Goodrich v. U.S. Fidelity and Guar. Co., 87-540

• Decision Date: 06 October 1989
• Docket Number: No. 87-540,87-540
• Parties: Ralph B. GOODRICH v. UNITED STATES FIDELITY AND GUARANTY COMPANY.
• Court: Vermont Supreme Court

Page 385

568 A.2d 385

152 Vt. 590

Ralph B. GOODRICH v. UNITED STATES FIDELITY AND GUARANTY COMPANY.

No. 87-540.

Supreme Court of Vermont.

Oct. 6, 1989.

Phyllis G. Severance and Thomas E. McCormick of McNamara, Fitzpatrick & McCormick, Burlington, for defendant-appellee Aetna Cas. & Sur. Co.

Harold E. Eaton, Jr. and Lawrence Miller of Miller, Cleary & Faignant, Ltd., Rutland, for defendant-appellant U.S. Fidelity and Guar. Co.

Peter B. Joslin of Theriault & Joslin, P.C., Montpelier, for defendant-appellant Hickock and Boardman, Inc.

Before PECK, GIBSON, DOOLEY and MORSE, JJ., and CONNARN, District Judge (Ret.), Specially Assigned.

GIBSON, Justice.

This appeal concerns a dispute among insurers over coverage for an indemnity claim brought by Vermont Gas Systems, Inc. (VGS) against the plaintiff-insured, Ralph B. Goodrich, Inc. (Goodrich). Defendants United States Fidelity and Guaranty Company (USF & G), Goodrich's primary insurer, and Hickock and Boardman, Inc. (H & B), the issuing agent, appeal a superior court order declaring that USF & G and H & B are responsible for plaintiff's contractual liability to VGS, and that defendant Aetna Casualty & Surety Company (Aetna), plaintiff's excess insurer, is not liable for any portion of the damages and fees paid by USF & G and H & B. We affirm.

I.

In October of 1980, Goodrich, a water and sewer contractor, entered into a contract with the City of St. Albans to construct an interceptor sewer replacement near VGS underground gas mains. One of the provisions of the contract required Goodrich to obtain insurance policies to protect and save harmless "any utility company, railroad, other municipal corporation and/or the State of Vermont while work is being performed in their easement or property." Accordingly, Goodrich presented the contract to H & B, which then obtained a USF & G master insurance policy and an Aetna excess indemnity (umbrella) policy for Goodrich. Although at least one utility company was specifically mentioned in the USF & G policy, VGS was not a named insured in either policy.

In June of 1981, two of Goodrich's employees were severely injured when an explosion occurred near the VGS gas mains. The employees received worker's compensation benefits paid on behalf of Goodrich and then sued VGS. VGS, in turn, filed a third-party complaint against Goodrich, claiming negligence, interference with property rights, and implied indemnification. USF & G accepted coverage for the negligence and implied indemnification counts, but reserved its right to decline coverage with regard to the interference claim by signing a nonwaiver agreement with Goodrich. VGS subsequently amended its complaint to add a count based on a theory of liability under the save harmless provision of the contract between Goodrich and the city. VGS claimed that it should have been provided with insurance protection by Goodrich under the terms of the contract with the city. USF & G answered the amended complaint, but entered into no new reservation-of-rights agreement.

Both USF & G and Aetna denied coverage of the claims based on the contract between Goodrich and the city. USF & G relied upon an endorsement that excluded coverage for any obligation arising out of a contract for a public authority in an action brought by a third-party beneficiary not engaged in the project. Aetna relied upon an endorsement that excluded coverage when there was no coverage in the underlying policy of the primary insurer, and also claimed that if the USF & G policy did provide primary coverage, Aetna was liable only for the excess.

In 1984, Goodrich brought a declaratory judgment action to resolve the conflicting claims among the various litigants. In January of 1985, VGS, Goodrich, USF & G, and Aetna entered into an agreement whereby USF & G and Aetna agreed to treat VGS as additional insured under the terms of their respective policies with Goodrich. USF & G and St. Paul's Insurance Company (H & B's insurer) then settled the underlying tort claims with the Goodrich employees within the USF & G policy limits and proceeded against Aetna.

Although the factual and procedural histories of this case are complex, the issues are straightforward. Essentially, USF & G and H & B argue that (1) the trial court erred in concluding that USF & G and H & B had agreed to provide primary coverage for Goodrich and VGS; (2) the USF & G policy did not cover VGS's contractual claims; and (3) the Aetna policy did cover VGS's contractual claims. We are asked to determine the significance of contractual language in the 1985 agreement and in certain provisions of the USF & G and Aetna policies.

II.

USF & G and H & B first contend that the trial court erred when it determined that the 1985 agreement signed by USF & G, Aetna, Goodrich, and VGS (Agreement) amounted to an obligation on the part of USF & G to provide primary coverage for Goodrich's contractual obligation to VGS. The Agreement included the following language:

The parties to this Agreement realize and understand that the claim has been asserted by Goodrich, VGS, and others, that VGS should be treated fully as if it had been named as an additional insured, with primary coverage under the USF & G policy, and likewise, therefore, as an additional insured with excess coverage above the USF & G policy under the Aetna (excess) policy. It is asserted that Hickok & Boardman, as agent for USF & G, should have specifically included VGS in the category of a named additional insured, based upon the underlying contractual agreements between Goodrich and the other parties involved in the so-called St. Albans Project. To date, Hickok & Boardman and/or its E & O carrier, has refused to indemnify or otherwise take over the defense on behalf of VGS, and therefore, USF & G agrees to defend VGS against the claims made by the plaintiffs in the Irish action, and USF & G and Aetna agree to indemnify VGS to the extent of and in accordance with the terms of the above-referenced/named policies of insurance. USF & G likewise agrees to treat VGS as an additional insured with primary coverage under the terms of its policy, and Aetna likewise agrees to treat VGS as an additional insured with excess coverage, above the USF & G policy, under the terms of its policy.

(Emphasis added.) Based on this language, the trial court found that Aetna was not liable to USF & G or H & B because USF & G had agreed to provide primary coverage for Goodrich and VGS, while Aetna had agreed to provide only excess coverage above the underlying policy amount, and there had been no excess payment.

USF & G and H & B argue that the trial court erred in assuming that the Agreement had redefined their position vis-a-vis the excess insurer, Aetna. They claim that the trial court erroneously rewrote the terms of the various policies by construing the Agreement to affect the obligations of the insurers among each other rather than the obligations of USF & G to the insureds, as was intended. In furtherance of this interpretation of the Agreement, USF & G and H & B characterize Aetna as merely an incidental beneficiary, pointing out that Aetna gave no consideration for its part in the Agreement. We cannot agree.

The terms of the Agreement are unambiguous. All parties agreed that Goodrich and VGS should be defended and indemnified in the underlying tort action. The parties further agreed to clarify the nature and extent of coverage provided by the various insurance policies. Pursuant to that goal, USF & G plainly accepted responsibility for primary coverage for obligations resulting from the...