, 508 (1967) ([T]he burden of proving the lack of co-operation is a heavy one indeed.). Although additional letters or requests may have made no difference with Sullivan, it was proper for the court to consider Nationwide's actions, or lack thereof, when assessing whether or not insured failed to assist, and whether or not Sullivan's action prejudiced Nationwide. ¶ 21. Nationwide cannot assert prejudice with regard to its ability to conduct a defense that it never attempted to mount. See White Caps, 166 Vt. at 364, 694 A.2d at 38 (stating analogous proposition that [a]n insurer cannot assert prejudice with regard to its ability to conduct an investigation that it never even tried to conduct.) (internal quotations omitted). Given the options available to Nationwide, and its apparent tactical decision to take no action following Sullivan's objections to counsel's representation, we cannot conclude that Sullivan's conduct prejudiced Nationwide by placing it in a substantially less favorable position than it would have been in had Sullivan not raised objections to participating in the litigation. Id. at 362, 694 A.2d at 38 (internal quotations omitted). ¶ 22. We recognize that, had Nationwide gone forward with a defense of Smith's suit, it may well have been proceeding without Sullivan's cooperation. The absence of the insured, however, does not alone establish prejudice; Nationwide must show that its insured's absence actually prejudiced its ability to mount a defense. See Kerr, 138 Vt. at 362, 416 A.2d at 165 (insurer must prove that lack of cooperation of its insured by nonattendance at trial caused actual prejudice). In this case, Sullivan's presence and participation at trial would not have assisted Nationwide in asserting that Smith has a pre-existing degenerative condition. Nor could Sullivan have assisted Nationwide in asserting the defense of comparative negligence. According to the State Police Accident Report appended to Nationwide's motion for summary judgment, Sullivan revealed at the accident scene that he had no idea why he lost control of his vehicle and flipped it off the roadway after knocking down a telephone pole across the northbound lane. Smith, traveling north, collided with the telephone pole and the wires that hung from it. At the time Smith collided with the pole, Sullivan was in his overturned vehicle, which was in the river over the side of the road. As such, it does not appear that Sullivan could have added relevant or substantive information as to Smith's vehicular operation. ¶ 23. Nationwide, however, rejects any suggestion that it was required to clarify its position, arguing that, while this Court's holding in Houle, 118 Vt. at 158, 102 A.2d at 329, affords insurers the opportunity to petition for declaratory relief, the Court's decision did not negate other options available to the insurer, such as denying liability and risking a suit on the policy in the event that the plaintiff obtains a judgment against its insured. The Court in Houle did not specifically endorse inaction as Nationwide avers, although it acknowledged that the option existed. See id. at 157-58, 102 A.2d at 328-29. ¶ 24. In the fifty years since Houle, preemptive suits to determine coverage obligations have become a common approach of insurers in Vermont. See, e.g., N. Sec. Ins. Co. v. Perron, 172 Vt. 204, 207, 777 A.2d 151, 153 (2001) (homeowner's liability insurer brought declaratory action alleging no duty to defend its insured in tort action); Champlain Cas. Co. v. Agency Rent-A-Car, Inc., 168 Vt. 91, 92, 716 A.2d 810, 811 (1998) (insurer petitioned for declaratory relief to determine coverage obligations); Kerr, 138 Vt. at 360, 416 A.2d at 164 (insurer sought declaratory judgment with regard to coverage obligations). Some jurisdictions require an insurer to determine its coverage obligations before the underlying tort action is complete. See Employers Ins. of Wausau v. Ehlco Liquidating Trust, 186 Ill.2d 127, 237 Ill. Dec. 82, 708 N.E.2d 1122, 1138 (1999) (Where an insurer waits to bring its declaratory judgment action until after the underlying action has been resolved by a judgment or a settlement, the insurer's declaratory judgment action is untimely as a matter of law.); Cen. Mut. Ins. Co. v. Kammerling, 212 Ill.App.3d 744, 156 Ill. Dec. 826, 571 N.E.2d 806, 810 (1991) (`[A] liability insurer in doubt over whether it has a duty to defend its insured, cannot simply stand on the sidelines and wait until the tort action is complete before contesting the question of coverage.') (quoting Reis v. Aetna Cas. & Sur. Co., 69 Ill. App.3d 777, 25 Ill.Dec. 824, 387 N.E.2d 700, 704 (1978)); see also State Farm Fire & Cas. Co. v. T.B. ex rel. Bruce, 762 N.E.2d 1227, 1230-31 (Ind.2002) (insurer who elects not to defend under a reservation of rights agreement in the underlying tort action, or does not file a declaratory judgment action, proceeds at the insurer's peril because that insurer is bound by the matters determined in the lawsuit under the doctrine of collateral estoppel). To do nothing is rarely a reasonable option. See Palermo v. Fireman's Fund Ins. Co., 42 Mass.App.Ct. 283, 676 N.E.2d 1158, 1163 (1997) (An insurer who unjustifiably refuses or fails to defend its insured, even in good faith, assumes the consequential risks of that breach of its insurance contract [including] . . . liability for the amount of the judgment reflecting claims covered by the policy . . . .). ¶ 25. Considering the overarching policy considerations addressed in Vermont's Financial Responsibility and Compulsory Insurance Law, 23 V.S.A. §§ 800-810, we conclude that doing nothing is not an option available to an insurer in these circumstances. Confronted with an uncooperative insured, an automobile liability insurance provider must protect its interest by filing a declaratory judgment action for a judicial determination of its obligations under the insurance policy, or move to intervene, or take some action to assure the viability and availability of insurance coverage consistent with the purpose of the Financial Responsibility and Compulsory Insurance law. ¶ 26. This approach is entirely consistent with an insurer's duty to defend its insured and the overriding purpose for mandatory automobile liability insurance. Chapter 11 of Title 23, entitled Financial Responsibility and Insurance, creates compulsory automobile liability insurance for all owners or operators of motor vehicles in the state. See 23 V.S.A. § 800(a). This act is designed to protect the public and ensure that those motor vehicle operators who cause accidents for which they are liable have adequate resources to satisfy any claims which arise therefrom. Wright v. Malloy, 373 F.Supp. 1011, 1016 (D.Vt.) (interpreting Vermont law), aff'd, 419 U.S. 987, 95 S.Ct. 297, 42 L.Ed.2d 261 (1974); Agency Rent-A-Car, Inc., 168 Vt. at 101, 716 A.2d at 816 (citing Malloy with approval). Nationwide's behavior in this case frustrates the policy embodied in the statute. As the trial court recognized: that statutory scheme, and legislative policy determination, would be sorely frustrated if the mandated insurance coverage were to be lost to otherwise innocent motorists because an arguably negligent driver, who is covered by such insurance . . . `refuses' to `allow' the insurer to enter an appearance ... thereby giving the carrier some arguable basis, as here, to declare its primary coverage responsibility to be void and thus unavailable to the injured motorist. ¶ 27. Consistent with Vermont's Financial Responsibility and Compulsory Insurance Law, automobile liability insurers with a duty to defend must make good faith and diligent efforts to fulfill their contractual obligation, which includes a demonstration that the insurer acted diligently in seeking to bring about the insured's co-operation. Thrasher, 278 N.Y.S.2d 793, 225 N.E.2d at 508. The defense of lack of cooperation penalizes a plaintiff for the action of an insured over whom the plaintiff has no control, and frustrates the policy of this state that resources be available to recompense innocent tort victims of motor vehicle accidents. ¶ 28. Nationwide failed to show that its insured breached his contractual duty to assist and failed to show that its position relative to the underlying claim was prejudiced by insured's conduct. See Kerr, 138 Vt. at 362, 416 A.2d at 165. Therefore, Nationwide was not relieved of its coverage obligations and remains obligated to compensate Smith for the damages awarded her. See Peerless Cas. Co., 121 Vt. at 264, 155 A.2d at 871 (when insured's legal liability is established, insurer's obligation to pay injured persons becomes absolute under 23 V.S.A. §§ 800-810, Vermont's Motor Vehicle Financial Responsibility and Compulsory Insurance Law). Affirmed.