In re Ambassador Ins. Co.

• Decision Date: 04 March 2022
• Docket Number: 21-081
• Parties: IN RE AMBASSADOR INSURANCE COMPANY (Bestwall LLC, Appellant)
• Court: Vermont Supreme Court

275 A.3d 122

IN RE AMBASSADOR INSURANCE COMPANY (Bestwall LLC, Appellant)

No. 21-081

Supreme Court of Vermont.

November Term, 2021

March 4, 2022

Andre D. Bouffard of Downs Rachlin Martin PLLC, Burlington, for Appellant.

Jacqueline A. Hughes, Montpelier, Jay Lavroff of Lindabury, McCormick, Estabrook & Cooper, P.C., Westfield, New Jersey, and Jennifer Rood, Assistant General Counsel and Special Assistant Attorney General, Department of Financial Regulation, Montpelier, for Appellee.

PRESENT: Reiber, C.J., Eaton, Carroll and Cohen, JJ., and Dooley, J. (Ret.), Specially Assigned

REIBER, C.J.

¶ 1. In this interlocutory appeal, we consider whether Vermont or Georgia law applies to a coverage dispute between claimant Bestwall LLC and insurer Ambassador Insurance Company. Bestwall contends that the trial court erred in concluding that Vermont law applies following the special master's prediction that Georgia courts would adopt the same loss-allocation method as Vermont. But because Georgia law is unsettled on this issue, we conclude that there is no conflict with Vermont law, and accordingly, Vermont law applies. We therefore affirm the trial court's grant of partial summary judgment to Ambassador.

¶ 2. The following material facts are undisputed. Bestwall Gypsum Company produced and sold products containing asbestos since its incorporation in 1956. Georgia Pacific Corporation (GP) acquired Bestwall Gypsum in 1965 and assumed Bestwall Gypsum's liabilities. GP continued selling products containing asbestos until 1977. In 1982, GP moved its headquarters to Atlanta, Georgia.

¶ 3. From 1965 to 1986, GP maintained commercial general liability insurance through various insurers. GP's insurance program included multiple layers of primary and excess coverage in several of those years.

¶ 4. Ambassador Insurance Company was one insurer who covered GP during part of this period. Ambassador was incorporated in Vermont in 1965 and had an office in Berlin, Vermont. Ambassador was also licensed in New Hampshire, Arizona, and Nevada, and had offices in several states, including New Jersey. Ambassador was not licensed to sell insurance in Georgia, where GP was headquartered, but acted as a surplus-lines insurer.

¶ 5. In 1983, GP negotiated and entered into the excess liability policy at issue through Ambassador's Georgia-based surplus-lines broker. The policy was purchased and delivered in Georgia. Under the policy, Ambassador agreed to provide up to $10 million as a portion of GP's total excess liability coverage of $75 million. The policy promised to indemnify GP for the "Ultimate Net Loss which [GP] shall become legally obligated to pay in excess" of the limits of underlying policies "resulting from an occurrence or occurrences" covered by those policies. In other words, GP's losses needed to exhaust the $100 million that GP had in underlying coverage to trigger Ambassador's excess coverage. The policy stated that Ambassador's coverage followed that of the underlying policies, and at least one underlying policy limited coverage to bodily injury "which occurs during the policy period." Although the policy was written to be effective from April 1, 1983, to April 1, 1984, GP cancelled the policy on May 15, 1983, after it decided to replace its entire insurance program. Ultimately, the policy was in effect for forty-four days, for which Ambassador collected a net premium of $605.

¶ 6. In November 1983, Ambassador was placed into receivership due to its "hazardous financial condition." In re Ambassador Ins. Co., 2015 VT 4, ¶ 2, 198 Vt. 341, 114 A.3d 492 (quotation omitted). In 1987, the Vermont superior court ordered Ambassador into liquidation and appointed as liquidator the Commissioner of the Vermont Department of Banking and Insurance (now the Vermont Department of Financial Regulation). See id. ¶¶ 2 n.1, 5 & n.3.

The court order authorized the liquidator to determine claims filed by Ambassador's insureds in the liquidation proceeding, and provided that if the liquidator denied a claim, the claimant could seek review in Vermont superior court. The order further provided that the court could appoint a master to hear the disputed claim under Vermont Rule of Civil Procedure 53.

¶ 7. Since the early 1980s, GP has faced many lawsuits across the country alleging personal injury and death resulting from exposure to GP's asbestos-containing products. GP has incurred approximately $2.9 billion in losses. GP's insurers have covered approximately $850 million of GP's losses. In 2017, GP was restructured, and Bestwall LLC acquired its asbestos liabilities.¹

¶ 8. Bestwall filed a claim with the liquidator for coverage under the Ambassador policy, and the liquidator denied the claim. Bestwall appealed that denial to the Vermont superior court. In accordance with the liquidation order, the court appointed a special master to hear the claim. The special master divided the proceedings into two tracks: the first to determine threshold legal questions, including choice of law and the method of loss allocation, and the second to allocate loss under the applicable law.

¶ 9. Bestwall and Ambassador filed cross-motions for partial summary judgment on the track one issues. In relevant part, Bestwall argued that New Jersey law should apply as New Jersey was the state where Ambassador's main office was located at the time it issued the policy. Alternatively, Bestwall argued that Georgia law could apply as the state of Bestwall's incorporation and where its headquarters were located when the policy was issued. Ambassador argued that Vermont law applied.

¶ 10. The special master issued a report granting partial summary judgment to Ambassador. The special master rejected Bestwall's argument that New Jersey law should apply and reasoned that either Vermont or Georgia law could apply to the claim. He then considered whether Georgia law conflicted with Vermont law regarding allocation of loss. He explained that while Vermont law clearly applies pro-rata (or time-on-the-risk) allocation, no appellate court in Georgia had considered this issue. After considering a Georgia state trial court decision and federal district court decision adopting the pro-rata method under Georgia law, the special master predicted that Georgia courts would adopt the pro-rata method. Because Georgia law did not conflict with Vermont law, he concluded that Vermont law applied. He further noted that even if the laws conflicted, Vermont law would still apply under a choice-of-law analysis, given Vermont's interest in Ambassador's liquidation and the clarity in Vermont's allocation law. Applying Vermont law, the special master determined that Bestwall's losses would be allocated under the pro-rata method.

¶ 11. Bestwall filed an objection to the special master's report with the superior court. The court rejected Bestwall's arguments and adopted the special master's ruling. See V.R.C.P. 53(e)(2) (providing that after party objects to master's report, court may adopt it or may modify or reject it wholly or partially).

¶ 12. Bestwall then moved for interlocutory appeal. Bestwall explained that because the Ambassador policy was in place for a short period of time, if Bestwall's losses were allocated to the policy by time under the pro-rata method, the loss would not exceed the underlying coverage necessary to trigger Ambassador's policy and Bestwall's claim would fail. The court granted Bestwall's motion for interlocutory appeal. See V.R.A.P. 5(b)(1) (requiring court to allow appeal from interlocutory ruling that involves "controlling question of law about which there exists substantial ground for difference of opinion" and where "immediate appeal may materially advance" end of lawsuit).

¶ 13. On appeal, Bestwall argues that the trial court erred by concluding that Vermont law applied to this claim. Bestwall contends that choice-of-law principles support application of Georgia law and urges us to predict that the Supreme Court of Georgia would reject pro-rata allocation and instead adopt all-sums allocation under the terms of this policy. Bestwall emphasizes that if pro-rata allocation applies, its claim will be denied; it maintains that Georgia law would not support this outcome where the policy language does not specifically require pro-rata allocation. Bestwall also suggests that applying Vermont law could run afoul of the Due Process Clause of the Fourteenth Amendment to the U.S. Constitution. In its reply brief, Bestwall clarifies that we should reach the choice-of-law analysis because, in the face of unsettled law in Georgia, this Court should presume that Georgia law conflicts with Vermont law.

¶ 14. We review grants of summary judgment without deference, using the same standard as the superior court. Brillman v. New Eng. Guar. Ins. Co., 2020 VT 16, ¶ 6, 211 Vt. 550, 228 A.3d 636. "We will affirm summary judgment if there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law." Id. (quotation omitted); see V.R.C.P. 56(a). The parties do not dispute the material facts; they disagree about the law governing this dispute. Determining which state's law governs this claim is a question of law, which we review without deference. See Miller v. White, 167 Vt. 45, 47-48, 702 A.2d 392, 393 (1997). Courts apply the choice-of-law rules of the forum state in determining which jurisdiction's substantive law applies to the issue at hand. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 488, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). Accordingly, we apply Vermont's choice-of-law rules.

¶ 15. This Court has adopted the analysis set forth in the Restatement (Second) of Conflict of Laws to resolve choice-of-law issues in contract cases. McKinnon v. F.H. Morgan & Co., 170 Vt. 422, 423, 750 A.2d 1026, 1028 (2000). The Restatement essentially asks us to consider several factors to determine which state has the most significant relationship to the insurance contract. See ...