Carr v. Peerless Ins. Co.

Citation724 A.2d 454
Decision Date20 November 1998
Docket NumberNo. 97-404.,97-404.
PartiesGregory CARR d/b/a Carr Electric v. PEERLESS INSURANCE COMPANY and New England Acceptance Corporation.
CourtUnited States State Supreme Court of Vermont

Kevin E. Brown of Langrock Sperry & Wool, Middlebury, for Plaintiff-Appellant.

Michael J. DiRusso, Keene, New Hampshire, for Defendant-Appellee Peerless Insurance Co.

James Runcie of Ouimette & Runcie, Vergennes, and Robert B. Lucic of Sheehan, Phinney, Bass and Green, Manchester, New Hampshire, for Defendant-Appellee New England Acceptance Corp.

Present: AMESTOY, C.J., and DOOLEY, MORSE, JOHNSON and SKOGLUND, JJ.

DOOLEY, J.

Plaintiff Gregory Carr appeals from a judgment entered in the Addison Superior Court declaring that neither defendant Peerless Insurance Company nor defendant New England Acceptance Corporation (NEAC) are obligated to defend and/or to indemnify him in connection with a suit against him that arose out of a fire at a residence at which he performed work as an electrician. We conclude that the superior court properly rendered summary judgment in favor of Peerless as plaintiff's liability insurer. However, because the record demonstrates that NEAC, an insurance premium financing company, failed to comply with the insurance policy cancellation procedures enumerated in 8 V.S.A. § 7009, we further conclude that plaintiff is entitled to recover against NEAC. We affirm in part and reverse in part.

The case was decided in the trial court on a series of summary judgment motions. In an appeal of a summary judgment, we apply the same standard that was applicable in the trial court and determine whether there are genuine issues of material fact and, if not, whether the moving party is entitled to judgment as a matter of law. See City of St. Albans v. Northwest Reg'l Planning Comm'n, 167 Vt. 466, 469, 708 A.2d 194, 196-97 (1998). In the case of cross-motions for summary judgment, "both parties are entitled to the benefit of all reasonable doubts and inferences when the opposing party's motion is being judged." Id., at 469, 708 A.2d at 197 (citation omitted).

The relevant facts as developed in the summary judgment record are not in dispute. Plaintiff is an electrician who purchased a contractor's liability policy from Peerless covering a one-year period commencing on October 25, 1989. To finance this acquisition of insurance, plaintiff also executed a premium financing agreement with NEAC, pursuant to which NEAC paid the annual premium to Peerless and plaintiff was obligated to make monthly payments to NEAC. The premium financing agreement included language granting NEAC power of attorney with authority to cancel the insurance policy in question, "to give or to receive such notice of cancellation as is required by law, [and] to do all things necessary to effect cancellation."

There were three incidents of premium nonpayment and policy cancellation. The last is central to this action. Plaintiff failed to pay a premium installment due on July 25, 1990. As a result, on August 16, 1990, NEAC sent him a notice of cancellation, with a copy to Peerless, which read as follows:

You are hereby notified that the policy described above is canceled for nonpayment of an installment in accordance with the conditions and terms of the Premium Finance Agreement which incorporates a power of attorney. This cancellation is effective on [August 31, 1990] at 12:01 A.M. This cancellation is to be effected in accordance with the terms of [] Vermont Sec. 1. 8 V.S.A., Chapter 143, § 7009 .... [which] recognize[s] this as a valid legal NOTICE OF CANCELLATION and provide[s] that the gross unearned premium be returned to the premium insurance company within 60 days after the effective date of cancellation.

Vermont's insurance premium financing law sets out a two-step process for an insurance premium financing company to initiate cancellation of a policy. The first step is a ten-day notice of intent to cancel stating "the intent of the insurance premium finance company to cancel the insurance contract unless the default is cured within such ten day period." 8 V.S.A. § 7009(b). The second step is the actual notice of cancellation which is required to state an effective date no earlier than ten days after the mailing of the notice. Id. § 7009(c). The notice NEAC sent met the requirements for the second step, but NEAC failed to send a notice of intent to cancel, the required first step in the cancellation process.

Plaintiff did nothing to cure his arrearage with NEAC, and Peerless cancelled the policy as instructed by NEAC. On the morning of August 31, 1990, less than 12 hours after the cancellation was effective, a fire occurred in a trailer where plaintiff had performed electrical work two days earlier, and the tenant eventually blamed plaintiff for the damage.

Plaintiff paid the past-due premium installment to NEAC on September 4, 1990. NEAC, in turn, requested that Peerless reinstate the policy, but the insurance company refused to do so. Nearly three years later, in July 1993, the tenant of the trailer where the fire had occurred filed suit against plaintiff in the Chittenden Superior Court, alleging that he had performed his work on the trailer in a negligent manner. Peerless refused to defend or to indemnify plaintiff.

Plaintiff thereupon filed the instant declaratory judgment action, asking the trial court to determine that Peerless was obligated under the insurance policy to defend and indemnify in connection with the tenant's claims. When it emerged that plaintiff claimed that NEAC had failed to give notice of intent to cancel the policy, as required by 8 V.S.A. § 7009(b), Peerless brought a third-party complaint against NEAC alleging that Peerless is entitled to indemnification from NEAC in the event the court found that its cancellation of the plaintiff's policy was ineffective. Plaintiff thereafter asserted a claim directly against NEAC, alleging that NEAC is liable to the plaintiff for failing to comply with the notice provisions of 8 V.S.A. § 7009. See V.R.C.P. 14(a) (when defendant acts as third-party plaintiff to bring in third-party defendant, plaintiff "may assert any claim against the third-party defendant arising out of the transaction or occurrence that is the subject matter of the plaintiff's claim against the third-party plaintiff"). In the third-party complaint, plaintiff sought an order determining that NEAC must provide all the rights and benefits plaintiff would have received under the Peerless policy and pay any other damages caused by the illegal cancellation.

Both Peerless and plaintiff moved for summary judgment and, on May 17, 1996, the trial court found for Peerless, holding that the cancellation of the policy was effective. However, NEAC filed a cross-claim against Peerless, and the court denied a request by Peerless under V.R.C.P. 54(b) to enter final judgment in its favor against the plaintiff. Peerless and plaintiff each moved for summary judgment against NEAC. The trial court ruled on September 2, 1997 that NEAC's failure to comply fully with the notice provisions of 8 V.S.A. § 7009(b) did not proximately cause plaintiff's loss of insurance coverage and, therefore, that NEAC was entitled to summary judgment in its favor on plaintiff's claim against it. The court also ruled that, to the extent its resolution of plaintiff's claim against NEAC did not render the remaining dispute between Peerless and NEAC moot, Peerless was entitled to summary judgment on NEAC's cross-claim. This appeal followed.

Plaintiff argues on appeal that (1) the failure of NEAC to provide a preliminary notice of intent to cancel, as required by § 7009(b), made the cancellation ineffective so that Peerless remained responsible to defend and indemnify him up to the end of policy; (2) if the policy was properly cancelled by Peerless, NEAC is liable to him for the benefits that would have been provided under the policy because it failed to comply with the cancellation requirements of 8 V.S.A. § 7009; and (3) NEAC's actions were the proximate cause of plaintiff's loss of its insurance policy rights. We begin with plaintiff's claim against Peerless.

The Vermont Legislature has enacted a comprehensive scheme for the regulation, under the aegis of the Vermont Commissioner of Banking, Insurance and Securities, of those engaged in the business of financing the payment of insurance premiums in this state. See 8 V.S.A. §§ 7001-7011 (providing for licensing of premium finance companies, establishing requirements for form of financing contracts, limiting interest and fees thereunder and establishing fines and/or imprisonment for violations, inter alia). The statutes regulate insurance premium finance agreements, which are defined as

agreement[s] by which an insured or prospective insured promises to pay to an insurance premium finance company the amount advanced or to be advanced under the agreement to an insurer or to an insurance agent or broker in payment of premiums of an insurance contract together with interest and a service charge as authorized and limited by this chapter.

8 V.S.A. § 7001(2). As part of this regulatory scheme, the statute specifically authorizes such agreements to include a provision granting the insurance premium finance company a power of attorney for purpose of cancelling the underlying insurance policies in appropriate circumstances. The agreement between plaintiff and NEAC contains such a power of attorney.

The finance company's exercise of cancellation authority is subject, in relevant part, to the following detailed statutory requirements:

(a) When an insurance premium finance agreement contains a power of attorney enabling the insurance premium finance company to cancel any insurance contract or contracts listed in the agreement, the insurance contract or contracts shall not be cancelled by the insurance premium finance company unless such cancellation is effectuated in accordance with this section.
(b) Not less
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