Garneau v. Curtis & Bedell, Inc., 91-183

• Decision Date: 24 April 1992
• Docket Number: No. 91-183,91-183
• Citation: 610 A.2d 132,158 Vt. 363
• Court: Vermont Supreme Court
• Parties: Martin and Melissa GARNEAU v. CURTIS & BEDELL, INC. v. INSURANCE COMPANY OF NORTH AMERICA.

Page 132

610 A.2d 132

158 Vt. 363

Martin and Melissa GARNEAU v. CURTIS & BEDELL, INC. v. INSURANCE COMPANY OF NORTH AMERICA.

No. 91-183.

Supreme Court of Vermont.

April 24, 1992.

Gene Ann Condon, P.C., Stowe, for third-party plaintiff-appellee Curtis & Bedell, Inc.

Samuel Hoar, Jr., of Dinse, Erdmann & Clapp, Burlington, for defendant-appellant Insurance Co. of North America.

Before GIBSON, DOOLEY, MORSE and JOHNSON, JJ., and PECK, J. (Ret.), Specially Assigned.

DOOLEY, Justice.

This controversy over insurance coverage arises out of a lawsuit brought by plaintiffs, Martin and Melissa Garneau, against defendant Curtis & Bedell, Inc. (C & B), a contractor, over the construction of a house on plaintiffs' land. The house was built too close to the property line in violation of zoning requirements, and plaintiffs sued C & B for the cost of remedying the problem. C & B then brought a third-party complaint against its insurer, the Insurance Company of North America (INA), alleging that INA had a duty to defend it in the suit and to indemnify it for costs and damages it incurred. INA appeals the superior court's denial of its motion for summary judgment, claiming that the court erred in concluding that INA had a duty to defend C & B against plaintiffs' suit. We agree that plaintiffs' claim was not covered by C & B's insurance policy with INA and reverse.

C & B contracted with plaintiffs to build a house on their property in Stowe. In their complaint, plaintiffs alleged that C & B contracted to "site, construct, and landscape" the house pursuant to the terms of certain proposals and a Stowe zoning permit. They further alleged that C & B "improperly and negligently" sited the house too close to the property line in violation of the zoning permit. In its answer to the complaint, C & B denied that it ever had been responsible for siting the house.

In its third-party complaint, C & B alleged that INA had issued to it a contractor's "package policy" that included liability coverage and that, under that policy, INA had a duty to defend C & B against plaintiffs' action, and to indemnify it for costs or damages from any judgment rendered against it. INA denied coverage and moved for summary judgment, asserting that certain policy exclusions applied. In particular, INA relied on the following "work product" and contract exclusions:

We won't protect against claims for property damage to your products where the damage arises out of the products themselves or any part of them. And we won't protect against claims for property damage to completed work you performed where the damage arises out of the work itself.

We won't protect against claims for liability you assume under any contract other than an incidental contract as defined in the GLOSSARY.

(Emphasis in original.) It is undisputed that the contract between C & B and plaintiffs is not an incidental contract as that term is used in the INA policy.

The court found that there was no disputed issue of material fact in the coverage suit between C & B and INA and found for C & B on the law. Although the court concluded that plaintiffs' complaint against C & B set forth a claim for property damage to C & B's completed work that arose out of the work itself and therefore was excluded from coverage under the policy, it found coverage because C & B denied in its answer that the contract required it to site the house and further denied that it did site the house. The court reasoned that if C & B was correct in its defense, liability would not arise out of a contract or out of the "work itself" and would not be excluded. Because it found it possible that the claim would be covered, the court held that INA had a duty to defend.

We apply the same standard as the trial court in ruling on a motion for summary judgment. See Kelly v. Town of Barnard, 155 Vt. 296, 299, 583 A.2d 614, 616 (1990). Summary judgment should be granted when, taking all the allegations made by the nonmoving party as true, no genuine issue of material fact is presented and the moving party is entitled to judgment as a matter of law. See id. The parties agree that there is no factual dispute. The issue is solely one of law.

Normally, the duty of an insurance company to defend in an action is measured by the underlying allegations in the complaint against its insured. Cooperative Fire Ins. Ass'n v. Gray, 157 Vt. 380, ----, 599 A.2d 360, 361 (1991); Commercial Union Ins. Co. v. City of Montpelier, 134 Vt. 184, 185, 353 A.2d 344, 345 (1976). Resolution of the question of the duty to defend is made on "the language of the policy and the language of the complaint." Town of South Burlington v. American Fidelity Co., 125 Vt. 348, 349-50, 215 A.2d 508, 510 (1965). Occasionally, we have looked to the known facts underlying a plaintiff's complaint to understand the application of policy provisions or exclusions. See, e.g., Espinet v. Horvath, 157 Vt. 257, ----, 597 A.2d 307, 309 (1991).

An insurer's duty to defend its insured is broader than its duty to indemnify. American Protection Ins. Co. v. McMahan, 151 Vt. 520, 525, 562 A.2d 462, 466 (1989). The insurer has a duty to defend whenever it is clear that the claim against the insured might be of the type covered by the policy. See 7C J. Appleman, Insurance Law & Practice § 4684.01, at 99 (1979) ("duty to defend exists if the claim potentially comes within the policy"); Commercial Union Ins. Co. v. Henshall, 262 Ark. 117, 123, 553 S.W.2d 274, 277 (1977) (duty to defend arises where it is possible that damage might fall within policy coverage). The duty to defend does not extend, however, to circumstances in which there is, as a matter of law, no duty to indemnify. See Allstate Ins. Co. v. Zuk, 78 N.Y.2d 41, 44, 574 N.E.2d 1035, 1037, 571 N.Y.S.2d 429, 431 (1991) (no duty to defend if there is "no possible factual or legal basis on which it might eventually be obligated to indemnify").

In determining whether the insurer has a duty to indemnify, any ambiguity in the insurance contract will be resolved in favor of the insured. American Protection Ins. Co. v. McMahan, 151 Vt. at 522, 562 A.2d at 464. However, the contract must be interpreted according to its terms and the parties' evident intent as gathered from the language used. Cooperative Fire Ins. Ass'n v. Gray, 157 Vt. at ----, 599 A.2d at 362.

We addressed a work product exclusion, similar to that present here, in Peerless Insurance Co. v. Wells, 154 Vt. 491, 493 n. 2, 580 A.2d 485, 487 n. 2 (1990). There, the allegation against the contractor was that he failed to compact the fill under the...