Blake v. Nationwide Ins. Co.

• Decision Date: 26 May 2006
• Docket Number: No. 05-176.,05-176.
• Parties: Clifton BLAKE v. NATIONWIDE INSURANCE COMPANY.
• Court: Vermont Supreme Court

904 A.2d 1071

2006 VT 48

Clifton BLAKE v. NATIONWIDE INSURANCE COMPANY.

No. 05-176.

Supreme Court of Vermont.

May 26, 2006.

COPYRIGHT MATERIAL OMITTED

Thomas C. Bixby of McCarty Law Offices, P.C., Brattleboro, for Plaintiff-Appellant.

John A. Serafino of Ryan, Smith & Carbine, Ltd., Rutland, for Defendant-Appellee.

Present: REIBER, C.J., DOOLEY, JOHNSON, SKOGLUND and BURGESS, JJ.

¶ 1. DOOLEY, J.

Plaintiff Clifton Blake appeals the superior court's grant of summary judgment for defendant Nationwide Insurance Company ("Nationwide"). Plaintiff argues that Nationwide had a duty to defend the insured's employee, Clifford Riddle, in the underlying negligence action and that Nationwide's failure to defend should estop it from asserting that injuries caused by Riddle's negligence were not covered by the policy. Plaintiff also claims that the superior court: (1) erroneously granted Nationwide summary judgment based on the finding that plaintiff's injuries occurred in the course of his employment; (2) made procedural errors in awarding summary judgment; (3) erroneously refused to compel Nationwide to produce its file in discovery; and (4) erroneously dismissed his count alleging that Nationwide acted in bad faith. We hold that defendant had no duty to defend and, therefore, is not estopped from denying coverage under the employment exclusion. We also hold that the court properly granted summary judgment, denied the motion to compel discovery, and dismissed the bad faith claim. We affirm.

¶ 2. Plaintiff and Clifford Riddle, both Jamaican migrant farm workers, were involved in a motor vehicle accident on July 17, 1997. Riddle was driving a truck owned by their employer, Donald Harlow, and plaintiff was a passenger in the truck when it struck a tree.¹ Plaintiff sustained severe injuries as a result. The truck was insured under a policy issued to Donald and Madeline Harlow by defendant Nationwide. The policy contains specific exclusions for "bodily injury to others for which any insured may be held liable under a workmen's compensation, unemployment compensation, disability benefits, or similar law" and "bodily injury to an employee of any insured, while the employee is engaged in activities of employment." As a result of his injuries, plaintiff received workers' compensation benefits from the Harlows' workers' compensation insurer.

¶ 3. Plaintiff sought legal counsel to explore other ways to recover for his injuries, and on September 16, 1998, plaintiff's counsel sent a letter to the Harlows informing them that his office would be representing plaintiff in plaintiff's claim regarding the "work-related automobile accident," and that they should forward the letter to both their workers' compensation and automobile insurance carriers. After a follow-up letter threatening suit, a Nationwide claims agent responded on April 27, 1999, stating that plaintiff's injury was not a covered loss under the auto insurance policy Nationwide issued to the Harlows because plaintiff was covered by workers' compensation insurance.

¶ 4. On December 2, 1999, plaintiff brought suit against the Harlows and Clifford Riddle to recover for injuries sustained in the accident. Apparently the Harlows had initially sought a defense, but Nationwide denied their claim under one of the exclusions listed above.² In any event, plaintiff dismissed the claims against the Harlows and when Riddle did not appear, obtained a default judgment and eventually a damage award against him in the amount of $3,887,193.72. Riddle never sought a defense from Nationwide, and Nationwide provided no defense to him. Thus, Nationwide was not involved in the underlying litigation.

¶ 5. After securing the default judgment and before the assessment of damages, plaintiff notified Nationwide that it had breached its obligation to defend Riddle. Nationwide responded that the claim had been denied prior to litigation because "this policy does not cover bodily injury to an employee of any insured, while the employee is engaged in activities of employment." Following the damage assessment, plaintiff notified Nationwide that it was obligated to pay the judgment and that he would seek punitive damages if Nationwide failed to pay. Apparently, Nationwide did not respond to this letter, and this suit ensued on March 15, 2003.

¶ 6. Plaintiff's complaint alleged that Nationwide's policy covered Clifford Riddle as a permissive user of the Harlows' automobile at the time of the accident. It alleged the underlying litigation and the default judgment of $3,887,193.72 and stated that "despite having ample knowledge of the claim [Nationwide] has failed to defend and/or make any payments on the judgment." It alleged that Nationwide was obligated to pay the judgment and had acted in bad faith in not doing so. It sought the amount of the underlying judgment plus compensatory damages for Nationwide's actions in bad faith, punitive damages, and attorneys' fees.

¶ 7. Nationwide moved to dismiss the action for failure to state a claim because there was no privity of contract between plaintiff and Nationwide and because coverage was excluded as Riddle was acting in the course of his employment when the accident occurred. Plaintiff countered with a motion to enforce the underlying judgment, arguing that Nationwide's failure to defend Riddle in the underlying action estopped it from defending in the instant action. In support of this motion, plaintiff attached correspondence between plaintiff's counsel and claims adjusters for Nationwide.

¶ 8. It became clear from these initial filings that plaintiff was pursuing two theories of Nationwide's liability. The first and primary theory was that Nationwide was obligated to pay the underlying judgment, whether or not there was coverage under the policy, because it breached its duty to defend Riddle in the underlying action without seeking a declaratory judgment on the issue of coverage. The second theory was that there was coverage under the policy because the exclusions on which Nationwide relied did not apply. The superior court denied the motion to enforce under the first theory, relying on the correspondence attached to the plaintiff's motion. In essence, the court granted Nationwide's motion to dismiss the first theory. The court denied the motions on the second theory, ruling that it could not be decided on a motion to dismiss without factual support.

¶ 9. We note that the motions the court decided were plaintiff's attempts at preemptive strikes to obtain early decisions on the merits without trial and without the factual development necessary for a trial or even a motion for summary judgment. The court could have decided that all of the claims in the motions were premature, as it did with respect to plaintiff's second theory, but it decided to rule against plaintiff on the merits of his main claim. Plaintiff could not complain about this disposition because he brought it on himself by filing the motion and supporting letters. Nationwide might have claimed that the motion for enforcement was really one for summary judgment because of the attached factual material, see Lueders v. Lueders, 152 Vt. 171, 172, 566 A.2d 404, 405 (1989), but instead took advantage of plaintiff's motion for a successful preemptive strike of its own. Whatever procedural irregularities are behind the court's decision have been waived.

¶ 10. In ruling on the first theory, the superior court concluded that even if plaintiff's estoppel theory was valid, it would not apply in this case because Nationwide had no reason to believe there was a dispute over coverage:

From Blake's own submissions, it appears that Nationwide informed Blake of its position that his injuries were not covered because he was the insured's employee — a plausible position, certainly — no later than April 1999. Yet, it does not appear that there was any further communication between Blake and Nationwide until April 2001, after a default judgment against Riddle had been entered. Moreover, even then, Blake provided no factual or legal explanation of why he believed the exclusion did not apply. Estoppel is an equitable doctrine, and when an insurer states a non-frivolous position regarding non-coverage, it would not be equitable to invoke estoppel because it failed to pursue a declaratory judgment, when the party disputing non-coverage did nothing to let the insurer know that a viable dispute existed and a declaratory judgment action was needed.

The court added that "we certainly do not want to encourage insurers to seek a declaratory judgment every time they deny coverage, even if there is no viable dispute."

¶ 11. Nationwide then moved for summary judgment on the second theory, asserting that the workers' compensation and employment-related policy exclusions to its coverage applied such that plaintiff's injuries were not covered by the Harlows' policy. The superior court initially denied the motion but reconsidered when Nationwide filed Donald Harlow's affidavit, which stated that plaintiff was injured in the course of his employment with the Harlows. Nationwide argued that Harlow's affidavit established that plaintiff was working at the time of the accident, and thus plaintiff's injuries fell under the employment-related exclusion to the policy. Plaintiff did not produce any evidence to contest the affidavit. The superior court granted Nationwide's motion for summary judgment on April 22, 2005, finding there was no genuine issue as to the fact that plaintiff's injuries occurred in the scope of employment. Plaintiff appeals from the judgment and the denial of the motion to enforce.³

¶ 12. The first issue is whether Nationwide had a duty to defend Riddle in the underlying action. Plaintiff relies upon our general description of the duty to defend:

We have often explained that an insurer's duty to defend is broader than its duty to indemnify.... Generally, the insurer's duty to defend is...